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have entered the domain of undertaking to cover this subject by a statute the first civilized country that has adopted this policy. Naturally, there are and will continue to be great difficulties. These, as they develop in practical experience under the existing statute, must be met and solved by appropriate revision and amendment, always adhering to the principle of promoting the public welfare and protecting the people against injury. The functions of our courts in construing a statutory enactment are naturally very different from the elasticity of the power of the English courts in determining matters of public policy under common-law rules. For a court to declare what is and what is not contrary to public policy oftentimes leads to confusion in the cases, especially on such subjects as this. It is quite a different proposition when a court is confronted with what is claimed to be a rigid and unbending statutory enactment, asserted to declare that a given act or combination is constructively in restraint of trade, although not actually so; that although no harm has been done to the public, you must dissolve this corporation or issue an injunction or uphold the conviction of this defendant. I do not think that is proper legislation.

The ACTING CHAIRMAN. I have always believed that this section was intended, through the use of the words "restraint of trade" and the use of the word "monopoly," to preserve or prohibit acts which destroyed substantial competition; or, in other words, that it was its intent to preserve reasonable competition, not to preserve any particular competitor.

What does fix prices ordinarily?

Mr. KRAUTHOFF. Who determines what is a reasonable competition?

The ACTING CHAIRMAN. I think the court would have to determine it.

Mr. KRAUTHOFF. I do not think you and I differ very much. The question you say is for the courts is not widely different from the one I would submit to judicial decision.

The ACTING CHAIRMAN. But I start out with this fundamental proposition: That the thing that affects the public injuriously is the destruction of competition as a regulator of prices, and that anything short of that ought to be innocent.

Mr. KRAUTHOFF. Your view is no doubt supported by many weighty authorities. However, it is an economic proposition more than it is a legal proposition.

The ACTING CHAIRMAN. I have found in every case that I have ever examined upon the subject, although there is great confusion in the terminology and reasoning of courts, that the final conclusion was that if competition was an unreasonable restraint, then whatever was done in restraint of trade; otherwise not.

Mr. KRAUTHOFF. I think we may take it that according to the average human instinct, those who enter into these larger transactions would have purpose to make money, more money than they made before. And if in the case supposed only 11 should join they probably would not have a keenly friendly feeling for the twelfth man; and in that case you would naturally find the element of a severe competition against him.

The ACTING CHAIRMAN. You have not put into form, have you, any suggestions of changes in the law so that we could have them

before us? That is, just what changes ought to be made in the law,

if any.

Mr. KRAUTHOFF. No; I have not. To tell the truth, I would not myself undertake to say definitely, until there is a decision by the Supreme Court of the United States in a real case, a borderland case if you please, and a final determination of what the words mean. Until then I would not undertake to write a new statute. I think it would be difficult in any event. It may be that the courts will ultimately say that the present statute means precisely what I think it should specifically provide.

The ACTING CHAIRMAN. There would be no great harm then in aiding the court in reaching that conclusion by properly expressing the view that ought to prevail?

Mr. KRAUTHOFF. No. A new or amendatory statute could, of course, be drafted, but it would be a delicate and difficult undertaking.

The ACTING CHAIRMAN. That is the point that is in my mind. Take the case I put a few moments ago of the 12 concerns doing the business of a certain kind. If 11 of them were to get together to do the business which the 11 had formerly done and increase it-and they could-I think under the antitrust law the Supreme Court would instantly hold it to be in restraint of trade or an attempt to create a monopoly. But if two of them were to go together doing the portion of a business, I do not think the courts would hold it to be in restraint of trade, because there would be substantial competition remaining. But if four of them or five of them or six of them were to go together, there is no human being who can tell whether the courts would hold that to be in restraint of trade or not. That is my view. I did not know but what you might have some suggestion that would eliminate that uncertainty in the law.

Mr. KRAUTHOFF. I do not think I can help you along the lines indicated. I have said that it is a question whether or not the particular transaction involves a public injury; and, indeed, unless the matter is one of public injury, I do not think that Congress ought to be concerned with it.

The ACTING CHAIRMAN. That is all. Senator Newlands, you may interrogate.

