Mr. FISHER. Mr. McKenney, will you tell the committee what you think about the law of this case?

The CHAIRMAN. You are simply asked your opinion and not for an argument. Just state your opinion.

Mr. MAYER. Shall we be allowed to state the opinions of leading counsel of the United States on this subject?

The CHAIRMAN. We are going to let you gentlemen argue this when you get ready.

Mr. FISHER. I assume this is merely a statement

The CHAIRMAN. You brought this out by your own question. Mr. Mayer, and we are going to let this attorney state just what he told. Please do not argue it with us, Mr. Mayer. We must have some end to this case. You brought it out, and we will let Mr. McKenney state what he told his client.

STATEMENT OF MR. FREDERICK D. McKENNEY.

Mr. MCKENNEY. I was out of the room during this colloquy, and hence am not at all familiar with what happened.

The CHAIRMAN. The witness stated, as the Chair understood it, that he asked you to give him an opinion on the validity of this Reguladora and its business transactions here, and you read to him this morning from the Sherman Antitrust Act and referred to some decisions.

Mr. MCKENNEY. I did.

The CHAIRMAN. And he said he could not tell it very clearly; he is not a lawyer, and I think it is fair that you state just what you told him. We do not wish an argument; we just wish what you told him.

Mr. MCKENNEY. I understand perfectly. In a conversation with Mr. Bayley this morning I advised him respecting the inquiry which was put by the chairman yesterday-as to what suggestion he could make to alleviate this condition. I told Mr. Bayley that if the facts were as I had gathered them in the few sessions which I had attended I strongly believed that the second section of the Sherman antitrust law furnished a reasonable ground upon which the United States might take hold of and handle this situation.

Mr. Bayley stated, as I have repeatedly heard it said in the course of these sessions, that the American Banana Co. case apparently put an end to the applicability of the Sherman antitrust law in the circumstances of this case. I responded to Mr. Bayley that so far from this case being controlled by the American Banana Co.'s case, that that case scarcely, if at all, touched the periphery of the matter.

The American Banana Co. case was the case of a complainant who sought to recover treble damages under certain provisions of the Sherman antitrust law from an American corporation engaged in business both in this country and in a foreign country, with respect not to the business or any part of it done by the American company in this country, but with respect to things which that company had done in the foreign country. The things which it did in that country were subject to and apparently not prohibited by the law of the country where done. The Supreme Court of the United States, as I have analyzed and understood its opinion, said that the law of the United

States could not give treble damages respecting the doing of a thing which was done in a foreign country and which was legitimate or at least not prohibited by the law of that country-that the antitrust laws of the United States did not have an all world-embracing operation and effect.

Now, the American Banana Co. case was reported in 213 United States. The law has progressed somewhat since the date of that decision, and in 228 United States will be found reported the case of the United States v. The Pacific & Arctic Co., which was a proceeding under the Sherman antitrust law against certain combinations of shippers and railroads respecting routings. Part of the business complained of by the United States was done inside of the United States and a part of it was done outside of the United States. Certain of the parties charged were American; certain of them were foreign. It was attempted by counsel for the accused parties to defend that case upon the principle of the American Banana Co. case. Mr. Justice McKenna, in delivering the opinion of the court, said that the law of the United States, referring to the Sherman antitrust law, referred as fully and all-embracingly to foreigners and to foreign corporations doing business within the United States as it did to American citizens doing business within the United States, and so much of the business which was the subject of complaint in that case as was done in the United States fell under the prohibition of the Sherman antitrust law. The demurrer to the indictments which had been sustained by the lower court and upon which the judgment of the trial court went was held to be bad, the judgment was reversed, and, the case was sent back for trial. That case is reported in 228 United States at page 87.

The Comision Reguladora's business, as I have gathered it to be in the course of such hearings as I have attended, and I do not pretend any acquaintance with the documents and proofs in detail-but understanding that under a law of the State of Yucatan, assumed to be a valid law-the Comision has gathered to itself the control of the total sisal output of that country, which sisal output practically in bulk is shipped into the United States, consigned to an agent of its own, by whom it is sold and distributed among the States of this country. I am of opinion that so much of its business as is done in the United States by its agent constitutes monopolizing within the purview of the second section of the Sherman antitrust law, and the business so done is within the prohibition of that statute. Those are the grounds upon which I advised Mr. Bayley as I did advise him this morning.

