Chapter 12: is the one relating to scutage, from the word scutum, (6)

Legal regulation of _wages_ lasted much longer in England; and has reappeared in very recent years, at least in the Australasian colonies, with a beginning of such legislation in Great Britain and Ireland and the State of New York. The first Statute of Laborers merely provides that the old wages and no more shall be given. The next year, however, in 1350, the exact rate of wages was fixed; and this lasted for more than two centuries, to the reign of Elizabeth, the so-called "great" Statute of Laborers consolidating all the previous ones. It is apt to be the case that when a statutory system has reached its full development it falls into disuse; and that is certainly the case here. There is no later statute in England until 1909 fixing directly or indirectly the rate of wages; and it may be doubted whether the justices of the peace continued to fix them for many years under the Statute of Elizabeth. More than three centuries were to go by before this principle reappeared in legislation or attempted legislation; but in Australia,[1] New Zealand,[2] and England[3] there has been recent legislation for a legally fixed rate of wages to be determined for practically all trades by a board of referees, consisting, as such boards usually do consist, of one member to represent capital, one to represent labor, and the third to represent the public or the state. As such third representative almost invariably votes on the side of the greatest number of voters, this practically makes a commission hardly impartial. The working of the system in New Zealand will be found discussed in the _Westminster Review_ for January, 1910. There is an appeal to the courts from the rate of wages fixed by such commission; and it appears that out of four such appeals, in three the decision of the commission was confirmed, and in the fourth set aside; but the workingmen disregarded the judgment of the court and struck for a higher wage--contrary to the whole theory of such legislation, which is to _prevent_ strikes. This strike succeeding, there has, therefore, been no case so far where the increasing rate of wages was checked by any appeal to the courts.

[Footnote 1: So. Australia, 1906, no. 915; 1900, no. 752; Victoria, 1903, no. 1,857; 1905, no. 2,008.]

[Footnote 2: See New Zealand Law of 1900, no. 51; frequently amended since.]

[Footnote 3: 60 and 61 Victoria, c. 37, 9 Edward VII.]

In the British Parliament last year (and the identical bill has been introduced in the State of New York under championship of the Consumers League, as applied to women and children), a bill was introduced,[1] not backed, however, by the government as such, although bearing the name of Lloyd-George, providing in effect that wages might be fixed in this manner in certain definite named trades, and also in such other trades as might be designated from time to time by the home secretary. The economic effect of such measures we are not to discuss. In the United States, except as to public work, they would be probably unconstitutional.

[Footnote 1: Since enacted, see below in chap. XI.]

Coming, therefore, to public work, we use this phrase for all labor contributed directly to the State, to any county, city, town, village, or municipality thereof, to any municipal-owned public-service corporation, gas, water, etc., company, or, finally, and most important, to or under any contractor for the same, or any of them. Some years ago the State of New York adopted legislation to the effect that in all such public employment the wages paid should be the usual rate paid for similar work in the same locality at the same time. As a result of this legislation, many thousands of lawsuits were brought against the City of New York by persons who had done labor for that municipality in the past, complaining that they had not in fact been paid "the prevailing rate," although in fact the work had long since terminated, and they had been discharged, paid in full, and apparently satisfied. Shortly after, the law itself was declared unconstitutional by New York courts. Thereupon the labor interests proposed a constitutional amendment in 1905, to the effect that "the legislature may regulate and fix the wages or salaries, the hours of work or labor, and make provision for the protection, safety, and welfare of persons employed by the State or by any county, city, town, village, or other civil subdivision of the State, or by any contractor or subcontractor performing work, labor, or services for the State or for any city, county, town, village, or other civil division thereof." A very small proportion of the voters of New York took the trouble to vote upon this amendment, although it revolutionized the economic, if not the constitutional, system of the State, so far as property and contract rights are concerned; and it was adopted by a substantial majority. In Indiana there was a statute at one time fixing the rate of wages in public employment at a minimum of not less than fifteen cents per hour, but it was held unconstitutional. It is customary in New England villages to vote annually that the town shall pay its unskilled labor a prescribed rate for the following year, usually two dollars per day. The effect of this has been sometimes to cause the discharge of all but the very most skilful and able-bodied; of those who had, by working at less than full pay, been kept out of the poorhouse; and the selectmen of some towns, notably Plymouth, have refused to obey such a vote. The California Code of 1906 provides a minimum compensation of two dollars per day for public labor, except as to persons regularly employed in public institutions. Delaware has copied the New York statute as to the prevailing rate. Hawaii, in public labor, provides a minimum wage of one dollar and twenty-five cents per day. Nebraska goes further, and provides not only for two dollars per day for public work, but that it must be done by union labor in cities of the first class, while Nevada has a minimum wage of three dollars and an eight-hour day for unskilled labor in public work. On the other hand, the Constitution of Louisiana prescribes that no law shall ever be passed fixing the price of manual labor.[1]

[Footnote 1: This matter will be found further discussed in chap. XI.]

