Chapter XVI: Preface: To the Seventh Volume (15)

In compliance with this resolution, the Commissioner of
Corporations, Mr. James R. Garfield, went to Chicago in April
and began the requested investigation, which was prosecuted
throughout most of the ensuing year. "The inquiries of the
Bureau of Corporations were naturally concerned chiefly with
the six great concerns which, by the injunction of 1902, were
grouped together, and which were popularly considered as the
Beef Trust. The ‘Big Six,’ in the approximate order of their
magnitude as indicated by the number of animals slaughtered,
are: Swift & Company, with seven large plants; Armour &
Company, and the Armour Packing Company, which have the same
stockholders, and which together operate five packing-houses;
the National Packing Company, with eight comparatively large
plants and two or three minor ones; Morris & Company,
operating three plants; the Cudahy Packing Company, with three
plants in the middle West and a minor one at Los Angeles; and
the Schwarzschild & Sulzberger Company, operating three
plants. Nearly all of the important packing-houses of these
six companies are situated in the eight great live-stock
markets,—Chicago, Kansas City, South Omaha, East St. Louis,
South St. Joseph, Fort Worth, South St. Paul, and Sioux City."

As for the National Packing Company, it grew, apparently, out
of an abortive scheme for the consolidation of the other five
concerns which was rumored in 1902. "Shortly prior to the
formation of this company the Armour interests had acquired
control of the G. H. Hammond Company and the Omaha Packing
Company, the Swifts had secured the Anglo-American Provision
Company and the Fowler Packing Association, and the Morris
family had become dominant in the United Dressed Beef Company
of New York. The National Packing Company, organized in 1903,
took over the control of the various corporations thus
previously acquired by the three packing interests named, and
has since absorbed two or three other smaller concerns. The
directorate of the National Company consists almost wholly of
representatives of the Armour, Swift, and Morris companies.
Aside from this community of interest, the bureau finds that
there is no important inter-ownership of securities among the
six leading packing companies."

"The ‘Big Six’ are by no means the only slaughterers of cattle
in the United States. They, with a few minor affiliated
concerns, killed 5,521,697 cattle in 1903, while, from the
best available data, the Bureau of Corporations computes the
total slaughter of the country at about 12,500,000. But the
proportion of 45 per cent. thus indicated by no means measures
the full economic significance of the six great packers. Their
importance lies in the fact that they are the only concerns
which do an extensive business in shipping dressed beef. … The
‘Big-Six’ kill about 98 percent, of the cattle slaughtered at
the eight leading Western markets above named."

_Edward Dana Durand,
The Beef Industry and the Government Investigation
(American Review of Reviews, April, 1905)._

Early in March, 1905, just before the adjournment of Congress,
his report of it, in part, was transmitted by the President to
Congress. The following summary of important facts set forth
in the extended report was published in _The Outlook_ of
the following week:

"The report as sent to Congress deals with the prices of
cattle and dressed beef, the margins between such prices, and
the organization, conduct, and profits of the corporations
engaged in the beef-packing business. In some respects the
conclusions presented are distinctly favorable to the packers;
in others, quite as unfavorable. It appears that the profits
of the six great companies whose operations were covered by
the investigation were very much smaller during the years 1902
and 1903 than the public had been led to suppose,—that, in
fact, for a part of that period the business was conducted at
an actual loss.
{121}
The percentage of profit on the gross Volume of business
during the years 1902-1904 was comparatively low. That realized
by Swift & Company is placed at two per cent. This, however,
we repeat, is the percentage on total sales, which is a very
different thing from profit on the investment. It is a
well-known fact that the actual capitalization of the packing
companies is very much less than the annual Volume of
business. From statements made by the six companies to the
Bureau of Corporations it appears that their gross business is
not less than $700,000,000 per year, while their nominal
capitalization is only $88,000,000, exclusive of $5,000,000
bonds of Swift & Company. On the other hand, it is practically
impossible, as the report shows, to determine accurately just
what proportion of the total investment represents plants and
properties concerned with the beef industry exclusively.
Still, it is obvious that Swift & Company’s net profit of two
per cent. on their sales would amount to very much more than
two per cent, on their investment. The report makes an
approximate estimate of twelve per cent.

"On one other count the report is favorable to the companies.
It declares that they are apparently not overcapitalized. This
conclusion, it is true, is robbed of some of its exculpatory
force when the private-car system is taken into consideration.
It is shown that the companies’ profits on refrigerator cars,
derived from mileage paid by the railroads, has ranged from 14
to 22 per cent. The report gives clear and definite
information as to the trust’s field of operations. It shows
that the six companies slaughtered in 1903 only about 45 per
cent. of all the cattle killed in that year, but that these
companies slaughter nearly 98 per cent. of all the cattle
killed in the leading Western packing centers, and that they
control a large percentage of the trade in beef in many large
cities—75 per cent. in New York, 85 per cent. in Boston, 95
per cent. in Providence, and in a number of other important
cities from 50 to 90 per cent. In all these centers of
population the consumer is now paying more for meats than ever
before, while the cattle-grower on the Western plains is
receiving less for his beeves. These two facts are doubtless
capable of explanation, but the published results of the
investigation ordered by Congress throw little light on the
matter."

COMBINATIONS:
Case of the United States v. Armour & Company et al.

