FOR some time past the rapid growth of consolidations and combinations of capital has challenged thoughtful consideration. Thus far it has done little more than issue a ‘challenge’ to which public opinion has failed to respond. One school of thought ‘points with pride’ to the size of our mammoth corporations, to their supposedly lower costs of doing business, to the era of ‘bigger and better business,’ to our giant banking consolidations, and to the corresponding growth of the various other facilities necessary to serve such clients. Another school inevitably ‘views with alarm,’ wonders whither we are drifting and how far distant is the time when many more of our industries will become definitely closed to the individual or to the company of even substantial means for mere lack of the rapidly increasing capital requirement. While there is as yet no unanimity of opinion, there is nevertheless a clear indication that, unless this entire question is subjected to an early analysis, the capital consolidation movement will go on unchecked to a point where the small unit in many industries will have ceased to exist.
These combinations or mergers are of several types, each based upon some economic principle, either sound or otherwise. There is the so-called ‘horizontal’ merger, comprising directly competing interests, and formed as a rule either to reduce the fixed operating or sales-expense ratio or to lend stability to the sales market by removal of a disturbing competitor whose individual inefficiency or selfishness denies to the industry a fair profit. Then there is the so-called ‘vertical’ merger, which was originally planned so as to acquire the sources of raw material or to increase the market for the product. But of late this plan has been extended to the acquisition of concerns making products that go to the same class of customers even though the manufacturing problems of the several products may have nothing whatever in common. The object here is to be able to offer the customer all of his requirements in allied lines from one sales organization, thereby decreasing sales resistance and promoting sales that, in part at least, would probably have gone to some of the competing makers of single products. Thus we see the card index, the typewriter, the files, the filing cabinets, adding machines, ledgers, office furniture, and so forth, all brought together by merger under one sales roof, so that the customer equipping an office need deal with but one organization for all of his allied requirements. In much the same manner we see the breakfast-food manufacturers acquiring by purchase other quite different foodstuffs, with the result that we may soon expect to see them advertising breakfasts instead of products! At the same time the ’horizontal’ combinations are threatening to bake all our bread and spoil all our laundry from Maine to California — and the end is not yet.
Now it will scarcely be denied that some of these objectives have a sound economic basis in fact which ‘progress’ cannot resist, regardless of the fate of the small industrial unit. But the great majority of these combinations are founded upon the necessity for price stabilization. To prevent the demoralization that unquestionably exists in many industries to-day (despite the recent period of exceptional national prosperity) it is surely high time that an effort be made by some authoritative body to study the whole problem, to the end that future consolidations having improvement of the price structure for their major motive may be avoided by the appropriate legislation based on a truer conception of the public welfare. It is by no means unlikely that such an investigation impartially conducted would show that some of these mergers which may have seemed to be necessary under past conditions of legislative restriction would have been unnecessary and unwise if based upon the operation of natural law.
As a background for this proposed study, and lest the reader has mistaken the recent period of great national prosperity to mean universal prosperity, let us first ponder the meaning of a few of the figures recently issued by the Bureau of Internal Revenue for the comparatively active business year of 1925. How many would believe that more than 40 per cent of the net profits of all the 430,000 corporations in the United States were earned by only 196 corporations? Or that the next group of 937 companies, each earning between $1,000,000 and $5,000,000, accounted for substantially 25 per cent of all corporate profits? Less than one twentieth of one per cent earned over 40 per cent, less than one fourth of one per cent earned 25 per cent; 65 per cent of the 7651 millions of total profits earned by scarcely more than one fourth of one per cent of all the corporations!
The manufacturers appear to have done but slightly better than the average: 95 corporations earned 1650 millions; the next group of 446 showed profits of 900 millions. Together these 541 concerns acquired more than two thirds of the 3701 millions of total net profits, for which no fewer than 88,674 manufacturers competed. And two out of every five showed losses! These figures demonstrate very clearly the domination of the larger units in industry.