Coming lastly to _tolls_, or rates of persons or corporations enjoying a franchise, that is to say, a legalized monopoly, or exclusive legislation, or special privilege, such as eminent domain, or the right to occupy the streets; such are, in fact, identical with what we term public-service corporations, the older, the most universal, and certainly the most, if not the only, justifiable example of legal regulation of the returns for the use of property or personal services.

Whatever may be thought of the economic wisdom of attempting to regulate any rate or prices by law (and for a discussion of this subject as to railways, at least, the reader may well be referred to the valuable treatise of Mr. Hugo R. Meyer, "State Regulation of Railways"), such legislation was at least in England constitutional; but in this country, owing to our specific adoption of the principle of property rights and freedom of labor and hence of freedom of contract in our Federal and State constitutions, and as it has been repeatedly decided that to take away the income from property or a reasonable return for labor by legislation is to infringe on the property or liberty right itself, we have a universally recognized constitutional objection which has, in fact, made impossible all regulation of prices and wages, except as above mentioned, and as we are now about to discuss. The first attempt to regulate rates (with the possible exception of some early colonial laws) was the so-called Granger legislation, as shown in the Illinois Constitution of 1870, authorizing a warehouse commission to fix charges for elevating grain, the Act of Iowa of 1874 establishing reasonable maximum rates for railways, a similar act in Wisconsin of the same year relating to railroad, express, and telegraph companies, and in Minnesota; which legislation was all sustained by a divided opinion in the so-called Granger cases headed by Munn _v._ Illinois, 94 U.S. 113.

In the many years which have elapsed since this famous decision, the clouds have rolled away and the shape and basis of that apex of our jurisprudence been fairly surveyed. It will appear, I think, to any dispassionate jurist to have been rightly decided, at least as to the railroads, though the reasons given by Chief Justice Waite are unsatisfactory and have little logical basis. The true basis of regulation of rates at the common law and in English history was _monopoly_; either a franchise directly granted by the crown, such as a bridge, ferry, or dock, or one which was geographically, at least, exclusive, like a dock without a franchise. As Lord Ellenborough said in the decision quoted by the Chief Justice himself: "Every man may fix what price he pleases upon his own property, or the use of it; but if for a particular purpose the public have a right to resort to his premises and make use of them, and he have a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must, as an equivalent, perform the duty attached to it on reasonable terms." "_If for a particular purpose the public have a right to resort to his premises_"--this important qualification from now on seems to have been lost sight of in the majority opinion. Quoting the early precedents such as that statute of William and Mary regulating the charges of common carriers--and our readers will remember many more--and the case of cabmen whose charges are regulated by city ordinances--but they are given stands or exclusive privileges in the streets--the chief justice concluded with the startling proposition that "if they do not wish to submit themselves to such interference, they should not have clothed the public with an interest in their concerns." But the public has an interest, as was afterward pointed out in dissenting opinions, in the price of shoes; yet it has never been supposed that that gave any power of legal regulation of factory prices. A still stronger case is that of inns or hotels, which have always been "a public avocation." They have had to take in all travellers without discrimination; yet there is not a vestige of legislation in the English statute-book regulating the prices to be charged by hotels. Indeed in early times most employments--millers, barbers, bakers--were public in the sense that the man could not refuse a job; yet their prices were never regulated. Yet it was upon this phrase, "_public employment_" or "_private property affected with a public interest_," taken from the opinion of Justice LeBlanc in the London Dock Company case, decided in 1810, without its context, that the chief justice built up the whole reason of his decision. The _decision_ in Munn _v._ Illinois, subject to court review as to whether the rate be confiscatory, remains good law, but the _opinion_ is still open to question; and indeed the most recent decisions of the Supreme Court show a desire to get away from it.

Some writers endeavor to justify, under our constitutions, the regulation of rates by the principle of eminent domain; but this source seems far-fetched and unnecessary. It is, of course, done under the police power; but the precedent for that use of the police power is to be found in the history of English law and statutes. Thus we have noted in the Statute of Westminster I, A.D. 1275, that excessive toll contrary to the common custom of the realm was forbidden in market towns. The very phraseology of this statute indicates the antiquity of the doctrine that tolls must be reasonable; but "toll" was always a technical term, not for ordinary prices of commodities, but for a use or service which was in some way dependent upon law or ordinance. In the very opinion of Chief Justice Waite, he quotes Lord Hale, saying that the king "has a right of franchise or privilege, that no man may set up a common ferry without a prescription time out of mind, or a charter from the king," and so later he quotes Lord Hale as saying that the same principle applies to a public wharf "because they are the wharves only licensed by the king." We also found legislation fixing rents and so on in staple towns, and consequently of the charges of property owners therein, such towns having grant of a special privilege. The early law books are full of cases showing that discrimination and extortion were unlawful, even criminal, offences. And finally, as Chief Justice Waite points out, we find the rates of carriers fixed by law in 1691. Ordinary carriers, not having the right of eminent domain such as express companies, might to-day be considered to have no legal monopoly, and indeed, possibly for that reason, the regulation of charges of express companies has not yet been attempted; but in King William's time it was doubtless considered that the carriers had special privileges on the highways, as indeed they did.

