The disintegration of monopoly, and other articles

DEC 30 Wic

THE

isintegration of Monopoly

and other Articles

^ i ;?* « -A i.^ ^ "'

By

SAMUEL RUSSELL

Author of

"Limitations of the Income Tax*'

' ' Progressive Po litics ' '

Etc.

SALT LAKE CITY
1913

Contents

I. THE DISINTEGRATION OF MONOPOLY 3

Tariff and Trusts 3

State Action Against Trusts 8

Lafc».>r Unions 13

Restraint of Trade 14

Monopolies 17

The Sherman Law 19

Federal Incorporation 24

Monopoly of Profits 28

Watered Stock 31

Proper Units of Integration 35

Means of Disintegration 35

II. A COMPETITIVE TARIFF 40

III. A NEW SYSTEM OF FEDERAL BANKS 50

Federal Currency 53

IV. OUTLINES FOR THE ORGANIZATION OF LOCAL

GOVERNMENT 58

Political Divisions 58

Taxation 59

Elections 60

Counties 62

Judiciary: \ .'. \/ :• r.** • • • ^ ^^

Legislature^ .,.,. . . . .^ .* .^...^ 63

Copyright, 1913, by Samuel Russell.

The Disintegration of Monopoly.

The tariff and the trusts are vaguely associated in the
public mind as having a causal relation. It is true they
have a contemporary presence in our politics, and while
both the tariff and the trusts affect commodity prices in
our markets to the restriction of competition and en-
hancement of profits, yet it is not true that there is the
direct relation between the tariff and the trusts which is
generally assumed. Indeed it may be said that the most
notable of our trusts, the Standard Oil Company and the
American Tobacco Company, could in no wise have been
affected by the let or hindrance of the tariff of duties on
importations. The steel and iron industry has been stim-
ulated and sustained by the tariff as advocated by the
Pennsylvania school of protection, yet it must be said that
the protective tariff has not been an important contribu-
tory factor in the organization of the steel trust or the
United States Steel Corporation as it is properly desig-
nated. And it is right at this point that there must be a
clarifying of ideas before progress can be made in the dis-
integration of monopolies as exemplified in the highly
organized and integrated combinations of capital and con-
trol which have had such notable manifestation in recent
American industrial enterprise.

The preferential discrimination which the tariff gives
to the home producer in the American market operates
equally in favor of both small and large producers. A re-
duction of prices attendant upon a reduction of the tariff
would reduce the profits of the industry affected, but such
reduction of profits would have a relatively equal effect on
both small and large enterprises and would not tend di-

273594

4 DISINTEGRATION OF MONOPOLY.

rectly to the breaking up of combinations, unless it be
that the increased efficiency required by new foreign com-
petition would make industrial operation in smaller units
more economical and profitable. The problem of the trusts
is a problem quite apart from that of the tariff and while
there should be a permanent tariff policy, a way must be
devised for the restraint and disintegration of monopoly
quite apart from the tariff on imports for the purposes of
levying revenue to maintain the operations of the govern-
ment. To say that the trust problem has not a predom-
inating relation to the tariff is not to say, however, that
the trust problem has not an intimate relation to the fiscal
policy of the federal government. It most assuredly has,
for the trusts have an intimate relation to the industry and
commerce of the country upon which the constitutional
powers of the federal government were especially designed
to operate.

The trusts were an important process in the develop-
ment of monopolistic corporate promotion in the United
States, the ultimate form of which has become the financial
or securities holding corporation. Even the holding cor-
poration has been more highly integrated into the oper-
ating corporation in which have been actually merged the
constituent corporations which, under the trust system of
combination placed their several stocks in the hands of
common trustees, who determined the policy of the com-
bination, collected profits and disbursed dividends of the
same to the holders of the trust certificates. The more
primitive forms of combination such as pools, associations
and gentlemen's agreements, while prevalent in local com-
munities, are no longer in vogue for large monopolistic
enterprise.

A remarkably clear statement of the trust process in
monopolistic combination was made more than twenty
years ago in a notable speech by Hon. Wm. L. Wilson of
West Virginia, in the House of Representatives. This
was during the first session of the Fifty-first Congress, on
May 1st, 1890. The perspective of subsequent experience

TARIFF AND TRUSTS. 5

makes this statement the more valuable as a conception
of the trust process, a correct and precise understand-
ing of which is necessary to an effective solution of the
trust problem. Mr. Wilson said:

"In general terms we all know that a trust is the latest and most
perfect form of combination among competing producers to control
the supply of their products in order that they may dictate the terms
on which they shall sell in the market, and may secure release from
stress of competition among themselves, ' From the very beginning of
trade, perhaps, certainly in all its known history, there have been
various forms of combination, and we have long been familiar with
them in this country under the name of pools, corners, combines and
the like. * * *

"A combination or pool is a voluntary association depending upon
the good faith of the parties associated and carrying with it those ele-
ments of weakness and disintegration that necessarily belong to a vol-
untary association. A trust is a legal consolidation of properties, a
legal concentration of control. Historically, it grew out of the great-
ness and the necessities of the Standard Oil combination. * * * *
Accordingly the able solicitor of the Standard Oil alliance worked out
for that aUiance the trust scheme of combination which has subse-
quently swept the field of American industry and has been adopted
with greater or less success by so many would-be monopolies. * * *
"The shares of stock in these various state corporations were then,
to be transferred by the holders of the stock to the legal ownership
of nine trustees, who, in return therefor, gave the owners of stock in
the several companies, certificates of stock in the Standard Oil
trust. * * *

"It was soon discovered that the trust scheme devised for the pur-
pose of an existing combination, offered a new and admirable scheme
for forming monopolies out of existing competitors, and it spread with
rapidity as soon as its form became divulged. * * *

"I have said this much to show that the common basis of the
trusts is the corporation. The deed under which the sugar trust was
organized required that all the refineries should first become corpora-
tions, and that all subsequent applications for admission should qual-
ify themselves in like manner. Indeed it may be affirmed that no
permanent trust can be built on a less solid basis. Combinations very
effective for some temporary purpose or within a limited area, may be
formed by individuals or partnerships, but they will be subjected to
all the contingencies of death, bankruptcy, bad faith, and voluntary
withdrawals. Those which are to become a menace to the public can-
not be built upon a foundation so shifting. * * * We all know that

6 DISINTEGRATION OF MONOPOLY.

the individual has disappeared in the corporation which alone offers
the aggregation of means, the exemption from physical death, and
the unity of control that are indispensable for the gigantic enterprises
of modern production and trade. * * *

"If, therefore, the organization of a trust must have the corpor-
ation as its basis, it is clear that the first and most effective blow
must be struck, not by congress, but by the states.

"The states, not congress, grant the charters for these corpora-
tions. It is at once their duty, and it is easily and clearly within the
sphere of their lawful power, to supervise the creatures which they
bring into being, so as to prevent the franchises granted by the peo-
ple from being used for the oppression and detriment of the people.
The courts of New York have already shown how this may be done.
In the proceeding against one of the companies that went into the
sugar trust. Judge Barrett held that a corporation has no authority^
to enter into a partnership or combination of that kind and by the
mere act of doing so forfeited its charter. * * *

"And now, what can the federal government do for suppressing, or.
at least rendering harmless, these new and dangerous monopolies
When it has recourse to the criminal law and seeks to destroy them by
pains and penalties, its lawful authority is limited to interstate trade,
except when legislating for the district of Columbia and the terri-
tories. If any one supposes that such a bill as this (the Sherman Act)
no matter how severe the punishment it threatens, or how sweeping
may be its prohibitions, will prevent such combinations as it seeks to
destroy, he does not, I fear, understand the structure and operation of
trusts. How would such a law reach the Standard Oil Trust or ma-
terially interfere with its operations? Had not the members of that
great alliance the legal right to vest the various properties and the
businesses they already had in the name of nine trustees?

"The trustees of the sugar trust, when put upon the witness stand,
denied that they exercised any functions except receiving profits and
distributing dividends. They denied all privacy with contracts, com-
binations or conspiracies, and how can you prove guilt upon them
under t"he rules of evidence required in criminal proceedings?

"Now you are not going to have a trust formed unless the trust
can control and practically monopolize the production or sale of some
article in this country — some article, I might add, of universal or com-
mon consumption, as I have described. It is a combination for the
very purpose of forming a monopoly, and to form a monopoly it must
be possible to do away, as nearly as may be, with competition.

"You cannot', therefore, form a trust in articles of which the pro-
ducers are scattered all over the country; but any article, like sugar,
the refining or manufacturing of which can be concentrated in a few
or in a moderate number of establishments, can be consolidated into

TARIFF AND TRUSTS. 7

a trust that will have a monopoly of the home market unless there be
sources of supply outside the trust. Now, sir, it is just here that the
federal government, by its system of import duties, already prohibitory
as to many articles of common consumption, and soon to be made so
as to others, presents the most favorable and tempting field in the
world for the successful formation and growth of trusts."

With the recommendations of Mr. Wilson we are not
specially concerned. He was one of those who believed
that the tariff was the mother of trusts, a view which has
become traditional with his political successors. His ob-
servations on state action refer especially to the North
River Sugar Refining case in the Court of Appeals of
New York. The work of General Roger A. Pryor in this
case was a remarkable achievement in the anti-trust move-
ment. Mr. Pryor was truly a pioneer in securing the appli-
cation of judicial remedies to the evils of the trusts.

