So far as they have been able to do so, they have crystallized methods and prevented improvement and progress; and if they continue to control things there can be no doubt that the progress of the human race has come to an absolute stop and end.

But their manifest terror before the law proves that they are controllable. They are strong and terrible only when working in secret. We should not lose our judgments in wrath because trusts have done ill and in some cases crime. We charter corporations to serve us, not to have artificial bodies to punish. We should prevent them from working ill by sane laws and punish crime in the persons of the offending officers.

Sequence combinations have been proved vital necessities. Paralallel combinations are not so. Under existing conditions we have come to depend on them for a great deal of the work of management of the sequence combinations which do the work of production and distribution-and if we abolish them forthwith the people will suffer acutely and unnecessarily. But we can disintegrate and destroy them without causing general loss or hardship provided we do it slowly and wisely; or we can regulate them wisely and make them work for the common good and at the same time prevent them from doing ill.

It has been arithmetically proved that sequence combination multiplies the power of capital many, many times and of all the forms of capital so combined.

Parallel combination, on the other hand, does not increase the power of fixed capital one iota and increases the power of working capital only in proportion as it is made more fluid.'

Trifling as such a gain in power appears in comparison with those of sequencing, it may be enough to give command of the situation. in sharply competitive business and to waste it seems unwise. If the people as a whole had received any material benefit from this increased power of capital, which would have been the case if parallel combinations had been justly managed, then to reduce this power by extinguishing them would inflict a corresponding immediate public injury. But such corporations have been managed in most cases antagonistic to the public interest and to extinguish them would cause no permanent injury to anybody except their

shareholders.

They have so raised artificially and maintained selling prices that the loss of power of their capital due to their destruction will be very much more than compensated by the increased power of everybody else's capital due to immediate reduction in basic prices. In fact, there can be no doubt that a large part of the increase in interest rates during the past dozen years has been due to the abnormal load thrown on everybody else's capital by such corporations through artificially based and maintained basic prices.

"Unreasonable" or obnoxious parallel combinations or "trusts" have earned popular condemnation, and their existence is undoubtedly forfeited under the Sherman law.. By their conduct they have forfeited every right except the right to beg for mercy.

But they have shown power, and power must not be wasted. They can easily be made useful and docile public servants by a simple mode of regulation, clearly within the powers of the Federal Govern

ment.

PRESERVE SEQUENCE COMBINATION.

By C. N. DUTTON.

It is arithmetically proved that sequence combination multiplies the power of capital many, many times. It not only multiplies the power of liquid and working capital in obvious ways, but also the power of fixed capital in almost equal ratio-facts self-demonstrating. Our business is done with the powerful capital due to such organization. Obviously, then, if we destroy sequence combinations and attempt to conduct business without them, we must find many, many times as much capital as we now use.

No such body of capital exists. Therefore the destruction of sequence combinations would cause almost total cessation of industry and bring our workers to starvation. Even if the capital existed to do business without them, costs and prices would be so raised that the whole world of commerce would be dislocated and years would be necessary to reprice every commodity.

Sequence combinations are good, not evil, in their nature, and natural law regulates them. Under the letter of the law, under the decisions of the Supreme Court, and under its doctrine of "reasonableness" it can hardly be believed that sequence combinations violate the Sherman law.

But sequence combination is so invaluable and has become so usual and necessary to the people that the legality of single sequence combinations should be placed beyond the peradventure of a doubt by explicit declaration of Congress at the earliest possible date.

Not because there is any real danger that the Supreme Court will fail to analyze the matter correctly if or when it is brought before the court, but because interested men are trying to befog the situation, deceive the people, and mislead Congress; and because, unfortunately, some of the lower courts and some other law officers of the Federal Government have shown almost incredible stupidity, ignorance of business and finance, and absolute lack of analytical or synthetical powers; and, most of all, because the people should be relieved from their needless doubts and distress, and that promptly.