A recent report of one industry will illustrate an experience by no means uncommon. In the Daily Metal Trade, the independent sheet-steel industry was recently represented as consisting of 543 hot mills, with working capital a total investment of 110 millions. Over a recent period, notwithstanding that they operated with the utmost efficiency and at 108 per cent of normal capacity, they showed a total net deficit of two million dollars — such was ‘the life of trade’ as practised by their customers, aided by the inability of the industry under our laws to compel fair play. One of these plants in March 1927, operating at 100 per cent capacity, lost $18,000; a month or so later it shut down completely anti lost only $8000 — a comforting way of figuring a net gain to itself and a net loss to the buyers of $10,000! Yet the country needs sheet steel, which is neither an infant industry operated by amateurs nor an industry whose recent experiences are unique. Is it strange, therefore, that we hear so much complaint of ‘profitless prosperity’? Or that, even since the foregoing was written, six of these companies in Ohio have announced their consolidation, commented on in the public press as follows: —
Further mergers of sheet-steel companies, hard hit by irregular business and price depression, show indications of materializing. Pressure of trade conditions brought about the recent six-company merger of sheet rollers in Ohio, for the most part nonintegrated producers. . . . Breakdown of sheet prices in the last sixty days, after strenuous efforts to sustain the market, is hitting the smaller, nonintegrated interests. Weaker companies are being compelled to unite with stronger and more fully integrated producers.
If our so-called antitrust legislation as embodied in the Sherman Act of 1890, and supplemented by the Clayton Act of 1914, were merely antitrust laws, as the titles indicate and as popularly supposed, there would be small reason for the widespread criticism that has been more or less privately visited upon them by those who have been familiar with their effect upon many of the smaller business enterprises of this country. For, in so far as the Sherman Law has performed the function for which alone its creators strove, and has protected ’trade and commerce against unlawful restraints and monopolies,’ it has been effective in preventing the growth and continuance of the grossly unfair business practices that so outraged the moral sense of the country prior to its enactment. In the accomplishment of that purpose probably no greater or more laudable service to a self-respecting citizenry has ever been performed by any piece of legislation. As thus responsive to a popular demand of thirtyeight years ago, and as thus popularly understood to-day, its wisdom remains unchallenged. It is, therefore, only with some of the subsequent ramifications and diversions of the original purpose, which have come down through the succeeding years as the result in part of judicial interpretations and in part of the momentum lent to the popular psychology by politicians, that criticism has had to deal.
It will be readily recalled by the active business men of the late eighties that the demand of the country for remedial legislation sprang from the disclosure of various unconscionable practices on the part of the ‘big business’ of that day, among which was the granting of rebates by the supposedly common carriers to their larger corporate customers, to the obvious disadvantage of the less favored competitors lacking the purchasing power to compel equal treatment. This discrimination was sometimes sufficient in itself to render the business existence of the smaller companies a mere matter of sufferance. Another, and an even more direct, abuse was the constant attempt of big business to put its small and struggling competitors out of business by such methods as the placing of a new store alongside a competitor’s and selling its wares below cost temporarily until the small man’s capital should be exhausted. Often, rather than liquidate or repeat the experience in a new location, the latter would sell under pressure, the ‘enemy’ recouping its momentary local loss by acquiring a bargain, and thus still further strengthening its ability to do likewise elsewhere. These, and other equally reprehensible practices, had for their weapons sheer weight of capital, and the country demanded of its legislators in no uncertain terms restriction of this growing monopolistic ‘ trust’ movement — immediate, drastic, absolute. Hence the title: ‘The Federal Antitrust Law.’ Hence the subtitle: ‘An Act to protect Trade and Commerce against unlawful restraints and monopolies.’ Hence the absence in that law of any prohibition save that which declared that ‘every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, is hereby declared to be illegal’; and again, ‘Every person who shall monopolize . . . or combine or conspire with any other person to monopolize any part of the trade or commerce . . . shall be deemed guilty of a misdemeanor,’ and so forth. These quotations are the essence of the Sherman Law, the balance merely covering matters of definition, execution, and jurisdiction. The Clayton Law, enacted in 1914, in so far as it touched upon public policy, merely added the phrase ‘to substantially lessen competition’ to the above-mentioned illegalities, although for purposes of clarity it also added a number of specific inhibitions to the more general ‘ restraint of trade’ and ’monopoly’ terms of its predecessor.
It will be observed in passing that the outcry against anything savoring of monopoly or oppression obviously reflected a commitment of the public opinion of the day to the converse of the question — the preservation of the smaller capital unit in industry — and there is no subsequent evidence of a conscious change in that fundamental national policy as then recorded. There is also no evidence, either in the public records of that time or otherwise, to show that anything other than an antitrust demonstration was contemplated or even desired in the operation of that law. But, whereas the meaning of the words ‘restraint of trade’ has gradually and even subconsciously become subject to extended degrees of definition, nothing can be clearer than that the most flagrant ‘restraint of trade’ conceivable then or since would have been the operation of this law in such manner as to create the incentive, if not the necessity, for the acceleration of capital consolidation!
