APPENDIX II

CONDITIONS IN ENGLAND

The law in England regarding combinations to maintain prices is in a peculiar condition. It neither approves nor condemns. It simply declines to enforce such agreements. In so far as they restrain trade, they are "unlawful," because monopolies are repugnant to English law, but there is no provision by law for their suppression.

The English courts are committed to this general proposition:

"Parties engaged in trade have the right to push their trade by all lawful means, and to endeavor by all lawful means to keep their trade in their own hands and exclude others from participating therein. It is lawful to make profitable offers to attract customers from competitors, and they may induce customers to deal with them exclusively, by giving notice that to such exclusive customers only will they give the benefit of their more favorable terms."

In a celebrated case, Mogul Steamship Company vs. McGregor, et al., it was decided that certain ship owners might combine and threaten shippers, that if they patronized the ships of a competing company the combination would refuse to handle their freight. This was held to be the meeting of competition by competition.

In the course of his opinion, Lord Watson said:

"I have never seen any reason to suppose that the parties to the agreement had any other object in view than that of defending their carrying trade during the tea season against the encroachments of the appellants and other competitors and of attracting to themselves custom which might otherwise have been carried off by these competitors. This is an object which is strenuously pursued by merchants, great and small, in every branch of commerce, and it is in the eye of the law

perfectly legitimate. If the respondents' combination had been formed, not with a single view to the extension of their business and the increase of its profits, but with the main and ulterior design of effecting an unlawful object, a very different question would have arisen for the consideration of your lordships. But no such case is presented by the facts disclosed in this appeal. I cannot for a moment suppose that it is the proper function of English courts of law to fix the lowest prices at which traders can sell or hire for the purpose of protecting or extending their business without committing legal wrong which may subject them in damages. Until that becomes the law of the land, it is, in my opinion, idle to suggest that the legality of mercantile competition ought to be gauged by the amount of the consideration for which a competing trader thinks fit to part with his goods or to accept employment. The withdrawal of agency first appeared to me to be a matter attended with difficulty, but, on consideration, I am satisfied that it cannot be regarded as an illegal act. In the first place, it was impossible that any honest man could impartially discharge his duty in finding freights to parties who occupied the hostile position of the appellants and respondents; and, in the second place, the respondents gave the agents the option of continuing to act for one or other of them, in circumstances which placed the appellants at no disadvantage.”

Another judge said:

"I cannot see why judges should be considered specially gifted with the prescience of what may hamper or what may increase trade, or of what is to be the test of adequate remuneration. In these days of instant communication with almost all parts of the world, competition is the life of trade, and I am not aware of any stage of competition called 'fair' intermediate between lawful and unlawful. The question of 'fairness' would be relegated to the idiosyncrasies of individual judges. I can see no limit to competition, except that you shall not invade the rights of another."

The Lord Chancellor said:

"There are two senses in which the word 'unlawful' is not uncommonly, though, I think, somewhat inaccurately used. There are some contracts to which the law will not give effect; and, therefore, although the parties may enter into what, but for the element which the law condemns, would be perfect contracts, the law would not allow them to operate as contracts, notwithstanding that, in point of form, the parties have

agreed. Some such contracts may be void on the ground of immorality; some on the ground that they are contrary to public policy; as, for example, in restraint of trade, and contracts so tainted the law will not lend its aid to enforce. It treats them as if they had not been made at all. But the more accurate use of the word 'unlawful,' which would bring the contract within the qualification which I have quoted from the judgment of the Exchequer Chamber, namely, as contrary to law, is not applicable to such contracts. It has never been held that a contract in restraint of trade is contrary to law in the sense I have indicated.1

The legal status of combinations to competition is summed up as follows:

"The non-recognition of associations by the law has impressed on them a character of great fragility. Whatever may have been the period for which an association was originally formed, no member need belong to it or observe its rules a day longer than he likes. Nothing can keep him to his contract except a sense of honourable obligation, and that does not always resist the temptation of an advantageous order. This fragility is increased by the almost invariable incompleteness of an association which very rarely includes all the competitors in a district. Some are always left outside to profit by cutting prices a shade below the association rates, or it becomes profitable for another district to invade the territory of the combined traders. Disintegrating forces are always at work, and when trade is bad, and there is a mad rush for orders at any price, so as to reduce costs by a large output, they work with double violence until at length a point comes when, by common consent, the association is allowed to lapse until the frenzy has ended in exhaustion. The history of price associations, pools, and similar bodies will show how they 'rose, and stoop'd, and rose again, wild and disorderly.' "2