It seems to me, therefore, that the real reason, both logical and historical, for regulation of rates rests on the fact that the person or corporation so regulated is given a monopoly or franchise by some law or ordinance, or at least a special privilege from the State; or at least that he maintains a wharf, a bridge, or a ferry, or other avocation which (really for the same reason) has, from time immemorial, been subject to such regulation. This, indeed, has been the doctrine officially adopted by the Commonwealth of Massachusetts in its legislation--"Where monopoly is permitted, State regulation is necessary." The new "Business" Corporation Act of 1903 makes the express distinction between public-service corporations and all other private corporations for gain: it applies to "all corporations ... established for the purpose of carrying on business for profit ... but not to ... railroad or street railway company, telegraph or telephone company, gas or electric light, heat or power company, canal, aqueduct or water company, cemetery or crematory company, or to any other corporations which now have or may hereafter have the right to take or condemn land or to exercise franchises in public ways granted by the commonwealth or by any county, city, or town." The implication is that such other corporations are not given the entire freedom of action and contract conferred by this Business Corporation Act. Where the State creates a monopoly, it puts the public at the mercy of the grantee of that franchise. Therefore, it is logical and just that it should regulate the rates. The test, however, is not and cannot be, that the man is ready to serve all comers, or even that he is compelled so to do; hotel-keepers, barbers, restaurants, doctors, etc., have never had their charges regulated by law. In early days most tradesmen were compelled to serve any and all, at an equal price, under liability for damages.[1] Mills, indeed, have always been subject to have their tolls regulated; at least, a certain proportion of the grist had to go to the miller; but even if it be held they had no peculiar franchise, the exception is as old as the rule.

[Footnote 1: Holmes J., _ex banco_, in United States _v_. Standard Oil Co., March 14, 1910.]

It is further noteworthy that since the Granger cases themselves, there has been no extension of the doctrine of Chief Justice Waite to other trades or industries, while the extent of the doctrine, that is, the amount of regulation permissible under the Constitution, has been very much limited. Waite's opinion gives no intimation of any constitutional limit whatever, but dozens of the decisions of the Supreme Court since draw the limit this side of the point of confiscation; that is to say, at a "reasonable return," whatever that phrase may mean. It was, indeed, at first extended to semi-private grain elevators on the prairies, to elevators monopolizing the water front of Buffalo, New York, and to floating elevators in New York Harbor, the first and last of which show certainly no element of legal monopoly, while the Buffalo case at most only a geographical one. Still, elevators were the subject of Munn _v_. Illinois itself.[1] And it has never been extended to a mere _de facto_ or "virtual" monopoly arising only from the accident of trade. Moreover, in matters of interstate commerce, although it might have been argued that such affairs were left absolutely to the plenary power of Congress, which might well, if it chose, pass laws preventing any railroad from engaging in interstate business, except at a certain rate per mile for passengers or freight--or that no vessel should be allowed to carry passengers or freight from foreign countries except at a certain price per head or per ton--yet the Supreme Court seems to have held that even this plenary power over commerce expressly given to Congress in the Constitution, is limited by the ordinary property guarantees of that instrument; possibly because the Fifth Amendment is of later date than the body of the Constitution.

[Footnote 1: We may divide monopolies into legal, geographical, and _de facto_, or "virtual" monopolies--phrases which sufficiently describe themselves.]

We thus find that the earliest legislation regulating rates was that of the States. It was thirteen years after the Iowa statute above referred to that the Interstate Commerce Act was passed, which was supposed to give a power--afterward denied by our Supreme Court--to the Interstate Commerce Commission to fix rates. It certainly did give them power to find, upon complaint, what was a reasonable rate, which was _prima facie_ evidence in case of appeal. In hundreds of cases actual rates were complained of, in probably many more discrimination was complained of, and, according to Mr. Meyer, the commission was found by the Supreme Court to have decided rightly about half the time. In 1903 came the intelligent Elkins Bill against discrimination, which merely re-enacts the common law, and up to within two or three years has proved the only really effective measure of controlling the rates themselves. In 1906 came the Hepburn Act under Roosevelt, giving general power to the commission to fix rates upon complaint, to make joint rates, extending the statute to the oil pipe-lines, express companies, and sleeping-car companies, and going to the verge of the Constitution in an effort to provide that rates fixed by the commission should take immediate effect. So far as most recent decisions go, however, this great statute has not altered the position of the Supreme Court of the United States as to the constitutional necessity of a reasonable return to the carrier, and perhaps the cardinal question remains to be decided, whether such rate-making power is legislative, and, if so, may under the Federal Constitution be delegated by Congress to any board. Congress merely proclaims that the rates shall be reasonable and without discrimination--both mere expressions of the common law--and leaves the determination of what is reasonable between the Interstate Commerce Commission and the Supreme Court, neither of them legislative bodies. The common law may, indeed, be decided by a judicial body; but it is difficult to see why the alteration of the common law is not legislation. And this criticism applies _a fortiori_ to the Taft Bill just enacted (June, 1910), which gives the Interstate Commerce Commission power to fix rates of their own motion. When, therefore--if the author may venture to repeat his words--the commission fix a "just and reasonable" rate,[1] if they are applying the common law, their act is judicial; if they are fixing other standards, it is legislative.[2]

[Footnote 1: United States Act of February 4, 1887, as amended June 29, 1906, sec. 15.]

