FRIDAY, MARCH 15, 1912. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met, pursuant to recess, at 10.30 o'clock a. m. for the purpose of further considering the bill (S. 2941) entitled "A bill to create an interstate trade commission, to define its powers and duties, and for other purposes," introduced by Mr. Newlands July 5, 1911. Present: Senators Clapp (chairman), Crane, Cummins, Oliver, Lippitt, Townsend, Newlands, Clarke, and Watson. By direction of the chairman the following papers are incorporated in the record: Hon. MOSES E. CLAPP, United Shoe Machinery Co., Chairman Senate Committee on Interstate Commerce, Washington, D. C. MY DEAR SIR: Mr. Louis D. Brandeis has caused to be published in the Boston American a three-column explanation of his change of front with reference to the United Shoe Machinery Co., in the form of a letter addressed to you. Like other gentlemen who have changed their attitude when they thought it for their interest to do so, Mr. Brandeis's actions need a good deal of explanation. I desire to point out to you a few respects in which some of his explanations do not explain: He says in his "eighth" explanation that he ceased to act as counsel for the company five months before June 1, 1907. Mr. Brandeis's firm after that date, to wit: May 1, 1907; July 1, 1907; January 1, 1908; and November 1, 1909, rendered bills aggregating about $1,000 for professional services and disbursements in our matters, which have been paid by the company and which payments have never been, to my knowledge, returned by Mr. Brandeis. He says in his "first" explanation that although he regarded the United Shoe Machinery Co. as a good trust in April, 1906, and that he then regarded the bill before the Massachusetts Legislature as unconstitutional, he saw light when the United States Supreme Court decided C., B. & Q. R. R. Co. v. Drainage Commission (200 U. S., 592). This case was decided March 5, 1906, almost two months before Mr. Brandeis went before the legislature at all. He says in his "sixth" explanation that the decision of the United States Supreme Court in Continental Wall Paper Co. v. Voigt (212 U. S., 227) led him to believe that the leases which he had before believed to be valid would be invalid under the Sherman law, and he wishes you to note with emphasis that this case was decided February 1, 1909, but it had already been decided in exactly the same way on January 5, 1906, by a unanimous opinion of the circuit court of appeals, written by Mr. Justice Lurton, now of the Supreme Court, and Mr. Brandeis must have known of that decision when he argued before the Massachusetts Legislature in April of that year. The fact is that there is not the slightest resemblance between the Continental Wall Paper case and the case of the United Shoe Machinery Co., and Mr. Brandeis well recognized it, because he argued for and sustained the leases of the United Shoe Machinery Co. upon the ground that they covered patented articles, with which the Wall Paper case had nothing to do. A lawyer of your learning and acumen will not be deceived by this subterfuge. Mr. Brandeis says in his "third" explanation that in the fall of 1906 he ascertained "facts" in addition to those previously furnished him to some extent inconsistent with statements before made which "raised serious doubt" in his mind as to the soundness of the general policy of the company and the propriety of some of their methods. What were these "facts"? Why did they “raise serious doubt” in his mind? Evidently no change of opinion had occurred at the time Mr. Brandeis wrote his letter to Mr. Erving Winslow October 6, 1906, when he upheld the legal and moral soundness of the company's business policy. His letter of resignation, dated December 6, 1906, of which I attach a copy, discloses no uneasiness in Mr. Brandeis's mind as to the soundness of the company's policy or the propriety of its methods. In spite of the fact that Mr. Brandeis says he viewed with alarm the acquisition of the property of Thomas G. Plant, in September, 1910, and regarded it as a deliberate and flagrant violation of the law, he continued to retain his interest and his stock in the United Shoe Machinery Co. until July 1, 1911, when after he had accepted profes MY DEAR MR. WINSLOW: The receipt of the notices of the quarterly meeting of the United Shoe Machinery Co. and of the United Shoe Machinery Corporation, on December 12, which have just reached me, remind me to send in my resignation as director in both companies. You will recall that I became a director of the company, as I had previously become a director of the McKay Shoe Machinery Co., at Mr. Matz's request, in order to represent the large interests of the Henderson family, Mr. Matz being of the opinion that they should have a representative on the spot. The established success of the company convinced me long since that the Henderson family did not need such representation, and when I last saw Mr. Matz he agreed with me. My own interest in the company is so insignificant as not to justify any representation on the board; indeed, I hold no common stock except as the result of rights which went with the preferred. I feel, therefore, that I ought not to continue an exception to my general rule of