Yet that is just what has happened. Why? Because of a curious twist in the workings of mass psychology. ‘Trusts,’ as has been shown, were anathema to the public. That fact furnished fuel for many candidates for office for some years to follow. By the same token many will recall the cartoons about the ‘octopus,’ the ‘money power,’ and the glee that used nightly to greet Weber and Fields’s definition of a trust as ‘a body of men surrounded by money.’ It was then but a short step to the period of ‘the malefactor of great wealth,’the ‘trust busters,’ the ‘square deal,’ and the ‘short and ugly word.’ Mr. Roosevelt’s successful appeals to the conscience of the country had many imitators of more demagogic character, and of less constructive purpose. Gradually the Sherman Law had come to be interpreted, both in the public mind and in the courts, as prohibiting gentlemen’s agreements between any competitors — large or small — that tended even theoretically to influence a price level, to limit production, or to apportion territory according to natural markets, and also quite regardless of whether the effect was beneficial or otherwise. The public was thinking, and still is, of preventing monopoly and the concentration of capital in the hands of the few, but the politicians and the courts have been telling us in effect, until the public has come to believe it, that the way to accomplish that result is by preventing competitors from even discussing their most vital mutual problems, upon which their ability to continue to serve the public nay, even their very existence, is often based. Never, surely, has the intent of a legislative policy been so emasculated, or so subjected to what the informed laity may well term ’injudicial interpretation’!
One instance of this is the case of an entire industry during the extreme depression of 1921. The average capacity operation at the time was about 10 per cent, and the losses consequently great. The industry submitted to counsel plans for letting one or two factories do the work for all, so that the others might close down temporarily and cover their reduced fixed expenses by sharing in the general result on some mutually satisfactory basis. Counsel was obliged to advise that such action was thoroughly contrary to the law as construed by the courts, and as ‘restraint of trade’ was defined. The industry, facing ruin, was, therefore, forced by that highest of all laws, the instinct of self-preservation, to disregard counsel in order to save its property.
Another instance of a different character. In 1922 or thereabouts coal was selling in the market at an abnormally high price, the demand, due to strikes or what not, exceeding the supply. A conference was called by the Department of Commerce at which an agreement was reached between the operators as a unit under governmental auspices, resulting in the immediate announcement of a much lower price for the public. The Government feared a further rise, with all its attendant suffering,so intervened as an ‘observer.’ Both the Government and the operators obviously violated the Sherman Law as ‘restraint of trade’ is interpreted. But, considering the result, the public applauded, and the Attorney-General’s office had ‘no information’! During the war, of course, this procedure was common under government sanction and in the name of ‘public interest.’
Examples of ruinous price competition due to the illegality of protective price measures will come readily to the minds of most business men. Those caused by our inability to limit an industry’s collective output are far less numerous. However, two illustrations of far-reaching effect are to be seen in the coal and oil industries. These occupations are notoriously either a feast or a famine. It has been so difficult to maintain equilibrium between supply and demand that prices have constantly been subject to violent fluctuations according to whether we were for the moment experiencing a shortage of supply or a plethora of unemployment, with all its widespread suffering. In the coal industry the operators and the miners have filled the headlines of our newspapers almost annually with their sincere but pitiful efforts to agree upon a wage that would fairly compensate the miner for his periods of unemployment without making the cost of heat and power too prohibitive for the public. Arbitration, mediation, and inquiry after inquiry have all failed to find a permanent solution that will ensure stability under present conditions. The crux of the problem is said to lie in the fact that there are two thousand too many mines and two hundred thousand too many miners, and that only through production agreements which would contravene the Sherman Law could the needed ‘deflation’ be accomplished. Similarly, in the oil fields, regulation of total production would require an illegal agreement between the producers. But the philosophy of America deems it in the public interest that in times of overproduction we shall squander our natural resources for a mess of pottage when no one is anxious to buy, and produce an insufficient supply at an exorbitant price when demand is active, rather than permit the producers to agree together upon a policy that will tend to conserve resources and stabilize employment!