[Footnote 2: Stimson's "Federal and State Constitutions of the United States," p. 53.]

Coming to the States again, this constitutional difficulty does not concern us, for it has been decided that the division of powers into legislative, executive, and judicial must, as to the States, be expressly provided in the State constitutions and is not guaranteed under the Fourteenth Amendment. Broadly speaking, the history of legislation has been as follows: The States have usually exercised their rate-making power through a railroad or corporation commission. New York and Virginia now employ the more comprehensive phrase "public service" or "corporation" commission. The Massachusetts statute, like the Granger statutes, dates from 1874. Just as we found in the Middle Ages in the case of the Black Death in times of famine, so times of panic with us have always produced radical legislation: this, it will be noted, is the year after the great panic of 1873. But the Massachusetts law, the earliest of all, did not and does not authorize any fixing of rates, or even any finding as to what was reasonable upon rates. It extends only to the other conditions of service. The statute is, perhaps, broad enough to permit such a finding as matter of opinion; but it would have no legal effect. The commission, section 15, were authorized to find that a change in rates of fares for transporting freight or passengers was reasonable and expedient, and so inform the corporation and the public, through their annual report. All the Western States, however, did give such power.

As has been said, no constitutional objection has been sustained by the United States Court as to this delegation of power, if it be one; but in later years, possibly dissatisfied with the conservatism of such boards, we find drastic legislation, particularly in the West and South, fixing maximum rates, at least as to passengers (it is obviously difficult, if not impossible, to enact express legislation as to freight rates). Such legislation stands in as strong (or stronger) constitutional position, as rates made by the commission; and only fails when "confiscatory" or when in conflict with Federal legislation. Perhaps the most notable clash between the States and the Federal power has been on this subject in this very last year, where State laws have been annulled and even high State officers enforcing them restrained by injunction of Federal courts. Still, in the legislation of all States, I find as yet none overstepping the limits we have above defined as proper.

The question of the _amount_ of return required by the court is, of course, a most important one. It is a difficult subject, because no fixed rule takes any account of risk to the original investment. It is all very well to say that six or eight per cent, is a fair return on invested capital, or even on "cost of reproduction"; but when, as to original promoters, the chance of even any return was as one against ten of a total loss, _fifty_ per cent. of annual profit would not be more than a "fair return"! The original Massachusetts railway legislation seems to contemplate that ten per cent. should be the normal return on railway stock, for it provides that at any time the commonwealth may purchase any or all its railroads upon the payment of the cost, plus ten per cent. a year profit.

Other than in railroads, the main fixing of rates has been in illuminating gas. Many cities are permitted to legislate on this point. In New York it was decided that they might so do, provided the gas company got a fair return on its capital, not including the value of its franchise; and certainly it would seem to be the height of audacity to claim more. Much as if a boy, presented by his father with hens and the feed to support them, were to demand the capitalization of the value of all future eggs upon going out of business! In Boston, intelligent legislation was adopted--based on good mediaeval principles--which allows dividends at a sliding scale according to the price of gas to the consumer.[1] The great reason, of course, of the cessation of legislative activity on the part of the States, as to railway rates, has been that the great bulk of rates appertained to interstate commerce, or at least must be controlled by the rates of interstate commerce; so only legislation as to strictly local rates remains.

[Footnote 1: It will be remembered that the very earliest Statute of Bread and Ale (1266) established such a sliding scale.]

The two most important questions, aside from that of an actual extortionate rate (which has hardly ever been claimed) are that of discrimination, and of the long-and-short-haul clause, which is really a derivative of the former. We have found the principle against discrimination time-honored in the common law; but modern statutes wisely recognize that discrimination only exists when two persons or two localities are given different rates _under equivalent circumstances._ There has, therefore, been great dispute what these words, "similar circumstances and conditions," in the Federal law may mean. There is no doubt that actual differences in cost of service make dissimilar conditions; but does geographical situation, such as is recognized in the long-and-short-haul clause? or still more, the amount of business offering, or the amount of possible competition? Very early the Interstate Commerce Commission and our legislation got to the point of recognizing competition by water; but the competition of other railroads was a thing harder to recognize. Many people think they have a right to a fairly equivalent service at a fairly equivalent cost throughout the United States, and that they have a right to all the advantages of their geographical position. The farmers in Westchester County, about New York, thought they had undoubted reason to complain when the rates on milk were made the same from their farms to the city as from farms in Ohio; pointing out, indeed, that they had bought their farms originally, and paid high prices for the land, for the very reason of its geographical situation close to a great market. Yet in our courts the economic rule has usually prevailed; although no legislation, so far as I have found, recognizes such differences, except under some vague expression such as service or discrimination "under like or similar conditions." Whether legislation will ever come to the point of recognizing the railroad man's shibboleth, "charge what the traffic will bear," is perhaps dubious. And the new Taft Act, in its long-and-short-haul provision, takes a long step in the direction of geographical uniformity and rigidity of rates.