Soon after the publication of the report of the Bureau of
Corporations a special Federal Grand Jury at Chicago began the
investigation of charges brought by the Attorney-General of
the United States against five of the corporations engaged in
the meat-packing business and seventeen of their officials. An
indictment was returned by the Grand Jury on the 1st of July,
1905, charging, in a number of counts, persistent violation of
the injunction laid on these corporations and their officials
by Judge Grosscup with affirmation by the Supreme Court, and
continued combination in restraint of trade,—by requiring
their purchasing agents to refrain from bidding in good faith
against one another; by agreements that fixed the prices of
beef; by restricting sales to maintain prices, etc. On the
trial of the indictment, which was begun on the 29th of
January and concluded on the 21st of March, 1906, the
defendants claimed immunity, under that clause of the Fifth
Amendment to the Constitution of the United States which
reads:

"Nor shall any person be compelled in any criminal case to be
a witness against himself."

Their claim for immunity under this constitutional
prescription was founded on the fact that "upon the lawful
requirement of the Commissioner of Corporations" they "had
furnished evidence, documentary and otherwise, of and
concerning the matters charged in the indictment"; and that a
section of the Act creating the Department of Commerce and
Labor provides that persons testifying or producing evidence
before the Commissioner shall be entitled to the immunities
conferred by the Act in relation to testimony before the
Interstate Commerce Commission of February 11, 1893. Judge
Humphrey, of the United States District Court, before whom the
case was tried, sustained the plea in his charge to the jury,
so far as concerned the individual defendants, saying: "Under
the law of this case, the immunity pleas filed by the
defendants will be sustained as to the individual defendants,
the natural persons, and denied as to the corporations, the
artificial persons, and your verdict will be in favor of the
defendants as to the individuals, and in favor of the
Government as to the corporations."

COMBINATIONS:
Fines for accepting rebates.

The same Federal Grand Jury at Chicago which returned the
indictments dealt within the case mentioned above brought
another indictment against four men in the employ of one of
the meat-packing companies, who were accused of unlawfully
combining and agreeing to solicit rebates for their
corporation from the Michigan Central, the Chicago, Rock
Island and Pacific, the Grand Trunk Western, the Lehigh
Valley, the Boston and Maine, and the Mobile and Ohio
railroads. It was charged that the defendants conspired with
one another in presenting to the railroad companies pretended
claims for damages which were in fact claims for rebates. They
were brought for trial before Judge Humphrey in September,
1905, and pleaded guilty. The Judge then pronounced sentence
on them as follows:

"Punishment for this offense as fixed by Congress has a wide
range, giving the Court unusual latitude, ranging from a
nominal fine without imprisonment to a heavy fine and two
years’ imprisonment, all in the discretion of the Court. I am
disposed to consider this case with reasonable moderation. The
sentence of the Court in the case of the defendant Weil will
be a fine of $10,000 and costs, and commitment to the county
jail until the fine is paid, and in the cases of Todd,
Skipworth, and Cusey a fine of $5,000 and costs, with the same
provision in regard to payment."

COMBINATIONS: A. D. 1904-1909.
The Standard Oil Company.
Federal Government investigation of its methods of business.
Criminal prosecutions for violation of the law against
rebates.
The $29,000,000 fine and its annulment.
Acquittal of the Company.

After a dozen years or more of slight oil production in
Kansas, that state became quite suddenly, in 1904, one of the
important sources of petroleum supply. The Standard Oil
Company had taken care to be prepared for whatever development
might occur, and had organized its operations in this western
field under the name of the Prairie Oil and Gas Company, of
Kansas.
{122}
Its refineries were ready to furnish a market to the Kansas
producers of crude oil, and they had no other. Independent
enterprises in oil refining were made quite impossible, and
the Prairie Oil and Gas Company was complete master of the
situation. The Kansas oil producers were soon writhing under
its dictation of prices and rules of dealing, as the
Pennsylvanians had been years before, and the Kansas
Legislature came promptly to their rescue. In the winter of
1904-1905 it passed five vigorous acts; authorizing the
establishment of a State oil refinery; making pipe lines
common carriers within the State; placing them under the
jurisdiction of the State board of railroad commissioners;
fixing maximum rates for the transportation of oil by freight
or pipe line; and, finally, prohibiting discrimination between
localities in the sale of any commodities. Furthermore, the
anti-trust laws of the State were brought into action against
the Standard Oil Company and the railroads accused of giving
it special rates and privileges.

At the same time, the Kansas situation was brought to the
attention of Congress and the Federal Executive. On motion of
a Kansas representative, the lower House of Congress, in
February, adopted a resolution calling on the President for an
investigation of the methods of business pursued by the
Standard Oil Company. The desired investigation was conducted
in the following year by Commissioner Garfield, the head of
the Bureau of Corporations, and his report was communicated to
Congress on the 5th of May, 1906, with an accompanying special
message, by the President. Nothing of the detail of facts in
the report can be given here; but the conclusions drawn from
them by the Commissioner were summed up by him, as follows:

"Upon the request of its attorney, all the essential facts
discovered by this Bureau were presented to the company at the
close of the investigation, and an exhaustive statement
relating thereto was made by its chief traffic officer. There
was no denial of the facts found, but explanations of
particular situations were offered, and it was urged that the
facts did not show any violation by the Standard of the letter
or spirit of the interstate-commerce law. A most careful
review of the facts and the explanations leads to the
following conclusions:

"The Standard Oil Company has habitually received from the
railroads, and is now receiving, secret rates and other unjust
and illegal discriminations.

"During 1904 the Standard saved about three-quarters of a
million dollars through the secret rates discovered by the
Bureau of Corporations, and of course there may be other
secret rates which the Bureau has not discovered. This amount
represents the difference between the open rates and the rates
actually paid. Many of these discriminations were clearly in
violation of the interstate-commerce law, and others, whether
technically illegal or not, had the same effect upon
competitors. On some State business secret rates were applied
by means of rebates.