Senator NEWLANDS. Mr. Krauthoff, your idea is that if there is any amendment to be made to the antitrust law it should be in the line of declaring that the combination shall be of injury to the public?

Mr. KRAUTHOFF. Substantially that.

Senator NEWLANDS. And your idea is that the Supreme Court may yet determine that to be the meaning of the present statute, and that it is unnecessary, therefore, at present to write that into the law?

Mr. KRAUTHOFF. I took the liberty of reading what Senator Edmunds said with reference to his two gristmills. That is his view, although in the instance put by him there was a complete elimination of competition.

Senator NEWLANDS. Now, with reference to national incorporation. You realize, do you not, that all corporations, or almost all corporations organized under State laws mainly for the purpose of engag

ing in State commerce, do, as a matter of fact, at some time engage in interstate commerce?

Mr. KRAUTHOFF. Oh, certainly; all the larger companies.

Senator NEWLANDS. Is that not true of even all classes of companies? Do you not suppose that in 90 per cent of the cases

Mr. KRAUTHOFF. Yes; either directly or through auxiliary companies. Of course, you know that the legislation of some States is such that very few of the larger corporations can qualify in all the States. The use of the auxiliary company is therefore necessary.

Senator NEWLANDS. Then, if national incorporation were adopted, and it should be compulsory in character, it would result in almost all corporations being organized under the national law, would it not? Mr. KRAUTHOFF. If Congress should provide that no corporation shall engage in interstate commerce-and the Supreme Court should uphold the declaration-unless incorporated under this Federal incorporation law, the result you outline would necessarily follow.

Permit me to put this problem to you: Suppose one of the States should thereupon pass a law that no corporation shall engage in local business in such State or maintain an office therein unless it be incorporated under the law of that State, or of some other State of the United States. Would that be valid legislation?

Senator NEWLANDS. Well, but I was inquiring as to the effect of a compulsory national incorporation act, which provides that no corporation shall engage in interstate commerce unless it is incorporated under a national law. That would mean that the States imposed no restraint; that a very large percentage, much more than the majority of all existing corporations, would have to be incorporated under the national law if they wished to do business as they do, would

it not?

Mr. KRAUTHOFF. I doubt the constitutionality of such a law. But assuming that is was passed and upheld, the corporations engaging in interstate commerce would necessarily find themselves compelled to accede to it.

Senator NEWLANDS. That would be a very cumbersome system, would it not?

Mr. KRAUTHOFF. Very.

Senator NEWLANDS. There are an enormous number of corporations in the country-have you any idea how many there are?

Mr. KRAUTHOFF. No, sir.

Senator NEWLANDS. Now, as opposed to national incorporation, which I may say I favor so far as the great railway systems are concerned, but which I have not thus far favored or taken any position regarding commercial corporations, would it not be well to provide what might be termed a national charter for corporations organized under State law that contemplate engaging in both State and interstate commerce; and could not such a law, applying to the conduct of interstate commerce, practically correct all the evils of corporate organizations that now exist under State laws?

Mr. KRAUTHOFF. Well, the question you put is so gigantic in its scope that I should be very much inclined to answer no, and take my chances on being right. It is a large question.

Senator NEWLANDS. Well, is it so large? Are not the evils of the present corporate organizations well known?

Mr. KRAUTHOFF. Yes; and quite numerous, no doubt.

Senator NEWLANDS. Are not they pretty numerous and pretty well ascertained? And could not a so-called national charter or license condemn these evil practices regarding organization of the State corporations in such a way as to practically reform the State corporations themselves?

Mr. KRAUTHOFF. The matter of a Federal license system involves different considerations. I greatly doubt whether merely to require a Federal license will promote a solution of the so-called trust problem. To accomplish effectual results, it would be necessary to give to the Federal authority, in charge of the granting of licenses, power to permit licensed corporations to do certain things, and also power from time to time to prohibit certain contracts or acts; in short, to commit to this Federal authority the question of deciding, at least provisionally and in the first instance, either whether the present or any amended antitrust act was applicable to given transactions, or to provide that any permission granted by such officer or commission should be legally operative, and grant exemption from the provisions of the statute, at least until set aside on review by a court or otherwise.