A few examples of modern rate regulation may be given. In 1896 South Carolina fixed a flat passenger rate of three and one-quarter cents per mile. Both South Carolina and Virginia have empowered the railway or public service commission to fix all rates, including telephone and telegraph. Passenger rates are now usually fixed at two cents per mile in the East, or at two and one-half cents in the South or West. In 1907 Kansas and Nebraska arbitrarily reduced all freight rates fifteen per cent. on the price then charged. In 1907 there was some evidence of reaction; Alabama, in an extra session, repealed her law enacted the same year prescribing maximum freight rates, substituting more moderate rates in seven "groups" (which, however, may be changed by the railway commission!), and also enacted a statute directing the commission and the attorney-general not to enforce the earlier law; while the heavily penal Minnesota law was declared unconstitutional by the United States Supreme Court. In the British empire the power to fix rates is, of course, unquestioned; and they are, as to railways at least, generally regulated by law. Canada in 1903 established a railroad commission, and Nova Scotia in 1908 imposed various restrictions as to tolls, still the English word for rates. So in Ontario and Quebec in 1906, and in Tasmania in 1901. In many States, such as Victoria, the railways are owned by the state, in which case, of course, no question as to the right to fix rates can arise.

IX

TRUSTS AND MONOPOLIES

Legislation against combinations of properties to bring about monopoly, or contracts in restraint of trade, is the last field of legislation we have to consider in connection with property, and possibly in the public mind the most important. Although the law against combinations of laborers rests upon much the same principles, it is perhaps best to give a special chapter to combinations of property, leaving labor combinations to be treated in that special connection. The matter has been written up so voluminously that it might be difficult to say anything new upon the subject, yet for that very reason it may be as well to analyze it into its simplest elements at the common law, and then trace its recent development in our somewhat unintelligent statute-making. At common law, then, these obnoxious acts may be analyzed into five definite heads: forestalling, regrating, and engrossing--which have been thoroughly defined in an earlier chapter and the modern form of which in modern language might be called restraining production or fixing prices, the buying and selling of futures or gambling contracts, and cornering the market--restraint of trade, and monopoly. The broad principles, however, upon which the gravamen of even these first three rests, is restraint of trade, which was always obnoxious at the common law. Contracts in restraint of trade, except such reasonable contracts as partnership, or the sale of a business with condition not to engage in the same trade in a certain limited locality or for a certain, limited time, have always been void at the common law. They are not, however, criminal except by statute, though a combination in restraint of trade, etc., was always so. We found many such statutes as we also found laws which gave a penalty in double or treble damages to the person injured by such combination or contract. The great case of monopolies, reported in full in the seventh volume of the State Trials, is a perfect mine of information on this subject, having been argued many months at great length by the greatest lawyers, three of whom later were chief-justices of England. This is not the case of the playing cards, Darcy's case, commonly called the "Monopoly Case," which is briefly reported in Coke and covers a far narrower subject, the royal grant for a monopoly in the importation (not manufacture or sale) of playing cards, presumably because Coke's reports are far more accessible than the somewhat rare editions of the State Trials; but the great case brought by the British East India Company against one Sandys, the loss of which would have forfeited its charter and its business, and possibly put an end to British dominion in the East. Its charter dated from the early years of Charles II and the 43d Elizabeth. It brought suit against the defendant, who freighted a vessel to East Indian ports. Mention in it is made of a charter to the Muscovy Company as early as Philip and Mary, a much earlier date than is elsewhere assigned to trading corporations. Hundreds of cases of unlawful monopolies are cited, among them the case of the tailors of Norwich, where a combination to work only for certain wages and to advise others not to work for less and to prevent such others from getting employment with their own employer, was held a conspiracy and an attempt to gain a monopoly at the common law. Another case, of one Peachy, who had by royal grant an exclusive right to sell sweet wine in London, was held to disclose an odious monopoly at common law and the king's franchise void.

In the opinion of the writer, had this common law been thoroughly remembered and understood by our bench and bar, to say nothing of our legislatures, very little anti-trust legislation by the States would have been necessary except, again, of course, to affix modern penalties to such offences. There has, however, been a vast amount of such legislation. In so far as such legislation has embodied the common law, it has stood the test of the courts and been of some value in repressing objectionable trusts or contracts. In so far as it has gone beyond the common law, it has often proved futile and still more often been declared unconstitutional by the courts.

To the five principles of the common law set forth above we have, perhaps, added two new ones. Besides fixing prices, limiting outputs, cornering the market, contracting in restraint of trade, and acting or contracting with the purpose of gaining a monopoly--all of which were objectionable at common law--we have legislated in some States against the securing of discriminatory railway rates for the purpose of establishing a monopoly, and against what we have termed "unfair competition"--that being generally defined to be the making of an artificially low price in a certain locality for the purpose of destroying a competitor, or the making of exclusive contracts; that is to say, refusing to deal with a person unless he binds himself not to deal with anybody else. This last thing can hardly, however, be said to add to common-law principles. Nevertheless, some of the newer State anti-trust statutes prescribe it so definitely that it may be treated as a modern invention.