As to how Mr. Bayley stated my advice I do not know.

The CHAIRMAN. We are much obliged to you.

Mr. MAYER. When were you asked for this opinion?

Mr. MCKENNEY. I told Mr. Bayley about it this morning. I have heretofore considered similar matters.

Mr. MAYER. I am not speaking about similar matters. When were you asked by Mr. Bayley for this opinion?

Mr. MCKENNEY. I have said that the understanding you are talking about was the result of my conversation with Mr. Bayley this morning, and what I have just said is my view

Mr. BAYLEY. The question asked was when you first took up with me this matter.

Mr. MCKENNEY. It was some six or eight weeks ago that I first examined into the matter and gave it consideration. (Thereupon a recess was taken until 2.30 p. m.)

AFTER RECESS.

The subcommittee reassembled at the expiration of the recess. The CHAIRMAN. The committee will come to order. Mr. Fisher, I believe you had the witness on cross-examination.

Mr. FISHER. Yes, Mr. Chairman.

STATEMENT OF MR. EDWARD B. BAYLEY-Resumed.

Mr. FISHER. Mr. Bayley, just to make certain of the fact, this combination, or attempted combination between Molina and two other concerns in Yucatan to which you have referred was in 1896, was it, not 1906?

Mr. BAYLEY. The combination between Molina, Donde, and Escalante, about which I testified, was in the spring of 1896.

Mr. FISHER. It may have been my fault. I put it down as 1906 first, and it may have been my inaccuracy. I wished to make certain of the date. Now, take the transaction in 1909 to which you have referred. What were your relations during that time and prior thereto with the International Harvester Co., if any?

Mr. BAYLEY. Oh, our relations with the International Harvester Co. have always been friendly. We used to sell a good deal of fiber to the companies which went into the International Harvester Co., and we have sold from time to time since its organization a good deal of fiber to the International Harvester Co. Of recent years it has suited their plans to buy their fiber through other channels, but not on account of any hostility. Our relations have been perfectly friendly. We have tried to sell them, only we could not.

Mr. FISHER. In 1909 did you sell them any fiber?

Mr. BAYLEY. I have not my figures here. It is quite likely that we did.

Mr. FISHER. I think-I may be wrong as to the facts, and therefore I will not make any statement-but I think you did during that year.

Mr. BAYLEY. I can look it up and let you know if you wish me to. Mr. FISHER. It may be that some subsequent witnesses will testify about it, and if you find, when the records are called to your attention, that your records are in any way at variance with them and with what they testify, I would like to make sure that we get the real facts about it. You are getting printed copies of the proceedings, I suppose, as they come out, and a stenographic copy also, aren't you?

Mr. SPENCER. Why not let Mr. Bayley write the committee a letter telling them whether they did or did not, rather than rely upon him having to see the testimony when it comes out?

(Mr. Bayley subsequently submitted the following letter:)

[And at New York, London, Sydney, Merida. Cable address," Peabody." Codes, A1, ABC, Lieber's, Western Union. Agents for Smith, Bell & Co. (Ltd.), Manila, Cebu, and Iloilo.]

Hon. JOSEPH E. RANSDELL,

HENRY W. PEABODY & Co.,

70 Kilby Street, Boston, April 15, 1916.

Chairman of Subcommittee, Committee on

Agriculture and Forestry, United States Senate, Washington, D. C. DEAR SIR: In my recent testimony before your honorable committee on the 13th instant I stated that my firm had not sold any sisal hemp to the International Harvester Co. for years, but I was unable to tell Mr. Fisher, without referring to our records, whether or not we had sold any sisal to them in the year 1909. I was thereupon requested to examine our records and advise the committee in writing of the facts.

I find that in the year 1909 my firm sold to the International Harvester Co. 17,000 bales of sisal hemp. We have made no sales of fiber to them since that year. Very respectfully,

EDWARD B. BAYLEY.

Mr. FISHER. It is immaterial to me. If you wish to add that to the record, I have no objection. Suppose there were two large buyers of sisal, say two large manufacturing concerns, doing each of them a large business, not only absolutely but relatively to the total business done. Would you think there was anything unusual or abnormal or irregular in the fact that those two concerns dealt principally through some one particular house engaged in the purchase and sale of sisal! Mr. BAYLEY. Why, no. We have never complained that the International Harvester Co. did not buy through us.