Only a few years ago members of trade associations were advised not even to discuss or compare their costs, except by the use of key numbers by which each member might identify only his own report, and they were further advised to file with the Government a disclaimer of any price activity as a presumption of innocence. Any cost statistics exchanged for the information and improvement of the industry might be in the ‘twilight zone’ unless filed with the Department of Commerce for public circulation. Competitors meeting by chance in public began to feel as though they were carrying marked bills, and jumped if tapped on the shoulder. The situation became intolerable, and many industries abandoned all efforts to progress together, and adjourned sine die. Many have never reassembled. Then came Mr. Hoover in the Department of Commerce, who undertook to see what he could find out in behalf of industry, which was looking so eagerly to him for relief. He initiated the famous HooverDaugherty correspondence, wherein he asked the Attorney-General what, if anything, his clients — the industries of the country — might lawfully accomplish together. Industry suspected it could do nothing very beneficial to anybody, but wanted to grasp at any hopeful straw. So Mr. Hoover wrote. Mr. Daugherty replied in effect, ‘Try me and see’ —— and that was that.
Conditions to this day are practically unchanged, except that in its more recent utterances on the general subject the Supreme Court has liberalized that situation somewhat by declaring: —
Trade associations or combinations of persons or corporations which openly and fairly gather and disseminate information as to the cost of their product, the volume of production, the actual price which the product has brought in past transactions, stocks of merchandise on hand, approximate cost of transportation from the principal point of shipment to the principal points of consumption, as did these defendants, and who, as they did, meet and discuss such information and statistics without, however, reaching or attempting to reach any agreement or any concerted action with respect to prices or production or restraining competition, do not thereby engage in unlawful restraint of commerce.
This is some little progress, to be sure, but after all, courts may only ‘interpret’; they may not legislate or determine fundamental policy, and therefore may not go afresh to the root of the trouble. That may be done only by Congress, enforced by public opinion. And so, in the light of that bit of solace, trade associations are being generally and properly advised by counsel to-day to be very careful to do nothing beyond these powers specifically conferred, lest the present gradual progress be interrupted. What one may lawfully do even in the interest of self-preservation is still far too limited for law-abiding men to achieve any substantial measure of coöperative effort. And now, paradoxically, as a result of a certain recent investment by one large corporation in the securities of another operating in an entirely unrelated field, we see Congressmen quoted as favoring the ‘strengthening’ of our antitrust restrictions by legislative enactment without evidence of the slightest realization that the same result could be accomplished in far greater degree by removing some of the present restrictions that prevent the operation of natural law. Well, it is at least an acknowledgment by indirection that the avoidance of capital concentration is still the goal of public opinion — but what a travesty on economic law and common sense it all is!
Clearly, therefore, if substantial relief for ‘small business’ is the real intent of public sentiment, the phrase ‘restraint of trade’ must be redefined. As long as the theory persists that cutthroat price competition ‘is the life of trade,’ so long shall we hear the leaders in most of our industries advocating, and see them building, further combinations of capital as the only way out of the demoralized conditions that even to-day infest so many important industries. In times of depression it is plain that still more of these mergers will be forced into existence. For obviously, if the seller may not lawfully check the statements of the buyer (who is highly paid to play members of an industry against each other that the price may be depressed), and if it is in the interest of trade that purchasers may organize (as they do) while sellers may not, the natural thing is to resolve an industry into a few large aggregations of capital, and so minimize the number of competitors. If care then be taken that no one combination exceeds the 50 per cent dead line of total capacity established by the Supreme Court, much of the present unfair advantage of the organized buyers will be destroyed. But, is this concentration what the country really wants?
Now, what is behind this theory of price competition to the utmost? Is it the notion that it is in the ‘public interest’ that goods shall reach the consumer as cheaply as possible, regardless of whether the producer or distributor is worthy of his hire? Does the consumer alone constitute the ‘public’ ? Does not modern society live by exchanging the product of one individual for that of others, and are not the interests of producer, distributor, and investor an equal part of the ‘public interest’ with that of the consumer? In the last analysis, have we not each of us a dual capacity both as earner and as spender, and can society spend without earning or live without spending? Surely it should be self-evident that where a whole industry operates with little or no profit, as is frequently the case to-day, the purchasing power of both labor and investor is either diminished or threatened, and that a continuance of that condition means either loss of capital or combination. Stabilized prices mean stabilized wages; the two together mean stabilized purchasing power, which exercises an all-important influence upon the stabilization of business activity.
