holding company, and all those corporations are managed by the holding company, and it is practically one corporation.

The ACTING CHAIRMAN. And you believe that one of the things that we might do to serve the public welfare would be to make it a condition precedent to the right to engage in interstate commerce on the part of any corporation that it does not hold any stock in any other corporation?

Mr. FARRAR. Not only that, but you have got to go further. It is not always the concern that holds the stock that does the business. The ACTING CHAIRMAN. I know. I will come to that in a minute. Mr. FARRAR. But you have to reverse it and state that no corporation whose stock is held by another corporation shall engage in interstate commerce.

The ACTING CHAIRMAN. Would you prevent the holding of any stock, or a controlling interest, the pivotal point?

Mr. FARRAR. I believe it ought to be prohibited absolutely.

The ACTING CHAIRMAN. Inasmuch as competition of a broader kind is one of the objects sought to be accomplished by the antitrust law, do you believe that there ought to be prohibition against comInon directors in corporations doing the same kind of business?

Mr. FARRAR. I do, sir. That is one of the favorite forms of a combination.

The ACTING CHAIRMAN. And inasmuch as diversity of interests is always a motive for rivalry in business, do you not think it would be well if there was no common stock holding interests among corporations that were engaged in the same kind of business?

Mr. FARRAR. I think that would be carrying restrictions upon the part of ownership a little too far. I think though it might be carried to this extent, that where you found the controlling interest in four or five or two or three competitive corporations owned by one person you could conclude that those corporations were acting together. I mean to say, you take four or five manufacturing companies engaged in the manufacture of the same thing and in the same line of business you may find one person who has the majority of the stock in all those corporations, and you can conclude that those corporations are going to be operated as if they were one, and as if there were practically an agreement between each one of them with regard to prices and everything else.

The ACTING CHAIRMAN. I gather from one of your statements that there were circumstances under which you thought agreements between independent concerns for the purpose of fixing prices might be allowed?

Mr. FARRAR. Only in one instance.

The ACTING CHAIRMAN. What is that instance?

Mr. FARRAR. That is that they should be permitted to agree not to cut prices below the actual cost of production so as to inflict loss. The ACTING CHAIRMAN. Would it not be safer in order to prevent destructive competition of that sort that the law itself should prohibit that kind of business as in restraint of trade?

Mr. FARRAR. Well, the trouble about that is this, that it sometimes occurs in the business affairs of a corporation that it is compelled to sell its product actually below the cost of production, and as soon as some necessity arises it is overstocked, or there has been a decline.

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in the price of material, and many conditions might arise which would compel that corporation to sacrifice its product below the cost of production.

The ACTING CHAIRMAN. I think you are quite right about that.

Mr. FARRAR. Now, that is a very different thing from that corporation and six or seven other corporations getting together and agreeing that they would not, as a matter of trade competition, cut their prices below the actual cost of production; and if you establish a prohibition that no corporation should engage in interstate commerce that cut its price below the actual cost of production you would come up against the case where the corporation in its own interest would be compelled to sell its product below the actual cost of production. The ACTING CHAIRMAN. I meant to qualify my question, which I did not do, by the addition of this idea that the selling of commodities below cost should be persisted in over a period of time and that the reduction below cost is for the purpose of destroying a rival or rivals.

Mr. FARRAR. If a statute were drawn that way it would be operative. For instance, in several of the States they now have statutes punishing corporations for selling a product in one locality at a price lower than in other localities for the purpose of injuring or oppressing a competitor.

The ACTING CHAIRMAN. We have a statute in our State, applying only to petroleum and its products, which provides a penalty if the price be not uniform throughout the State; that is, a price fixed at one point must be the price at every other point-cost of transportation taken into account-which, as I think, has worked very well. But now I come back to the question of making agreements. You realize that if such an agreement were made between independent producers it would be made so that the producer who was least advantageously situated would be taken care of. That would have to be so, or they would not enter into the agreement. That is to say, the prices would be fixed so that the poorest producer could make a profit.

