The above statement gives the effect and not precisely the form of the proposed legislation. What its authors really hoped to accomplish was executive discrimination between those combinations and those restraints of trade which were reasonable and those which were unreasonable. They based their measure upon the theory that certain combinations, even many whose tendency is to restrain trade and increase prices to the consumer, may still work for the public interest. The word "reasonable" has played an important part in the history of the Sherman Act. In several cases the corporations, in contesting the law, have made the claim that this act did not prohibit all combinations in restraint of trade, but only those which were "unreasonable." They set up this defense most strongly in the famous Trans-Missouri case, already described. Eighteen railroads, it may be repeated, had formed an association for the purpose of fixing freight rates. James C. Carter, who argued the case, strongly asserted that such an agreement was beneficial both to the railroads and to the public; the history of railroads having conclusively proved that cut-throat competition inevitably led to bankruptcy and demoralization in railroad service. He therefore claimed that the proposed restraint in trade was "reasonable" and consequently not prohibited by the Sherman Act. The Supreme Court, by a majority of five to four, rejected this theory. The Sherman Act, it pointed out, in express language made illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade"; and made "every person" who was a party to such contract a criminal. It left absolutely no leeway—it did not discriminate in the remotest degree between those which were reasonable and those which were not. Since then all demands for the modification of the act have hinged upon this one point.
Andrew Carnegie on Combinations
This demand, of course, has precipitated a very nice problem in definition. What is a reasonable combination? What is an unreasonable one? What is a good trust? What is a bad one? Upon this all-important question the many weary hearings extending through four months before the Judiciary Committee last winter shed practically no light. The Civic Federation bill was based upon this fundamental distinction; and a large number of distinguished citizens appeared in favor of it. Congressman Littlefield, as each speaker appeared before the Committee, asked him to give a concrete illustration of a combination, forbidden by the Sherman Act, which really promoted the public interest and was therefore "reasonable." Mr. Seth Low frankly admitted that he could name no concrete case of the kind. He caused some amusement, however, when he read a letter from Andrew Carnegie touching upon this very subject. "One point seems to me essential," wrote Mr. Carnegie, "without it, little general progress can be made; namely, when new combinations are proposed, the first question must always be 'what is the object sought?' In ninety-nine cases out of a hundred, it will undoubtedly be to rob the community of its right to the benefits of free competition, disguise it as one may; therefore the Commissioner's duty is to obtain satisfactory proof that the application is to cover an exceptional case. The conditions must be peculiar, as those of common carriers and steel-rail agreements are." Mr. Carnegie's statement that ninety-nine per cent of trade agreements are made for the purpose of "robbing the community" and his implication that the exceptional one per cent are the agreements involving the manufacturers of steel rails, naturally provoked much hilarity.
Only two other illustrations were furnished of benevolent combinations. Mr. Herbert Knox Smith, commissioner of corporations, instanced a proposed agreement among lumber men to cut only a certain amount of timber each year, the ostensible purpose being to prevent the wanton destruction of the forests. It appeared, however, that the real purpose of such an agreement was not to preserve the forests, but to restrict the output, and increase prices, and consequently the profits of the lumber men. Another illustration offered was the combination of patent medicine dealers to fix prices and prohibit price cutting—the object, it was said, being to prevent the unfair competition of large department stores with retail druggists. But this, in the last analysis, was generally believed to be a concerted attempt to destroy competition and enhance the profits of patent medicine makers. Congressman Littlefield insisted, throughout the entire proceedings, that the fundamental purpose of forbidden combinations was to control the product and thereby increase the price to the consumer. If there were any combinations that did not have that purpose or result, then the Sherman Act, according to Mr. Littlefield's analysis, did not prohibit them. Thus in all attempts to define practically reasonableness and unreasonableness, as applied to trade agreements, the statement was repeatedly made that the large part of the business of this country was done in violation of law; that business men lived constantly in a state of terror from the fear of its enforcement; that its presence on the statute books largely explained existing business depression. When it came to defining precisely what they wished to do, however, none of those who favored the bill became specific. The thing finally simmered down to a statement by Mr. Low that the law was "a very important element in the psychological condition of business men to-day."
