Senator NEWLANDS. Would you provide that the capitalization should cover those, or make proper allowance for those?

Mr. KRAUTHOFF. I speak with a little hesitancy. The drafting of such a statute involves considerations which I have not attentively considered. I believe it proper to protect the public interests against the creation of what is generally called watered stock. The definition of "watered stock" is itself a broad question, especially so in cases of a purely speculative nature.

Senator NEWLANDS. How about preventing the corporations engaged in interstate commerce from holding stock of other corporations? Would you impose such a restriction upon them if we could constitutionally do it?

Mr. KRAUTHOFF. Permit me to divide that question into two parts. I will eliminate the holding companies which some people think are vicious in and of themselves, and I take merely the very ordinary large corporation in the United States that does business on a large scale. It must perforce have auxiliary companies. It can not get along without them. I do not know one that does. For instance, suppose the company desired to do business in Nevada; it found a local corporation which had established a valuable good will and trade name; and it bought it out. In order to hold its good will and trade name-which was perhaps the most important consideration to the purchaser-it would be necessary to maintain that Nevada. corporation. I do not know why they should not be permitted to do so.

Senator NEWLANDS. Do you think that such advantages would overbalance the disadvantages that are supposed to arise from the holding company?

Mr. KRAUTHOFF. The power of a holding company-which those who criticise must have in mind-would not arise in the class of cases I have mentioned, and in which the auxiliary companies are mere agencies to accomplish the lawful purpose of the principal corporation.

Senator NEWLANDS. How would you distinguish between the two in any law?

Mr. KRAUTHOFF. It is not hard to distinguish between auxiliaries and subsidiaries and the main corporation.

Senator NEWLANDS. Are there any limitations or restrictions that you could suggest that should be inserted in such a law?

Mr. KRAUTHOFF. I have not given the matter the thought and consideration it should have before one ventured upon the matter. Permit me to suggest that a pure holding company would not have to apply for a Federal license in view of the fact it is not engaged in business.

Senator NEWLANDS. It is not engaged in interstate business?

Mr. KRAUTHOFF. It is not engaged in any business. These large holding corporations, as I understand it, do not qualify in other States at all. If you have references to such instances as the Standard Oil, I doubt if the Standard Oil Co. of New Jersey was ever qualified in any State other than New Jersey.

Senator NEWLANDS. A purely holding company?

Mr. KRAUTHOFF. It may have owned property in New Jersey. Senator NEWLANDS. And all business was transacted by subsidiary companies?

Mr. KRAUTHOFF. That is very likely to be the case. The statement of facts in the case recently decided will show, no doubt.

Senator NEWLANDS. You could make those restrictions reach such subsidiary companies, could you not, by providing that no corporation should be permitted to engage in interstate commerce, the majority of the stock of which was owned or controlled by any holding company?

Mr. KRAUTHOFF. You could refuse it a license.

Senator NEWLANDS. I say you could refuse to permit it.

Mr. KRAUTHOFF. If you had the problem, what would you do if, in the process of time, in the ordinary course of events, the title of the majority did go to a holding company? Would you then cancel the license by reason of that fact when the corporation had no part whatever in the transfer of the stock, which was merely a transaction between individuals?

Senator NEWLANDS. That is what I am asking you. I asked you first, Would you regard this as such an evil as that we should endeavor to prohibit it?

Mr. KRAUTHOFF. Frankly, I do not.

Senator NEWLANDS. By national law?
Mr. KRAUTHOFF. I do not.

Senator NEWLANDS. Now, regarding the extent to which a corporation engaged in interstate commerce can control or should be permitted to control a certain industry-as to what proportion it shall be able to control-would you deem it wise in such a Federal law, providing for a charter or license, to put any limitation upon the area of the operation of the corporation subject to it?

Mr. KRAUTHOFF. I come back to my original proposition. It might be of the greatest public advantage that a corporation should have unlimited area and unlimited capital and exercise unlimited activity. I would not sacrifice the public interest for the mere sake of verbiage in an act of that kind. I make the public interest the predominating factor as applied to each particular instance upon its own peculiar facts.

Senator NEWLANDS. You realize the fact, do you not, that a corporation just by reason of its size can become such a dominating factor in an industry as to practically constitute a monopoly without resorting to any pernicious practices?

Mr. KRAUTHOFF. Assuming that I understand your definition of monopoly

Senator NEWLANDS. Well, control an industry.

Mr. KRAUTHOFF. That is to say, it would have the leading voice? Senator NEWLANDS. Yes.

Mr. KRAUTHOFF. It necessarily has the leading voice, because if its competitors do not meet the conditions, can not produce goods of the same quality and sell them as cheaply-and this is what the public is most deeply concerned in-they must expect to lose their share of the trade. The alternative is to give the right to the party who is so in control to enter into arrangements with his competitors so that the smaller competitors may live.

