Part 12

In particular, it has prosecuted with considerable success boycotts against the manufacturers of fur hats. About ten years ago, Mr. Gompers, working with the United Hatters of North America, inaugurated an elaborate program to compel all such manufacturers to unionize their shops. By using their well-known methods, they have brought to terms seventy out of the eighty-two manufacturers in this country. The firm of D. L. Loewe & Co. of Danbury, Connecticut, however, had persistently refused to comply with these demands. Mr. Loewe was not a large manufacturer; he had, however, built up a prosperous business, and, though he had never shown any hostility to union labor, had insisted on maintaining an open shop. In 1901 the United Hatters' Union practically ordered him to discharge his non-union men and unionize his factory. Mr. Loewe again refused to do this, and a strike immediately followed. Mr. Loewe, however, promptly engaged new non-union men, and soon his factory was running as busily and as profitably as before.

Mr. Gompers then brought the whole machinery of his organization to bear upon this recalcitrant hatter. On July 25, 1902, the Federation of Labor and the United Hatters declared a boycott against his products. They denounced this concern in their several publications as "unfair," and notified nearly all the wholesale and retail hat dealers throughout the United States that they must not handle the Loewe goods, under pain of being boycotted themselves. It is said that their agents kept espionage, in Danbury, over all freight consignments from the Loewe factory, and thus obtained a fairly complete list of their customers; committees of labor men in many cities waited upon these customers, and, in several instances, persuaded them to drop the Loewe hats. Some firms who refused to obey this dictation were themselves boycotted; and, in San Francisco, Philadelphia, Baltimore, and Richmond, the boycott was pursued with particular virulence. The Federation went so far as to grant a special dispensation to its members to purchase hats made by other non-union labor, rather than patronize the Loewe brand. Mr. Loewe, though he suffered enormous loss as a result of these proceedings, pluckily kept up the fight. Under the Sherman Law, an aggrieved citizen is authorized to bring private suit against persons engaged in a conspiracy to restrain his trade, and, if he successfully maintains his case, may recover three-fold damages. Mr. Loewe quietly went to work and had made an inventory of all property-holders actively engaged in boycotting his goods. He then brought suits for $340,000 damages against a large number of labor men, filing in the District Court 240 separate attachments. The Supreme Court of the United States made short work of this case. Chief Justice Fuller, who wrote the decision, declared that "the combination described in the declaration is a combination 'in restraint of trade or commerce among the several States' in the sense in which these words are used in the act, and the action can be maintained accordingly." An interesting feature of the case is that the decision of the Supreme Court was unanimous. In nearly all the other proceedings involving the Sherman Law--the Trans-Missouri case, the Northern Securities--the government has won by a bare majority; every member of the Supreme bench, however, at once concluded that Mr. Gompers' activities against the firm of D. L. Loewe & Co. restrained inter-State trade, and thus violated the Sherman Law.

Thus, in eighteen years, the Sherman Act has proved an effective weapon against the two forms of trust and conspiracy with which the public is most familiar--combinations of capitalists to restrain inter-State trade and arbitrarily fix prices, and combinations of labor unions organized for the prosecution of inter-State boycotts. It strikes impartially the Northern Securities Company and the American Federation of Labor; it does not discriminate between the activities of Mr. J. Pierpont Morgan and of Mr. Samuel Gompers. At the last session of Congress, the two forces which it opposes bent all their energies to destroy this law; in all probability they will renew and redouble their efforts this winter.

_National Civic Federation Attempts to Amend the Law_

For many years the National Civic Federation has been collecting data bearing upon the trust and labor problem. In 1899 it held a trust conference; and again, in October, 1907, it called a large meeting at Chicago for the consideration of the trust situation. Delegates appointed by the governors of forty-two States and representatives of more than ninety commercial, agricultural, and labor organizations contributed to these discussions. Referring to these Chicago proceedings, Mr. Theodore Marburg, one of the participants, said before the Judiciary Committee in Washington last winter: "Mr. Nicholas Murray Butler sounded the note of attack upon the Sherman Anti-trust Law.... I take it that the gentlemen will agree with me that it was a dominant note of that conference." As a result, a bill radically amending the Sherman Anti-trust Act was introduced in Congress at the last session. Its most active sponsors in Washington were Seth Low, president of the National Civic Federation, Professor Jeremiah W. Jenks of Cornell, and Samuel Gompers, president of the Federation of Labor. Well-known men who had participated in the conference that preceded the framing of the bill were E. H. Gary, chairman of the Board of the United States Steel Corporation, Henry L. Higginson, Isaac N. Seligman, and James Speyer and August Belmont, bankers. Francis Lynde Stetson, chief counsel for the United States Steel Corporation and other Morgan corporations, and Victor Morawetz, counsel for the Santa Fé Railroad, wrote the drafts. This latter fact was publicly stated by Mr. Low and Mr. Jenks in the course of the hearings before the Judiciary Committee. The authorship of the bill was early brought out in the following colloquy between Congressman Charles E. Littlefield and Mr. Low:

MR. LITTLEFIELD: Right there, Mr. Low, if there is no objection, who are the people that actually participated in the preparation of the bill? Who are the men who actually drew it?