But Mr. Wilson rather advocated the removal of the
tariff on sugar as the proper means for reducing the sugar
trust. It is presently asserted that the sugar trust ad-
vocates free importation of raw sugar and supports the
proposed free sugar policy of the government. There is
no leading government which does not raise a revenue out
of the consumption of sugar. And from a purely revenue
view, it is clear that as between the annual saving of forty
cents per capita to the people and the deprivation of the
federal treasury of annual revenues to the extent of forty
millions of dollars, that the balance of sound policy and
convenience is in favor of the retention of the duty on
sugar. The principal result of the free sugar policy will
be the absorption into the treasuries of the refining com-
panies, of the money presently paid to the government in
revenues. The abrogation of a moderate duty on a com-
modity of wide consumption does not appreciably affect
the price to the consumer, but is of great benefit to the
monopolistic producers of such commodities and of equal
deprivation to the federal treasury in loss of revenues.
There ought to be a permanent specific duty on sugar of
one cent per pound, and rather than a gradual abrogation

8 DISINTEGRATION OF MONOPOLY.

of this duty, there ought to be an excise on domestic sugar,
which, by graduation, in cumulative tenths should ap-
proach the impost on foreign sugar. A true conservation
of resources in the levy of revenue, requires that the annual
labor and profits of the country contribute to the revenues
in preference to the principal of accumulated v^ealth and
capital.

State Action Against Trusts.

It is true that the states separately charter the indus-
trial corporations v^hich combine by trusts and mergers
mto monopolistic institutions. And there is much that can
and should be done by the separate states to regulate
corporations created under state law, or admitted to do
business under state license. There are no essential limi-
tations on the political rights and powers of the states to
deal with these questions as they concern themselves.
They may not confiscate property except as a penalty for
delinquency or crime, but the vested right to property does
not include the right to hold it in jointure, trust, or mort-
main, or to use it in association or combination with oth-
ers. Combination, either for the tenure or the use of
property, is not a natural but rather a conventional right,
and associations for the holding or use of property ought
not to be licensed except for social and public purposes.
Corporations as such have no personal or natural rights,
but only the conventional rights conferred by law. And
it is right here that it should be understood that much of
the desperation displayed by the people against corporate
power, has had its genesis in the idea that corpora-
tions as such were within the protection of the Bill of
Rights. And we do need a corporation code of penal stat-
utes, which shall apply to these associations, laws of con-
duct, liability and responsibility which are not possible to
apply to natural persons for the protection of whose na-
tural liberties the bill of rights was incorporated into our
organic laws and constitutions. The conventional rights

STATE ACTION AGAINST TRUSTS. 9

of corporations ought to be the limit of their powers. This
is properly the field of state police.

As relates to corporate monopolies the state of New
Jersey has made a notable example in the enactment of
laws to prevent and penalize common abuses of the cor-
porate franchise. These include the following provisions :

1. Defines trusts and provides penalties against the
same.

2. Prohibits watered stock.

3. Penalizes incorporation for monopoly.

4. Prohibits holding corporations.

5. Limits issue of securities for creating mergers.

6. Requires license from Public Utilities Commis-
sion for merger of competing corporations.

7. Prohibits discrimination by corporations in the
prices of commodities as between different communities.

The worst that may be said of the seven bills of New
Jersey is that they may drive some predatory creatures
into other states, there to prey on the people. But the
other states have an equal right and power to take similar
legislative measures for their own protection. And cer-
tainly there is a field here which is so particular and local
that it may only be treated by local and state police. Every
state, indeed every municipal community, has its combina-
tions for the fixing of prices and monopolization of profits.
These have become a veritable imperium in imperio in
most every trading community. Every master artisan or
craftsman who does not belong to the order is denomi-
nated a "pirate in the business." There is a conspiracy to
prevent his competition in the trade, and to keep him from
obtaining credit of money or materials for use in his
business. It is frequently impossible for such outsiders of
whatever artistic competency to purchase supplies and
material. These are prevalent and malignant conditions
in many of our cities. These conspiracies are local and fre-
quently of more immediate and direct harm to the people,
than combinations of wider extent and activity. These
traders and artisans all operate under the license of the

10 DISINTEGRATION OF MONOPOLY.

state or some subordinate body politic. Their licenses
should be revoked for discrimination as between patrons
and purchasers, and for participation in conspiracy to fix.
prices and to persecute those who may not be parties to
their associations. And yet how little progress we have
made in the solution of these distinctively local trade prob-
lems. Remedy is indeed difficult of application, but the
long standing of the abuse may be brought home by pres-
ent experience in the perspective of a statement made by
Adam Smith in 1776:

"People of the same trade seldom meet together, even for merri-
ment and diversion, but the conversation ends in a conspiracy against
the public or in some contrivance to raise prices. It is impossible, in-
deed, to prevent such meetings by any law which either could be exe-
cuted, or would be consistent with liberty and justice. But though the
law cannot hinder people of the same trade from sometimes assem-
bling together, it ought to do nothing to facilitate such assemblies;
much less to render them necessary."

The feeling of the consuming public against combina-
tions of merchants is not wholly due to prejudice. It is
founded on experience quite as much as upon tradition.
The traditional view is thus stated by Thomas Jefferson
in a letter to Horatio G. Spafiford, March 17, 1814:

"But merchants have no country. The mere spot they stand on
does not constitute so strong an attachment as that from which they
draw their gains."

The interest of those who busy themselves for profit
is not common with that of those from whose consump-
tion and labor the profits are drawn. To quote again from
Adam Smith :

"The interest of the dealers, however, in any particular branch of
trade or manufacture, is always, in some respects, different from, and
even opposite to, that of the public. To widen the market and to nar-
row the competition, is always the interest of the dealers. To widen
the market may frequently be agreeable enough to the interest of the
public, but to narrow the competition must always be against it, and

STATE ACTION AGAINST TRUSTS. 11

can serve only to enable the dealers, by raising their profits above
what they naturally would be, to levy, for their own benefit, an absurd
tax upon the rest of their fellow citizens. The proposal of any new
law or regulation of commerce which comes from this order, ought
always to be listened to with great precaution, and ought never to be
adopted till after having been long and carefully examined, not only
with the most scrupulous but with the most suspicious attention. It
comes from an order of men whose interest is never exactly the sam^
with that of the public, who have generally an interest to deceive and
even to oppress th? public, and who accordingly have, upon many
occasions, both deceived and oppressed it."

It may be observed, in passing, that Thomas Jefferson
said of Adam Smith : "In political economy, I think
Smith's Wealth of Nations' the best book extant."

These community problems are in fair way of pro-
gressive settlement by the awakened civic conscience and
activity which is addressing itself directly to the improve-
ment of municipal government and the amelioration of
social conditions in the cities. The progress attendant up-
on the commission form of government in the smaller
cities in the development of a unified civic spirit to the ex-
clusion of factionalism and partisan pride, has already
been notable. Public markets are being established, to
which may be added municipal clearing houses for the reg-
istration of claims; the deposit, transfer and exchange of
earned credits, and the merger and discharge of debts,
together with the proscription of petty debtors, with pro-
vision for the preferential employment of debtors, who
are able and willing to work to acquire credits to liquidate
and discharge their debts and thus restore and maintain
their creditable standing in the economic and business
community. Such a public clearing house would facili-
tate the circulation of labor and commodities and promote
necessary and healthful industry.

There is perhaps not a community where the distribu-
tion of the daily food to the people is not rendered more
costly by the inefificient employment of too many persons,
all of whom are striving to squeeze profits out of the con-
suming public, and often are driven to conspiracy and com-

12 DISINTEGRATION OF MONOPOLY.

bination to accomplish this result. The brokerage and
retail of commodities of wide general, use may perhaps be
a proper community undertaking. The consumption of
coal, gas, lighting and other commodities and service, is
sufficiently large in any community, as to make the distri-
bution of such commodities and services to the consuming
public a matter of public concern. It may be that exclu-
sive annual franchises for the supply of such commodities
and service, could be let to those v^ho offer the best ser-
vice at the lowest stipulated rate, and thus the waste of
an inefficient and cumbersome machine of distribution be
avoided and saved to the community. But, these are prob-
lems which must be worked out by each civic community
for itself, and experimentation by the free will of the peo-
ple of such communities ought not to be unduly hindered
or restrained.

Wherever an exclusive franchise is given — exclusive
within the local territory in which the franchise may be
exercised — the public authority has the right to fix tolls
and prices. This is a practice which was established be-
fore we heard so much about "unconstitutionality" in the
regulation of trade and business. In Virginia, before the
War, the toll of grist mills was so regulated. It is really
interesting at this day, to read this ante-bellum statute :

"At every mill which grinds grain, whether the same be estab-
lished under an order of court or not, there shall be well and truly
ground all grain brought to the mill for the consumption, when
ground, of the person bringing or sending it or his family, and in due
turn, as the same is brought; and there shall not be taken for the
toll, more than one-eighth part of any grain of which the remaining
part is ground into meal, nor more than one-sixteenth part of any
grain of which the remaining part is ground into hominy or malt. If
at any mill there be a violation of this section in any respect, the pro-
prietor thereof shall, for every such violation, forfeit to the party
injured five dollars; but with these provisoes, that the proprietor shall
not be obliged to run more than one pair of stones to grind grain
brought to his mill for the consumption of the persons bringing or
sending it, or their families; and that such proprietor may grind grain
for the consumption of his family in preference to that of others."

(CODE OF VIRGINIA, 1849, Chapter LXIII. Sec. 12.)

LABOR UNIONS. 13

Labor Unions.

There is a current feeling that as between the mer-
cantile fraternity and the labor unions, the consumer has
been ground as between upper and nether millstones.
But we cannot apply to labor the same rule which is ap-
plied to goods, wares and merchandise. The personality,
dignity and will of those who labor forbid this. Service
must be voluntary and equally so, the will must be free not
to serve. No other condition is consistent with the prin-
ciple of personal liberty.