Senator NEWLANDS. You would not deem it wise, then, to limit the size of the corporations engaged in interstate commerce? Mr. KRAUTHOFF. I think that is all relative.

Senator NEWLANDS. Now, then, as to the interstate trade board or commission, you approve of the Bureau of Corporations, and I understood you to say that you are inclined to approve the enlargement of the Bureau of Corporations into an interstate trade commission of the dignity and character that it would not only pursue the same methods of investigation and publicity, but also have certain powers? Mr. KRAUTHOFF. I said, provided it was given powers of a judicial nature, or quasi so, in order that what it did or permitted would carry the protection of a judgment.

Senator NEWLANDS. You would want such power to be final and conclusive and not subject to reversal by the court, for instance, under the antitrust act.

Mr. KRAUTHOFF. On the contrary, like any other judgment of a nisi prius court or lower court, it should be subject to review by the appellate tribunals.

Senator NEWLANDS. But this is a court.

Mr. KRAUTHOFF. To make it successful and to accomplish real results its powers ought to be judicial in its character. I do not believe an administrative board can constitutionally be invested with power to suspend the operation of an act of Congress. I do not believe you will find it clear sailing to confer upon a mere administrative board the power to find such facts as Congress may determine to submit to it for determination, unless the statute also declares that its finding has an operative force. In other words, you can not, without amending the antitrust act, create an effective commission to supervise corporate transactions of this nature. You certainly would accomplish little toward a solution of the problem, unless you provided that if a corporation went to the commission with the inquiry whether it might do so and so or enter into such and such a contract, and receiving affirmative permission, be nevertheless subject to be proceeded against by the Department of Justice. But if you make the commission a quasi judicial body and then amend the antitrust act so as to read, "which in the opinion of that body shall be in restraint of trade," etc., or "unless the commission shall have first given its consent thereto," you have created a situation which permits such questions to be passed on at the threshold.

Senator NEWLANDS. Have you read over the bill introduced by myself, Senate bill 2941, introduced July 5, 1911, entitled "A bill to create an interstate trade commission, to define its power and duties, and for other purposes," contained in the first record of the hearings of this committee?

Mr. KRAUTHOFF. I have not read it, although I know, in a general way, that you have introduced a bill on the subject.

Senator NEWLANDS. May I ask you to look over this bill, and particularly over section 10 which decides the powers of the commission, and write to the committee any suggestions that you have regarding either the elimination or addition of any power?

Mr. KRAUTHOFF. I will be glad to do so. Do not expect me to do it at an early day; but I will be glad to do so at opportunity.

Senator NEWLANDS. I will not ask you now regarding it because it would hardly be fair to you or to the bill to do that without a closer and more careful examination; but I would be glad to have you do so.

Mr. KRAUTHOFF. I will be glad to do so.
Senator NEWLANDS. That is all.

Senator BRANDEGEE. Did you refer to the address of Mr. Victor Morawetz concerning the trust problem in your direct testimony? Mr. KRAUTHOFF. I did. I had a copy of it, but I must have mis

laid it.

Senator BRANDEGEE. It is printed in the record already, and I was going to ask you if you had read it?

Mr. KRAUTHOFF. Yes, sir.

Senator BRANDEGEE. It will be found on page 1329, the beginning of it. It was evidently put into the record when I was not present, and I did not know it was here; but I just happened to see it so I have not read it in full. It is very interesting and instructive. It is put in here in very fine type, and I would like to ask permission to have that part of the address in connection with Mr. Krauthoff's testimony, commencing at the top of page 1335 of this record, under the title "Recommendations," printed in the record at this point, and in a fair size type, because it, as it appears to me, is in striking conformity with some of your recommendations.

The ACTING CHAIRMAN. What part do you refer to?

Senator BRANDEGEE. I will indicate to the stenographer how far it should be quoted. It is at the top of page 1335 down to about half of page 1336, to the statement of Mr. Stuyvesant. That contains all of the recommendations of Mr. Morawetz, and some of the arguments that led up to it.

Mr. KRAUTHOFF. Yes.

(The recommendations appearing on pages 1335 and 1336 of this record, referred to by Senator Brandegee, are as follows:)

RECOMMENDATIONS.