All this legislation is extremely recent. In the writer's digest of "American Statute Law," published in 1886, I find no mention of trusts in this modern sense, though a special chapter is given to them in volume II, published in 1892. The first legal writing in which the word was used and the rise of the thing itself adverted to is, so far as I know, a contribution to the _Harvard Law Review_, entitled Trusts, vol. I, page 132; but the trust then had in mind was the simple early form of the railway equipment trust said to have been invented in Pennsylvania, which was indeed copied in the first agreement, so long kept secret, of the Standard Oil Trust; and also the corporate stock trust, that is to say, the practice then beginning of persuading stockholders to intrust a majority of the capital stock of the corporation into the hands of trustees, receiving in return therefor trust certificates, with a claim to the net earnings of the corporation, but without real voting power; and there are cases in which such trusts were sought to be held invalid and enjoined in equity, sometimes with and sometimes without success.

Before going into the details of anti-trust legislation, it would be well to sketch its history on the broadest possible lines. Legislation began first in the States some years before the Federal Anti-trust Law, or Sherman Act, first enacted in 1890. These earlier statutes, including the Sherman Act itself, made illegal all contracts or combinations between persons or corporations in restraint of trade; and their direct result was to compel the formation of the gigantic modern trust as we now understand it. Had the Sherman Act, instead of being called "An Act to Protect Trade and Commerce Against Unlawful Restraints and Monopolies," been entitled "An Act to Compel the Formation of Large Trusts by all Persons Engaged in Similar Lines of Business," it would have been far more correctly described in its title. For whereas, before this act persons or corporations could make contracts or arrangements among themselves which were good and valid working agreements unless so clearly monopolistic as to be held unreasonable restraint of trade at the common law (which, indeed, so far as I know, was never done in any American court), after the Sherman Act was passed all such contracts, combinations, or arrangements, even when reasonable and proper, were made illegal and criminal. The only escape, therefore, was to bring all such persons and corporations in the same trade together in one corporation, and this is precisely what we now term a trust. Before 1890, in other words, a trust was really an agreement, a combination of individuals or corporations usually resting upon an actual deed of trust under which the constituent parties surrendered their property or the control of their property to a central board of trustees; since 1890 this kind of trust has practically disappeared and been replaced by the single large corporation, either a holding company which holds the stock of all constituent companies, or under still more modern practice, because more likely to stand the scrutiny of the courts, a huge corporation, with a charter given by the liberal laws of New Jersey, West Virginia, or other State, which actually holds, directly, all the properties and business of the constituent corporations or persons. The modern question, therefore, has become really the question of the large corporation, its regulation and its control; further complicated, of course, by the fact that hitherto there has been no power to control such large corporations except the very State which creates them, which is usually quite indifferent to their acts so long as they pay the corporation tax. It is therefore a question not only of the large corporation, but of the powers of the States over each other's corporations and of the Federal government over all. Until the Northern Securities case, it was probably supposed that a corporation, being an individual, could not be guilty of a criminal conspiracy, and consequently could not in itself offend against the anti-trust acts. That case, and more recent decisions still, show a disposition of the courts to look behind the screen of the fictitious entity of the corporation to the merits and demerits of the persons making it up, and the objects with which they came together and the methods they continued to use.

The Federal statute was indeed necessary to this extent, that, although the common law was unquestioned, as there is no Federal common law in the absence of statute, and as interstate commerce cannot be controlled by State law, either common or statute, it was necessary for Congress to declare that the principles of the common law should apply to interstate commerce. It was also doubtless wise to remind the public of the existence of this body of law and to affix definite prohibitions and penalties. To this extent the anti-trust legislation, both State and Federal, is fully justified. Nevertheless, it is noteworthy that the older States, where both the legislatures and the bar had presumably a higher degree of legal education, rarely found it necessary to enact statutes against trusts. There has never been, for instance, any anti-trust law in Massachusetts or in Pennsylvania, or for a long time in New York, for the first statute of that State against trusts was made intentionally futile by being applied only to a trust which secured a complete--_i.e._, one hundred per cent.--monopoly of its trade.

The economic consideration of all such legislation we do not propose to consider; whether it was wise to forbid all forestalling, for instance--which at the common law meant buying at a definite distance as well as at a distant time; that is to say, a person who bought all the leather in Cordova was guilty of forestalling as well as the person who bought all the sherry that was to be made in Spain in the ensuing year--what we call the buying of futures. This is certainly very unpopular, and we find most of our States legislating against it; yet, of course, many economists argue that it is only by allowing such contracts that the price of any article can be made stable and a supply stored in years of plenty against years of famine. The first historical example of forestalling and engrossing is to be found in the book of Genesis. Joseph was not, I believe, a regrator, but he was one of the most successful forestallers and engrossers that ever existed, and made a most successful corner in corn in Egypt; and his case is cited as a precedent in the Great Case of Monopolies above mentioned. James C. Carter tells us[1] that all these laws are contrary to modern principles and were repealed a century ago. I cannot find that such is the case. On the contrary, they were made perpetual in the thirteenth year of Elizabeth, and we find perfectly _modern_ trust legislation as early as Edward I, in 1285. In 1892 I find legislation already in nineteen States and Territories; North Dakota, indeed, having already a constitutional provision. Three States at least, Kansas, Michigan, and Nebraska, seem to have been before the Federal Act, their laws dating from 1889; while several States have statutes in 1890, the year in which the Sherman Act was enacted. There has hardly a year passed since without a good many statutes aimed against trusts, though they have shown a tendency to decrease of late years, and it is especially noticeable that anti-trust legislation is apt to cease entirely in the years following a panic, as if legislatures had learned the lesson that too much interference is destructive of business prosperity; I find that by 1908 just about half the States had embodied a prohibition of trusts in their organic law.[2]