Extinction or regulation of parallel combinations.—It has been proved that only parallel combinations and, moreover, only certain ones, are condemned by the Supreme Court under the Sherman law as "unreasonable"-not good for the human race-and Federal regulation of corporations should be confined to such combinations.

The gist of recent court actions seems to be that "unreasonable" parallel combinations-that is to say, such as are adapted to do what the law forbids-shall be abolished forthwith, which means as fast as they can be brought to bar.

This seems unnecessary and unwise revolution.

The evil such corporations do or might do is easily preventable; and they may prove to be valuable servants, willing and able to do rough and heavy work not requiring a high order of intelligence and set the brighter minds free to do higher things.

So far they have shown capacity to produce "tonnage" and do routine and standardized work, but not to improve methods or products, to do work requiring initiative or originality and the carrying on of the torch of knowledge. They seem to be, rather, natural laborers and machine tenders, little fitted for anything higher.

So far as they have been able to do so, they have crystallized methods and prevented improvement and progress; and if they continue to control things there can be no doubt that the progress of the human race has come to an absolute stop and end.

But their manifest terror before the law proves that they are controllable. They are strong and terrible only when working in secret. We should not lose our judgments in wrath because trusts have done ill and in some cases crime. We charter corporations to serve us, not to have artificial bodies to punish. We should prevent them from working ill by sane laws and punish crime in the persons of the offending officers.

Sequence combinations have been proved vital necessities. Paralallel combinations are not so. Under existing conditions we have come to depend on them for a great deal of the work of management of the sequence combinations which do the work of production and distribution-and if we abolish them forthwith the people will sufler acutely and unnecessarily. But we can disintegrate and destroy them without causing general loss or hardship provided we do it slowly and wisely; or we can regulate them wisely and make them work for the common good and at the same time prevent them from doing ill.

It has been arithmetically proved that sequence combination multiplies the power of capital many, many times and of all the forms of capital so combined.

Parallel combination, on the other hand, does not increase the power of fixed capital one iota and increases the power of working capital only in proportion as it is made more fluid.

If

Trifling as such a gain in power appears in comparison with those of sequencing, it may be enough to give command of the situation. in sharply competitive business and to waste it seems unwise. the people as a whole had received any material benefit from this increased power of capital, which would have been the case if parallel combinations had been justly managed, then to reduce this power by extinguishing them would inflict a corresponding immediate public injury. But such corporations have been managed in most cases antagonistic to the public interest and to extinguish them would cause no permanent injury to anybody except their

shareholders.

They have so raised artificially and maintained selling prices that the loss of power of their capital due to their destruction will be very much more than compensated by the increased power of everybody else's capital due to immediate reduction in basic prices. In fact, there can be no doubt that a large part of the increase in interest rates during the past dozen years has been due to the abnormal load thrown on everybody else's capital by such corporations through artificially based and maintained basic prices.

"Unreasonable" or obnoxious parallel combinations or "trusts" have earned popular condemnation, and their existence is undoubtedly forfeited under the Sherman law. By their conduct they have forfeited every right except the right to beg for mercy.

But they have shown power, and power must not be wasted. They can easily be made useful and docile public servants by a simple mode of regulation, clearly within the powers of the Federal Govern

ment.

The principle of regulation must be such as to prevent parallel combinations from themselves absorbing and to compel them to pass along to the people at large the latter's just share of the benefits of sequence combinations, in lower prices and higher wages.

Any mode of regulation which limits the profit rate to a just percentage of the actual value as a going concern will accomplish the desired regulation.

Such a mode of regulation is the mechanical equivalent of a usury law; and it is abundantly supported by successful precedent and court decisions. It recognizes the fact that such a corporation is in a sense a public-service corporation and potential monopoly, and that as a condition of its existence its profit must be just and reasonable.

At first the people's grace to the delinquent corporation should be for a term of years, say 20.