The question remains whether the antitrust act should be amended and whether additional legislation should be passed to effect its purposes. New social and economic conditions undoubtedly may require new laws. I believe it to be true that some additional legislation for the regulation of corporations and trusts is needed, but before enacting new laws we should make up our minds very clearly what the real evil is that should be stopped and whether the existing laws, if properly enforced, would be adequate. I believe that most of the evils of the large trusts and monopolies are due to the decision of the Supreme Court in the Knight case and to the failure to apply and to enforce the existing laws promptly, uniformly, and efficiently. But for this decision and the failure, until the last few years, to take vigorous action to enforce the antitrust act, the monopolization of industries would not have occurred and industries would have been combined only so far as necessary to bring about economy of production and of distribution.

I believe that the antitrust act should remain on the statute books as it stands and that no attempt should be made to amend it. It has been urged that the word "monopolize" should be defined by statute. In his recent article in the North American Review, ex-Senator Edmunds used the following language: "After most careful and earnest consideration by the Judiciary Committee of the Senate, it was agreed by every member that it was quite impracticable to include by specific descriptions all the acts which should come within the meaning and purposes of the words 'trade' and 'commerce' or 'trust.' or the words restraint or monopolize,' by precise and all-inclusive definitions; and that these were truly matters for judicial consideration."

Any statutory definition probably would give rise to as much uncertainty and litigation as the term "to monopolize," and judicial decisions would be necessary to define the definition itself.

Mr. William J. Bryan has proposed, in effect, to define an unlawful monopoly as any combination controlling more than 50 per cent of a branch of trade or

commerce. I think Mr. Bryan has the right principle in mind, namely, that in order to constitute a monopoly there must be the destruction of reasonably competitive conditions in some branch of commerce; but I do not believe that an arbitrary rule such as he proposes would lead to greater certainty or would always carry out the spirit of the act. The percentage of control would fluctuate and it would be exceedingly difficult, if at all practicable, to determine the percentage of an industry or branch of trade at any one time concentrated under common control.

As I have already stated, there always will be border-line cases, but I believe that in most cases it will not be difficult to decide whether a contract or combination constitutes monopolizing or an attempt to monopolize. A few wellreasoned decisions of the Supreme Court stating clearly the principles governing the court in reaching its conclusions would go far to remove uncertainty as to what constitutes monopolizing within the meaning of the statute.

It has been suggested that a United States incorporation act should be passed. A wise and practicable national incorporation act undoubtedly would be desirable. Trade and commerce are not limited by State lines and they should be governed by national laws. However, I can not see how a national incorporation act would aid in solving the trust problem. The corporations formed under a national incorporation act would be subject to the antitrust act and to all other trust laws to the same extent as other corporations and individuals. Besides, a merely permissive national incorporation act would accomplish nothing. A compulsory act prohibiting State corporations from engaging in interstate commerce I believe would be unconstitutional.

The same applies to the proposal to provide for licensing corporatious engaged in interstate trade or commerce. It is doubtful whether a compulsory licensing law would be constitutional, but even if it were, the antitrust act would continue to apply to the licensed corporations, and the present problems would remain.

Mr. Roosevelt has proposed the creation of a commission having jurisdiction over corporations engaged in interstate trade or commerce, and this proposal was adopted by President Taft in his recent message. This I believe to be a step in the right direction. A national commission similar to the Interstate Commerce Commission should be created with jurisdiction over all interstate and international trade and commerce, except transportation over which the Interstate Commerce Commerce has jurisdiction. This commission should have power

(a) Upon the application of any citizen, or of its own motion, to investigate the interstate commerce transactions of corporations and individuals and to require all contracts and combinations between competitors in interstate commerce to be filed with the commission;

(b) To require reports of any corporation regularly engaged in interstate commerce; and

(c) To determine, after giving a hearing to the parties in interest, whether any contracts, combinations, or other acts complained of are in violation of the antitrust act. Such a finding of the commission should be deemed prima facie evidence that a contract, combination, or other act is or is not in violation of the act; but every such finding of the commission should be subject to review in the Commerce Court upon application of any party in interest or upon application of the Government.

(d) Parties proposing to enter into a contract or combination should have the right to apply to the commission for an order determining whether the proposed contract or combination would be in violation of the antitrust act, and the order of the commission made upon such application should be effective until reversed by the Commerce Court. Upon the approval of a contract or combination by the commission, acts done in pursuance of such approval, prior to a reversal of the order of the commission, should be deemed lawful and not in violation of the civil or criminal provisions of the antitrust act.

The suggestion that Congress should vest in a commission the power to regulate prices of trust-made products that are the subject of interstate commerce should be rejected for two reasons. One reason is that Congress could not constitutionally confer such a power. The power of Congress to regulate or to authorize the Interstate Commerce Commission to regulate the rates of interstate railway carriers is based upon the ground that the railway lines are highways of interstate commerce, that the railway companies are subject to a duty to serve the public at reasonable rates, and that the enforcement of this duty by the legislature or by a legislative commission is not in violation of the con