not holding the office of director in any corporation for which I act as counsel. I inclose my resignation in both the company and the corporation, which kindly present at the coming meetings. Yours, very truly, LOUIS D. BRANDEIS. DECEMBER 6, 1906. SIDNEY W. WINSLOW, Esq., President United Shoe Machinery Corporation, Albany Building, Boston, Mass. MY DEAR MR. WINSLOW: I hereby tender my resignation as director in the United Shoe Machinery Corporation, to take effect immediately. Yours, very truly, LOUIS D. BRANDEIS. DECEMBER 6, 1906. MY DEAR MR. WINSLOW: I hereby tender my resignation as director in the United Shoe Machinery Co., to take effect immediately. Yours, very truly, LOUIS D. BRANDEIS. STATEMENT OF R. P. SCHWERIN Resumed. Senator CUMMINS. Mr. Schwerin, you wanted to answer a question that I put to you when we were closing the examination a few days ago, and if the reporter will read that question to you I will be glad to have you answer it. Mr. SCHWERIN. I have the question here, Senator. I received it from the reporter. May I read it? Senator CUMMINS. Certainly. Mr. SCHWERIN. The question is as follows: I would hardly call that a foreign line, if ships were built in this country and manned by American officers in the proportion you have suggested, and manned to a certain degree by American seamen and registered in America, even if foreign capital built the ships. I would hardly call that a foreign enterprise. I would like to illustrate this question by an actual situation which shows it to be a foreign enterprise. The United Fruit Co., an American corporation, owns 36 British steamers. At the present time they are building 6 additional steamers in England. The United Fruit Co. is an American enterprise operating and owning these British ships through British stock companies, of which they own the entire stock. I would consider this United Fruit Co. strictly an American enterprise. Now if the reverse of this takes place, the British capital comes to America and organizes a company here and, for instance, takes over the American-Hawaiian Line, buys its ships and operates them under the American flag, I would consider that British capital and invested in a British enterprise operating merely in the United States. Senator CUMMINS. A very large part of our transportation system has been built with foreign capital, but you do not regard it that all foreign capital has created foreign enterprise in this country, do you? Mr. SCHWERIN. I do not know of any railroad or any steamship line in the United States to-day which is controlled by foreign capital. If it was absolutely owned and controlled by foreign capital, I would consider it a foreign enterprise. For instance, take the stated enterprise. Suppose there was war between the United States and Great Britain, and the United States Government found the United Fruit Co.'s ships in an American port and seized them, we would not consider for one moment that they were under the protection of American enterprise. We would consider them foreign ships and treat them accordingly. Senator CUMMINS. Do you mean that if an American corporation, with foreign stockholders, built a ship in the United States and put it into the coastwise business, that in the event of war that ship would be regarded as a foreign ship? Mr. SCHWERIN. No, sir. Senator CUMMINS. That would be an American ship? Mr. SCHWERIN. Yes; but if English capital, as a British company, came to this country and solely owned and controlled those American ships, and there was war, the American Government could take those ships provided the British company did not get them out of United States territory before the American Government could seize them. But in the case cited it is different. Here is an American company owning and operating solely British steamers, with British officers. In time of war the United States Government would seize those ships, if in American ports, and consider them as British property although the capital and the enterprise behind those British ships was American. Senator CUMMINS. I was not quite able, the other day, to understand your view of the effect of this bill. As far as you are concerned, it seems to be directed against the Southern Pacific Railroad Co., and it would simply compel the Southern Pacific Railroad Co. to dispose of its stock in your company in order to be permitted itself to carry on interstate commerce. Now, what harm would there be in that? What harm would it bring to you? If the Southern Pacific Railroad Co. were compelled, within a reasonable time and I am sure it ought to be given a reasonable time-to accomplish the change, what harm would come if the Southern Pacific Railroad Co. was compelled within the next six months or a year to dispose of its stock in the Pacific Mail Steamship Co. ? Mr. SCHWERIN. It would be very difficult for me to answer that question. I do not know what would become of the Pacific Mail. You must bear in mind that the past possibilities of the Pacific Mail, operating in foreign trade, is due to the fact that it has had a credit, which has been of great benefit in competition with foreign subsidized lines; and were it not for this credit, this very railroad capital behind it which seems to displease so many