Or is it the notion that the establishment of fair prices for standard products by an industry would guarantee a living to the inefficient, otherwise unobtainable, and would unduly reward the efficient? If so, let it be said that the leveling influence of the economic law of supply and demand, given free play, may be safely relied on to control the situation, especially when the public’s interest is further protected by the ‘reasonable’ requirement of the common law — ‘reasonable’ meaning simply that the restraint upon one party shall be no greater than protection of the other party’s interest requires. First, because enlightened selfinterest will usually operate to stabilize prices in times of demand at a ‘reasonable’ level that will not invite new competition; secondly, because the strong, though loath to concede that the world owes a living to their weaker competitors, have to remember that the overdevelopment of their power would bring them within the monopolistic category.
For an illustration of this type of self-restraint that is occasionally practised in deference to the genuine antitrust features of the Sherman Law, one need look no further than the United States Steel Corporation. Here was a corporation which the Supreme Court refused to dissolve because the Government could not show that it had abused its power, notwithstanding that it constituted almost 50 per cent of the country’s steel-making capacity. Investigation brought out the fact that the Corporation, under the sagacious leadership of Judge Gary, had pursued a consistent policy of ‘live and let live in the face of its conceded ability to produce steel for about three dollars per ton less than its competitors. Its ability to cause the ruin of these competitors was therefore manifest. But to have thus exercised its power would inevitably have created a virtual monopoly, which in turn must have caused its early dissolution and the consequent disintegration of the very factors that had produced its low cost efficiency. Therefore we had the anomaly of a powerful corporation given a clean bill of health because, in effect, it had kept its prices up to a point where its competitors might live! Of course, no one may justly quarrel with the decision in question, but one may logically wonder why the same privilege of survival is not conceded to the many smaller industries where the danger of monopoly does not exist.
Wherein is it a restraint of trade if an industry be permitted to take such steps as are necessary for its own preservation? No country may expect to attain perfection; we have our thieves, murderers, bootleggers, and no doubt shall continue to have, but we do not intentionally penalize the preponderant honest majority because of the few. So, even supposing, as we must, that an ‘unreasonable restraint’ will be practised here and there with only greed for its motive (as no doubt it is to-day), is not that offending industry easier to deal with when such restraint depends upon the concerted action of many loosely associated units than when those same imits — with greater presumption of legality — combine for the same purpose within one or two dominating aggregations of capital that cannot so readily be disbanded or reformed?
Price-fixing, that supposed synonym for opprobrium, where it could be applied at all, would operate chiefly to prevent demoralization when supply exceeded demand. It is, of course, here that its public benefit would accrue. Admittedly in many industries it would not be feasible in any case, because of the varying character, design, and requirements of the product or the multiplicity of the sources of supply. The assumption, however, that legalized price-fixing is merely an invitation to human cupidity is contrary to general experience. Cupidity may dominate a company, — for a brief span of life, yes, — but not an entire industry composed of numerous independent units. The simplest proof of this is the absence of important or frequent objections to price-fixing either in America in the ‘old days’ prior to 1890 or in any of the other industrial countries of the world to-day.
In this connection it is well to remember that Adam Smith and John Stuart Mill did not discover or preach their immutable economic laws as observers of an artificially restricted economic era. On the contrary, they had only natural laws to judge by, such as have held sway in every civilized land but ours. It is true that modern conditions of intensive economic development even in other countries have required artificial protection against monopoly and against such other unreasonable restraints as might occasionally be attempted, but where sufficient independent sources of supply exist there have been relatively few complaints of pernicious agreements. In the existing interpretations of our system, however, the mere fact of agreement as to prices, production, or territory is prima facie evidence of illegality.