Senator NEWLANDS. Here you have two sovereigns, each having jurisdiction over a part of the commerce; one having jurisdiction over the State part and the other having jurisdiction over the interstate part. Now, under those conditions, neither is superior to the other. is it?

Mr. KRAUTHOFF. Not so far as you have stated it now.

Senator NEWLANDS. Therefore, both have the power or right to create corporations for engaging in the particular commerce which comes under its jurisdiction?

Mr. KRAUTHOFF. Yes, sir.

Senator NEWLANDS. Now, is it not possible, in that part of the national law which involves the action of only one sovereignty, to give powers that impose restrictions that in a measure will do away with unequal powers and unequal limitations and restrictions which are likely to result from the action of 46 different sovereignties on the subject of State commerce?

Mr. KRAUTHOFF. Frankly, I did not think of it along the lines which you are now putting to me. I gather my impressions as I listen to your questions.

Senator NEWLANDS. There is another subject-the subject of overcapitalization. We will assume that all the States place no restriction upon the subject of overcapitalization, and that the national charter does. That would prevent a State corporation from overcapitalizing, even though the State law permitted it, if it wanted to engage in interstate commerce.

Mr. KRAUTHOFF. Of course; that is the beginning of the question of constitutional power.

Senator NEWLANDS. We will assume now that it is constitutional. It would have that effect, would it not?

Mr. KRAUTHOFF. You mean that such a corporation would have to comply with that provision?

Senator NEWLANDS. Yes; in order to engage in interstate commerce. Mr. KRAUTHOFF. And that it would have to have one capital stock for State business and another for interstate business?

Senator NEWLANDS. No. The State corporation, although not lim ited at all by the State laws regarding the size of its capital would be compelled, in order to engage in interstate commerce, to accommodate itself in its articles of incorporation to the national charter or license.

Mr. KRAUTHOFF. In respect of its State business?

Senator NEWLANDS. In respect of its capitalization.

Mr. KRAUTHOFF. I mean the capitalization in respect of the State business.

Senator NEWLANDS. That is, the general capitalization.

Mr. KRAUTHOFF. Including its right to do a State business?
Senator NEWLANDS. Yes; which covers everything.

Mr. KRAUTHOFF. I do not think Congress can accomplish that result.

Senator NEWLANDS. Well, then, we will assume that the State, under those conditions where the national law put that limitation upon capital, should disregard it and have the right to do so so far as State commerce is concerned, but it would not have the right to do so so far as interstate commerce is concerned, would it?

Mr. KRAUTHOFF. Except that it would have to have practically two kinds of capitalization.

Senator NEWLANDS. And therefore, necessarily, the State corporation, when created, would accommodate itself to the law which imposed the greater restriction, would it not?

Mr. KRAUTHOFF. I think you would probably find, in practical experience, that the State corporation having a large capitalization would cause a Federal corporation to be formed with a small capitalization, all of which the State corporation would hold as a part of its assets.

Senator NEWLANDS. Would it not find that so very difficult and burdensome that it would prefer to adapt itself to a reasonable statute limiting capitalization-a national statute-would not that result?

Mr. KRAUTHOFF. It is very hard to say. The general question of how a corporation can meet conflicting statutory requirements is one which I have had to pass upon many times, because I have represented interests that wanted to do business in nearly every State in the Union.

For instance, Missouri, until recently, had a law that no corporation could be incorporated in or admitted into that State to do a mercantile or other private business which had a capital exceeding $10,000,000. Colorado had a law until recently that no corporation should be admitted into that State-and Michigan had a law of the same character-without paying a tax equal to 1 per cent upon its entire capitalization.

Louisiana had a law at one time that no foreign corporation could be admitted into that State to do business unless it paid an annual franchise tax of 2 per cent upon its gross sales throughout the United States.

Senator NEWLANDS. Were those restrictions tested in the courts? Mr. KRAUTHOFF. The Louisiana restriction was not and probably was valid. The others were undoubtedly so. The Colorado statute has, I believe, been amended because, naturally enough, large foreign

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