"These discriminations have been so long continued, so secret,
so ingeniously applied to new conditions of trade, and so
large in amount as to make it certain that they were due to
concerted action by the Standard and the railroads.

"The Standard Oil Company is receiving unjust discriminations
in open rates.

"The published rates from the leading Standard shipping points
are relatively much lower than rates from the shipping points
of its competitors. The advantage to the Standard over its
competitors from such open discriminations is enormous,
probably as important as that obtained through the secret
rates.

"If an unfair discrimination be obtained by one shipper
through a device which in itself is seemingly not prohibited
by law, that fact shows that the law is defective and should
be strengthened; it does not show that the discrimination is
proper or just.

"The following are a few of the most important discriminations
and the methods by which they were obtained:

"(1) For about ten years the New England territory has been in
control of the Standard Oil Company by reason of the refusal
of the New York, New Haven and Hartford road and of the Boston
and Maine road, on all but a few divisions, to pro-rate—i. e.,
to join in through rates—on oil shipped from west of the
Hudson River, and by means of the adjustment of published
rates. …

"(2) The Standard Oil Company has been able to absolutely
control for many years the sale of oil in the northeastern
part of New York and in a portion of Vermont by means of
secret rates from its refineries at Olean and Rochester. …

"The saving to the Standard during 1904 by the secret rate
from Olean to Rochester alone was $115,000. This and other
less important rates from Olean were unknown to the
independent refiners, and were not published on the ground
that they were wholly State rates; yet in fact they were used
for oil consigned to points beyond the State boundary of New
York. Furthermore, all shipments from Olean on these secret
rates were blind-billed—_i. e._, the rates were not shown
on the waybills.

"(3) The Standard Oil Company has maintained absolute control
of almost the whole section of the country south of the Ohio
River and east of the Mississippi by means of secret rates and
open discriminations in rates from Whiting, Indiana. …

"(4) The Standard Oil Company has for at least ten years
shipped oil from Whiting to East St. Louis, Illinois, at a
rate of 6 or 6¼ cents on three of the five railroads running
between those places, while the only duly published rate on
all roads has been 18 cents during all that period! This
discrimination saved the Standard about $240,000 in 1904. …

"Whiting is located in Indiana, about two miles from the
Illinois line. East St. Louis is in Illinois, just across the
river from St. Louis. The secret low rates were given by the
Chicago, Burlington and Quincy, Chicago and Alton, and Chicago
and Eastern Illinois railroads. They were not published, on
the ground that they were State rates. …

"(5) In the Kansas-Territory field there were some unfair open
rates. …

"(6) In California direct rebates, as well as discriminations
by the use of secret rates, have been given on oil. …

"(7) Open published rates from Whiting into a large part of
the United States have given the Standard Oil Company an
unfair advantage of from 1 to 20 cents per hundred pounds.

{123}

"This discrimination seriously limits independent refiners in
some markets, and shuts them out completely from other
markets. It is accomplished by the use of commodity rates—that
is, rates which apply only to petroleum and its products—and
by refusal to pro-rate."

_Report of the Commissioner of Corporations on the
Transportation of Petroleum,
May 2, 1906, Letter of Submittal, pages xxi-xxv.
(59th Congress, 1st Session House Document. number 812)._

Consequent on the information secured by this investigation,
criminal proceedings against the Standard Oil Company in its
various State organizations were instituted in 1906-1907. The
number and character of the indictments found in these cases
are set forth in tabular form, in an article on "The Oil Trust
and the Government," by Francis Walker, published in the
_Political Science Quarterly_, March, 1908. The following
statement of them is summarized from that table:

In the Northern District of Illinois, August 27, 1906, against
the Standard Oil Co. of Indiana, 1903 and 134 indictments on
shipments over the Chicago and Alton Railway, from Whiting,
Indiana, to East St. Louis, Illinois, and from Chappell,
Illinois, to St. Louis, Missouri.

In same District, same date, against same Company, 2124 and
220 indictments on shipments over the Chicago, Burlington and
Quincy Railway, from Whiting to East St. Louis and St. Louis.

In same District, same date, against same Company, 1318 and
597 indictments on shipments over the Chicago and Eastern
Illinois and the Evansville and Terre Haute railways, from
Whiting to Evansville.

In same District, same date, against same Company, 103
indictments, on shipments over the Chicago and Eastern
Illinois and the Evansville and Terre Haute railways from
Whiting, via Grand Junction, Tennessee, to various points in
the South.

In the Eastern Division of the Western District of Tennessee,
October 16, 1906, against the Standard Oil Company of Indiana,
1524 indictments, on shipments over the Illinois Central and
Southern railways, from Evansville, via Grand Junction, to
various points.

In the Eastern District of Missouri, November 18, 1906,
against the Waters-Pierce Oil Company, 76 indictments, on
shipments over the St. Louis, Iron Mountain and Southern
Railway, to various points.

In the Western District of Louisiana, January 28, 1907,
against the Waters-Pierce Oil Company, 32 indictments, on
shipments over the St. Louis, Iron Mountain. and S. Railway,
to various points.

In the Western District of New York, August 10, 1907, against
the Vacuum Oil Company, 23 indictments, on shipments from
Olean to Vermont.

In the Western District of New York, August 24, 1906, against
the Standard Oil Company of New York, 23 and 123 indictments,
on shipments from Olean to Vermont.

In same District, August 9, 1907, against same Company, 188
and 40 indictments, on shipments from Olean, New York, to
Burlington, Vermont, over New York Central and Rutland and
Vermont Central railways.