In this discussion attention has been centred upon price agreements as perhaps the most ‘opprobrious’ aspect of ‘restraint of trade’ in the effort to show that they need not ‘unreasonably’ restrain trade, especially if surrounded with proper, rather than misdirected, safeguards. But it is not price-fixing alone that is the crying need of so many industries to-day so much as the privilege of complete coöperation for the stabilization of a moderate prosperity to capital efficiently conducted and labor efficiently performed; education in such matters as what constitutes a fair profit, based on such factors as the proportion of investment required, the frequency of capital turnover possible, and the degree of risk involved — all of which factors vary with the type and conditions of individual industries. Upon such vital subjects competitors may not lawfully take counsel with each other, although they alone possess the collective knowledge that would educate those managements which are willing to risk their stockholders’ capital. The theorist will say that no one need ‘choose’ to-day to sell below cost, but to him it should be said, ‘Try to stop it.’ Surely he will get no help from the customer’s purchasing agent, for every industry contains some who think they can take another’s business away by price concession without suffering retaliation, and who will always think they can successfully produce what their competitor is alleged to be offering, while the law as now construed will not permit them to get the correct information until too late, if then. To be sure, it is the weaker element who give way, but their eventual failure to prosper and survive is detrimental to any industry, since it usually means the substitution of a new competitor on the basis of a bargain purchase, whose consequent lower capital charges permit the use of lower basic cost rates, and thereby convey an unearned cost advantage for the future over the more established members of the industry affected.
How many who read this paper have realized that no other country has ever thought of interpreting ‘reasonable’ price or policy-stabilizing agreements as ‘restraint of trade,’ or of construing the lowest price to the consumer as the sole factor of national economic wellbeing?
Observe the contrasting and representative British point of view as expressed by the British Court in the wellknown Australian Collieries case: —
It was also strongly urged that in the term ‘detriment to the public’ the public means the consuming public, and that the legislature was not contemplating the interest of any persons engaged in the production or distribution of articles of consumption. Their Lordships do not take this view, but the matter is really of little importance, for in considering the interests of consumers it is impossible to disregard the interests of those who are engaged in such production and distribution. It can never be in the interests of the consumers that any article of consumption should cease to be produced and distributed; as it certainly would be unless those engaged in its production or distribution obtained a fair remuneration for the capital employed and the labor expended. . . . In the first years of the present century a new coal field . . . began to be developed. . . . The proprietors accordingly entered on a course of ruinous competition with each other. . . . The collieries in the Newcastle coal field were ceasing to pay dividends and falling into the hands of the banks who had financed them; the miners had little chance of an advance in wages, though there had been a general advance in prices; and the prosperity of Newcastle, which is dependent on the coal industry and the shipping industry in connection therewith, was seriously threatened. . . . It was under these circumstances that on January 5, 1906, there was a meeting of some of the proprietors of collieries in the Newcastle and Maitland fields. The chairman pointed out the necessity of forming an association of all the collieries if the present very unsatisfactory state of the coal trade was to be improved. The meeting thereupon passed a resolution that it was desirable to form an association to raise and maintain the price of coal. . . . It can never, in their Lordships’ opinion, be of real benefit to the consumers of coal that colliery proprietors should carry on their business at a loss, or that any profit they make should depend on the miners’ wages being reduced to a minimum. Where these conditions prevail, the less remunerative collieries will be closed down, there will be great loss of capital, miners will be thrown out of employment, less coal will be produced, and prices will consequently rise until it becomes possible to reopen the closed collieries or open other seams. The consumers of coal will lose in the long run if the colliery proprietors do not make fair profits or the miners do not receive fair wages. There is in this respect a solidarity of interest between all members of the public. The Crown, therefore, cannot, in their Lordships’ opinion, rely on the mere intention to raise prices as proving an intention to injure the public. To prove an intention to injure the public by raising prices, the intention to charge excessive or unreasonable prices must be apparent.
The age-long record of industrial Britain may not be said to be altogether without merit or economic understanding. Nor are we justified in ignoring the experience of others because of temporary post-war conditions, as too many of our public men seem prone to do.
This, then, was the dictum of the Privy Council of England in the case that arose in 1912 under the Australian Industries Preservation Act (note the objective as described by the title), which prohibits agreements or combinations‘in restraint of trade’ just as our Sherman Law does, but differs therefrom in specifying that such agreements shall be considered unlawful only when they are ‘to the detriment of the public’ or carry with them ‘intent to destroy or injure, by means of unfair competition, any Australian industry the preservation of which is advantageous to the Commonwealth, having due regard to the interests of producers, workers, and consumers.’ Absence of ‘detriment to the public’ or absence of an ‘unreasonable’ quality in the restraint effected or intended, if proved by the defendant, constitutes a valid defense, while on the other hand the absence of such proof constitutes proof of the Government’s charges — the burden of proof thus resting upon the only party who is in position to supply the facts. What a contrast to the narrow, antiquated, and restrictive policy dictated in this country by a contrary definition of the same words — ‘restraint of trade’! And what simplicity of enforcement and of fact-finding underlies the economic objective of this Australian law! What a boon its adoption in this country would be, properly and strictly enforced!
