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differing rates between localities and the
differential rates between commodities solely
by economic principles of demand and sup-
ply, the unequal and unjust results of which
the courts are apparently too far removed
from the vital facts to realize or appreciate.
But even in the courts a reaction seems to
to be at hand: in the Naval Stores case (118
Fed. 613) the court seemed to be much
shocked, at least, by the disproportion be-
^tween the locality rates there disclosed; and
in the Window Shade case (64 Fed. 72) the
court considered the proportion to be ob-



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210 THE CONTROL OF THE MARKET

served between the rate established on raw
material and the rate on the finished product.
It is not enough to say that this power to
make preferential rates may be used for the
benefit of a railway's territory as a whole
or the industries of the whole country, the
fact remains that it is a power which may be
abused. So long as this power is left in the
hands of the managers of these great
companies without power of review by any
authority upon any fundamental principle,
it is in the hands of the railroad officials to
build up an artificial market where the nat-
ural conditions are adverse, or to turn an
industrious city into a wilderness again; and,
without restrictions by law, it is within their
power to protect certain lines of industry
and to crush out others. It is believed that
these are too great powers to intrust to
private hands without governmental control
based upon some recognized standards.

All that has been said in this section as
to railway rates applies without much modi-
fication to trust prices. It has been a com-
mon policy with a national trust to lower
prices temporarily in particular districts
within which competition has appeared.
There has been practically no limit to which



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UNFAIRNESS IN PUBLIC CALLINGS 211

price would not be cut in this competitive
district to accomplish the ruin of a com-
petitor. And often the campaign would be
supported by raising the price in the country
at large. Such local discrimination would be
held illegal by the law now developing
against disproportionate charging. Even at
the present time that law has developed
enough to declare illegal serving at a loss
in one locality, while demanding a com-
pensatory price in another. If the law of
public employment were applied to the trusts,
therefore, most of the tactics pursued in their
predatory campaigns would be held to be al-
together illegal. For against discrimination,
whether personal or local, the law is now set.

VIII

There is a clash of interests here; and
there has been an inclination on the part
of those who conduct these monopolistic
businesses to contest every issue. This is
hardly an enlightened selfishness ; for it seems
to many who appreciate the temper of the
public, that the time has come when exten-
sion of the law and enforcement of it should
be the avowed attitude of all conservative



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212 THE CONTROL OF THE MARKET

persons who wish the perpetuation of the
present condition of individual enterprise.
This memorable year has seen the beginning
of a great compromise between the public
and the monopolies. The Attorney General
of the United States has called for the regu-
lation of the trusts by laws similar to those
now in force against the carriers; and the
chairman of one of the greatest combinations
has openly declared that the trusts are ready
to accept legislation going even to that ex-
tent. Regulation, it is agreed, is the neces-
sary concomitant of monopolization. Those
who conduct a business affected with a public
interest, it is admitted, may not adopt to the
prejudice of the public the business policies
which will get them the most. The law,
it is conceded, must see to it that the power
of the monopolist over the market is not
abused. And the industrial wrongs of the
last generation, it is recognized, must not
be repeated.



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NOTE

The following cases of illegal discrimination will bring
the policy out more clearly: Wight v. United States,
167 U. S. 512 (1886); Wester Union Telegraph Co. v.
Call Publishing Co., 181 U. S. 92 (1901); Mobile v.
Binville Water Co., 130 Ala. 379 (1901) ; Snell v. Clin-
ton Electric Co., 196 111. 626 (1902); Louisville & E.
St. Ry. Co. V. Wilson, 132 Ind. 517 (1892); Messenger
V. Pennsylvania Ry. Co., 17 Vroom. 407 (1874); Griffin
V. Goldsboro Water Co., 122 N. C. 206 (1898); Scofield
v. Lake Shore Ry., 43 Oh. St. 571 (1885); Lorraine v.
Pittsburg J. E. & E. R. R. Co., 205 Pa. St. 132 (1903) ;
Fitzgerald v. Grand Trunk Ry. Co., 63 Vt. 169 (1891).