MR. LOW: We conferred with Judge Gary, of the United States Steel Corporation.

MR. LITTLEFIELD: E. H. Gary, president of their board of directors?

MR. LOW: E. H. Gary. The lawyers actually engaged in the drafting of the bill were Mr. Stetson----

MR. LITTLEFIELD: That is, Francis Lynde Stetson?

MR. LOW: Francis Lynde Stetson; and Mr. Morawetz.

MR. LITTLEFIELD: Victor Morawetz?

MR. LOW: Victor Morawetz.

At another time, Mr. Low described Mr. Stetson and Mr. Morawetz as "the drafters" of the bill. Herbert Knox Smith, commissioner of corporations, also had a hand in framing the measure. President Roosevelt openly indorsed it and sent in an emergency message urging, among other things, its passage. Extensive hearings, extending through several months, were held before the Judiciary Committee. Many representatives of capital and labor appeared in favor of the measure. Although Congressman Littlefield, who presided over these hearings, many times expressed his wish to examine Mr. Stetson and Mr. Morawetz, these gentlemen never appeared. Although Mr. Low promised that they would submit a brief, explaining several disputed legal points, they never did so. The burden of discussing the many intricate legal points that constantly arose rested entirely upon the shoulders of Mr. Low and Professor Jenks, neither of whom had had any legal training. Through the efforts of Congressman Littlefield, James A. Emery, counsel for the National Association for Industrial Defense, and Daniel Davenport, counsel for the Anti-Boycott Association, the proposed law was defeated, but the proceedings are of great interest and importance as illustrating the changes desired by both labor and capital in the present anti-trust law.

_Gompers Asks that the Boycott be Legalized_

Mr. Gompers' demands were entirely simple and direct. He wished labor unions entirely exempted from the operations of the Sherman Act. That law, if properly respected and enforced, would practically put an end to Mr. Gompers' occupation. Referring lately in a public speech to the effect of a recent court decision against inter-State boycotts, Mr. Gompers quoted, as applicable to his own organization, Shylock's speech in "The Merchant of Venice," "You might as well take from me my life as take from me the means whereby I live." Mr. Gompers' chief interest in the Civic Federation bill, therefore, was a clause which specifically declared that the Anti-trust Act should not be so interpreted "as to interfere with or restrict any right of employees to strike for any cause or to combine or to contract with each other or with employers for the purpose of peaceably obtaining from employers satisfactory terms of their labor or satisfactory conditions of employment." Mr. Low and Mr. Jenks denied that this language legalized the boycott; Congressman Littlefield, however, and many other opponents of the measure, emphatically asserted that it did. Such sweeping concessions as "_to strike for any cause_" and "_to combine or to contract with each other or with employers for the purpose of peaceably obtaining from employers satisfactory terms_," it was maintained, clearly authorized such boycotts as that prosecuted against the Danbury Hatters. That proceeding, it was pointed out, was entirely peaceable--there was no law-breaking, no rioting, no bloodshed. It would also legalize, it was said, many of those arrangements between labor unions and employers--by which employers' associations contract to employ only members of certain labor unions, the latter, on their part, contracting to work only for certain employers--which were brought to such perfection by the late Sam Parks. Mr. Gompers demanded that, if the clause in question did not authorize boycotts, another should be substituted which did; to make the case sure, therefore, he proposed an amendment which did so in no uncertain tone. The following extract from the record clearly defines Mr. Gompers' position:

MR. LITTLEFIELD: Now, Mr. Gompers, a word. Would this amendment you suggest, if it became a law, authorize the prosecution of such a boycott as was attempted in the Danbury Hatters' case, which was in violation of the Sherman Anti-trust Law? Is that the purpose?

MR. GOMPERS: One of the purposes; yes, sir. That case was brought under the Sherman Anti-trust Law.

MR. LITTLEFIELD: Yes. And the purpose of the amendment you have offered is to relieve you from the operation of the Sherman Anti-trust Law as construed by the court in that case?

MR. GOMPERS: Yes, sir.