people the foreign line would have attempted to crush it long ago. But they have realized that this credit is an asset of the Pacific Mail Steamship Co., and therefore they believed it is advisable to let it exist. Senator CUMMINS. Does the Southern Pacific Railroad Co. guarantee the debts of the Pacific Mail Steamship Co? Mr. SCHWERIN. No, sir; they can not. Senator CUMMINS. Then in what way does the credit of the Southern Pacific Railroad Co. aid the Pacific Mail Steamship Co. in doing business? Mr. SCHWERIN. Simply because the foreigner believes the Southern Pacific can come to the aid of the Pacific Mail if it so desires. Senator CUMMINS. Well, it can not? Mr. SCHWERIN. Well, we do not explain that to them. Senator CUMMINS. But you do not want to do business under false pretenses? Mr. SCHWERIN. I will do business under real or assumed credit, if I can keep the flag on the ocean. I am not going to display to the foreigner my weakness. I am going to make my parent strength as strong as possible. Senator CUMMINS. Do you not think if the Southern Pacific Railroad Co. disposed of its stock in your company to somebody else, that the substitute for the Southern Pacific Railroad Co. might be just as effective in giving you credit as the Southern Pacific Railroad Co. now is? Mr. SCHWERIN. As I said before, it is impossible for me to answer that question. I do not know what would be the future of the Pacific Mail Steamship Co. if the Southern Pacific sold its stock. If it passed into the hands of men who were interested in shipping and desired to promote shipping, and were willing to support it with their capital, I have no doubt it would be able to continue. I am a steamship man, and my idea and my desire is to get as many steamers on the ocean under the American flag as I know how, and to utilize any capital that I can interest in such venture. Now, consider what created these railroads: If you turn back to the history of early railroad construction, the Morgan's Louisiana & Texas, was built through the interest of Mr. Morgan, of the old Morgan Line Steamship Co. That steamship company created the railroad. The Oregon Railway & Navigation Co. was built by the man who owned the steamship line between San Francisco and Portland. Mr. Villard was interested in the steamers between San Francisco and Seattle and Tacoma-he built the Northern Pacific. Mr. Vanderbilt started the New York Central. He was originally interested in water transportation. Those men had their training in water transportation and they saw the possibilities of rail transportation to further distribute their goods. Therefore, in a way, the water has been the parent of the rail, and it seems to me at this late day we should not destroy the credit of these water companies because of their railroad affiliations, when they really gave birth to the railroad expansion in this country which has meant so much to our prosperity. Therefore, if I can use the credit which these original water carriers created in railroads, and can persuade that interest to follow me in the foreign trade, I think I have every right to use it. I believe it would be wrong to pass any law that would prohibit the men who are interested in transportation-men who can, by their influence, create a favorable impression and influence capital to venture in transportation either on land or on sea. I think it is wrong that a law should be passed prohibiting such investment. Senator CUMMINS. The instance that you have given began anyhow not with the acquisition or building of competing lines, but of extensions. Mr. SCHWERIN. I quite agree with you in what you say with relation to the evil of a railroad owning a competing steamship line where it is used for improper purposes, but we do not desire to do that. We want you to regulate us. We suggest you to put us under the jurisdiction of the Interstate Commerce Commission. For instance, the gentleman from the Pacific coast argues that they should have a true sea-level route. He argues that there should be no cutthroat competition. Who is better equipped to see that the latter does not exist than the Interstate Commerce Commission? It has the machinery and ability to regulate this situation, but the capital and interest of anybody in the foreign sea trade should not be destroyed by legislation, and if you destroy it you are going to create still further distrust in this class of ventures, and once destroyed, it will be a long period before anybody will want to take hold of it again. Senator CUMMINS. You are assuming that it would destroy it, and I am utterly unable to see how it would affect it in any way whatever. If the Pacific Mail Steamship Co. wants to be an independent line, doing business according to the standards that will result in the greatest profit, or the best result to the Pacific Mail Steamship Co., I am unable to see how the Southern Pacific Railroad Co. does you any good. Mr. SCHWERIN. I say that if the ownership of the Pacific Mail could pass into the hands of people who had that interest, I would like to see it pass that way. But I am only the operator of this property. I have persuaded people to back me for $12,000,000 for four large new ships for the foreign trade, and I am here to try to persuade you |