For the distinction by which differences based upon
cost are held justifiable see, among other cases, Wight v.
United States, 187 U. S. 512 (1886); Savitz v. Ohio &
M. Ry. Co., 150 111. 208 (1894); Root v. Long Island
R. R. Co., 114 N. Y. 330 (1889); State v. Cincinnati,
N. O. & T. P. R. R. Co., 47 Oh. St. 130 (1890).



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CHAPTER X

ENFORCEMENT OF THE ANTI-TRUST STATUTE



It has been seen in the earlier chapters
of this book what was the common law
for the regulation of combinations in re-
straint of interstate commerce in recent
times. That law was adequate enough on
the substantive side, — ^in its definition of what
was legal and what was illegal; but it was
too weak on the remedial side, — ^in that
the existing processes had shown themselves
wholly ineffectual to deal with the new con-
ditions. It had been apparent for some time
that there had arisen in very many of those
important industries which purvey the neces-
sities of life, great leaders who, with those
whom they had associated with them, were
with startling success taking advantage of
those economic forces which had long been
making for greater concentration. It was
just before 1880 that these captains won in
their respective industries the battles which

214



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THE ANTI-TRUST STATUTE 215

had assured their power. And long before
1890 these new conditions became generally
understood by reason of the many abuses of
which those who had gained this great power
were guilty. The country finally awoke to
the fact that these captains of these indus-
tries were doing about as they pleased. It
was at this critical time that the allied in-
terests insolently challenged the public by
the open announcement of the industrial
trusts, which have given their name to the
whole problem, although these original
trusts have long since been dissolved.



II

To the most superficial observers of cur-
rent events it thus became evident that the
very existence of the competitive system
was threatened by the industrial reorganiza-
tion which was being worked out so suddenly.
In a great fear that, if this movement should
be allowed to gather more momentum, the
very foundations of industrial society might
})e shaken, there was a widespread appeal
from all classes for remedial legislation, upon
the justifiable ground of the demonstrated
inadequacy of the common law to grapple



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216 THE CONTROL OF THE MARKET

with the chief oflFenders. As generally hap-
pens under our Federal system, legislation
began in the states before the Federal
statute was enacted; and as has usually been
the outcome, the Federal legislation is more
thoroughgoing than in some states, but less
extreme than in others. It cannot be denied
that in some respects this anti-trust legisla-
tion was absolutely necessary, for unless
effective processes had been promptly pro-
vided, there would have been no way to deal
with those commercial brigands who were
making further plans for predatory raids
upon a helpless population. It has been the
fashion of late years to sneer at the anti-
trust legislation as the unintelligent attempt
of a visionary people who confidently under-
took the hopeless task of putting an imme-
diate end to an irresistible evolution by legis-
lative fiat. But in view of the existing condi-
tions it was obvious enough that immediate
provision was necessary for the effective
prosecution of such extreme cases as should
seem to the administration to demand action,
so that the situation might not get beyond
all control.

This Federal anti-trust law of 1890— the
so-called Sherman Act — ^begins by sum-



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THE ANTI-TRUST STATUTE 217

marizing briefly what constitutes illegal re-
straint of trade and concludes by somewhat
more elaborately setting forth the new
remedies provided. On the substantive side
it first declares illegal " every contract, com-
bination in the form of trust or otherwise,
or conspiracy, in restraint of trade of com-
merce among the several states or with
foreign nations." It next declares against all
who shall " monopolize or attempt to mo-
nopolize " interstate or foreign commerce.
On the remedial side, the act provided two
wholly new processes. The first was a spe-
cial proceeding to be brought under the
authority of the Attorney General to have
ordered the dissolution of a combination in
restraint of trade. The second was a special
action for treble da mage^ available to any
person injured in his business by the machi-
nations of a combination.

As matters have worked out so far, it is
to these new remedies that chief importance
has attached. There has been some consid-
eration given to these other provisions, for
example the problem whether the statute in
thus condemning every contract and com-
bination made void and illegal all arrange-
ments — ^reasonable as well as unreasonable.