MR. LITTLEFIELD: And to authorize that kind of an inter-State boycott?

MR. GOMPERS: Yes, sir.

MR. LITTLEFIELD: Do you, as the representative of organized labor, favor the boycott, both as an inter-State and a local proposition?

MR. GOMPERS: I do, sir.

MR. LITTLEFIELD: And your organization stands for that?

MR. GOMPERS: It does, sir.[K]

_Government to Discriminate Between Good and Bad Trusts_

As to monopolistic corporations, the proposed act placed them entirely under the supervision of the executive branch of the government. If you wished to form a trust, or enter into a restraining contract, and, at the same time, to escape the prohibition of the Sherman Act, you would first, under the provision of this bill, submit the proposed arrangement to the Commissioner of Corporations and answer such questions as he saw fit to ask. If he gave approval, you could go ahead and carry out the deal, practically secure against further interference. If he disapproved, you would be liable to attack under the Sherman Act. In fact, the administration was to be given arbitrary power to discriminate between good and bad trusts, to separate the corporation sheep from the corporation goats. "You are all right," it could say to one combination; "you are all wrong," it could say to another. The federal government, in other words, was to rule absolutely the business activities of nearly 80,000,000 of people; merely by a word it could authorize a gigantic combination like the United States Steel Company, and prohibit another like the Standard Oil.

_"Reasonable" and "Unreasonable" Combinations_

The above statement gives the effect and not precisely the form of the proposed legislation. What its authors really hoped to accomplish was executive discrimination between those combinations and those restraints of trade which were reasonable and those which were unreasonable. They based their measure upon the theory that certain combinations, even many whose tendency is to restrain trade and increase prices to the consumer, may still work for the public interest. The word "reasonable" has played an important part in the history of the Sherman Act. In several cases the corporations, in contesting the law, have made the claim that this act did not prohibit all combinations in restraint of trade, but only those which were "unreasonable." They set up this defense most strongly in the famous Trans-Missouri case, already described. Eighteen railroads, it may be repeated, had formed an association for the purpose of fixing freight rates. James C. Carter, who argued the case, strongly asserted that such an agreement was beneficial both to the railroads and to the public; the history of railroads having conclusively proved that cut-throat competition inevitably led to bankruptcy and demoralization in railroad service. He therefore claimed that the proposed restraint in trade was "reasonable" and consequently not prohibited by the Sherman Act. The Supreme Court, by a majority of five to four, rejected this theory. The Sherman Act, it pointed out, in express language made illegal "_every_ contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade"; and made "_every_ person" who was a party to such contract a criminal. It left absolutely no leeway--it did not discriminate in the remotest degree between those which were reasonable and those which were not. Since then all demands for the modification of the act have hinged upon this one point.

_Andrew Carnegie on Combinations_

This demand, of course, has precipitated a very nice problem in definition. What is a reasonable combination? What is an unreasonable one? What is a good trust? What is a bad one? Upon this all-important question the many weary hearings extending through four months before the Judiciary Committee last winter shed practically no light. The Civic Federation bill was based upon this fundamental distinction; and a large number of distinguished citizens appeared in favor of it. Congressman Littlefield, as each speaker appeared before the Committee, asked him to give a concrete illustration of a combination, forbidden by the Sherman Act, which really promoted the public interest and was therefore "reasonable." Mr. Seth Low frankly admitted that he could name no concrete case of the kind. He caused some amusement, however, when he read a letter from Andrew Carnegie touching upon this very subject. "One point seems to me essential," wrote Mr. Carnegie, "without it, little general progress can be made; namely, when new combinations are proposed, the first question must always be 'what is the object sought?' _In ninety-nine cases out of a hundred, it will undoubtedly be to rob the community of its right to the benefits of free competition, disguise it as one may_; therefore the Commissioner's duty is to obtain satisfactory proof that the application is to cover an exceptional case. The conditions must be peculiar, as those of common carriers and steel-rail agreements are." Mr. Carnegie's statement that ninety-nine per cent of trade agreements are made for the purpose of "robbing the community" and his implication that the exceptional one per cent are the agreements involving the manufacturers of steel rails, naturally provoked much hilarity.