In same District, same date, against the Vacuum Oil Company,
188 and 40 indictments on shipments from Olean to Burlington
and to Rutland and Burlington.

In same District, September 6, 1907, against the Standard Oil
Company of New York, 54 indictments, on shipments from Olean
and Rochester to points in Vermont.

The most notable of these criminal prosecutions has been the
one described first in the list above. The opening chapter of
its history is sketched as follows by Mr. Walker, in the
article already referred to:

"The only important case which, up to December, 1907, had come
to trial, was the indictment against the Standard Oil Company
of Indiana for accepting a secret rate on shipments over the
Chicago and Alton Railway, from Whiting, Indiana, to East St.
Louis, Illinois, and from Chappell, Illinois, to St. Louis,
Missouri. The published rate on this traffic was eighteen
cents per hundred pounds (as far as East St. Louis, a bridge
toll of one and a half cents being added on shipments to St.
Louis); while the rate paid by the Standard Oil Company of
Indiana, during the period of about three years covered by the
indictment and for many years before, was only six cents per
hundred pounds. On this rate, the Standard had transported, as
charged in the indictment, 1903 carloads of oil, each carload
being made the subject of a distinct count and separate proof.
The trial of this case began in Chicago, on March 4, 1907.

"The defence not only exhausted every device of technical
objection and obstruction but also attacked the
constitutionality of the ‘Elkins’ law forbidding rate
discrimination, alleging the right of the railroads and
shippers to make private contract rates, an impudent assertion
which the court justly characterized as an ‘abhorrent heresy.’
The question of guilt in the matter of technical proof
depended to a large extent on the requirements of the law that
carriers must file rates, and the argument of the prosecution
was that shippers must be charged with the knowledge as to
whether such rates were lawfully filed or not. The defendant
pretended ignorance of the fact that the six-cent rate had not
been filed by the Alton and alleged that it was an
unreasonable requirement to charge it with such knowledge. On
this point the court said in rendering judgment:

"‘The honest man who tenders a commodity for transportation by
a railway company will not be fraudulently misled by that
company into allowing it to haul his property for less than
the law authorizes it to collect. For the carrier thus to
deceive the shipper would be to deliberately incriminate
itself, to its own pecuniary detriment, which it may safely be
trusted not to do. The only man liable to get into trouble is
he who, being in control of the routing of large Volumes of
traffic, conceives a scheme for the evasion of the law, and
connives with railway officials in its execution.’

"The jury returned a verdict of guilty on 1462 counts, on
April 14, 1907: a considerable number of counts, namely 441,
were thrown out on technical grounds. In the matter of
penalty, the Standard’s counsel argued
(1) that there were only three offences shown, namely, one for
each year in which the rate was in force;
(2) that there were only 36 offences shown, namely, one for
each monthly settlement of freight charges; and
(3) that each train load constituted a separate offence. The
court held, however, that the unlawful rate was made on a
carload basis, and that each carload unlawfully transported
constituted a distinct offence.
{124}
In considering the amount of the fine to be levied, the court
demanded information from the officials of the Standard Oil
Company regarding the net earnings and dividends of the chief
holding company of the trust—the Standard Oil Company of New
Jersey. Their attendance and testimony were obtained only by
writ of subpoena; and it was admitted that the net profits
during the years 1903 to 1905 (when these rebates existed)
amounted to $81,336,994, $61,570,110, and $57,459,356
respectively.

"In view of the fact that the counsel of the defendant openly
maintained the right of the railways and shippers to make
private contracts for rates, the court declared that it was
‘unable to indulge the presumption that in this case the
defendant was convicted of its virgin offence.’ The defendant
also claimed that, as there were no other shippers of oil over
the Chicago and Alton Railway, no one was injured by the
secret rate. On this matter the court said:

"‘It is novel, indeed, for a convicted defendant to urge the
complete triumph of a dishonest course as a reason why such a
course should go unpunished.

"‘Of course, there was no other shipper of oil, nor could
there be, so long as, by secret arrangement, the property of
the Standard Oil Company was hauled by railway common carriers
for one-third of what anybody else would have to pay.’

"Moved by these considerations, the court adjudged, on August
3, 1907, that the defendant should pay the maximum penalty and
fined the Standard Oil Company $20,000 for each offence, that
is, for each of the 1462 counts in the indictment upon which
conviction was obtained. The total fine, therefore, amounted
to $29,240,000."

_Francis Walker,
The Oil Trust and the Government
(Political Science Quarterly, March, 1908)._

On a writ of error the case went now to the United States
Circuit Court of Appeals for the Seventh Circuit, where it was
argued at the April session, 1908, and the opinion, by Judge
Peter S. Grosscup, Circuit Judge, delivered on the 22d of the
following July. In this opinion the District Court was held to
have erred in deciding that each single carload of oil was to
be dealt with as a separate offence, and that it reasoned
erroneously in determining the fine imposed. On this latter
point Judge Grosscup said:

"Did the court, in the fine imposed, abuse its discretion? The
defendant indicted, tried, and convicted, was the Standard Oil
Company, a corporation in Indiana. The capital stock of this
corporation is one million dollars. There is nothing in the
record, in the way of evidence, either before conviction, or
after conviction and before sentence, that shows that the
assets of this corporation were in excess of one million
dollars. There is nothing in the record, either before
conviction, or after conviction and before sentence, that
shows that the defendant, before the court, had ever before
been guilty of an offence of this character. It may,
therefore, be safely assumed, that but for the relation of the
defendant before the court to another corporation, not before
the court—a relation to be presently stated—the court would
have measured out punishment on the basis of the facts just
stated.