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218 THE CONTROL OF THE MARKET

And again, what constitutes monopolizing has
been brought up, but not settled. But it is
rather those special proceedings, initiated by
the Attorney General, to have dissolved the
most notorious of the great combinations,
which have engaged public interest. It is,
therefore, chiefly the story of the progression
of these proceedings that will be told here.
But, incidentally, reference will be made to
the suits that have been brought for treble
damages under the other provision, although
these have been few, as private citizens have
thus far been content generally to leave it to
the Government to bear the brunt of working
out through the injunction proceedings the
real scope of the legislation.



Ill

The Federal authorities met such serious
reverses in the first campaign against the
trusts under the Sherman Act that it seemed,
for the time being, that the anti-trust legis-
lation was destined to prove wholly ineffect-
ual. The department of justice after some
delays picked out two of the most notorious
trusts for its first attack — the Sugar Trust
and the Whisky Trust. In the proceedings



^sssL



THE ANTI-TRUST STATUTE 219

against the Sugar Trust the E. C. Knight
Company (156 U. S. 1) was named first, as
its absorption into that trust was of recent
notoriety. And the proof adduced was, if
anything, too elaborate as to the formation of
this combination among the sugar refiners — •
but very little was brought forward in the
direct evidence as to the interstate trade of
these refiners. When therefore the Supreme
Court of the United States passed upon the
case, being necessarily confined to the record
submitted, the majority of the court held
that, although the combination in the form of
a trust was certainly within the terms of the
statute, no more appeared upon the record
than a restraint of manufacturing thereby.
" Commerce succeeds to manufacture, and is
not a part of it," said Chief Justice Fuller.
And, as manufacturing was of necessity
within particular states, such restraint did
not fall within the scope of a Federal statute,
no restraint of commerce between states
being shown. J The real truth seems to be
that the Government attorneys were no
match for the trust lawyers; and the Su-
preme .Court had not as yet learned to
appreciate the real scope of the new legis-
lation. ^



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220 THE CONTROL OF THE MARKET

Other proceedings against commercial
combinations failed. These " stock-yard
cases," as they are known (171 U. S. 578,
604) ; one against Hopkins as a member of
the Kansas City Live Stock Exchange; the
other against Anderson, as a member of the
Traders' Live Stock Exchange, were sub-
stantially similar. The by-laws of both
associations disclosed restrictions upon the
compensation to be taken. But the Supreme
Court adhered to their principle that in order
to come within the provision of the statute,
the direct effect of the combination must be
to restrain interstate commerce. " There
must be some direct and immediate effect
upon interstate commerce in order to come
within the act," said Mr. Justice Peckham.
It has since been appreciated that these cases
do not really diminish the proper scope of
Federal legislation. These cases now stand
simply for the proper distinction that those
things which only indirectly affect interstate
commerce do not fall within the Federal
jurisdiction. There have been several ex-
amples of this alternative in recent decisions
•which are generally accepted as entirely
sound. But it seemed at the time that the
Supreme Court was still persistently refus-



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THE ANTI-TRUST STATUTE 221

ing to give to the anti-trust statute the ex-
pected application.

IV

Strange often are the events by which
progress is made. The Sherman Act had
thus within a few years apparently been con-
signed to a subsequent career of innocuous
desuetude by the trust lawyers when an in-
dustrial crisis suddenly arose in which the
aid of the eminent lawyers of this higher
coterie was given to the Government side.
This railroad strike of 1894 soon threatened
a social upheaval. And as conditions grew
worse it was felt that only by an appeal to
the Federal Government was its course to be
stayed. It was under the Federal law that
its leaders were seized and its forces finally
disorganized. In these Federal proceedings
the point was made prominent that unions
were combinations plainly designed to re-
strain commerce between the States, by in-
terfering with the movement of inter-
state trains. For contempt of an in-
junction based largely upon the Federal
anti-trust statute Debs (158 U. S. 564)
went to his spectacular imprisonment. But
these proceedings were not confirmed with-



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222 THE CONTROL OF THE MARKET

out great argument in support of the juris-
diction of the Federal Government; and in
accepting these arguments the courts went
far towards holding that any combination
whose action really affected interstate com-
merce was within the Sherman Act.