Only two other illustrations were furnished of benevolent combinations. Mr. Herbert Knox Smith, commissioner of corporations, instanced a proposed agreement among lumber men to cut only a certain amount of timber each year, the ostensible purpose being to prevent the wanton destruction of the forests. It appeared, however, that the real purpose of such an agreement was not to preserve the forests, but to restrict the output, and increase prices, and consequently the profits of the lumber men. Another illustration offered was the combination of patent medicine dealers to fix prices and prohibit price cutting--the object, it was said, being to prevent the unfair competition of large department stores with retail druggists. But this, in the last analysis, was generally believed to be a concerted attempt to destroy competition and enhance the profits of patent medicine makers. Congressman Littlefield insisted, throughout the entire proceedings, that the fundamental purpose of forbidden combinations was to control the product and thereby increase the price to the consumer. If there were any combinations that did not have that purpose or result, then the Sherman Act, according to Mr. Littlefield's analysis, did not prohibit them. Thus in all attempts to define practically reasonableness and unreasonableness, as applied to trade agreements, the statement was repeatedly made that the large part of the business of this country was done in violation of law; that business men lived constantly in a state of terror from the fear of its enforcement; that its presence on the statute books largely explained existing business depression. When it came to defining precisely what they wished to do, however, none of those who favored the bill became specific. The thing finally simmered down to a statement by Mr. Low that the law was "a very important element in the psychological condition of business men to-day."

_Indulgences to be Granted to Corporations_

This particular power of defining reasonableness and unreasonableness, however, the proposed law centered in the President, acting through the Commissioner of Corporations. It provided a limited system of federal registration for corporations, and, in a modified form, for federal license and publicity--the two circumstances which probably led President Roosevelt to support the measure. In effect it granted indulgences to corporations to combine, provided they would do certain things. The Sherman Law, as it stands to-day, was not specifically to be repealed; it was simply to be waived in favor of those combinations and trusts which paid the price of these indulgences. In order to obtain absolution, the offending corporation must do two things: register with the Bureau of Corporations and answer such questions as might be propounded to it. The bill authorized the President to determine precisely what information should be exacted, and also to change from time to time the requirements regarding data. That is, for registered corporations, it gave the executive branch of the government absolute inquisitorial power. Registered corporations had the right to file with the Bureau any agreement or contract or combination to which it became a party--the precise kind of transactions made illegal by the Sherman Act. The Commissioner had thirty days in which to examine such contracts; if, within that period, he declared them in reasonable restraint of trade, then they became practically legal.[L] If not, then they could be proceeded against under the Sherman Law. The chief point of criticism in this arrangement was the stipulation for a thirty-day period during which the Commissioner must pass upon these contracts. This, it was asserted, was the loop-hole by which the corporations were to secure immunity. The Commissioner must declare these contracts reasonable or unreasonable within thirty days; if he failed to act upon them in that time, they became reasonable, precisely as if he had declared them to be so. How, it has been asked, could the Bureau possibly act intelligently within that period upon many of the exceedingly intricate questions which would come up for judgment? Whether a contract is reasonable, of course, largely depends upon the way it affects prices. An examination would therefore frequently involve an economic study of the particular trade, as well as the organization of the particular corporation involved. It would be necessary to go deeply into capitalization, values behind this capitalization, cost of production, wages, transportation charges and so on. There are said to be more than 200,000 corporations in existence. Supposing half or a quarter should register,--how could the Bureau possible examine them within thirty days? Would it be possible to investigate the United States Steel Corporation within that period? Under the suggested law, however, unless the Commissioner passed judgment within this time, all these contracts and combinations would automatically receive a certificate of good character. In their interest, the Sherman Act would practically be repealed.

In the main, this provision referred to contracts made and combinations to be formed in the future; another section practically extended immunity to all contracts and combinations now in existence. Nearly all trusts organized in the last forty years, and all restraining agreements, were to become valid. The government was to have a year in which to institute proceedings against such corporations as declined to register. If it failed to do so within this time, then these combinations could never be attacked on any ground whatever, and became regularly fixed institutions. As there are about five hundred corporations popularly known as trusts and myriads of trade agreements now forbidden, the law department, it was suggested, would have its hands full if it attempted to bring suit against them all within twelve months. Moreover, after the passage of the proposed act, the government could not proceed against any combination except on one ground--that it was an unreasonable restraint of trade. Under the Sherman Act, it will be remembered, it can prosecute without any reference to the question as to whether the restraint is reasonable or not. If the act had passed, in other words, the position of the government would have been this: within a year it could have assailed the trusts only on the grounds of unreasonableness; after the expiration of a year it could assail them on no ground whatever. A saving clause, however, provided that the government could prosecute all actions already begun. That is, it could follow up to the end the pending cases against the Standard Oil, the American Tobacco Company and other corporations against which it has already started suit. It could not prosecute, however, the United States Steel Corporation, for it has instituted no proceeding in that direction. It was the Attorney of the United States Steel Corporation, Mr. Francis Lynde Stetson, who had a large hand in framing the bill.