Though concert and conference to fix prices and con-
trol output of commodities are properly outlawed, the na-
tural right of men who subject themselves to the employ-
ment of other men, to meet and associate and even to
jointly determine upon what wage and terms they will
subject themselves to employment is well within their na-
tural rights. Men severally and jointly have the liberty
of willing whether to work or not to work. This is a
natural right which does not depend upon the license or
franchise of the state.

It is not necessary to enforce competition here. Cu-
mulative hunger and necessity ultimately drive labor to
work on the best available terms of employment. No
strike from employment can be of longer voluntary dura-
tion, than the supply of accumulated stock, or money to
sustain the strikers. Unlike the capitalist, the laborer,
though he combine with others, to restrict competition,
has no accumulated stock to support himself in idleness
and hunger will drive him to work on the best wages that
are offered. And human hunger is a sufficiently potent
distintegrator of labor combinations aiming at monopoly.
Then, too, there are the laws which require indemnity
for the breach of contracts and which prohibit boycotts
and penalize conspiracies to commit crime and forbid the
unlawful use of force, intimidation or duress.

Labor unions as co-operative associations of men for

14 DISINTEGRATION OF MONOPOLY.

social endeavor, have made notable contribution to the
economic amelioration and moral improvement of those
who labor and for this social service should receive public
approbation. As a consumer, labor wants lower prices
and higher wages, but where wages are appreciated these
higher wages reflect themselves in the increased price of
goods of which those who labor are the greatest consum-
ers, and thus labor sustains in part, at least, the enhanced
cost of wages.

It is competition between capitalists and combina-
tion between laborers that will most effectually reduce the
share of capital in the profits of industry, with the largest
diffusion of benefits to the consuming public in which the
laborers have a clear preponderance of numbers. As
wealth or capital increases, the tendency is for its profits
to become less and conspiracy and combination against
the consuming public is contrived to increase and insure
the profits of capital.

Restraint of Trade.

And it it right here that considerable confusion has
resulted as to the proper relation of industrial labor and
capital to competition. Restraint of trade, as that phrase
is known to the common law, was applied to certain con-
tracts whereby natural persons — usually traders or arti-
sans— bound themselves by contract not to exercise their
craft or trade within the realm. These contracts were
declared void by the courts; that is to say, upon the vol-
untary breach of such contracts, the courts refused to
award damages to the complaining party because as the
courts said, such contracts were void as against public
policy and the breach of the same would not sustain an
action at law to recover damages. But there was no pen-
alty for the voluntary retirement of a natural person from
the exercise of his trade. The matter could only come
before the courts when some person, who had agreed that
he would not exercise his trade, should be impleaded on a

RESTRAINT OF TRADE. 15

charge that he had exercised his trade in breach of an
agreement not to do so. The courts simply refused to
entertain such cases on the ground that it was a natural
right for a person to exercise his trade; that it was in the
public interest that he should do so; that contracts which
restrained a person in respect to the exercise of his craft
or trade, were void as against the public interest and pol-
icy; that a person had a perfect right to break such con-
tracts and exercise his craft or trade; and if he were sued
at law for so doing, the courts would not entertain the
suit — they would just throw it out of court as we would
express it in common parlance. And this is about all there
was to the common law doctrine as to contracts in re-
straint of trade. Certainly in these days, there are no
considerable evils resulting from men making voluntary
contracts that they will not work or engage in business.
The prevalent restraints on the freedom and equality of
competition are of an entirely different character and call
for the application of an entirely dififerent correction. The
evils from such personal contracts are quite negligible;
indeed, they bear no pertinent relation to contemporary
industrial and economic problems.

And now a word in passing as to "reasonable restraint
of trade," another phrase of supposed mysterious meaning.
When a trader or an artisan had established himself in
the good will of his patrons, customers and clients, all of
which made his business valuable, and he sold out his bus-
iness to another and agreed in a covenant collateral to the
sale, that he would not engage in his old business in the
same town but would leave his successor free to trade in
the same field, without the withdrawal of trade and cus-
tom by the continued engagement of the seller in business
in the same town; such a contract restraining the seller
in the exercise of his trade among his old customers was
denominated a "reasonable" contract and such a restraint
was held to be a "reasonable restraint of trade" and not
sufficiently contrary to public policy to declare it to be
void. The person who had engaged to refrain from trade

16 DISINTEGRATION OF MONOPOLY.

in the town where the business he had sold was developed,
was free to trade in any other town in the realm, but if
he should exercise his trade in the old town, to the dam-
age of the business he had sold, then he could be sued at
law for damages and a court of equity might also issue its
injunction to prevent him from trading in that town in
breach of his contract not to do so. And this is about all
there is to "reasonable restraint of trade." If a physician
sell his professional practice to another and make an agree-
ment by which he binds himself, not to practice in that
town, by virtue of which the courts may restrain him from
so doing, the fact that he has to go to some other town
to practice medicine is quite wholly a private matter. Cer-
tainly it is not of sufficient public interest as to call for
the interposition of the legislature.

Restraints on the jus disponendi or right of alienation
of property created by deed or devise granting or convey-
ing the property were at common law held to be void ex-
cept in the case of married women, in which instance, the
restraints created by the donor of the propert}^ were upheld
during the coverture of marriage.

These contracts — those which were void and those
which were reasonable — were contracts which related
quite exclusively to personal services, trading and business,
and have little or no relation to current problems in pub-
lic policy and economy. It is no wonder that the straining
to elucidate them in their application to modern problems
has not resulted in any satisfactory explication or discovery
as to what they properly have to do with either trusts or
monopolies. For these arise from entirely different causes
and contracts, and by entirely different legal and business
methods and practices. Neither "restraints of trade" nor
"restraints of alienation," as these terms were used at the
common law, have any relation to the combinations and
conspiracies to engross and monopolize trade that are pres-
ently the chief concern of our politics.

We have been on the wrong track. It is not the vol-
untary contractual restraint of trade in personal business,

MONOPOLIES. 17

it is the engrossment of trade in commodities that we are
after. And what of the common law on interference
with markets? We have almost forgotten — lawyers and
laymen alike — that there is any common law on this sub-
ject. What of forestalling, regrating and engrossing at the
common law? These words,! dare say, have to us a strange
and unusual sound and yet they denote the doctrines of the
common law which have the nearest relation to the com-
binations and conspiracies for the engrossment of trade
which we denominate trusts and monopolies.

"Forestalling is to buy or contract for any merchandise or victuals
on the way to market; or to dissuade persons from bringing their
goods or provisions thither; or to persuade them to enhance the price;
or by any such devices to make the market dearer to the fair trader
with intent to raise the price."

"Regrating is to buy corn or other dead victuals in any market,
and to sell it again in the same market, or in its neighborhood.

"Engrossing is to get into one's possession large quantities of
corn, or other dead victuals, with intent to sell them again."

(Synopsis of Law of Crimes and Punishments, by John B. Minor,
p. 171.)

Now these are definitions of offenses at the common
law, for which as misdemeanors, penalties were provided
for prevention and punishment. And while forestalling,
regrating and engrossing were practices which were pun-
ishable under more primitive conditions than exist in in-
terstate commerce today, yet penalties for these offenses,
which interfere with the freedom of trade in markets,
might again be applied to local markets as they exist or
may become established in the cities and towns of the
country. These common law definitions of misdemeanors
go right against some of the most common practices of
speculators who take unlawful toll of the trade in food
and other commodities of general consumption.

Monopolies.

At the common law, monopolies could only be cre-
ated by franchise evidenced by letters patent of the king.
The law courts, however, refused to validate such grants

18 DISINTEGRATION OF MONOPOLY.

or to protect the patentees in the exercise of their exclu-
sive privileges.

Agreements to fix prices, indeed, v^ere void, but such
"gentlemanly understandings" then as now seldom came
before the courts. If some hardy conspirator sought to
recover damages against one of his fellows who had been
untrue to his pledges as to prices, the courts simply re-
fused to entertain the case — "threw it out of court" so to
speak. The word "reasonable" has never been applied to
such arrangements and as to whether or not the prices
so arranged were "reasonable," the courts have had no
concern. But there was no penalty attached to such agree-
ments, except, perhaps, in the case of laborers who asso-
ciated to fix wages, as to which associations there was at
an early period some repressive parliamentary legislation
which has long since been repealed.

Labor unions habitually adopt wage scales. Such
agreements, however, have no legal sanction and are void.
The unions never think of rushing into court to ask dam-
ages against a backslider who works for less than the union
scale. If they did so the case would simply be thrown
out. And although such practices are common among
both labor unions and mercantile associations and though
their agreements for a scale of wages or of prices are void
there are no penalties except such as are prescribed by leg-
islative statutes, and these, of course, of modern enactment.
There were no common law criminal definitions covering
such agreements, and even these modern criminal statutes
seem to have been quite as innocuous as the common law
which made no pretense to punish participation in such
agreements. The prevalent evils of monopolistic combin-
ation do not arise from these merely executory personal
arrangements as to price maintenance. They arise rather
as a result of executed contracts, grants and conveyances
respecting the ownership, control and use of industrial
property, to which contracts the common law doctrines
against restraint of the personal right to trade and re-

THE SHERMAN LAW. 19

straint of the personal right to alienate property, have no
application.

The Sherman Law.

The most notable of statutory prohibitions against
trusts and monopolies has been the so-called "Sherman
Law," enacted by the Congress of the United States and
technically known as the act of July 2nd, 1890, to protect
trade and commerce against unlawful restraints and mon-
opolies. This notable statute has been accredited to John
Sherman, George F. Hoar and George F. Edmonds, all
distinguished senators of the United States. It has been
accepted as an enactment of the common law doctrines
with respect to the freedom of trade, into the federal law
of the United States, as respects trade between the states
and with foreign countries. Like the Statute of Frauds,
its interpretation has cost a king's ransom ; but it must be
said that even as finally clarified and constructed, the Sher-
man Act will never occupy the notable place in our federal
law which the Statute of Frauds does in the field of British
legislative jurisprudence.