"That under such circumstances the punishment would have been
the maximum punishment, does not seem possible; for the
maximum sentence, put into execution against the defendant
before the court, would wipe out, many times, and for its
first offence, all the property of the defendant. …

"Briefly stated, the reason of the trial court for imposing
this sentence was because, after conviction and before
sentence, it was brought out, on an examination of some of the
officers and stockholders of the Standard Oil Company of New
Jersey, that the capital stock of the Standard Oil Company of
Indiana, the defendants before the court, was principally
owned by the New Jersey corporation, a corporation not before
the court—the trial court adding (upon no evidence however to
be found in the record, and upon no information specially
referred to) that in concessions of the character for which
the defendant before the court had been indicted, tried, and
convicted, the New Jersey corporation was not a ‘virgin’
offender.

"Is a sentence such as this, based on reasoning such as that,
sound? Passing over the fact that no word of evidence or other
information supporting the trial court’s comment is to be
found in the record, would the comment, if duly proven,
justify a sentence such as this—one that otherwise would not
have been imposed? Can a court, without abuse of judicial
discretion, wipe out all the property of the defendant before
the court, and all the assets to which its creditors look, in
an effort to reach and punish a party that is not before the
court—a party that has not been convicted, has not been tried,
has not been indicted even? Can an American judge, without
abuse of judicial discretion, condemn any one who has not had
his day in court?

" That, to our mind, is strange doctrine in Anglo-Saxon
jurisprudence. …

"The judgment of the District Court is reversed and the case
remanded with instructions to grant a new trial, and proceed
further in accordance with this opinion."

The Government failed in attempts to secure a rehearing before
the Appellate Court, as well as in an application for the
reviewing of the case by the Supreme Court.

On the new trial to which the case was remanded Judge Landis,
whose judgment had been set aside, declined to sit, and Judge
A. B. Anderson, of Indianapolis, was called to Chicago to
occupy his bench. The trial was opened on the 23d of February,
1909. On the 2d of March Judge Anderson sustained the motion
of the defence that the government must proceed on the theory
that there were thirty-six alleged offences—that is, that each
settlement on which an alleged rebate was paid instead of each
carload, constituted a separate offence. This made it
impossible to claim a penalty beyond $720,000, being at the
rate of $20,000 for each offence. But even that was put out of
the question by the ultimate decision of the Judge, that the
law, as laid down by the United States Court of Appeals,
required him to direct the jury to find the Standard Oil
Company not guilty on the charge of accepting rebates from the
Chicago and Alton Railroad. This instruction he gave on the
10th of March, thus bringing the case to an end.

{125}

The outcome in this case was said to mean that all but two of
the pending indictments against the Standard Oil Company of
Indiana, as recapitulated above, are void and would be
abandoned by the Government. The two cases not affected are
cases involving the shipment of 1915 carloads of oil from
Whiting, Indiana, to Evansville, Indiana, via Dolton Junction,
over the Chicago and Eastern Illinois Railroad.

On the 15th of March, five days after the acquittal of the
Company in Illinois, a fine of $20,000 was imposed upon it by
the United States District Court of the Western District of
New York, on one of the indictments founded on shipments from
Rochester and Olean to points in Vermont. Previously, the New
York Central Railroad had paid a heavy fine for granting
rebates on those shipments.

Numerous State prosecutions, under State laws in Missouri,
Texas, Minnesota, Ohio, and elsewhere, had been assailing the
monopolistic corporation simultaneously with the proceedings
of the General Government against it, and some of them with
greater seriousness of effect than the Federal prosecutors had
accomplished. The more important of these were in Texas,
against the subsidiary Waters-Pierce Oil Company of Missouri,
and in Missouri, against that Company in association with the
Standard of Indiana, and with another of the same Trust
family. The Texas suit, after making its slow way through the
State courts and to the United States Supreme Court, came to
its conclusion early in 1909, with the result of a fine of
$1,623,500, and the exclusion of the Company from business in
the State. The suit in Missouri, as decided at about the same
time by the Supreme Court of the State, resulted in an order
for the dissolution of the Waters-Pierce Company and for the
perpetual exclusion of the other companies, chartered
elsewhere, from operations within the State. The outcome of
this vindication of the law of the State is understood to have
been an arrangement under which the business of the
Waters-Pierce Company is taken over by a new company, the
stock of which is held by trustees approved by the Supreme
Court of the State and acting as officers of the Court.

COMBINATIONS: A. D. 1905-1906.
The Tobacco Trust Case of Hale v. Henkel.
Denial by the Supreme Court of the claim of corporations
to be exempt from the production of books and papers
before a Grand Jury.

A proceeding begun by the Government of the United States, in
the spring of 1905, to ascertain the lawfulness or
unlawfulness of the methods of business pursued by the
so-called Tobacco Trust, was embarrassed by the refusal of a
witness to give evidence for which he was summoned before the
grand jury of the Circuit Court of the United States for the
Southern District of New York. The case pending was between
the United States and the American Tobacco Company and
MacAndrews & Forbes Company. The witness, Hale, was secretary
and treasurer of the MacAndrews & Forbes Company. He refused
to answer any questions that were put to him concerning the
business of that company, or to produce any of the books,
accounts, contracts, correspondence, etc., that were demanded,
being advised by counsel that he was under no legal obligation
to do so, and that the evidence given or produced by him might
tend to incriminate himself. He was held to be in contempt of
Court and was committed to the custody of the United States
Marshal. Being then, on a writ of _habeas corpus_,
brought before another judge of the same Court, after a
hearing, the writ was discharged and he was remanded to
custody (June 18, 1905). An appeal to the Supreme Court
followed, which was argued in the early days of January, 1906,
and decided on the 12th of March following.