[Footnote 1: "Law, Its Origin, History, and Function," N.Y., 1907.]

[Footnote 2: These provisions will be found digested in the writer's "Federal and State Constitutions," pp. 339-341.]

One of the principal earlier objects of the trust was to evade the corporation law. To-day they specially aim at becoming a legal corporation. In like manner their earliest object and desire was to escape all Federal supervision and interference by legislation or otherwise; to-day they are desirous of such regulation under Federal charters, for the purpose of escaping the more multifarious and radical law-making of the forty-six different States. Before the Industrial Commission in 1897-1900, all the heads of the great "trusts"--Rockefeller, Archbold, Havemeyer--testified in favor of Federal incorporation; almost all other witnesses, except one or two New York or New Jersey corporation lawyers, against it.

In the article in the _Harvard Law Review_, above referred to, the writer suggested that the evil might be cured by compelling trusts to organize as corporations, thereby bringing them under the regulation and control that the State exercises over corporations. That has come to pass, but the remedy has not seemed adequate. In the early Sugar Trust case, the New York Supreme Court decided that combinations to sell through a common agent, thereby, of course, fixing the price, with other common devices for controlling the market and preventing competition, were illegal at the common law; and also that a corporation which, in order to bring about such a combination, put all its stock in the hands of trustees or a holding company, thereby forfeited its charter, the only result of which decision was to drive the Sugar Trust from its New York charters to a legal organization in the State of New Jersey. It is noteworthy that one or two of the most obvious remedies for this condition of things have never been employed, possibly because they would be too effective. That is to say, there might be legislation that a corporation should not act out of the State chartering it--that a New Jersey corporation, holding no property and doing no business in New Jersey, should not be used to carry on business in New York. We also might have legislated, going back to the strict principles of the common law, to forbid any corporation, any artificial body, from holding shares in another corporation. It is doubtful, to-day, whether this can be done under the common law, and the authors of the Massachusetts corporation law refused expressly to provide for it; on the other hand the proposed Federal Incorporation Act expressly validates it. We do, however, begin to see some legislation on this line of approach, notably in the case of competing companies, several Western States at least having statutes forbidding a corporation from holding stock in such companies; and it was one of the recommendations of President Taft's recent message, at least as to railroad companies not holding half of such stock.

It will well repay us now to make a careful study of all these anti-trust statutes, for the purpose of seeing whether they have introduced any new principles into the law, and also in what manner they express the old. Up to two or three years ago one might have said that not a single case had been decided in the courts of any State or of the Federal government against trusts or combinations, which might not have been decided the same way under common-law principles had there been no anti-trust legislation whatever. As is well known, the great exception to this statement is the interpretation of the Federal Act by the Supreme Court of the United States, declaring that any contract in restraint of trade was unlawful under it, although it would have been reasonable and proper at the common law. Later indications are, as President Taft has said, that the courts will see a way to modify this somewhat extravagant position by reintroducing the common-law test, viz.: Whether the contract is done with the _purport_ (or effect) of making a monopoly for destroying competition, or whether such result is trivial and incidental to a reasonable and lawful business arrangement. The earliest statutes, those of Michigan, Kansas, and Nebraska, in 1889, denounce the following principles: "All contracts, agreements, understandings, and combinations ... the _purpose_ or object of which shall be to limit or control the output, to enhance or regulate the price, to prevent or restrict free competition in production or sale." This, the Michigan statute, merely states the common law, but goes on to declare such contract, etc., a criminal conspiracy, and any act done as part thereof, a misdemeanor, and, in the case of a corporation, subjects it to forfeiture of its charter. The law makes the exception, nearly universal in the Southern and Western States, that this anti-trust legislation shall not apply to agricultural products, live stock in the hands of the producer, nor to the services of laborers or artisans who are formed into societies or trades-unions--an exception which, of course, makes it class legislation, and has caused the whole law to be declared unconstitutional, so far as I know, by the highest court of every State where it has been drawn in question, and under the Fourteenth Amendment also by the Supreme Court of the United States; and in this spirit President Taft has just acted in preventing a joint resolution of Congress appropriating money to prosecute trusts from exempting labor unions. The Kansas statute is substantially like the Michigan, but more vague in wording (Kansas, 1889, 257). It denounces arrangements, contracts, agreements, etc., which (also) _tend_ to advance, reduce, or control the price or the cost to the producer or consumer of any productions or articles, or the rate of insurance or interest on money or any other service. The Maine law (Maine, 1889, 266, 1) is aimed only against the old-fashioned trust; that is to say, the entering of firms or incorporated companies into an agreement or combination, or the assignment of powers or stock to a central board, and such trust certificates or other evidences of interest are declared void. The Alabama statute of 1891 is to similar effect.