Section One of the Sherman Act provides that "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." These words, indeed, have an impressive and
comprehensive sound, but the fact is that there never was
a trust or combination which had for its purpose the re-
straint or restriction of the volume of interstate or foreign
trade, or of the consumption which sustains this trade. In-
deed the trusts have directly sought to widen the market
and increase the trade of consumption, both interstate and
foreign. And all straining to find in such combinations a
restriction of trade is a vain endeavor. It is the engross-
ment, not the restriction of trade, which has been the mov-
ing impulse of the trusts. And such combinations or trust
contracts are in no sense contractual restraints on the per-

20 DISINTEGRATION OF MONOPOLY.

soiial liberty of trade or alienation as known to the com-
mon law.

Section Two of the Sherman Act provides that "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 guilty of
a misdemeanor, and, on conviction thereof shall, be pun-
ished by fine not exceeding $5,000.00 or by imprisonment
not exceeding one year, or by both such punishments in
the discretion of the court."

Section Three is merely a repetition of Section One,
providing for its application to the District of Columbia and
the Territories.

Section Four grants jurisdiction to the circuit courts
of the United States to issue injunctions to restrain viola-
tions of the act. This is an effectual, though very unusual,
provision for courts of equity to restrain the violation of
a purely criminal statute in cases where private property
is not being directly infringed or damaged. This sec-
tion has been the only vital one relating to procedure pro-
vided in the act. Indictments under the penal provisions
of Sections One, Two, and Three have quite uniformly
failed. The forfeitures provided in Section Six have never
been claimed or enforced, and the right to sue for dam-
ages by a person privately aggrieved or damaged by a vio-
lation of the act as provided in Section Seven has not been
of any extended practical utility to those who have been
damaged by the ruthless and unequal competition and
practices of the monopolies which the act purports to pro-
hibit, but whose unlawful methods and practices the act
does not specifically define for the purposes of either pub-
lic punishment or private compensation.

As respects the definitions of the law and the applica-
tion of judicial injunctions for the dissolution of monop-
olistic combinations, the reference of the contracts and
trusts specified in Section One to the monopolies specified

THE SHERMAN LAW. 21

in Section Two, would bring into correlation the really im-
portant and potential definitive parts of the statute :

"Every contract, combination in the form of trust or otherwise,
or conspiracy * * * ^o monopolize any part of the trade or com-
merce among the several states or with foreign nations * * ♦ is
hereby declared to be illegal."

This composite paragraph, together with the provision
for injunctions to dissolve such combinations as are de-
clared illegal by the act, is all there is of vital signification
or utility in the Sherman Law.

The very lucid opinion of the supreme court in the
Standard Oil case, makes it clear that whether in a partic-
ular case a conspiracy or combination in the form of trust,
or in other form, has a conscious or casual intendment to
monopoly must be adjudged upon the application of the
processes of judicial rationalism.

But there are those who doubt the effectuality of the
decrees entered in the trust cases and of the judicial means
adapted to their execution. Thus Honorable Peter S.
Grosscup, referring to the decree in the Northern Securi-
ties case, said :

"As a road to restored individualism in trade and commerce it
(the Sherman Act) led nowhere; every one of its boasted achieve-
ments, like the Northern Securities case, for instance, faded entirely
away the moment the last line of the decree had been written. The
'dissolutions' were dissolutions on paper only; they produced no effect
either on the conditions of trade or the relation of individual men to
opportunities in trade. Where change followed at all, it was in the
direction not of individualism, but of more intensive concentration —
the previous constituent corporations welded into single corporations —
thereby replacing what in law was a 'combination' by what in law was
a single entity as in the steel and other industries." (North American
Review, July, 1911.)

In the Northern Securities case the decree of the
federal court dissolved a trust in which the Northern
Securities Company was corporate trustee. In the Amer-
ican Tobacco case the court dissolved a highly integrated

22 DISINTEGRATION OF MONOPOLY.

monopolistic corporation. Of this decree the late Presi-
dent William H. Taft, in a special message to Congress,
on December 5th, 1911, said: "I venture to say that not
in the history of American law has a decree more effective
for such a purpose been entered by a court than that
against the tobacco trust." It is currently believed that
the Honorable, the Attorney General of the United States,
does not share this opinion.

Against the decision of a practically unanimous court
in the Standard Oil case, the Honorable William J. Bryan
deeply stirred his emotions. Said he :

**In the light of this decision * * * we may as well recognize
that we now have no criminal law against the trusts. * * *

"Opinion on the trust question is largely a matter of bias. It is a^
question of the heart as well as the head. * * *

"There are a number of things that impress one as he reads the
majority and minority opinions, and the impression made is so deep
that feeling increases with contemplation."

And the Weekly Commoner said :

"One by one the beautiful passages of the Bible are going out of
use in plutocratic society. It has become necessary to drop them out
of deference to tlie feelings of some of the more sensitive members of
high financial circles. Solomon said, 'A good name is rather to be
chosen than great riches, and loving favor rather than silver and gold,'
but this is offensive to the worshipers of men like Rockefeller.

" *No man can serve two masters,' is good philosophy, as well as
good religion, but it is objected to by the friends of some of the sen-
ators. And now since Chief Justice White has succeeded in commit-
ting eight members of the court to the position he took fifteen years
ago in favor of judicial legislation for the protection of trusts, it may
be necessary to drop the 26th verse of the lltli chapter of Luke: 'Then
goeth he and taketh to him seven other spirits more wicked than him-
self, and they enter in and dwell there; and the last state of that man
is worse than the first.' "

Of course the Chief Justice needs no defense from
such aspersions. He is the peer of any living jurist.

Though William Jennings Bryan thinks that the
Standard Oil decision is all v^rong, William Howard Taft

THE SHERMAN LAW. 23

thinks it is all right and asserts that the contrary view "is
erroneous and is based on the assumed inefficiency and in-
nocuousness of judicial injunctions." Among those who
entertain this erroneous view is Theodore Roosevelt, the
projector of the commission form of government for
trusts. To Mr. Roosevelt there are good trusts and bad
trusts. He would separate the sheep from the goats. He
don't like goats; they don't shear well. But this plan is
not original with Mr. Roosevelt. Unlike some other
things we have heard of, it was not discovered in the
laboratory of biological democracy at Oyster Bay. But
we are progressing toward the commission form — already
the Department of Justice, by and with the approval of
the circuit courts, has decided in particular cases, just
what may and what may not be done, and just how it shall
be done. The department has straightened out the Har-
riman Railroads. The Powder Trust, the Electric Lamp
Trust and some other trusts have obtained their several
prescriptions from the department and have taken their
medicine in private. We have seen no testimonials as to
just how these anti-fat prescriptions affect the patient.
And then it is not yet determined whether the real trouble
is physical or mental. Mr. Taft, naturally enough, thinks
there is nothing improper in being big and Mr. Roosevelt,
too, thinks that big ones are all right, unless they are evil-
minded. To get rid of the evil — that is the thing. As Mr.
Taft says :

"Mere size is no sin against the law. The merging of two or
more business plants necessarily eliminates competition between the
units thus combined, but this elimination is in contravention of the
statute only when the combination is made for the purpose of ending
this particular competition, in order to secure control of and enhance
prices and create a monopoly."

So as Theodore Roosevelt would have it, and as Wil-
liam H. Taft says, it all depends on good intentions. Just
say, "We did not mean to do it," "We did not do it on pur-
pose," and you have an eleemosynary corporation.

24 DISINTEGRATION OF MONOPOLY.

We must pass from judicial to political remedies for
the solution of the trust problem. There must be a more
automatic and general disintegration of monopoly than
may be obtained by the slow application of judicial injunc-
tions in particular cases. It is claimed, however, by nota-
ble publicists that we have reached the limit of the appli-
cation of the political power of Congress for the disinte-
gration of monopoly. Hannis Taylor expresses this view:

"In the United States the transition from individualism to collec-
tiveism has brought a revolution in economic conditions whose out-
come involves the right of the National Government to abolish or
seriously modify trusts and monopolies. Congress has exhauste4^s
legislative power and it now remains for the Supreme Court to deter-
mine whether or not its eflForts have been efficacious." (Origin and
Growth of the American Constitution, Boston, 1911, page 298.)

Federal Incorporation.

The most sanguine professors of the adequacy of the
Sherman Act as interpreted by the Federal Supreme Court
are not without doubt as to the ultimate effectuality of
the statute for the disintegration of monopolistic combina-
tions and are anticipating more direct federal visitorial
power over corporations which may only be realized by
the creation of corporations by Congress to engage in
industrial production and commerce. Thus President Taft
said, in a special message to Congress on January 7th,
1910:

"If the prohibition of the Anti-trust Act against combinations in
restraint of trade is to be effectively enforced, it is essential that the
national government shall provide for the creation of national corpor-
ations to carry on a legitimate business throughout the United States."

And in his message of December 5th, 1911, the Pres-
ident again urged this view on Congress :

"I renew the recommendation of the enactment of a general law
providing for the voluntary formation of corporations to engage in
commerce between the states and with foreign countries."