Mr. FARRAR. You might put limitations upon such contracts by providing that such contracts could only be made with the consent, say, of the Bureau of Corporations, which would be charged with the duty of finding what the cost of production was, and whether or not the minimum price fixed was the price below the cost of production.

The ACTING CHAIRMAN. Do you not think that such a privilege could be very easily abused so as to enable some of the producers to maintain unreasonably high prices?

Mr. FARRAR. I do not think the cost of production in live concerns in this country is so different in one locality from another that that difference would amount to any considerable profit to a more advantageously situated industry. I simply believe that the true doctrine on that subject is the doctrine in the Steamship Company v. McGregor, that it can not be to the interest of any corporation to have competition carried to the point where the capital involved in the production is destroyed, and that an agreement covering destructive competition of that sort ought to be permitted.

The ACTING CHAIRMAN. That would involve, as you have just said, an examination in each case on the part of the Government

to ascertain at what price each of those producers could profitably sell his output.

Mr. FARRAR. I think they would determine in that case what the general or average cost of production was. That would be the true rule.

The ACTING CHAIRMAN. You suggest that as a means of preventing unfair or ruinous competition?

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. And of course you do not favor the idea, that has been sometimes expressed, that these agreements should be made so as to permit what the parties to it believe to be reasonable profits?

Mr. FARRAR. The question of reasonable profits is such an indefinite one, varying so greatly in localities and under different circumstances, that I do not believe you can pass any statute or make any regulations that would cover it.

The ACTING CHAIRMAN. You do not believe that the Government, either directly or indirectly, ought to enter upon the task of fixing prices for private industry?

Mr. FARRAR. I do not think the Government has any such power. The ACTING CHAIRMAN. Do you believe that the law could be supplemented so that there could be a limitation put upon the amount of capital, or capitalization, which any corporation engaged in interstate commerce could lawfully employ in its business?

Mr. FARRAR. Undoubtedly; and I think that is one of the things that this Congress ought to do, to put a limitation upon the capital stock of a corporation engaged in interstate commerce.

The ACTING CHAIRMAN. You think that there are certain tendencies or consequences from excessively large corporations which are harmful even if they sell their product at a fair price?

Mr. FARRAR. Take the case presented by Mr. Krauthoff; take a corporation which has swallowed, you may say, a whole industry and that sells its product at a minimum price. My personal and economic opinion is that a corporation of that sort would be a disaster to any country. In the first place, such a corporation would largely control the price of the raw materials that is used in its business. In the second place, it would control the price of all the labor that was engaged in that industry, and in the third place, it would shut the door to any independent investment. It would say to the man with brains and capital, "This field is occupied; you can not come in," and I think that if such a corporation would be good in one respect it would be good in everything, and you would have one corporation for each industry that you have in the country. One corporation would swallow the iron trade; another would swallow your cotton-manufacturing business; and another would swallow your woolen-manufacturing business, and so on down the line; and the result would be that you would have a half dozen corporations that would control the industry of the country if any such doctrine as that prevailed.

The ACTING CHAIRMAN. That is all I care to ask. Senator Brandegee, you may inquire.

Senator BRANDEGEE. It is getting so late that I do not care to ask but one or two question. You spoke about the lack of power in the

Government to create a private corporation, and stated that Prof. Willoughby agreed with you in that.

Mr. FARRAR. Yes, sir.

Senator BRANDEGEE. Does he so express it in his book on the Constitution?

Mr. FARRAR. Yes, sir; there is another point there that I would like to call attention to, and that is the narrow field in which such a corporation would operate. Now it is well settled by authorities and decisions of the Supreme Court of the United States, that there is a fundamental line of distinction to be drawn between commerce and production-commerce and manufacture.

Senator BRANDEGEE. The Knight case proved that very effectually. Mr. FARRAR. It was drawn long before that. Now take the broadest definition of commerce that the Supreme Court has ever laid down, and you could not incorporate a company and operate beyond those limits, and those limits are the buying and selling of goods between the States, interstate transportation.