Another remedy was suggested some years ago by the late Judge Gary when testifying before the so-called Stanley Committee of Congress in the Steel Corporation dissolution suit, as follows:
‘I realize as fully, I think, as this committee that it is very important to consider how the people shall be protected against imposition or oppression as the possible result of great aggregations of capital, whether in the possession of corporations or individuals. I believe that the Sherman Act does not meet and will never fully prevent that. I believe we must come to enforced publicity and governmental control, even as to prices, and so far as I am concerned, speaking for our company so far as I have the right, I would be very glad if we had some place where we could go, to a responsible governmental authority, and say to them, “ Here are our facts and figures, here is our property, here our cost of production: now you tell us what we have the right to do and what prices we have the right to charge.” I know this is a very extreme view, and I know that the railroads objected to it for a long time; but whether the mere standpoint of making the most money is concerned or not, whether it is the vise thing, I believe it is the necessary thing, and it seems to me corporations have no right to disregard these public questions and these public interests.’
’Your idea then,’ said the committee, ’is that coöperation is bound to take the place of competition and that coöperation requires strict governmental supervision?’
’That is a very good statement,’ replied Judge Gary.
That is about the only other feasible remedy yet suggested. While it would undoubtedly accomplish all the legitimate purposes sought by honest business, it lacks the simplicity of the Australian conception, and has the apparent disadvantage of putting the Government into business at a time when all sentiment, both governmental and public, leans strongly in the opposite direction.
That there has long been a recognition of some of these incongruities on the part of at least a few of our public men is shown by the following excerpts from President Roosevelt’s Message to Congress of March 25, 1908, and from addresses by Mr. Chief Justice Taft and Mr. Secretary Hoover. Mr. Roosevelt said: —
As I have repeatedly pointed out, this antitrust act was a most unwisely drawn statute. It is mischievous and unwholesome to keep upon the statute books unmodified a law like the antitrust law, which, while in practice only partially effective against vicious combinations, has nevertheless in theory been so construed as sweepingly to prohibit every combination for the transaction of modern business. . . . The Congress cannot afford to leave it on the statute books in its present shape.
Mr. Roosevelt’s characterization of this law is of particular significance when it is recalled that it was he who, more than any other man in history, denounced and prosecuted the trusts and all other abuses of power in business.
Mr. Taft’s statement, made in August 1908, when he was making his successful run for the Presidency, has been frequently quoted as follows: —
I am inclined to the opinion that the time is near at hand for an amendment of the antitrust law, defining greater detail defaults against it, and its aim, and making clearer the distinction between lawful agreements, reasonably restraining trade, and those which are pernicious in effect.
Mr. Hoover’s statement was made on May 10, 1922, before a convention of the National Association of Manufacturers in connection with the possible extension of lawful trade association procedure, and the clarification of the existing uncertainties of definition:
I believe the time has come when we must have some assistance from the law, but this does not imply the alteration of the purpose of the restraint-of-trade acts.
At the time when the Sherman Act was passed, the country was in the throes of growing consolidations of capital. There were consolidations of actual ownership, and the country was alive with complaints of attempts to crush competitors with unfair practices and destructive competition. Large numbers of trade associations were then in existence, but were scarcely even discussed in this connection.
It will be observed that Mr. Taft’s use of the word ’reasonable’ in connection with ‘restraint of trade’ coincides perfectly with Australia’s theory and practice. In this connection, too, a resolution adopted in 1922 by the National Association of Credit Men, since reaffirmed more specifically, indicates an awakening of a responsible business sentiment: —
To treat our commerce to-day as was deemed necessary in an earlier period is an injustice and a blow at our best protective powers. The destructive competition of the eighties led to trusts and combinations which the Sherman Law was intended to regulate and check. Destructive competition has now given way very largely to constructive competition. This particular law therefore should be superseded by a modern statute designed according to the proportions, methods, and practices of to-day’s business. Where there are evil tendencies to check, where there are undesirable combinations to prevent, a law framed on broader principles, free of prejudices, and capable of practical application, will be more useful and more protective than the statute of 1890 could ever prove to be on the most generous and judicious construction.
It is also well known that organized labor for some time past has been desirous of a modification and revision of these laws. In fact, at its Atlantic City convention, in September 1925, the American Federation of Labor went on record as urging even the repeal of the Sherman Law. This was confirmed last year in its meeting at Los Angeles.