FEDERAL INCORPORATION. 25

Now, while the incorporation of railways under fed-
eral law would likely be of great utility in the alignment,
articulation, and systematization of ways for the accom-
modation of the traffic and commerce of the country, and
while such an exercise of congressional police would be
well within the constitutional power of Congress to estab-
lish and maintain post roads, it is to be doubted that Con-
gress, under the Constitution, has any power to erect cor-
portations for purely industrial and productive purposes.
Certainly such a proposition is directly contrary to the rea-
soning of Chief Justice Marshall in Osborne against Bank
of the United States, 9 Wheaton 73S, wherein the power
of Congress to create banking corporations as fiscal agen-
cies of the government was upheld and wherein the Chief
Justice says :

"This mere private corporation engaged in its own business, with
its own views, would certainly be subject t6 the taxing power of the
state, as any individual would be, and the casual circumstance of its
being employed by the government in the transaction of its fiscal affairs,
would no more exempt its private business from the operation of that
power than it would exempt the private business of any individual em-
ployed in the same manner. But the premises are not true. The bank is
not considered as a private corporation, whose principal object is individ-
ual trade and individual profit; but as a public corporation created for
public and national purposes. That the mere business of banking is,
in its own nature, a private business, and may be carried on by indi-
viduals or companies, having no political connection with the gov-
ernment is admitted; but the bank is not such an individual or com-
pany. It was not created for its own sake or for private purposes. It
has never been supposed that Congress could create such a corporation.
The whole opinion of the court in the case of McCulloch against the
State of Maryland is founded on, and sustained by the idea that the
bank is an instrument which is necessary and proper for the carrying
into effect of the powers vested in the government of the United
States. It is not an instrument which the government found ready
made and has supposed to be adapted to its purposes; but one which
was created in the form in which it now appears, for national purposes
only."

But it is eminently true that the trust problem is one
of intimate relation to industrial corporations, and that

26 DISINTEGRATION OF MONOPOLY.

these corporations are erected by the states and are ex-
clusively subject as such to the visitorial power of the sov-
ereignties creating them.

The original Standard Oil trust, and the other trusts
which followed in its train were created by the placing of
the shares of stock of the combining corporations in the
hands of a common board of personal trustees who would
vote the stock for the unified direction of the corporations,
collect the profits of the combine and declare dividends
of these profits to the holders of the trust certificates. It
is likely that these trust conveyances could have been dis-
solved and recalled by the cestui que trustent. There is no
reason why such shares of corporate stock should have
been held in trust against the will of the beneficiaries of
the trust. The trust was not of such a public or charitable
character as that a court of equity would sustain it against
the will of the equitable owner of the stock. But the trust
was created and continued by the voluntary act and appro-
bation of the individual stockholders, all of whom were
participators in the combination of direction and control
created by the trust. In a smaller way, a corporation itself
is a trust wherein the stockholders grant the use, direction,
and control of corporate stock and property to a board of
trustees or directors, to be exercised in pursuance of the
trusts set forth in the articles of association, the trustees
or directors being incorporated and given perpetual suc-
cession and corporate capacity by law. The holding of
stock in trust may also be freely exercised by a corporate
trustee as the Northern Securities Company, with per-
petual succession in the trustee. And there is nothing
generally in modern corporation law and practice to pre-
vent a monopolistic corporation, without using the trust
method of combination, from issuing its shares of stock in
payment for any number of industrial plants and proper-
ties, taken at appraised values, according to the conven-
tions of the parties, and with the consequent dissolution
of the former separate corporate owners of such industrial
property. Indeed the old combination by holding trustees

FEDERAL INCORPORATION. 27

or by the holding corporation has been succeeded in nota-
ble instances by highly integrated corporate organizations
under liberal corporation laws and by the free contractual
acts of all persons concerned. From such combinations
the distinctively trust feature may be entirely absent. It
• is a significant fact, however, that in usual practice the
operating industrial units are separate corporations and
that the combination of these operating corporations is
a fiscal and securities company, such as the United States
Steel Corporation, which, though highly integrated, re-
tains the separate entity of the constituent companies in
the monopolistic financial corporation. So it may be said
that the problem of the disintegration of monopoly is no
longer a distinctively trust problem.

And while The Seven Bills of New Jersey lay down
effectual principles for the exercise of visitorial power over
corporations, such laws are limited in operation to the
states enacting them and which have created the corpor-
ations which are thereby to be subjected to such visitorial
power. The trend of state corporation policy, however,
has been to forbid the creation of corporations by special
legislative charters and laws and instead of being an ex-
clusive franchise, the privilege of incorporation has, by
general laws, been made open to all without discrimination
or restraint as to persons, and indeed without limitation
with respect to capital, stock or property, term of corpor-
ate duration, extent or charcter of business or field of op-
eration, or of legal rights, power or functions — all in sup-
posed conformity to the democratic and equal principles
of our government. It is in pursuit of this absurd policy,
that the doctrine has been insinuated into political and ju-
dicial thought, that corporations have the same constitu-
tional rights as natural persons, and in addition thereto
the distinct powers and immunities peculiarly incident to
corporations. We have had a veritable riot of corporate
promotion extended to all parts and local jurisdictions in
the country, and it may not as yet be known how soon
the separate states will undertake to remedy the abuses

28 DISINTEGRATION OF MONOPOLY.

of the corporate privilege along the lines laid down in
New Jersey. Of course every state may regulate its own
domestic corporations, as also those foreign corporations
which it admits by its license to do corporate business
within its territorial jurisdiction.

But the problem of monopoly is a federal problem.
The products of monopoly pass freely in interstate com-
merce immune from possible prohibition by the separate
states. The trusts trade in many states where they have
no considerable tangible property, and wherein they do
not file their articles of incorporation or obtain a state
license to do business. The profits of such trade are with-
drawn from the states, the labor and consumption of whose
people sustain and contribute to the same and which profits
in turn can not be subjected to contribution in taxes or
otherwise for the benefit of the communities which con-
tribute to and produce them.

Monopoly of Profits.

It may be laid down as fundamental that the ulterior
motive of monopolistic combination is the engrossment
and monopolization of profits. The business of the coun-
try in any particular commodity has an ascertainable vol-
ume, commensurate with the national consumption of that
commodity. The production and distribution of such a
commodity requires the employment of stock invested in
industrial plants and in sustaining the circulation of such
commodity to the consuming markets. The ability of a
corporation to monopolize such production and trade is in
direct proportion to its capital, that with which it may
purchase industrial property or effect by combination the
same result. As stated above, the prime object of all such
combination, either by purchase or conspiracy, is the en-
grossment and monopolization of the profits of the trade
and the protection of these profits by the exclusion of
others from competition or participation in the trade.

Now, the marvelous industrial system of the United

MONOPOLY OF PROFITS. 29

States is stimulated and encouraged by the duties on im-
portations which discriminate against foreign products in
the domestic market. This is the traditional economic
policy of the country. And it would be manifestly im-
politic as proposed by some extremists to establish a free
trade policy which would exempt foreign producers from
taxation on the consumption of their products, and lay
direct burdens of taxation on domestic industry in its
stead. This would be a reversal of the protective policy —
with the burden on the home producer and the favor for
the foreigner.

There is a tendency in all healthful industry toward
monopoly — the employment of profits for the engross-
ment of trade. The tarifif stimulates the industry — the
profits of industry are used to promote engrossment which
when accomplished seeks self-protection in unlawful com-
petition and conspiracy to maintain exclusive advantages
in the trade. And the ability of such combinations for
monopoly is in direct proportion to the size of the corpor-
ation and the surplus of capital or stock available for
this purpose. Yet, it were chimerical to attempt to di-
rectly limit by law, either the amount of stock a corpora-
tion may employ or the amount of its profits, or the pro-
portion of its profits to the principal or capital amount of
its stock. Such measures would create an unwise hindrance
to industrial competition, activity and development.

The conventional rate for the hire or use of money
may very well be limited by law as the payment in such
cases is a contractual obligation guaranteed by the prom-
ise of the borrower and often secured by the pledge of
property. If the lender may recover at the law, it is right
that he should only recover the principal and a reason-
able relative amount for the hire or use of the money
loaned. But the person who ventures his money or stock
in an industrial undertaking may not recover at the law
his stock or his profits, he carries the risk incident to his
venture, — he is not secured in the return of his stock or of
his profits by any conventional or contractual undertaking.

30 DISINTEGRATION OF MONOPOLY.

He must take the risks of the venture, depending on his
good judgment and capacity in a field in which he should
be- equally free with others to compete for the gains of
enterprise. And there can be no freedom of competition
unless there is equal freedom of competition, just as men
cannot be really free unless they are equally free, at least
in so far as their relations are regulated and governed by
paramount laws.

Now both the hire of labor and the hire of capital
employed in industrial enterprise must be paid out of the
profits of the enterprise. If both labor and capital are
hired, the enterpriser pays the hire in guaranteed and
stipulated sums as the wages of labor and the interest of
capital, which "interest" is precisely the stipulated and
guaranteed share or interest of the capitalist in the profits
of the enterprise in which his capital is loaned or em-
ployed. If the capitalist, instead of lending his stock for
a stipulated interest in the profits, ventures his capital in
the business, he then divides the profits of the enterprise
in proportion to his share in the capital employed in the
enterprise. If a laborer by himself or in' partnership with
others hire capital or stock to employ in business, he may
pay the hire of the stock out of profits and divide the re-
maining profits to himself and associates as the wage and
reward of labor. Labor may employ capital or capital
may employ labor — more frequently it is the enterpriser
who hires and employs both and pays the hire of capital
and of labor as interest and wages out of the profits of his
enterprise, the enterpriser taking to himself the residue of
profits as his own reward.