Mr. FISHER. Well, as a matter of fact, don't you think that is the natural, normal, and on the whole an advisable way for two concerns of that sort to transact their business, rather than both buying exclusively through some one buyer or from some one merchant?"

Mr. BAYLEY. Why, I do not know that my opinion is worth anything. It seems perfectly natural.

Mr. FISHER. Well, the effect otherwise would be, of course, to make the one buyer the practical monopolist of the business if all of the larger concerns consolidated their purchases from him, is it not?

Mr. BAYLEY. That is the reason that the Plymouth Cordage Co. bought their sisal of us. It is because they felt, to maintain their independence, they must maintain at the greatest possible efficiency in Yucatan the largest competitor of Montes.

Mr. FISHER. If it does not seem objectionable to you in any way. I wish you would tell the committee about how you figure your selling price as compared with the price you had to pay for sisal.

Mr. BAYLEY. We made it a plan to sell our sisal on the market of the day to every one, to all of our customers. Our tables for turning the price in Yucatan into a price landed in the United States, we based on a commission of 1 per cent for our Yucatan house and a commission of 1 per cent to us, so that under normal conditions we figured on a margin of 2 per cent. There were times when competition obliged us to cut this margin, sometimes to nothing. There were times when the conditions of the market allowed us to increase our margin beyond that 2 per cent, but the calculations.

of our prices in the first place were based on a 2 per cent margin, divided between our Yucatan office and ourselves.

Mr. FISHER. Some reference was made in the early stages of this investigation, as I recall it, to the fact that Mr. Peirce left Yucatan during the spring of 1915. Can you tell the committee whether that was true; and if so, why he left?

Mr. BAYLEY. Yes; he left in February, 1915, or early March. I think it was February. Mr. Peirce and his family live in Yucatan. He had an unmarried daughter and a comparatively young married daughter. From the rumors which were flying about at that time, and which proved to have been greatly exaggerated, it did not seem safe for these daughters to remain in Yucatan at that time. They refused to leave the country unless their father accompanied them. Our office was kept open day by day under the charge of our submanager, but Mr. Peirce left Yucatan with his family, coming north; and as he was due to have a vacation at that time, we advised him to stay here for some months until he was thoroughly rested, and then he went back to Yucatan, where he has been ever since. His family returned with him.

Mr. FISHER. In speaking of loans he has made there and the reductions of them by the planters, and so forth, you referred to the fact that the reason they had not been able to pay back those loans sooner was because of the inflated prices that had been paid for lands. Was there a period down there when lands that were appropriated for the raising of sisal were largely dealt in at inflated prices?

Mr. BAYLEY. We neither bought nor sold any plantations, but it was common talk that a large business was being done from hand to hand at that time.

Mr. FISHER. What time was that?

Mr. BAYLEY. Why, following the heavy advance of 1898, I should say, and for two or three years thereafter. The entire prosperity of Yucatan depends upon the sisal crop. It is the one chance they have for speculation, and there was really a very exciting period when the price of farms advanced very rapidly, and there were stories of farms that had been sold in 1896 or 1897 for $50,000 or $60,000 eventually selling for $300,000. I can not quote an exact farm, but those are the figures in my mind showing the inflation.

Mr. FISHER. How rapidly did these advances take place? I mean within what period, for instance, would a farm increase from $50,000 to $300,000 in Yucatan?

Mr. BAYLEY. Why, it is like any market advance. It started slowly and then became the rage, and it seems as if everybody was buying and selling farms, to judge from the common talk at the time. These farms, of course, were bought on what we should call easy terms. If a farm sold for $200,000, perhaps the owner would take back a mortgage of $100,000, and perhaps the bank would loan a second mortgage of $50,000; a friend might loan $10,000; the merchant with whom the farmer was doing business might loan him $25,000 in open account, and the farmer would put up the other $15,000 to buy the farm. Then, when sisal was high, he could pay the interest on this inflated value, but when sisal dropped the farmer was in a very serious condition, because he had not sufficient margin in selling his hemp to pay the interest on these many mortgages on the farms.