And that the need for revision or amendment of the present legislation is beginning to receive the serious attention of the legal profession in an organized, as distinct from an individual, way is evidenced by these excerpts from the 1927 report of the American Bar Association’s Committee on Commerce: —
The Sherman Law is economic legislation. It can only be helpful if it is subservient and not in opposition to economic laws. . . . Not only is the Sherman Law economically unsound, but its application to individual cases is uncertain. The facts constituting unreasonable restraint of trade cannot be catalogued. What is clearly an unreasonable restraint of trade in one case may in another case be a reasonable restraint. The result of such a state of complicated uncertainty is not only to keep men from violating the law, — that is, from entering into agreements unlawfully restraining trade, — but to keep men from entering into any agreements restraining trade, even though the restraints be reasonable and, therefore, lawful. Lawful agreements are commendable. If fear of the law keeps men from entering into lawful contracts, the public interest is violated. The Sherman Law is the basis of such a fear to an extent that cannot be overstated. It is, therefore, something more than a law — it is a power beyond the law. . . . It is the view of your Committee on Commerce that the country has outgrown the Sherman Law. . . .
All this being so, it may well be wondered why no substantial demand for reform has thus far made itself felt. There would seem to be a number of reasons. First of all, public sentiment having been educated in days gone by along opposite lines, the majority of public men have looked at the subject as one surcharged with political dynamite. Only a few, who have had contact with or cognizance of the true workings of these laws, have ventured to speak out, and these few have realized their impotence in the face of the failure of business itself to make its needs known. Some of those few who have had the courage openly to favor revision or amendment have asked in vain for business to declare a specific programme. Business has never done so in any organized way, because, like labor, organized and unorganized, its own purpose has been divided. The representative men of big business have treated the subject as though they too expect one day to run for office. For one thing, their corporations have been frequently attacked, both in the courts and by demagogic outburst, their actions closely watched, and their motives often misconstrued. Moreover, it is a question whether existing conditions are not welcome to the agents of big business as making them constantly bigger and more powerful through the elimination or absorption of their smaller competitors.
Small business, on the other hand, is unorganized, its trade associations rendered impotent and their members held apart by this very ‘antitrust’ legislation, so that its voice is as a voice in the wilderness. Yet it is this mass of individual units, composed of all the producing and distributing organizations up to a few millions of capital and a few thousands of employees, which is still to-day the backbone of the nation’s economic structure — though reflection as to how long this status can continue may well give us pause.
In the creation of mass psychology an ounce of rumor is often worth a pound of truth. The very terms ‘pricefixing’ and ‘collusive agreements’ are in the public mind so tainted that only in private does one hear the protests of those who could and should help to bring out the truth. Are the interpretations of the Sherman and Clayton Laws so sacrosanct that their perpetuity must be conceded, that to challenge the economic wisdom of their application and the economic benefit of their execution one must incur the suspicion of malefaction? Are we not taught that under a republican form of government there is no other orderly means of relief from unwise or injurious legislation than to ‘speak out loud and bold’?
Thus it is that most of the public discussions of the question have been confined to members of the legal profession, whose self-interest may not be so cynically questioned, whose services are vitally necessary, of course, but whose discussions are usually and naturally from a legalistic rather than a strictly business or economic point of view. They have therefore concerned themselves more with the inferences to be drawn from the successive expressions of the various courts, as one phase after another has arisen for interpretation, than with the basic need for a more general understanding of the many and varied phases wherein the present laws restrict and hamper industry’s legitimate aspirations. These are far too numerous and too intricate to permit of elaboration in any general discussion of this many-sided subject, but, broadly summarized, it cannot be emphasized too strongly that substantial relief from the conditions cited can come, not from the adaptation of procedure to existing law, but only from the conformity of the law and its interpretations to the ‘reasonable’ protective requirements of business itself.
If, then, these truths be self-evident, it should be the immediate demand of both capital and labor upon their only organized spokesmen — the national Chamber of Commerce and the American Federation of Labor — that the statesman shall emerge, of so unimpeachable a character and reputation, and of such a generally recognized personal financial detachment and political independence, as will enable him and his party gradually to bring about through the processes of public education a recognition and correction of the present economic absurdities that are to-day harassing so many industries, producer and distributor alike.