And it may be said here, in passing, that one of the
most immoral of prevalent financial practices is the indefi-
nite payment of usury on funded debts representing use-
less and long-since dissipated capital. It would be an
intolerable condition if a great milling trust should, at
an early day, have absorbed all the grist mills of the coun-
try and as these mills were abandoned to depreciation and
decay, the trust should have issued new capital for all the

WATERED STOCK. 31

new mills that have been built, and then should have in-
sisted on profits paid in the price of bread, for distribu-
tion as dividends on the capital represented by all the
abandoned mills scattered over the country. And yet
such is the manifest tendency of sustained monopoly in
any branch of industry. Of the same nature of sunken
and dissipated capital of no present employment in the
industry of the country and yet entailing the payment of
usury out of the labor of the people are the bonds and
funded debts incurred in the wastes and dissipations of
war. Such debts should be discharged by payment and
thus compel the holders of the same to look to the rewards
of enterprise and of industry rather than to the patrimony
of the governnient for the preservation and augmentation
of such capital. The payment and retirement of such debts
would be a great stimulus to industry and wealth in the
country. There ought to be a limitation to the cumulative
burden of spendthrift debts from one generation to the
next — debts secured not by the estate of the debtors but
by the servitude of succeeding generations of men.

Watered Stock.

The confusion in the public mind of dividends of
profits to shares of stock with conventional "interest" or
rent on bonded obligations has largely contributed to
the facility of exploitation and deception of innocent spec-
ulators in so-called watered stock. A bond representing
a principal obligation expressed in a definite sum of money
together with a contractual engagement to pay hire or in-
terest at a certain rate per centum on the capital sum is
one thing — shares of stock represented by certificates of
a nominal and expressed money value are with respect to
such indicated value of little more signification than if
they were obvious counterfeits of government currency.
They are only certificates of the ownership of a certain
number of aliquot parts or shares of the capital stock and
the essential value of the certificate is in its character as a

32 DISINTEGRATION OF MONOPOLY.

muniment of title to the specified number of the thousand
or other number of equal shares into which the stock of
the corporation is divided, which carries the right to par-
ticipate in dividends of profits, in the proportion which the
number of shares indicated by the certificate bears to the
whole number of shares into which the stock is divided.
There is no obilgation to pay dividends — the denomina-
tional money value impressed on such certificates is in no
sense a capital sum upon which conventional interest is to
be paid, nor is it usually in any respect a reliable index
of the value of the stock. It were well for the public pro-
tection if such ostensible indicia of value were to be pro-
hibited from imprintment on certificates of shares of stock
in industrial corporations, for in this practice, in part at
least, consist the evils of stock watering — doubling up the
number of shares of indicated value and thereby increas-
ing the ostensible capital and the number of certificates
for jobbing purposes. It is difficult to see what can be done
by lav/ to protect those who "invest" or have invested in
such "paper" or "securities" as they are euphoneously
called. Certainly the government is under no moral or
political duty to protect such "investments," howsoever
innocently made. These "investors" simply venture their
money. They do not secure themselves by contractual en-
gagements for the return of either principal or interest.
They usually have no intention of participating as stock-
holders in the direction and management of the corpora-
tion in which they buy shares of stock. The directors in
any event will not allow them more as dividends than the
conventional rate for the hire of money. They have other
uses for the surplus. If such "investors" desire to loan
their money they should take the bond of the borrower,
and it is of just such bonded loans that the greater part of
nctual industrial capital is composed.

The capital stock of any industry is constantly chang-
ing in amount and value. There is accumulative depre-
ciation which if not repaired will wear out and consume
such capital. Not only is the capital which is no other than

WATERED STOCK. 33

the industrial property, equipment, and money used in the
business, subject to the depreciation caused by use and
decay, but its value also to the stockholders, may be
greatly impaired by the encumbrance of debts contracted
in the course of business. All of these things directly
affect the value of aliquot parts of the stock represented
by stock certificates. But the value of shares of stock is
more directly fixed in the market by the earning capacity
of the corporation, and this capacity depends not alone on
the intrinsic value of the actual stock, but quite as much
upon the efficiency of the business as a going concern. ^The
extent and steadiness of its trade, the physical state of its
property, the\ skill and efficiency with which it is man-
aged, the personnel of its working force and directorate
are all important factors in the earning capacity, none of
which factors, however, are or can be indicated by the
nominal value imprinted on the shares as represented by
certificates. (Stock is "watered" to conceal the true propor-
tion of profits to capital expressly to deceive the consum-
ing public, but there obviously can be due appreciation of
shares in the market without their multiplication or de-
ceptive description in order to excite speculation. Be-
cause of the constant and cumulative depreciation of stock
and variation both in conditions of production and of the
demand of particular markets, all of which inhere in the
nature of industrial enterprises, any attempt by law to
regulate or limit profits based upon "physical value" or
"actual investment" must prove abortive, and is a pursuit
of an absurd and fatuous policy.

The matter of the aerated, watery or solid character
of stock employed in business is no concern of the gov-
ernment except as it may prevent representations of the
"par" value at which beautifully engraved stock certifi-
cates are to be exchanged for the money of the "investing"
public. If one should brand his goods as a certain quantity
of money no one would think the goods were money — yet
there are those, and their tribe is many, who think that
when paper is stamped as money, it is money, at least ex-

34 DISINTEGRATION OF MONOPOLY.

changeable at par for money, and the constitution protects
all such against restraint of the right to freely trade, spend
and alienate their property. Wind and water may be le-
gitimate agencies of industry. There are veritable wind-
mills in Kansas, and in Connecticut there are incorporated
water mills in which one may doubtless purchase shares
of stock, but these as yet have not been adapted to the
fabrication of steel.

Now, the government cannot compel a man to ven-
ture his money or property in the seeking of the gains of
business — yet if property be not employed it is consumed
by the decays of time. Stock may only be conserved and
augmented by its employment in the processes of pro-
duction and reproduction. And the rewards of growth
and wealth in stock are the incentive to its employment in
the enterprises of business.

And men must be equally free to engage in the pur-
suit of and to compete for the gains of business ; that is to
seek for these gains in common though not necessarily in
company with others — and that is all there is to compe-
tition. And all this is for the supply of the consumption
of men and the business is limited by the volume of this
consumption. There are certain advantages which natur-
ally pertain to those who are established in the trade,
with which it is difficult for the new adventurer to com-
pete, except as those advantages are diminished by decays
and variations of time. And the world is covered with
the ruins of decayed industry, to which there has been no
succession other than the adverse succession of competi-
tors. And this is the order of the natural world.

Proper Units of Integration.

The most natural integration of competing units is
exemplified by the unified growth and integration of pop-
ulation in our cities and the competition of cities for the
attraction of new population. And there is nothing of con-
cert or conspiracy here, nor is such possible. It is believed

MEANS OF DISINTEGRATION. 35

that the distribution of goods from trade centers to trib-
utary territory or the jobbing trade, as it is called, is pres-
ently exercised on the principles of free competition hon-
estly pursued as to both prices and service, all to the high-
est benefit of the consuming trade. In other industries, as
in the jobbing trade, it is believed that there is no great
danger in integration at industrial centers, if only the com-
petition between such centers shall be maintained. This
would seem to promise the highest economy of produc-
tion and efficiency of distribution.

There is no economic objection to the size of the steel
plant and appurtenances at Gary, Indiana, but there is
no economic good in the integrated control by the United
States Steel Corporation of the dominating plants at Pitts-
burg in Pennsylvania and at Birmingham, in Alabama, and
of the hundred and thirty odd other plants scattered over
the steel producing area of the United States. Nor is there
justification in morals or economy for the confederation of
the Carnegie Steel Company, the Illinois Steel Company,
the National. Tube Company, the American Steel & Wire
Company, the American Sheet & Tin Plate Company, the
Sharon Tin Plate Company, the American Bridge Com-
pany, the Union Steel Company, the Indiana Steel Com-
pany, and the Tennessee Coal, Iron, & Railroad Company,
into an integrated fiscal and securities corporation for the
control of markets, the fixing of prices, the engrossment,
collection and distribution of profits and the fastening upon
the consuming public in the price of steel of fixed capital
charges to provide revenues on the funded capitalization
of its abandoned and depreciating plants. Such combina-
tion is not essential to either economy of production or of
distribution to the territory tributary to the centers of
steel production in the United States.

The Means of Disintegration.

Now, what of the remedy for these conditions in the
industries of the United States? No mere private litigious
right to compensation for damage done nor injunction for

36 DISINTEGRATION OF MONOPOLY.

the prevention of damage threatened will suffice. Indeed
these are public, not private wrongs, which call for political
prevention rather than compensatory or vindicatory pun-
ishment. In our free country the potentiality of competi-
tion must be maintained, and the only way to maintain
the potentiality of competition is to take away the poten-
tiality of the trusts to unduly interfere with competition.
And this cannot be left to good intentions — the potentiality
of the trusts for harm must be prevented, and this not by
judicial process acting in particular cases, but by political
means acting automatically and generally in the field of in-
dustry.

The American tariff stimulated the establishment of
the great American steel industry. The prosperity of that
industry has produced a constant tendency toward engross-
ment and monopoly for the more complete integration
and protection of which the United States Steel Corpora-
tion was created. The profits of this corporation for the
fiscal year ending December 31st, 1910, in round numbers
amounted to one hundred forty-eight millions of dollars,
distributed as follows :

Depreciation funds and sinking funds for

bond liquidation $ 30,000,000.00

New plants and construction 15,000,000.00

New construction at Gary, Indiana 10,000,000.00

Interest on bonded indebtedness 30,400,000.00

Dividends on the preferred stock 25,200,000.00

Dividends on the common stock 25,400,000.00

Surplus of profits 12,000,000.00

$148,000,000.00

The gross revenues of the United States Steel Corpor-
ation for the fiscal year ended December 31st, 1910, were
$703,961,424.41 (Ninth report of United States Steel Cor-
poration, p. 34). The total revenues of the United States
government for the fiscal year ended June 30th, 1910, were

MEANS OF DISINTEGRATION. 37

$675,511,715.02 (Annual report of the Secretary of the
Treasury on the State of the Finances, 1910, p. 26). It
was claimed in 1911 that the Steel Trust up to that time
had expended more than $400,000,000 of profits in new
construction and replacements in its plants. There is no
objection to such application of the surplus profits of in-
dustry, especially in cases where the real capital is repre-
sented by bonded indebtedness which, after reception of its
stipulated interest in the profits, has no right to participate
in the further appropriation or dividend of the same.