We are used to this doctrine now> par-
ticularly since the case of the boycott against
the Danbury hatters (208 U. S. 274) ; but
at the time it seemed the irony of fate that
the anti-trust law should thus far be found
without eflFect against combinations of capital,
but directly applicable to combinations of
labor. There have been other instances where
the anti-trust laws have been employed against
combinations of labor; and there will be more
now that it is appreciated that the thing most
abhorrent to the statute is monopolization.
For nothing can be more clearly monopoliza-
tion than the unionizing policies of many of
the present unions. To exclude others from
a market is the very definition of monopoliza-
tion; and the unions are more frank in avow-
ing this to be their object than the trusts are.
The managers of the trusts make much talk
of the savings of large scale production as the
basis of their profits, to conceal the fact that
much of this profit is the direct result of their



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THE ANTI-TRUST STATUTE 223

monopoly. The labor leaders say frankly
that they must have monopoly in order to get
better wages; they seldom argue with con-
viction that union labor is more economical.



The railroad pools were the first commer-
cial combinations to feel the force of the act;
railroads, indeed, were indisputably engaged
in interstate commerce. The Trans-Missouri
Freight Association (166 U. S. 290) was the
first to be attacked. This was a railroad pool
of the typical sort, providing for a distribu-
tion of trafiic and a division of its freights
upon a pro rata basis. Any arrangement of
this kind plainly does away with real com-
petition; and as such combinations have al-
ways been regarded as illegal at common law,
it was plainly right to hold this pool a com-
bination in restraint of trade within the words
of the statute. Still the railway bar, arrayed
now in behalf of its own patrons, made a
desperate attack upon the application of the
statute. But the Supreme Court, now be-
come more sophisticated, held that, as the
direct effect of this combination was to con-
trol competition in transportation between the



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224 THE CONTROL OF THE MARKET

states, its continuance constituted a plain
restraint of interstate commerce. A little
later the case of the Joint Passenger Traffic
Association (171 U, S. 505) came on for
disposition. The draftsmen of that agreement
had seen to it that the pooling did not go so
far as formerly, and indeed, out of abundant
caution, had put in a clause that nothing
therein should be construed as in violation of
the anti-trust law. But, as the substance
of competition was really touched by the
agreement, the Supreme Court said that this
pool, too, should be dissolved for its direct
restraint of interstate commerce.

In the opinions in these cases the court
went much further than was necessary in con-
struing the statute to apply to all arrange-
ments in restraint of trade, whether reason-
able or unreasonable. Unnecessary as it
was to the decision, Justice Peckham said in
the first case: " By the simple use of the term
contract in restraint of trade, all con-
tracts of that nature, whether valid at
common law or otherwise, would be included,
and not alone that kind of contract which
was invalid or unenforceable as being un-
reasonable restraint of trade." Before this
dictum was overruled it was destined to cause



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THE ANTI-TRUST STATUTE 225

the public unnecessary alarm and the court
itself much trouble,

VI

At this stage some people may have thought
that all the future had in store had been dis-
closed. It might have been said that proceed-
ings against the industrial trusts would con-
tinue to fail, as all the cases against them
had already failed, because the Supreme
Court would be satisfied with nothing less
than the direct restraint of interstate com-
merce, which could be found in its pure form
only in the very conduct of interstate trans-
portation. But closer readers of these deci-
sions would have seen that the current of
opinion in the court had now set in a new
direction.