The decision of the Court, rendered by Justice Brown, was on
two issues which it found to be presented in the case: The
first involving "the immunity of the witness from oral
examination; the second the legality of his action in refusing
to produce the documents called for by the _subpœna duces
tecum_." The witness justified his refusal to answer questions,
"1st upon the ground that there was no specific ‘charge’
pending before the grand jury against any particular person;
2d that the answers would tend to criminate him." On the first
point the Court found it "entirely clear that under the
practice in this country, at least, the examination of
witnesses need not be preceded by a presentment or indictment
formally drawn up, but that the grand jury may proceed, either
upon their own knowledge or upon the examination of witnesses,
to inquire for themselves whether a crime cognizable by the
Court has been committed." As to the plea of an apprehended
self-incrimination, the Court held that the witness was
protected by the act which provides that no person shall be
prosecuted on account of anything concerning which he may
testify or produce evidence. But it was further insisted that
while the immunity statute may protect individual witnesses it
would not protect the corporation of which the appellant was
the agent and representative. "This is true," says the Court,
"but the answer is that it was not designed to do so. The
right of a person under the Fifth Amendment to refuse to
incriminate himself is purely a personal privilege of the
witness. It was never intended to permit him to plead the fact
that some third person might be incriminated by his testimony,
even though he were the agent of such person."

On the second issue in the case, the substance of the decision
is in the following passages from it:

"Having already held that, by reason of the immunity act of
1903, the witness could not avail himself of the Fifth
Amendment, it follows that he cannot set up that Amendment as
against the production of the books and papers, since in
respect to these he would also be protected by the immunity
act. … We are of the opinion that there is a clear distinction
in this particular between an individual and a corporation,
and that the latter has no right to refuse to submit its books
and papers for an examination at the suit of the State. … The
individual may stand upon his constitutional rights as a
citizen. He is entitled to carry on his private business in
his own way. … Among his rights are a refusal to incriminate
himself, and the immunity of himself and his property from
arrest or seizure except under a warrant of the law. … Upon
the other hand, the corporation is a creature of the State. It
is presumed to be incorporated for the benefit of the public.
… Its rights to act as a corporation are only preserved to it
so long as it obeys the laws of its creation. There is a
reserved right in the Legislature to investigate its contracts
and to find out whether it has exceeded its powers. … The
defense amounts to this: That an officer of a corporation,
which is charged with a criminal violation of the statute, may
plead the criminality of such corporation as a refusal to
produce its books.
{126}
To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises,
may refuse to show its hand when charged with an abuse of such
privileges."

Taking note of the fact that the franchises of the corporation
in this case were derived from one of the States, the Court
proceeds to say:

"Such franchises, so far as they involve questions of
inter-State commerce, must also be exercised in subordination
to the power of Congress to regulate such commerce, and in
respect to this the General Government may also assert a
sovereign authority to ascertain whether such franchises have
been exercised in a lawful manner, with due regard to its own
laws. … The powers of the General Government in this
particular, in vindication of its own laws, are the same as if
the corporation had been created by an act of Congress."

Justices Harlan and McKenna dissented from some of the views
set forth in the opinion of the majority, as declared by
Justice Brown, but concurred in the final judgment, which
affirmed the order of the Circuit Court, remanding the
prisoner to the custody of the Marshal. Justice Brewer and the
Chief Justice dissented from the conclusions relative to
corporations, and from the judgment, holding that "the order
of the Circuit Court should be reversed and the case remanded
with instructions to discharge the petitioner, leaving the
grand jury to initiate new proceedings not subject to the
objections to this."

_Federal Anti-Trust Decisions, 1900-1906,
prepared and edited by
James A. Finch by direction of the Attorney-General,
Volume 2, page 874
(Washington: Government Printing Office, 1907)._

COMBINATIONS: A. D. 1906-1910.
The Standard Oil Company.
Suit of the Government for its dissolution.
Decree for its dissolution by the Circuit Court.
Appeal to the Supreme Court.

Entirely distinct from the criminal prosecutions of the
Standard Oil Company by the United States Government, as
reviewed above was a suit begun in November, 1906, in the
United States Circuit Court for the Eastern Division of
Missouri. The former actions were to penalize the Company for
violations of the Elkins Act, by the procuring of railway
rebates. The later suit was to dissolve the combination in
restraint of trade which the Company was alleged to be, and
therefore illegally existing, in the view of the Sherman
Anti-Trust Law. The complaint was directed against the parent
organization, known as the Standard Oil Company of New Jersey,
with its various subsidiary corporations. It was also directed
against seven individuals namely, John D. Rockefeller, William
Rockefeller, Henry M. Flagler, Henry H. Rogers (now deceased),
John D. Archbold, Oliver H. Payne, and Charles M. Pratt. The
main company, its branches, and these individuals were charged
in the complaint with having entered into an agreement,
combination, and conspiracy to restrain trade and commerce
among the several States, to monopolize the trade in
petroleum, both in its purchase and its shipment and
transportation by pipe-line, steamships and by rail, also in
the manufacture and refining of petroleum.

One of the evidences of its monopoly adduced by the Government
was the enormity of its earnings which were summarized thus:
The Standard Oil Trust and the Standard Oil Company, on an
investment of $69,024,480, had earned up to the end of 1906,
$838,783,783. Adding the estimated profits of 1907 and 1908,
we have substantially, the brief states, a billion dollars
earned by this company in twenty-seven years, with an original
investment of about $69,000,000.