The Tennessee statute of 1891 is about the same as the Kansas statute of 1889, above referred to, except that it adds the words "which tend in any way to create a monopoly," and the Kansas statute makes trust certificates unlawful, that being still the usual way of organizing a trust at that time. The Nebraska law (Nebraska, 1889, 69) is much the same, except that it also denounces combinations, etc., whereby a common price shall be fixed and whereby any one or more of the combining parties shall cease the sale or manufacture of such products, or where the products or profits of such manufacture or sale shall be made a common fund to be divided among parties to the combination, and goes on to add that "pooling between persons, partnerships, corporations ... engaged in the same or like business for any purpose whatever, and the formation of combinations or common understanding" between them is declared unlawful, and the persons are made liable for the full damage suffered by persons injured thereby, and each day of the continuance of any such pool or trust shall constitute a separate offence; this, the doctrine of a continuing conspiracy, being for the first time before the Supreme Court of the United States at the time of writing. North Carolina the same year (N.C., 1889, 374) defines a trust to be an arrangement, understanding, etc. for the purpose of increasing or reducing the price beyond what would be fixed by natural demand, and makes it a felony with punishment up to ten years' imprisonment. Here for the first time appears a statute against unfair competition. "Any merchant, manufacturer ... who shall sell any ... goods ... for less than actual cost for the purpose of breaking down competitors shall be guilty of a misdemeanor." Tennessee the same year (Tennessee, 1899, 250) in its elaborate statute, which is a fairly good definition of the law, also denounces throwing goods on the market for the purpose of creating an undue depression, whatever that may mean. In the next year, 1890, there were many more State statutes, but we should first notice a simple law of New York forbidding any stock corporation from combining with any other corporation for the prevention of competition (N.Y., 1890, 564, 7). The usual statute in other States of that year is addressed against combinations to regulate or fix prices or limit the output, but Texas (4847a, 1) and Mississippi (1890, 36, 1) have elaborate laws, which, however, add hardly any new principles to the common law. They define a trust to be a combination of capital, skill, or acts, by two or more persons or corporations, (1) to create or carry out restrictions in trade; (2) to limit or reduce the output, or increase or reduce the price; (3) to prevent competition; (4) to fix at any standard or figure whereby its price to the public shall be in any manner controlled, any article intended for sale, etc.; (5) to make or carry out any contract or agreement by which they are bound not to sell or trade, etc., below a common standard figure, or to keep the price at a fixed or graduated figure, or to preclude free or unrestricted competition among themselves or others, or to pool or unite any interest. To much the same effect is the statute of South Dakota (1890, 154, 1), but it also denounces any combination which tends to advance the price to the consumer of any article beyond the reasonable cost of production or manufacture. The Louisiana (1890, 36) and New Mexico laws (1891, 10) are aimed particularly at attempts to monopolize, while the Oklahoma statute (6620) was aimed only at corporations, and the broad wording of the Federal act passed this year should be noted: "Every contract, combination, in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several States or with foreign nations, is hereby declared to be illegal" (U.S., 1890, 647, 1); and in the second section: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize, any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty under this act." And in the third section: "Every person who shall make any such contract, or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor." The rest of the legislation provides penalties, manner, and machinery for the enforcement of these laws by prosecuting attorneys, etc., with a usual allowance to informants; and it may be here noted that one great trouble has resulted from this machinery, for it provided injunction remedies and dissolution, which may well be too severe a penalty, and, furthermore, dispenses with a jury and throws unnecessarily upon the court--even now, as in the Standard Oil case, a distant high court of appeal--the burden of determining a complicated and voluminous mass of fact. Our ancestors never would have suffered such matters to be adjudged by the Chancellor!

South Dakota has an extraordinary statute making the agents for agricultural implements, etc., guilty of a criminal offence when their principals refuse to sell at wholesale prices to dealers in the State (S.D., 1890, 154, 2). But beside these remedies, there is a frequent statute dating from the earliest Kansas act of 1889, that debts for goods sold by a so-called trust, contracts made in violation of the law, will not be enforced in favor of the offending person or corporation. That is to say, the person buying the goods of a trust may simply refuse to pay for them; and the constitutionality of this legislation has recently been sustained by a divided opinion in the Supreme Court of the United States.[1] The possession or ownership of trust certificates is in some States made criminal. Corporations offending against the statute are to have their charters taken away, or, if chartered in other States, to be expelled from the State. All contracts or agreements in violation of any of these statutes are, of course, made void.

[Footnote 1: Continental Wall Paper Co. _v_. Voight, 212 U.S. 227.]

There are special statutes in Kansas, Nebraska, and North Dakota against trusts in certain lines of business, as, for instance, the buying or selling of live-stock or grain of any kind.