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CHAPTER II

THE POSSIBILITY OF PREVENTING COMBINATION

IF the conclusion is reached that there is need for either regulation of combinations or prohibition of them, the question immediately arises whether the latter course is practicable. Can the government successfully break up existing combinations and prevent the formation of others?

The limited experience of this country thus far in "trust busting" is often cited as proving the impossibility of destroying the trusts. In some cases the socalled dissolutions have in fact failed to bring about real competition. Yet in some other instances a considerable measure of competition has apparently been restored. As regards the great majority of the cases no information concerning the results is available. So little time has elapsed since the anti-trust laws began to be enforced with some vigor that a pessimistic judgment as to the ultimate outcome is premature. Moreover, the methods of dealing with the combinations thus far have been relatively gentle and the results do not justify a conclusion as to what might be accomplished by a really rigorous policy of repression.

The opinions of most people concerning the results accomplished under the Sherman anti-trust act are based on a few conspicuous cases. They do not even know that there have been scores of prosecutions and suits in equity under that act, the great majority of

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which have been decided in favor of the government. While the earliest decisions of the Supreme Court tended greatly to narrow the scope of the Sherman law, later decisions have turned increasingly in the other direction. The court has not only upheld the constitutionality of the act in every respect, but it has held its broad terminology applicable to almost but not quite every specific form of combination or of contract in restraint of trade, and to almost every monopolistic practice of which complaint is made. Supposed rights of property and of contract have in considerable measure been brushed aside by the court when urged as a defense for monopoly. The Sherman Act needs comparatively little modification with respect to its scope and its definitions. The state courts also have shown vigor in enforcing the various state anti-trust laws.

Yet repression has not thus far taken drastic form. It is one thing for the courts to adopt a broad policy in holding a combination, contract or practice unlawful. It is quite another to use vigorous measures to punish it or prevent its recurrence. Thus far there has been scarcely a single instance of imprisonment for violation of either state or federal anti-trust laws. Juries have not shown a disposition to convict where imprisonment was the necessary penalty, or where they believed that the judges would probably impose that penalty. Where judges have had a choice between fining and imprisoning offenders, they have uniformly inflicted the fine. fact, many of the fines have been unreasonably light, in some cases far less than the profits which the combination had gained through violation of the law.

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It would have been harsh to imprison men in the first campaign against the trusts under the Sherman law.

The law had long been allowed to remain a dead letter. Business men generally did not look upon monopolistic combinations or practices as immoral. Hence administrative officers, judges and juries were justified in leniency. It does not follow that leniency is desirable for the future, or that the people will be disposed to tolerate it. Now that the public has shown that it means business in attacking combinations and monopolies, and that the meaning of the laws is clearly established and generally known, men who form combinations, make contracts in restraint of trade, or pursue monopolistic practices, know that they do so at their peril, and severe punishments will be perfectly proper. If necessary, the anti-trust laws could be so amended as to make imprisonment the only penalty in criminal cases, or to increase greatly the minimum and maximum fines. A vigorous enforcement of anti-trust laws, especially by imposing prison sentences, would virtually stop the more formal combinations and contracts in restraint of trade as well as the more obvious methods of unfair competition. The average business man fears the jail mightily. Very few are deliberate law-breakers. Tho some secret combinations in plain violation of the laws might be attempted even in the face of severe punishment if discovered, they would probably be very few. The question whether informal understandings could be prevented and whether genuine and active competition could be brought about is, however, different and will be considered later.

A large proportion of the proceedings under the Sherman act have not been criminal indictments, but bills in equity seeking injunctions. In a few cases the same combination has been pursued both criminally and in

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equity. The injunction is under certain conditions a very necessary device for enforcing the statute. difficult to see how a closely knit trust like the Standard Oil Company could be satisfactorily broken up without an order of the court as to the method of doing so. Merely to impose penalties upon a trust or its managers, and to leave them to devise means of dissolving it, would often open the door for endless litigation among the members and stockholders of the combination. pool, a contract in restraint of trade, a monopolistic practice can be discontinued forthwith. In attacking these, a prosecuting officer has his choice between criminal and equity proceedings. An injunction

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against them does little to add to the effectiveness of the penal provisions of the law itself. But the dissolution of a trust or corporate combination requires positive and not merely negative action. It takes time and skill. It calls for decrees in equity.

Most of the cases under the Sherman act have been not against trusts proper, but against pools, contracts in restraint of trade, and monopolistic practices. There is reason to believe that much has been accomplished in cases of this type, tho positive evidence is for the most part lacking. Very seldom have the courts been asked to punish the same offenders a second time, or to find them guilty of contempt in violating injunctions. It is perfectly easy for the separate concerns which agreed together in a pool and which theretofore were competitors to resume competition. In the past many a pool has dissolved itself, or fallen asunder without legal action. I have no doubt whatever that most of the pools, contracts in restraint of trade and monopolistic practices against which the law has been invoked

have actually been discontinued in form, and a good many of them in substance.

In the more familiar cases against the Northern Securities, Standard Oil and American Tobacco combinations, the court had to deal with holding companies. The oil and tobacco trusts in particular were not mere assemblages of separate concerns. Each was a working, organic unity. The Standard Oil combination had been in existence for forty years. Most of the constituent corporations whose stocks were controlled by the Standard Oil Company of New Jersey had never been independent; they were children of the parent concern by birth and not by adoption. The separate corporations were maintained merely for legal convenience. Very few of the men who managed them had ever had experience with competition against one another. The tobacco trust was but little less firmly knit together.

To establish competition among the parts of the oil and tobacco trusts was thus of necessity a difficult task by any method. The method actually pursued by the courts in these cases was wholly inadequate to the situation. Indeed, that method was not adequate even for the much easier task of breaking up the combination of railroads formed under the Northern Securities Company, a combination in which each railroad was a distinct entity and not an essential member of a unified whole.

In each of these three cases the decree of the court permitted the holding corporation to divide the shares of the various constituent companies pro rata among the stockholders of the holding company. A person who held one-tenth of the stock of the Standard Oil Company of New Jersey, for example, became there

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