"Repressive legislation could only affect the outward form of combination. Amalgamation cannot be prohibited without forbidding the union of even two firms, while to make monopoly illegal would be fruitless where no formal monopoly exists, and there is no way of determining the greater effectiveness for evil of a merger including eighty per cent. of the trade over one containing only fifty. No law can suppress 'See "The Trust Movement in British Industry," by H. W. Macrosty, p. 19.

"The Trust Movement in British Industry," by H. W. Macrosty, pp. 22-23.

the Gentlemen's Agreement, where there are no rules, no constitution, no contract, but common action is effected verbally and informally, and yet some of the most oppressive combinations have been of that form. Neither combination nor agitation should be driven underground, and it is significant that to-day complaints are generally raised in the United Kingdom, not against the legally recognized amalgamations, but against associations which have no existence in the eyes of the law, and work in secret. To strike at the methods adopted by combinations is not easy without at the same time repressing measures blamelessly adopted by the individual trader. Boycotting, dumping, selling at a loss to crush competition, maintaining prices at the highest level which the market permits these are no monopoly of combinations, but are weapons in everyday use by manufacturers, merchants, and shopkeepers. It would be, indeed, an extraordinary thing to strike at competition in the name of competition." 1

"The effects of trusts and cartels in England have not been so marked as to provoke popular opposition, and, in consequence, they have aroused little political discussion. In 1908 Sir G. Parker asked in Parliament whether a committee of inquiry was not desirable, and was informed by the Prime Minister that he was aware of the existence of such combinations, and that in some cases their effect might be prejudicial to the public, but that he was not at present prepared to grant an inquiry." 2

"It is safe to assume that British 'trusts' keep prices on the whole somewhat above what they would be under free competition, but, before attributing this to them as blame, we must be sure that competition prices are healthy prices, an assumption which cannot be made. Close investigation between prices and costs before and after amalgamation would be necessary to determine this question, and, needless to say, the information is not at our disposal. Speaking broadly, there have been very few complaints of price extortion on the part of our great amalgamations, and where made they have generally been supported only by the scantiest of evidence. When the Bradford merchants were at odds with the Bradford Dyers' Association they nevertheless admitted that the price policy of the great combine had been moderate." "

1

"The Trust Movement in British Industry," by H. W. Macrosty, PP. 344-345.

"Monopoly and Competition," by Hermann Levy, p. 315. "The Trust Movement in British Industry," by H. W. Macrosty, P. 335.

"In 1833 a parliamentary committee inquired into the state of manufacturers, commerce and shipping, and the extensive evidence taken showed that in the manufacturing of finished goods-which alone were, in fact, considered-a vigorous competitive struggle was going on. This had produced in the bad years which preceded 1820 such a lowering of prices that the profits of most undertakings were exceptionally small, and in some cases no longer covered the cost of production. The opinions of the experts heard by the committee were characteristically expressed by a textile worker: 'We have long considered that part of our grievances was caused by the steam looms and by the competition of foreign manufacturers; but we consider that a very trifling matter in comparison with the home competition that exists among our masters, and till there is some remedy for that we shall never be better.' Employers and workers seemed equally convinced of the oppressive results of competition; but there is no trace throughout the evidence of any united action to restrict or abolish it. Rather, in all branches of industry, competition was regarded as an evil, as inevitable as it was harmful, and the survivors regarded it as little more than a natural consequence of the struggle for existence that the weaker gradually became entirely submerged. Adam Smith had taken the ruin of such men as a completely natural fact, unimportant compared with all the advantages of the competition he championed. He had in mind the condition of affairs which an expert stated in 1833 to be prevalent in England, when he said: 'I should ascribe to increased competition the misfortunes of many people in England. If too many people run into one line of business, of course the weaker portion must give way.'":

"Monopoly and Competition," by Hermann Levy, pp. 103-104.