Now, the evils in this country do not come from the mere buying and selling in interstate commerce. They come from the production of those articles and the control of those articles by producing them. There is where the crux lies, not in the mere buying and selling of them from State to State, and your Federal corporation could not be authorized to produce-could not be authorized to manufacture, and you would not reach the evil by a Federal incorporation act.

Senator BRANDEGEE. What do you think about this situation that I am going to try to state. If I understand you, you believe that Congress, under its power to regulate commerce among the States, has the authority to impose any conditions that it pleases as conditions precedent.

Mr. FARRAR. On corporations.

Senator BRANDEGEE. On corporations.

Mr. FARRAR. I draw the line between corporations and individuals. Senator BRANDEGEE. Yes; under conditions as conditions precedent upon the right of a corporation to engage in commerce among the States.

Mr. FARRAR. Yes, sir.

Senator BRANDEGEE. Now, there has been before Congress for some years a proposition to prohibit any railroad company from transporting from one State to another any commodity in the manufacture of which people were employed who worked more than a certain number of hours a day. Some of us thought that that was more an attempt to regulate the hours of labor in the States than it was an attempt to regulate commerce, and that a court might look through the disguise-if it were a disguise-to the real object of the program, and say that that was really an interference with the powers of the State to manage their own affairs and fix their own times for hours of labor.

Mr. FARRAR. The Supreme Court of the United States has in many decisions drawn the line between what is a regulation of commerce and what affects commerce. Now, that is a line that is extremely difficult to draw, but there is a line there somewhere. They hold that many things affect commerce which do not regulate it, and very many State statutes have been passed and upheld by the court on

the ground that they affected commerce, but that they did not regulate it.

Now, if the States can operate in that sphere of things which affect commerce then Congress can not operate in that sphere because it is beyond the line of regulation; and, of course, if Congress should undertake, under the guise of regulating commerce, to invade the powers of the States or to go beyond the line of regulation, any such act would be unconstitutional. For instance, take the case where many years ago Congress passed a law as a sort of adjunct to the taxing power to prohibit the sale of oil that did not test more than a certain amount. The Supreme Court of the United States set that statute aside. They said that that was an invasion; that that was an attempt on the part of Congress to exercise a police power in respect to the oils that were sold in the States. Now, a statute such as you state, in my judgment, would not be a regulation of commerce, but it would be passing over that line of regulation into that sphere of things that should have been commerce, which would be beyond the power of Congress.

Senator BRANDEGEE. Are you clearly of the opinion that it would be within the power of Congress to say that a corporation chartered by a State, which already had its securities outstanding, should not continue to engage in commerce among the States unless it should buy up or otherwise dispose of all of the securities that it had outstanding that had not been issued for cash?

Mr. FARRAR. I think Congress has the power to say to a corporation which is purely a fictitious being, " You can not come within the sphere of my sovereignty. You can do what you please within the sphere of the sovereignty which created you, but you can not come within the sphere of my sovereignty and exercise any of the powers that that other sovereignty has given you unless you come up to the standard which I establish for your existence"; and therefore if Congress should be of the opinion that a corporation was stuffed full of watered stock they could say, "You can not come within the sphere of interstate commerce at all until you squeeze the water out of that stock or until you adjust the securities to the valuation of the property and the capital that you actually have got.

The ACTING CHAIRMAN. That is all I care to ask. Senator Newlands, do you desire to ask any questions?

Senator NEWLANDS. Judge Farrar, I understood you to say that in your judgment Congress had no constitutional power to pass a Federal incorporation act for private profit?

Mr. FARRAR. That is my personal opinion; and I say I am

backed

Senator NEWLANDS. You would not apply that to railways?

Mr. FARRAR. Oh, no, sir. I draw the distinction between a publicservice corporation or a banking association, which are practically instrumentalities of the Government, and a mere private corporation, such as for trade and commerce. The one is under the absolute regulation of the Government, and performs a function which the Government itself can perform. The other is a mere business for the private individual in the conduct of private trade.

Senator NEWLANDS. Therefore, you do not believe in the power of the National Government to create corporations for interstate transportation?