Regulation can be done under Federal license to do interstate and foreign business or by a graduated income tax. The latter mode is more clearly within Federal powers, is supported by precedent and judicial proceedings, will automatically regulate intrastate commerce, is easier to apply, automatically compensates for flush and hard times, and is generally simplest and most effectual. A tax scale can easily be computed that would take all income in excess of a predetermined profit rate. A standard, honest accounting system would necessarily be prescribed, as has been done for railways.

Appraisal would be necessary, and, because the corporations are forfeit to the law, they should bear the cost of it, and will gladly do so as a condition of grace.

The allowed percentage of earnings should be based on "value as a going concern of the properties actually operated." Properties not operated could not earn, and must therefore be sold, thus preventing monopolistic control of an industry, for somewhat inferior plants can and will be operated by smarter and more industrious men.

"Value as a going concern" is generally several times bare "replacement value," because a business has to bear the burden of the cost of the evolution of present methods out of the obsolete past. For example, if the Broadway street-car line were properly capitalized as a going concern its securities would represent the cost of the old busses, of the horse-car line which replaced the busses, of the cable road which replaced the horse road, and of the existing electric road-less excessive earnings and such amortization as may have been provided for. "Value as a going concern" in our corporations has no certain and in many cases no easily ascertainable relation to stock and bond issues, and such issues must be disregarded in such a plan of regulation.

There can be no loss of real, tangible values; at the worst there will be a redistribution. Foolish purchasers of "common" or "preferred" stocks may find themselves less rich than they thought themselves; but neither they nor the vendors, if intelligent men, can have believed that the conditions of the past dozen years could long continue.

Regulation presupposes the desirability of allowing parallel corporations to exist and giving them a chance to prove that they can work good to the people.

In order that they may do so, their allowed rate of net earnings must be based on existing facts. It must equal or somewhat exceed the sum of local taxes, legal or market interest, and market rates of profit (as distinct from interest); insurance, to cover risks of dull years and years of dislocation; and amortization, to cover inevitable obsolescence.

My judgment is that a net income rate of 10 per cent would be sufficient.

Such a mode of regulation would instantly and enormously stimulate general business by reducing basic prices and advancing wages. It would put parallel combinations on their good behavior by making it unprofitable to do ill; would clear the way for a just tariff by making it a losing venture to pay for an unjust one; would enable us to use existing business agencies without their doing ill; to prove the worth or worthlessness of parallel combinations, and if times prove that we must suppress them, to do it wisely and without inflicting needless suffering on helpless people.

In accordance with the arithmetical principles above set forth, the following bill has been drafted. It is submitted to the committee in the belief that it will accomplish the desired objects with the irreducible minimum of governmental interference with business.

The fore part of the bill relates altogether to the organization of corporations; and perhaps it would be wiser to confine our efforts, for the present, to such objects.

But Federal taxation of the income of corporations makes it practicable to apply well-known principles of law and successful legal methods to a widespread and debasing form of theft and corruption. The greatest evil in American life is theft and corrupt practices by high officials of corporations, which is making the Americans the most dishonest people in the world, the most thievish race that ever existed.

Corporation officials steal and cheat with unblushing impudence and absolute safety from loss of position or punishment, so long as their thefts do not cut off dividends.

The shareholders, the people robbed, know their trusted officials are robbing them; but so long as dividends are paid, they do not protest. More than that, they would and do fight actively and fiercely any attempt to get rid of the knavish officials, for fear of losing dividends.

Federal tax on the income of corporations enables us to reach this evil by Federal law and to punish and stop it in corporations so taxed; and there can be no doubt that when the State governments see the practical operation of the principle, they will apply it to corporations not subject to Federal tax and that thus this great evil well may be completely rooted out.

The man who steals from a corporation subject to income tax is morally like a thief smuggling stolen goods. The officer of a corporation subject to income tax who robs it is morally like a servant who steals his master's goods and smuggles them into the country.

The latter part of the bill deals with such offenders as smugglers of stolen goods are dealt with.