The United States asked for a perpetual injunction, and for
the dissolution of the Standard Oil combination. Hearings were
held in New York, Washington, Chicago, Cleveland, and St.
Louis, about four hundred witnesses being examined. It was not
until the 5th of April, 1909, that the case reached the stage
of argument, before Judges Walter H. Sanborn, Willis Van
Devanter, William C. Hook and Elmer B. Adams, constituting the
United States Circuit Court at St. Louis. The decision of the
Court was announced on the 20th of the following November, the
four judges concurring in the opinion, written by Judge
Sanborn, which held the Standard Oil Company to be an illegal
corporation and decreed its dissolution. The character of the
decision appears from the syllabus of Judge Sanborn’s opinion,
which reads:

"Congress has power under the commercial clause of the
Constitution to regulate and restrict the use in commerce
among the several States, and with foreign nations, of
contracts, of the method of holding title to property and of
every other instrumentality employed in that commerce, so far
as it may be necessary to do so, in order to prevent the
restraint thereof denounced by the Anti-Trust Act of July 2,
1890 (26 Stat. 29).

"Test of the legality of a combination under this act is its
necessary effect upon competition in commerce among the States
or with foreign nations. If its necessary effect is only
incidentally or indirectly to restrict the competition, while
its chief result is to foster the trade and increase the
business of those who make and operate it, it does not violate
that law. But if its necessary effect is to stifle or directly
and substantially to restrict free competition in commerce
among the States, or with foreign nations, it is illegal
within the meaning of that statute.

"The power to restrict competition in commerce among the
several States, or with foreign nations, vested in a person or
an association of persons by a combination, is indicative of
the character of the combination, because it is to the
interest of the parties that such a power should be exercised,
and the presumption is that it will be.

"The combination in a single corporation or person, by an
exchange of stock, of the power of many stockholders holding
the same proportions, respectively, of the majority of the
stock of each of the several corporations engaged in commerce
in the same articles among the States, or with foreign
nations, to restrict competition therein, renders the power
thus vested in the former greater, more easily exercised, more
durable, and more effective than that previously held by the
stockholders, and it is illegal.

{127}

"In 1899 the stockholders of the Standard Oil Company of New
Jersey owned a majority of the stock of nineteen other
corporations in the same proportions that they owned the stock
of the Standard Company, and those twenty corporations
controlled by the owners of the majority of their stock or
otherwise many other corporations. Each of these corporations
was engaged in some part of the business of producing, buying,
refining, transporting, and selling petroleum and its
products, and they were conducting about 30 per cent. of the
production of the crude oil and more than 75 per cent. of the
business of the purchasing, refining, transporting, and
selling petroleum and its products in this country. Many of
them were engaged in commerce in these articles among the
several States and with foreign nations, and were naturally
competitive.

"During the ten years prior to 1879 the seven individual
defendants had acquired control of many corporations,
partnerships, and refiners that had been competing in this
business, had placed the majority of the stock of those
corporations and the interests in property in business thus
obtained in various trustees to be held and operated by them
for the stockholders of the Standard Oil Company, one of the
nineteen companies in which the individual defendants were
principal stockholders, and had thereby suppressed competition
among these corporations and partnerships.

"In 1879, they and their associates caused all the trustees to
convey their interests in the stock, property and business of
these corporations to five trustees, to be held, operated and
distributed by them for the stockholders of the Standard
Company of Ohio. From 1879, until 1892, they prevented these
corporations and others engaged in this business, of which
they secured control, from competing in this commerce by
causing the control of their operations and generally of a
majority of their stocks, to be held in trust for the
stockholders of the Standard Company of Ohio, and, from 1892,
until 1899, they accomplished the same result by a similar
stock-holding device, and by the joint equitable ownership of
the majority of the stocks of the corporations."

Appeal from the decree has been taken to the Supreme Court,
where it was preceded by the appeal of the Tobacco Trust from
a similar decree, involving substantially the same questions,
according to what seems to be the general view of the Bar. On
the 17th of January, 1910, the Supreme Court of the United
States granted the motion of the Government for the
advancement on the docket of the Standard Oil case, and set
the hearing for March 14.

COMBINATIONS: A. D. 1907.
The chief existing combinations.
Their operation through stock ownership.

"Passing the matter of railroad combinations, as to which it
may be said that through stock ownership the control of all
American lines is now concentrated in seven groups of parent
properties, we are chiefly concerned with the practical use
that has been made of the new corporate power by the largest
and strongest of our manufacturing and industrial enterprises.

"The United States Steel Corporation, organized under the laws
of New Jersey, with a capital stock of $1,100,000,000 owns a
majority of the stock of eleven subsidiary companies, and
controls industries scattered over the entire country under
different styles and corporate names. This corporation owns or
manages 213 manufacturing and transportation plants and
forty-one mines located in eighteen different States; it has
more than 1,000 miles of railroad tracks to ore, coke and
manufacturing properties, and a lake fleet of 112 vessels.
This stock ownership gives it control of hundreds of millions
of capital that is not represented by its own billion dollars
of stock.

"The Amalgamated Copper Company, incorporated in New Jersey,
has no asset whatever except the stocks of other corporations.
It owns all the stock of four operating companies and a
controlling interest in seven others, and has taken them over
by an issue of $155,000,000 of its own stock.