Now the tariff of duties on imports is to be a perma-
nent factor in the fiscal policy of the United States, as it
relates to the collection of the federal revenues. And the
impost on importations has a close relation by nature to
the excise from domestic production and consumption and
to the duty on business — all of which are expressly in-
cluded within the power of Congress as provided in Article
I, Section 7, of the Federal Constitution:

"The Congress shall hg,ve Power to lay and collect Taxes, Duties,
Imposts and Excises to pay the Debts and provide for the common
Defense and general Welfare of the United States; but all Duties,
Imposts and Excises shall be uniform throughout the United States."

The power to lay duties, imposts and excises gives to
Congress the most direct, intimate and comprehensive po-
litical power over the industries and commerce of the
United States, all in consistent harmony with the intent
and plan of the Constitution in delegating to Congress
power over the interstate and international relations of
the country. Land and labor may be subjected to direct
capital or capitation taxes. Both are fixed as to locus and
residence, and on them directly operates the essential po-
litical jurisdiction of the separate American States. But
the business of the country freely permeates all of its parts
without regard to state territory or jurisdiction. The
profits of industry are drawn from the labor of all the peo-
ple, and should be taxed for the benefit of all the people,
as may only be done by Congress in the exercise of the

38 DISINTEGRATION OF MONOPOLY.

political powers of the federal government. The nominal
capital and bonded capital obligations of American corpor-
ate industries are in excess of eighty-five billions of dollars.
The annual profits of American business are in excess of
live billions of dollars — all the product of the annual labor
and stock of the country v^ithdrawn from all its parts to
the larger financial centers for distribution and absorption.
The states are, in the nature of things, powerless to lay
the profits of this gigantic industry under contribution to
the public revenues — though the people of all the states
contribute of their labor and consumption to the creation
of these concentrated profits of American industry. The
distribution of profits in dividends and interest in January,
1913, at New York City, was reported at $244,264,500—
not the product of the state or city of New York but the
product of the consumption and industry of the American
people. And how may this annual wealth be subjected to
the regulation and sustenance of the government? By a
federal tax on the profits of business — a graduated tax on
the profits of business which shall fall with the greater
weight on the monopolies and trusts and thus handicap
them in their competition with the smaller and independ-
ent units of industry. If a graduated tax of one per cent
on the first million and a cumulative tax of one-tenth of
one percent on each of the subsequent and suceeding mil-
lions were laid on the hundred and more millions of annual
profits of the Steel trust, there would soon be a vacation
and abandonment of the accounting and disbursing offices
of the United Steel Corporation at 51 Newark Street,
Hoboken, New Jersey, and this without diminution or ces-
sation in the production of steel. The obsolete plants
would be abandoned to decay, the newer and efficient ones
would be operated as independent units. New ventures of
capital of sufficient magnitude for economic production
could then be made without disturbance by conspiracy or
combination to drive them out of the market. The price of
steel would adjust itself to a proper relation to productive
costs, and healthful and sound conditions in the industry

MEANS OF DISINTEGRATION. 39

would be promoted. There should be no limitation of
the amount of revenues which may be appropriated to the
wages of labor or to the replacement and arrest of depreci-
ation, nor should account be taken of capital in laying the
tax. Under these conditions there would be a tendency
toward readjustment of the relative interests of bond-
holders and stockholders in the profits of the industry.

Congress can fashion the graduation of the tax on
profits to meet the conditions in separate industries, and
the only limitation on the exercise of this power is that
the duty in any particular industry shall be uniform as to
that industry throughout the United States. There could
be a graduated general tax on the profits of business or a
particular graduated tax for certain industries as the ex-
igencies of economic and political conditions may require.
But like the tariff, the application of such a tax would call
for the most unselfish, sagacious and patriotic endeavor by
statesmen of liberal and composed views.

The principle to be applied is epitomized in this state-
ment which ,was prepared for presentation to the Commit-
tee on Resolutions of the National Democratic Conven-
tion at Baltimore, June, 1912.

"For the disintegration of monopoly and the restoration of equal-
ity in competition, we favor the imposition of a graduated tax on the
profits of business which shall lay discriminating burdens on trusts
and monopolies and thus increase the competence and ability of those
who efficiently employ smaller capitals to compete with the monopolies
in the markets of the country. The tax is to be laid on all profits
annually available for distribution, either as interest on borrowed cap-
ital, or as dividends on shares of stock."

It is submitted that such a policy would be in har-
monious consistence with the fiscal powers conferred upon
Congress by the federal Constitution, and would be a
proper supplement and complement to the established
fiscal policy of the country.

September 1, 1913.

A Competitive Tariff.

The American people by a preponderance of political
opinion are in favor of a tariff for revenue w^ith the accent
on tariff. This policy is supported by the best political
experience and the traditions of the country. The confu-
sion of ideas on the tariff has been due, in somewhat large
measure, to the infusion of Cobdenism and other exotic
notions into American political thought, all of v^hich has
rendered more dillficult the discernment and evolution of
the true American tariff policy.

Out of the years of controversy, there has finally come
a notably clear notion of v^hat is denominated a competi-
tive tariff v^hich does not exclude foreign importations, yet
gives the American producer a preference in the American
market. If duties are so high as to prevent importations,
there is no more of revenue than if there were free trade.
Both the extreme doctrines of prohibition and of free trade
are equally inconsistent with the imposition of duties on
imports to provide revenues "to pay the debts and provide
for the common defense and general welfare of the United
States." (Constitution of the United States, Article 1,
Sec. 7.)

But the tariff of duties on importations, or the impost
as it is technically called, is in its nature a tax which
discriminates against foreign goods in the American
market; and in this sense the tariff, any tariff of whatso-
ever denomination, is protective. A revenue tariff of
twenty per cent is precisely the same as a protective tariff
of twenty per cent both as to its effect as a regulation of
foreign trade and as a preferential discrimination in favor
of the domestic producer in the home market. There have
been those w^ho have perceived this from the very in-

COMPETITIVE TARIFF. 41

ception of the fiscal system and policy of the government
under the Constitution.

In the Tariff Bill reported by James Madison out of
the Ways and Means Committee of the House of Repre-
sentatives in 1792, the American tariff policy is thus stated
in the preamble to the bill :

"Whereas it is necessary for the support of the government, for
the discharge of the debt of the United States and the encourage-
ment and protection of manufactures, that duties be levied on goods,
wares, and merchandise imported, etc."

That Madison entertained these views throughout his
political careex^is indicated by his executive message to
Congress of February 20th, 1815, wherein he urged "de-
liberate consideration of the means to preserve and pro-
tect the manufactures which have sprung into existence
and attained unparalleled maturity throughout the United
States during the period of the European wars."

Thomas Jefferson also recognized that the embargo
on foreign commerce incident to the war between England
and France and also the interruption of foreign commerce
during the war of 1812 had resulted in a great impetus
to domestic manufactures and fabrication, and it was with
gratification that Jefferson recorded these observations.

In a letter to the Convention of Democratic-Republi-
can Delegates from the townships of Washington county,
Pennsylvania, written from Monticello, February 21, 1809,
Jefferson said :

"It is true that the embargo laws have not had all the effect in
bringing the powers of Europe to a sense of justice, which a more
faithful observance of them might have produced. Yet they have had
the important effects of saving our seamen and property, of giving
time to prepare for defense; and they will produce the further inesti-
mable advantage of turning the attention and enterprise of our fellow
citizens, and the patronage of our State legislatures, to the establish-
ment of useful manufactures in our country. They will have hastened
the day when an equilibrium between the occupations of agriculture,
manufactures and commerce, shall simplify our foreign concerns
to the exchange only of that surplus which we cannot consume for

42 . COMPETITIVE TARIFF.

those articles of reasonable comfort or convenience which we cannot
produce."

There need be no hesitancy in admitting that the im-
post and other hindrances to importation have been a re-
markable stimulus to domestic industry in the United
States and that our most notable statesmen have acknowl-
edged this fact.

But the tariff has, by its manufacturing beneficiaries,
been brought to great abuse and converted into a privilege
v^hich these beneficiaries w^.ould make a vested right in the
policy of the government. We have had a perfect fruition
of the industrial utility of w^omen and children as projected
by Hamilton when he said:

"It is worthy of remark that in general women and children are
rendered more useful and the latter more early useful by manufactur-
ing establishments than they would otherwise be. Of the number
of persons employed in the cotton manufacturies of Great Britain,
it is computed that four sevenths nearly are women and children of
whom the greatest proportion are children and many of them of
very tender age."

It may also be remarked that "free raw materials" is
usually an accompaniment of a distinctively manufactur-
ers' tariff and while it may be said that the free admission
into our markets of foreign lumber, coal, iron, petroleum
and other natural materials would be a conservation of
our own resources and reserves of such materials, this
would not be true in the same sense of the free admission
into our markets of the raw produce of foreign agricul-
ture, to the exclusion of an equal quantity of the raw pro-
duce of American agriculture. Adam Smith spoke truly
of the manufacturers, when he said:

"They are as intent to keep down the wages of their own weavers
as the earnings of the poor spinners; and it is by no means for the
benefit of the workman, that they endeavor to raise the price of the
complete work or to lower that of the rude materials."