At all events this new appreciation by the
Supreme Court of the real scope of the
Sherman Act was soon made manifest to all
in the decision against the Addystone Pipe
Company (175 U. S. 211) and the other foun-
dries associated with it. This combination in-
cluded the principal makers of iron pipe in
large sizes between the Appalachian Moun-
tains and the Rocky Mountains. By the
rules of the association, no sales could be



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226 THE CONTROL OF THE MARKET

made by any member of the association mitil
he had bought the right to do so from the
association. These rights were sold over the
table at secret auctions, regularly conducted.
Did Omaha advertise for more pipe for its
waterworks; Omaha was put up at auction.
The concern that thus bought the right to
sell to Omaha could then charge Omaha any
price it pleased. Indeed, other members on
request were bound to put in bids higher still.
It is needless to say that this pool was a
combination in restraint of trade by any test.
In view of what had previously been de-
cided, the important question still remained
whether the Supreme Court would hold this
to be restraint of interstate commerce. But
the doctrine which was now laid down by
the Supreme Court in the Addystone case
was that, as real suppression of previous com-
petition in actual selling across state lines
was shown, these facts made out a sufficient
restraint of interstate commerce. And the
Addystone case thus marks a great advance
in (Government's offense, especially as, in the
course of the final decision, Mr. Justice Peck-
ham said: "Total restraint of trade in the
commodity is not necessary in order to render
the combination one in restraint of trade."



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THE ANTI-TRUST STATUTE 227

Since this decision there has been no
doubt that whenever those who are engaged
in interstate commerce by making a com-
bination substantially put an end to their
competitive dealings, this constitutes such re-
straint of interstate commerce as to be within
the Federal jurisdiction. In the Swift case
(196 U. S. 375) this was made plain beyond
all doubt. To be sure, the decision of
this case might seem to a layman to be
made easier by the fact that Swift & Com-
pany and its alleged confederates admitted
by their demurrer all of the sinister acts
attributed to them. But granted that these
Chicago packers had an arrangement among
themselves not to bid against each other in
the regular sales at the stock-yards, the
question of Federal jurisdiction still re-
mained. And the Supreme Court held that
it does not matter that the combination acted
within a single state, if that action really
suppressed previous competition in inter-
state trade. Mr. Justice Holmes well
brought out the essential point in restraint
of trade when he said: "The scheme as a
whole seems to us within the reach of the
law. It is suggested that the several acts
charged are lawful, and that intent can make



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228 THE CONTROL OF THE MARKET

no difference. But they are bound together
as parts of a single plan. The plan may
make the parts unlawful."

It makes no practical difference whether
you say baldly that the Knight case has
really been overruled by the Addystone case,
because the court has acquired a new point of
view, or whether you say that it is the
prosecuting officers who have learned, as
this case of Swift & Company has abundantly
showed, how to present their case so as to
bring an industrial combination within the
Trans-Missouri case. The real truth is that
all concerned have been greatly influenced
by the indignant opinion of an outraged
public, for ordinary laymen could not but
feel that the anti-trust statute was inexpli-
cably nullified if it could reach various of-
fenders, but never the trusts themselves.



VII

The law against the earlier forms of com-
bination without central incorporation, there-
fore, can be considered settled. But the great
problem remains whether these newer forms
which have central incorporation should be
held legaL Such a combination was destined



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THE ANTI-TRUST STATUTE 229

soon to be tested by the organization in
1901 of the Northern Securities Company of
New Jersey to take over the majority of the
stocks of the Northern Pacific and the Great
Northern after the bitter campaign of that
year in the stock market. This is no place
to retell the story of that bloody campaign
for the control of the borderland between the
Hill territory and the Harriman territory
which terminated in this treaty of peace.
The outcome is too recent history to require
restatement. In the Northern Securities
case (193 U. S. 197) the Supreme Court
ordered that the New Jersey holding cor-
poration should divest itself of its holdings
of these stocks of these railways, as the
holding was in violation of the Sherman
Act. And in the Harriman case (197 U. S.
244) the Supreme Court ordered that the
Northern Pacific shares should be distributed
pro rata to the stockholders in the Northern
Securities Company, thus giving the final
victory to the Hill allies.

The decision in the Northern Securities
case was a peculiar one. Four of the justices
thought the holding scheme wholly bad; four
thought it no violation of the Sherman Act.
Mr. Justice Brewer held the balance of



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830 THE CONTROL OF THE MARKET

power, taking the position that the arrange-
ment was bad as involving total suppression
of competition, but saying clearly that, if
the scheme had been a reasonable one, it


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Online LibraryBruce WymanControl of the market; → online text (page 11 of 14)