Indulgences to be Granted to Corporations
This particular power of defining reasonableness and unreasonableness, however, the proposed law centered in the President, acting through the Commissioner of Corporations. It provided a limited system of federal registration for corporations, and, in a modified form, for federal license and publicity—the two circumstances which probably led President Roosevelt to support the measure. In effect it granted indulgences to corporations to combine, provided they would do certain things. The Sherman Law, as it stands to-day, was not specifically to be repealed; it was simply to be waived in favor of those combinations and trusts which paid the price of these indulgences. In order to obtain absolution, the offending corporation must do two things: register with the Bureau of Corporations and answer such questions as might be propounded to it. The bill authorized the President to determine precisely what information should be exacted, and also to change from time to time the requirements regarding data. That is, for registered corporations, it gave the executive branch of the government absolute inquisitorial power. Registered corporations had the right to file with the Bureau any agreement or contract or combination to which it became a party—the precise kind of transactions made illegal by the Sherman Act. The Commissioner had thirty days in which to examine such contracts; if, within that period, he declared them in reasonable restraint of trade, then they became practically legal.[L] If not, then they could be proceeded against under the Sherman Law. The chief point of criticism in this arrangement was the stipulation for a thirty-day period during which the Commissioner must pass upon these contracts. This, it was asserted, was the loop-hole by which the corporations were to secure immunity. The Commissioner must declare these contracts reasonable or unreasonable within thirty days; if he failed to act upon them in that time, they became reasonable, precisely as if he had declared them to be so. How, it has been asked, could the Bureau possibly act intelligently within that period upon many of the exceedingly intricate questions which would come up for judgment? Whether a contract is reasonable, of course, largely depends upon the way it affects prices. An examination would therefore frequently involve an economic study of the particular trade, as well as the organization of the particular corporation involved. It would be necessary to go deeply into capitalization, values behind this capitalization, cost of production, wages, transportation charges and so on. There are said to be more than 200,000 corporations in existence. Supposing half or a quarter should register,—how could the Bureau possible examine them within thirty days? Would it be possible to investigate the United States Steel Corporation within that period? Under the suggested law, however, unless the Commissioner passed judgment within this time, all these contracts and combinations would automatically receive a certificate of good character. In their interest, the Sherman Act would practically be repealed.
In the main, this provision referred to contracts made and combinations to be formed in the future; another section practically extended immunity to all contracts and combinations now in existence. Nearly all trusts organized in the last forty years, and all restraining agreements, were to become valid. The government was to have a year in which to institute proceedings against such corporations as declined to register. If it failed to do so within this time, then these combinations could never be attacked on any ground whatever, and became regularly fixed institutions. As there are about five hundred corporations popularly known as trusts and myriads of trade agreements now forbidden, the law department, it was suggested, would have its hands full if it attempted to bring suit against them all within twelve months. Moreover, after the passage of the proposed act, the government could not proceed against any combination except on one ground—that it was an unreasonable restraint of trade. Under the Sherman Act, it will be remembered, it can prosecute without any reference to the question as to whether the restraint is reasonable or not. If the act had passed, in other words, the position of the government would have been this: within a year it could have assailed the trusts only on the grounds of unreasonableness; after the expiration of a year it could assail them on no ground whatever. A saving clause, however, provided that the government could prosecute all actions already begun. That is, it could follow up to the end the pending cases against the Standard Oil, the American Tobacco Company and other corporations against which it has already started suit. It could not prosecute, however, the United States Steel Corporation, for it has instituted no proceeding in that direction. It was the Attorney of the United States Steel Corporation, Mr. Francis Lynde Stetson, who had a large hand in framing the bill.
These facts have led many observers to believe that the bill in question represented an underhanded attempt, by large corporations, especially the United States Steel, practically to remove the Sherman Anti-trust Law from the statute book. Mr. E. H. Gary and Mr. George W. Perkins spent many days in Congress while the bill was under discussion, though they did not once openly appear before the committee. No criticism affecting the good faith of Mr. Low and Professor Jenks, the most active open advocates of the bill, was put forth. The discussion disclosed the fact, however, that the Sherman Act, as it stands at present, has many friends. Organizations interested in curbing the unlawful activities of labor unions insisted that that law, as interpreted by the Supreme Court, is practically the only protection American industry has against the boycott. Repeal or seriously modify it, they declared, and a régime of labor union terrorism far surpassing any hitherto known in any country, would at once begin. The plan of Mr. Gompers and his associates to shelve this law, they insisted, was merely part of their general scheme to remove all legal restraints from the operations of labor unions. Opinions did not seem quite so unanimous as to the wisdom of the Sherman Act in its bearings upon corporations. Though many declared that this measure is too sweeping and drastic, and should be amended, no one has yet suggested any practical way of framing a new law. No one who has studied the problem of trust regulation, it is believed, has thus far hit upon a plan that, while it gives greater leeway to the corporations, protects the public from arbitrarily high prices and other exactions. There is thus a growing conviction that the act passed by the great constitutional lawyers of 1890 represents the best attainable result in this direction. It has not stopped the growth of trusts, it is true; but whether that is because it does not furnish the means or because it has not been sufficiently enforced, is the disputed question. "What is needed," recently said ex-Senator Edmunds, the man who was the real author of the Sherman Act, "is not so much more legislation as competent and earnest administration of the laws that exist."