"The American Smelting and Refining Company, organized under
the laws of New Jersey, controls the business of thirteen
corporations, in which it either owns the entire stock or a
majority interest. Associated with it are the American Linseed
Company, the National Lead Company and the United Lead
Company, and they together control twenty-eight concerns and
ninety-three affiliated corporations.

"The Standard Oil Company, incorporated in New Jersey, with a
capital stock of $110,000,000, controls, directs and manages
more than seventy corporations through its possession of a
majority of their stock. Some of these companies own stock in
still other corporations, and all together the combine
operates more than 400 separate and distinct properties, thus
monopolizing 90 per cent, of the export oil trade and 84 per
cent. of the domestic trade. The market value of its
capitalization is about $650,000,000, and all this vast
property was brought together under one head without the
payment of a single dollar of cash, the whole consolidation
being effected through the issue of stock in the holding
company in payment of stock in the companies that are held.

"The United Gas Improvement Company, incorporated in
Pennsylvania, own stock in thirty corporations doing the
character of business for which it was organized, and in
addition to this is interested in numerous street railway
properties, including the New York City surface railways. With
it is allied the Public Service Corporation of New Jersey and
the Rhode Island Securities Company, which last named owns all
the stock of the Rhode Island Company, which again has leased
for 999 years several of the most important railroad companies
doing business in that State. The power of this corporation,
through this system of stock ownership, is scarcely
calculable, and the value of properties controlled would equal
hundreds of millions, although its own capital stock is but
$36,000,000.

"The American Tobacco Company, organized under the laws of New
Jersey, with a capital stock of $40,000,000, practically
controls the whole market through its ownership of the stock
of innumerable other corporations.

"The International Harvester Company, incorporated in New
Jersey, with a capital stock of $120,000,000, while probably
not a holding company, maintains most, if not all, the
corporations which it has bought out, and they are operated as
if they were distinct and competing concerns.

"The American Sugar Refining Company, incorporated in New
Jersey, with a common stock of $40,000,000, controls
fifty-three other corporations.

{128}

"The American Telegraph and Telephone Company, incorporated in
New York, with a capital stock of $250,000,000 controls,
through stock ownership, thirty-five subsidiary corporations.

"The Western Union Telegraph Company owns stock in twenty-four
other corporations; the Distillers’ Security Company owns 90
per cent. of the stocks of the Distilling Company of America,
and has acquired ninety-three plants, representing 60 per
cent. of the industry; the Philadelphia Rapid Transit Company
owns the stock of twelve elevated and street railway
companies; the Brooklyn Rapid Transit Company owns the stock
of seven others; the Metropolitan Securities Company of New
York owns the stock of many traction companies, and the
controlling interest in others; the Inter-State Railways of
New Jersey own all the stock of the United Power and
Transportation Company, which latter company controls the
capital and franchises of about forty other projected
companies in New Jersey and Pennsylvania; while the
International Mercantile Marine Company of New Jersey owns a
majority of the shares of many of the most important steamship
companies whose vessels cross the Atlantic Ocean.

"These are but a few instances of the promotion of
combinations through stock ownership."

_Wade H. Ellis,
Attorney-General of Ohio,
Paper read at National Conference on Trusts and
Combinations, Chicago, October 22, 1907._

COMBINATIONS: A. D. 1907.
National Conference on the Trust Question, invited
by the National Civic Federation.

A remarkably representative and impressive assembly at
Chicago, of delegates from all parts of the country, and
voicing all interests, was brought about by the invitation of
the National Civic Federation, in October, 1907, for a
thorough discussion of the questions which troubled the
country and confused its attitude toward Trusts and
Combinations, as subjects of regulation by law. There had been
a similar conference at Chicago in 1899, at the call of the
Civic Federation of that city; but no common ground of
agreement could then be found. The subject, as was afterwards
said, "was too new, too vaguely understood for men to be of
one mind in regard to it." But eight years later, in 1907, "it
appeared to the leaders of the National Civic Federation not
improbable that a new conference might lead to some definite
pronouncement of opinion. … Leaders of opinion in all walks of
life gave the project their hearty endorsement. … The matter
was taken up with great interest by the Governors of the
several States and by the presidents of commercial bodies, who
named delegates in response to the invitation of the National
Civic Federation. A significant evidence of this greater
interest is found in the larger number of delegations
appointed in 1907 than in 1899. The records show the
following:

Delegations. 1899. 1907.

Appointed by Governors 33 39

Appointed by national
and State organizations 22 33

Appointed by
labor organizations 7 14

Appointed by local
commercial bodies 33 58

Total 95 144

"Furthermore, the attendance of 492 delegates in 1907 might be
contrasted with that of 238 delegates at the earlier
conference.

"The conference of 1907, though larger in numbers, was much
more of a unit in sentiment. It developed at an early stage of
the discussion that there was no important element
antagonizing the trust and combination as such. There were few
speakers who failed to dwell upon the advantages which had
accrued to the nation from some combinations, and from the
spirit of association which, after all, cannot be separated
from them. On the other hand, there was no lack of emphasis in
dwelling upon the evils which had been disclosed among trusts
and combinations.

"The resolutions of the conference, adopted by a unanimous
vote, reveal these tendencies. They are a call for further
examination and more light, but a call for such examination
along certain pretty well-defined lines. They should receive
the attention of Congress as an expression of the popular will
on this pressing question."

The Conference held nine sessions, extending over four days,
focusing the thought of the best minds of the country, and the
counsels of the largest practical experience, on all points in
the many-sided problem before it. On all that appear most
important among those points it came to a full and clear
agreement in its conclusions, as embodied in the following
resolutions, which were adopted by unanimous vote, a committee
being appointed to present them to Congress and to the
President: