September, 1911; and, for that purpose, the transfer books of the Company will be closed on the 31st day of August, 1911, at 3 o'clock P. M., and kept closed until the date when said stocks are ready for distribution, which it is expected will be about December 1, 1911.

Notice of the date when said stocks are to be distributed and of the re-opening of the books will be duly given.

Everybody knows what disintegration means, it means dissolution "smashing 'em," in the language of the street.

The Standard Oil Company has been disintegrated into some thirty-five, more or less-chiefly less-independent and supposedly competing companies.

The Tobacco Company has been disintegrated into fourteen, more or less, independent and—supposedly-competing units.

The net result to the public so far has been higher prices for many of the products of the one and no lower prices for any of the products of the other.

The net result to many small stockholders has been losses.

The net result to "insiders"-the men against whom public clamor was raised-has been golden opportunities for profit in the buying and selling of subsidiary stocks long before stockholders and the public could possibly form any accurate notions of their real value.

To illustrate-when the Standard Oil Company of New Jersey -the trust-was dissolved by order of court the stockholders of that company received pro rata fractional interests in all the subsidiary companies, and for the first time thousands of men and women all over the country learned of the existence of those thirtyfive companies. By no possibility could these scattered stockholders form accurate opinions regarding the values of the fractional shares. issued to them; only the men in control of the industry were in a position to know. What has been the result? The stockholders. and public have sold and bought in ignorance, losing both ways.

30

'Adapted from The New Competition, 258–260. Copyright by D. Appleton & Co. (1912).

Take the Standard Oil Company of Indiana, one of the subsidiary companies. It was capitalized at $1,000,000; the amount cut no figure so long as all its stock was held by the trust, but when the trust was dissolved its many stockholders received each his fractional pro rata share in the Indiana Company. There was a general impression the stock of this company was worth far more than par, but how much? Only the insiders could tell. As a result many stockholders who were in the dark sold their interests at less than a fifth of what the stock sold for inside a few weeks.

A few days ago the Indiana Company voted to increase its capital stock from one million dollars to thirty millions and to distribute the $29,000,000 to its stockholders as a stock dividend, and it now appears that the company is earning at least ten millions a year, or 33 1/3 per cent on the new capitalization, but it is stated in the press the "officers refuse to give any information on this point."

Disintegration of trusts and large corporations simply because they are large is a senseless proposition, because both are here to stay in some form. The Sherman Law was passed in 1890. For more than ten years few attempts were made to enforce it against large corporations. Then, in response to popular clamor, due to many flagrant abuses, came a period of indiscriminate "trust-busting." Already there are signs of reaction; the pendulum is swinging back; it is found the Sherman Law hits large and small, good and bad, labor unions and capital unions alike.

218. An Appraisal of the Sherman Act31

BY ALLYN A. YOUNG

The Sherman act is a general statute, declaratory of public policy. As such it must be judged by (1) the soundness of the policy which it declares, (2) the accuracy and completeness with which it declares that public policy, and (3) the adequacy of the mechanism which it provides for making that policy effective.

I. There can be little doubt that the public policy which the act was intended to embody is that competition should be maintained, artificial monopoly destroyed, and its growth prevented. It is clear from the debates attending its enactment that its hostility toward large industrial combinations was especially directed against (1) their supposed power over prices and (2) their aggressive suppression of competition. Whatever the economic advantages of

31 Adapted from "The Sherman Act and the New Anti-Trust Legislation," in the Journal of Political Economy, XXIII, 213-220 (1915).

monopoly may be, there will be little question of the soundness of the policy which attempts to deprive it of its power for evil in these two particulars.32

2. Is the Sherman act an accurate expression of the public policy which it seeks to declare? If by accuracy is meant precision, it has little of it. It was, in its inception, a lawyer's statute, speaking in the language of the common law. At the time it was evident that it would be difficult for Congress to come to an agreement on particulars. Moreover, its general phrases were chosen intentionally, we are told by one of its framers, in order that the responsibility of determining its exact scope might be left to the courts. For seven years its interpretation was uncertain. The decisions of the lower, court were conflicting, and the Supreme Court's holdings purely negative. Even after an utterance from this court, the words "restraint of trade" still remained to be defined, and in the next thirteen years the work of definition progressed only so far as the particular cases decided were typical of the classes of cases possible. The standard of public policy outlined in the Standard Oil decision was the first general criterion of the scope of the act. There is little doubt that the present interpretation of the statute is in harmony with the purposes which were in mind at the time of its enactment. There is now no question that if the purposes of combination are monopoly, they come within the condemnation of the act. There is no reason to think, for example, that price agreements and agreements to restrict output, whether of local or general scope, are not as illegal now as they have been at any time.

