its appraisal of the property of the Consolidated Gas, Electric Light and Power Company of Baltimore, allowed $5,000,000 for this purpose.1 But the New Jersey Court, in its final decision, wisely refrained from giving acceptance to this theory. The Court refuses to believe that franchises must be valued for rate making merely because they are valued for taxation purposes, and points out the peculiar nature of franchises as property. It says, "That they (franchises) are property is well settled. . . . Our own laws recognize them as property and tax them accordingly. . . . Such franchises, however, are property of a peculiar kind; the right of property in them is not absolute, but is qualified by the right of the State to fix reasonable rates. . . . That a special franchise in the absence of an exclusive right is property only in a qualified sense is the result of the right of the State not only to regulate rates, but also to authorize a municipality to supply itself, and thereby to destroy the value of the special franchises." Accordingly the Court refused to include the franchises in the valuation for rate making, in spite of the fact that they are treated as property by the taxing authorities.

The argument

This position is fundamentally sound. that it is unjust to deny to a corporation a valuation upon its franchise for rate making, because the franchise is taxed, is sophistical. The levying of a franchise tax ordinarily does not lessen the returns of a company, nor prove a burden to it, since the taxes are included in computing the operating and general expenses of the company, above which it is entitled to a fair return. Assuming that a utility is held by the courts or commissions to be entitled to a certain rate of return, and to this return only, the laying of a tax upon its franchise increases the amount which the public must pay to the company in order that it may make this return. If the utility can sell its service at a price which will produce its former rate of return plus the franchise tax it must be permitted to do so. The general result of franchise taxes, under such conditions, will be either to increase rates or to prevent them from going

1 Report of the Public Service Commission of Maryland, 1913, p. 52.

down as rapidly as they otherwise might. In either case, the tax falls upon the public. Hence the cry of injustice against not permitting a return upon the value which is taxed is not well founded, for the franchise taxes would ordinarily be charged against the consumers.1 It is to be hoped that other judicial bodies and commissions will concur in the position of the New Jersey Court upon this issue.



THE report recently issued by the Commissioner of Corporations (Part III of the Report upon the Tobacco Industry), treating Prices, Costs, and Profits, is the first to deal with a post-dissolution period and to compare conditions before and after the execution of the court decree. Disappointment will be met, however, if one reads the report with an expectation of learning anything conclusive about the effectiveness of the dissolution of 1911. In the letter of transmittal, the Commissioner indicates clearly the limitations of the inquiry.2 "The actual extent of the competition between the successor companies is discussed in so far as the facts regarding prices, costs, and profits, and changes in the volume and division of business tend to show it, but not with regard to the other important factors. These other factors are not covered by the report because the court retained jurisdiction in the case, and the Department of Justice has undertaken an investigation as to the manner in which the decree has been observed." It is to be regretted that the task of investigating these matters was not turned over to the Bureau of Corporations. In consequence of the lack of coöperation between the

1 This reasoning, of course, does not apply to franchises which establish a definite charge to consumers, but only to those under which charges are subject to regulation by the public.

* Page xxvii.

two Departments, the present report is in certain particulars very unsatisfactory.

As the title indicates, the present report takes up the investigation of costs, prices, and profits: (1) those of the combination up to and including 1910; (2) those of the several large companies, called the successor companies, which took over the business of the combination; and (3) those of a group of independent concerns. Upon the basis of the material gathered and disregarding other factors, the report asserts that competition has been restored.

Two chief reasons are assigned for this conclusion. First, it is maintained that the changes in the relative volume of business of the several successor companies indicate competition. In the two years following dissolution, there was clearly a tendency for these concerns to fill gaps in types of business in which they were weak. But to hold that the more even distribution of business in the post-dissolution period is indicative of competition is to assume that each company has striven successfully to build up those parts of its business in which it was weak. But might not competition between several concerns, each strong in some branches and weak in others, lead to further specialization of each company in the branches in which it excelled, and withdrawal, perhaps forced, from the branches in which it was inefficient? Is it not conceivable that some of the changes in the division of business might be parts of a plan to allow each company to increase its business in the lines in which it was weak to such a volume as would make efficient production possible under the new conditions imposed by the courts?

The second argument presented in the report for the opinion that competition has been restored, concerns the increase in costs of distribution since the dissolution of the combination. It is to be expected that retail prices would show no change. In a commodity which is marketed commonly in small packages, at "popular" prices, the inertia of the public renders a change in retail prices difficult. It is much more convenient to change the size of the package. One might suppose, on the other hand, that wholesale prices

would reflect the alleged increased competition. The report asserts, however, that neither wholesale nor retail prices have changed since dissolution. The great bulk of the tobacco sold in this country is marketed under proprietary brands the demand for which is created or at least stimulated by extensive advertising. The consumer demands a particular brand, and the retailer and jobber have to keep it in stock. In such a case, the necessity for lowering the wholesale price to meet increased competition is small. Instead, the tobacco manufacturer is likely to increase his advertising. When tobacco manufacturers were combined, the tendency was to cut down the expenses of distribution and to limit advertising expense to an amount sufficient for the maintenance and normal increase of sales. After dissolution, expenses of distribution such as advertising, duplication of salesmen, and overhead expenses, show marked increases. This may be significant of restored competition. To the public at large, such increases constitute a most patent sign of increased rivalry. Yet one might be tempted to ask, in the absence of other information, whether or not this movement of costs was the result of an attempt to carry out on a larger scale the same sort of practice which the trust indulged in at an earlier time, namely, that of operating bogus independent companies selling goods "not made by the trust."

It is frankly admitted that there is no more competition today in the snuff business than before dissolution. The decree, owing to peculiar conditions in the snuff business, brought about a division of territory, nothing more.

After asserting that the smallest of the successor companies is very much larger than the largest of the independents, the report proceeds to show that the selling and manufacturing costs of the latter are extremely high as compared with the former. Further, it is stated that the proportions of control by the successor companies of the total output in 1913 as compared with those of the combination in 1910 show that the combined proportion of the successor companies was slightly less in smoking and fine-cut tobaccos, more in cigar

ettes and snuff, and about the same in plug tobacco and little cigars. In view of all the facts adduced, one hesitates to accept without further proof the conclusion that competition has been restored.

Tho the report fails to prove conclusively the existence of competition since 1911, it does present interesting data upon several other points, especially upon the incidence and shifting of the tobacco excise, and upon the effect of the growers' organizations upon the price of leaf tobacco. The statistics compiled show that the costs of the combination were lowest, and profits highest, during the period 1903 to 1908, following the reduction of the tax and preceding the rise in leaf prices beginning in 1908. The comparison of costs of the combination with those of the independent companies seems to demonstrate the efficiency of large scale production; while the comparison of costs of the successor companies with those of the combination may be construed as an evidence of the superiority of combination over large scale production.



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