As a general expression of the public policy which it is supposed to embody the Sherman act is adequate. The difficulty is that it goes too far. In the first place, it is so worded that it is used as a weapon against strikes, boycotts, and other concerted efforts to

Most of the more weighty discussions of the economic advantages of monopoly have to do with the effect of monopoly upon the aggregate production of wealth measured in terms either of subjective satisfaction or of objective commodity units. Even from this point of view the case for monopoly is exceedingly dubious and, at best, has a validity that is restricted and conditioned in many ways. Moreover such considerations are relatively unimportant compared with matters like the effect of monopoly upon distribution, upon the scope for individual initiative, upon economic opportunity in general, and upon a host of social and political relations. In short, it is a question less of the relative "economy" of monopoly or competition than of the kind of economic organization best calculated to give us the kind of society we want. Until our general social ideals are radically changed, it will take more than economic analysis to prove that it would be sound public policy to permit monopoly in that part of the industrial field where competition is possible.

interfere with the conduct of any business undertaking which ships its goods across state lines or to other countries. These things may be undesirable; very likely some of them are. But they are so far out of line with the other things condemned by the Sherman act, and in most instances have so little relation to "monopolizing" that they should be cut from the list of offenses condemned by the act. In the second place, the application of the Sherman act to railroads. is inconsistent with the standards of public policy embodied in the Interstate Commerce act. We regulate railroad rates and services on the assumption that railroads are natural monopolies, and that combinations or rate agreements are inevitable. But at the same time we condemn railroad combinations and rate agreements, and, as in the New Haven case, bring criminal indictments against the men responsible for such combinations. From railroads we exact the observance of two mutually inconsistent standards of morality. The real evils in railway combinations are matters of corporation finance. These should be dealt with by statutes appropriate to the purpose; and the Sherman act should be so amended as to be relegated to its proper field of preventable industrial monopolizing.

Finally, there comes the question of whether even within the industrial field we want to prohibit monopoly as well as aggressive monopolizing. Probably a monopoly achieved merely by the superior efficacy of a formerly competitive business unit (if such were possible) would not be condemned by the courts as a violation of the Sherman act. And what is the status of a monopoly built up merely by the peaceful union of absorption of competitive units? In such a case on which side public policy lies it is hard to determine.

3. Does the Sherman act provide an efficient mechanism for achieving its own ends? That its criminal features have been relatively ineffective is generally admitted. Furthermore, it has been found in practice that it is very difficult to secure a criminal conviction from a jury for an offense so general, so abstract, so tainted with the general and customary imputation of immorality as "restraint of trade" or "monopolizing." There is no reason to believe that it will ever be easy to secure convictions for restraint of trade in cases where the several steps taken in the creation of the restraint are unobjectionable except as a part of a general scheme. As it is the statute provides only an indirect and uncertain way of penalizing unfair competitive methods. I see no reason why the criminal remedies of the Sherman act should be retained.

The proceedings in equity for the dissolution of a combination have, on the contrary, proved to be increasingly effective. It is contended by many that the enforced dissolution of a combination means generally a mere change in form; that we are merely hunting the quarry from tree to tree. But neither in transportation nor in industry does it clearly appear that the newer and more unified forms of consolidation would not have largely displaced the old, even if the movement had not been hastened by legislations and decisions under the common law. Among other things tending to this end are the various strategic advantages of the consolidated unit, and the permanency and dependability of the newer forms of combination, making possible the adoption of business policies based on longtime considerations. It is more than possible that after a long chase the quarry has at last been driven into a corner.

Is it proved that the mere dissolution of industrial combination. accomplishes anything, especially in cases where the equities in the combination are made the basis of a pro rata distribution of the equities in its constituent parts? Only a few general conclusions can be stated: (1) The results must vary with the nature of the business and the degree to which the aggressive suppression of competition played a part in maintaining competitive conditions. (2) Dissolution rarely comes early enough-not until the monopolistic situation has become more or less crystallized. (3) The operation of the statute is intermittent. Dissolution should be carefully followed up, and every step in the process of restoring normal conditions should be carefully watched. This requires administrative machinery.

In its own field the Sherman act has a value all its own. No matter how carefully drawn the rules of the game may be, no matter how high the level set by the law of competition, new business conditions are bound to arise, not covered by specific statutes, and yet contrary to the generally accepted public policy of the maintenance of competition within its own proper field. The Sherman law, as a general declaration of public policy, has an elasticity and adaptability to new situations of all kinds not possible to legislation of a more specific sort. Its declaration of public policy is general enough so that it may gradually grow in meaning and change in application through judicial decision as the common law has grown and changed. So long as the preservation of competition in that large part of the industrial field in which it is feasible is public policy, why should we not, through such a statute, continue to give