But the vaunted glories of the protective tariff as also
its infamous injustice partake of the exaggeration natural
to extravagant partisan views. And there are partisan

COMPETITIVE TARIFF. 43

views of the tariff which are not to be harmonized by any
tariff commission which seeks to apply a partisan theory
to the adjustment of the tariff — certainly not by the appli-
cation of the theory of the protection of profits which re-
ceived its frankest expression in the platform adopted by
the Republican party at Chicago in 1908, a servile fidelity
to which was the undoing of the administration of the late
President William H. Taft:

"In all tariflf legislation, the true principle of protection is best
maintained by the imposition of such duties as will equal the dif-
ference between the cost of production at home and abroad together
with a reasonable profit to American industries."

No, it is revenue, and not protection of profits which
must be the preponderating principle in the laying of du-
ties, imposts and excises, and the revenue principle re-
quires a competitive tariff to the exclusion of the prohibi-
tions of a distinctively protective tariff. Yet, as one who
has been brought up in the school of partisan Democratic
politics, I may be permitted to say that I am in favor of a
tariff for revenue as against any system of direct internal
taxation of land or labor,* because the tariff on importa-

*The proponents of the federal income tax in its direct personal or
capitation form, would justify the tax upon the ground that it is a tax
upon invested wealth. But a tax upon the wages and rewards of per-
sonal labor is not a tax upon the profits of wealth. For example: two
young men each inherit invested property or stock, producing an
annual income to each of them in the sum of $3,000. The one does no
useful work but expends his income in prodigal living. He renders
no service to society and consequently earns nothing as wages or
salary of labor. The other young man enters some useful vocation
in which he earns for personal service an annual salary of $3,000.
Under the provisions of the income tax law, the first young man who
does no useful work or labor is exempt from the tax while the other
young man who does useful work and labor is in effect penalized
by a requirement to pay income tax on $3,000. It were certainly
more equitable and politic to require each of these men to pay on
$3,000 received by each of them as income from invested property and
to apply the exemption exclusively to money received as the wages
of personal industry, service or labor.

Then, too, it is to be doubted that there is any justification in
sound policy for a federal tax on land or upon the rents and issues
of land. The single taxers are pushing their extreme doctrines to
the point of practical absorption of the rent of land by confiscatory
rates of taxation. Land tax rates in many localities now range from
3 per cent to 4 per cent of the ascertained capital value of land. The

44 COMPETITIVE TARIFF.

tions does give a preference to the American producer in
the home market. And in a commercial view the domestic
trade and the markets which accomodate it should receive
the patronizing care of our best statesmanship, for it is
the most valuable and profitable of all our commerce.
This fact was stated in 1776 by Adam Smith and Smith is
currently received as the chief doctor of the free traders.
Adam Smith says in his Wealth of Nations:

"After agriculture, the capital employed in manufactures puts in
motion the greatest quantity of productive labor, and adds the greatest
value to the annual produce. That which is employed in the trade
of exportation has the least effect of any of the three. * * *
Though the returns, therefore, of the foreign trade of consumption
should be as quick as those of the home trade, the capital employed
in it will give but one half the encouragement to the industry or
productive labor of the country. * * * The returns of the foreign
trade of consumption seldom come in before the end of the year, and
sometimes not until after two or three years. A capital employed
in the home trade will sometimes make twelve operations, or be sent
out and returned twelve times, before a capital employed in the
foreign trade of consumption has made one. If the capitals are
equal therefore, the one will give four and twenty times more en-
couragement and support to the industry of the country than the
other. * * * The capital therefore employed in the home trade
of any country will generally give encouragement and support to a
greater quantity of productive labor in that country and increase the
value of its annual produce more than an equal capital employed

tax on land should upon any sound theory be paid out of the rents
and issues, but cases are not of infrequent occurrence where land
taxes are paid out of the earnings of labor and of other invested
capital. Certainly the taxation of land and of its rents and issues, is
properly a matter of exclusive state policy with which the federal
government has no proper concern. For a proprietor of land to
pay of the income from his land, state and municipial taxes at high
rates and then in addition to this to pay a federal tax on the rents
and issues of the same land is palpable double taxation.

The annual net produce is the source of income to all the people.
As Adam Smith puts it:

"The whole price of the exchangeable value of the annual produce
must resolve itself into the same three parts and be parceled out
among the different inhabitants of the country, either as the wages of
their labor, the profits of their stock, or the rent of their land. * * *
The whole value of the annual produce of the land and labor of every
country is thus divided among and constitutes a revenue to its different
inhabitants."

COMPETITIVE TARIFF. 45

in the foreign trade of consumption. * * * t;\iq riches, and so
far as power depends on riches, the power of every country must al-
ways be in proportion to the vahie of its annual produce, the fund
from which all taxes must ultimately be paid. The great object
of the political economy of every country is to increase the riches
and power of that country."*

Now, is there not some common ground upon which
those who believe in a tariff can adjust and accomodate
their differences for incorporation into a permanent Ameri-
can tariff policy? Has not the difference between revenue
and protection been worn so threadbare that it presently
offers no real or substantial basis for unyielding political
sectarianism in relation to the fiscal policy of our coun-
try?

The revenue and protective tariff doctrines have their
derivation from and most authoritative statement in the
celebrated reports to Congress of Robert J. Walker and of
Alexander Hamilton, both distinguished Secretaries of the
Treasury. Hamilton faced the problem of the establish-
ment of public credit and the funding of the public debt;
Walker, the providing of public revenues for the orderly
conduct and administration of the government, the per-
sistent execution of the plans of Albert Gallatin, another
great Secretary of the Treasury, having theretofore ac-
complished the payment of the public debt. As the con-
troversy between the revenue and protection schools, re-
solves itself primarily into an issue as the rate for a proper
duty on imports, we may examine the Hamilton and
Walker reports to discover the basis for the differences
which divide these schools of fiscal politics.

♦Domestic industry in the United States could be stimulated by
the compilation and publication of statistical information respecting
the movement of commodities in commerce between particular lo-
calities of production, fabrication, distribution and consumption to-
gether with data as to the quantity, nature, value and cost of carriage
of commodities moving to and from particular consuming communi-
ties and centers of distribution. Data to be incorporated into such
statistics could be elaborated from the reports of railroad carriers to
the Interstate Commerce Commission and could be arranged, com-
piled and published by the Department of Commerce. Such sta-
tistics would be of valuable application by Chambers of Commerce in
the American cities and commercial centers.

46 COMPETITIVE TARIFF.

Alexander Hamilton in his Report on Manufactures,
Philadelphia, 1798, said:

"There are grounds to conclude, that undertakers of manufactures
in this country can, at this time, afford to pay higher wages to the
workmen they may employ, than are paid to similar workmen in
Europe. The price of foreign fabrics in the market of the United
States, which will, for a long time, regulate the price of the do-
mestic ones, may be considered as compounded of the following in-
gredients: the first cost of materials, including the taxes, if any, which
are paid upon them, where they are made; the expenses of grounds,
buildings, machinery and tools; the wages of the persons employed
in the manufactory; the profits of the capital or stock employed; the
commissions of agents to purchase them where they are made; the
expense of transportation to the United States including insurance and
other incidental charges; the taxes or duties, if any, fees of office,
which are paid on their exportation; the taxes or duties, and fees of
office which are paid on their importation,

"As to the first of these items, the cost of materials, the ad-
vantage upon the whole is at present on the side of the United States;
and the difference in their favor must increase, in proportion as a
certain and extensive domestic demand shall induce the proprietors
of the land to devote more of their attention to the production of
these materials. It ought not to escape observation, in a comparison
on this point, that some of the principal manufacturing countries of
Europe are much more dependent on foreign supply for the materials
of their manufactures, than would be the United States, who are
capable of supplying themselves with a greater abundance, as well
as a greater variety, of the requisite materials.

"As to the second item, the expense of grounds, buildings, ma-
chinery and tools, an equality at least may be assumed; since ad-
vantages, in some particulars, will counterbalance temporary disad-
vantages in others.

"As to the third item, or the article of wages, the comparison
certainly turns against the United States; though, as before ob-
served, not in so great a degree as commonly supposed.

"The fourth item is alike applicable to the foreign and to the
domestic manufacture. It is, indeed, more properly a result, than a
particular to be compared.

"But, with respect to all the remaining items, they are alone
applicable to the foreign manufacture, and, in the strictest sense,
extraordinaries; constituting a sum of extra charge on the foreign
fabric, which cannot be estimated at less than from fifteen to thirty
per cent on the cost of it at the manufactory.

"This sum of extra charge may confidently be regarded as more

COMPETITIVE TARIFF. 47

than a counterpoise for the real difference in the price of labor;
and is a satisfactory proof that manufacturers may prosper, in de-
fiance of it, in the United States."

Robert J. Walker, in his Report on the Tariff, Wash-
ington, 1845, said:

"That no duty be imposed on any article above the lowest rate
which will yield the largest amount of revenue.* * * That the
duty should be so imposed as to operate as equally as possible
throughout the Union, discriminating neither for or against any class
or section. * * *

"While it is impossible to adopt any horizontal scale of duties,
or even any arbitrary maximum, experience proves that, as a general
rule, a duty of twenty per cent ad valorem will yield the largest rev-
enue. There are, however, a few exceptions above as well as many
below this standard. * * *

"Stability, both in the tariff and the currency is what the manu-
facturer should most desire. Let the tariff be permanently adjusted
by a return to reasonable and moderate revenue duties, which, even
when imposed truly and in good faith for that purpose, will yield
sufficient advantage to afford reasonable profits; and let this permanent
system (and none other can be permanent) be established and ac-
companied by a stable currency, and the manufacturer in a series of
years, will derive the greatest benefit from the system. * * *

"No prejudice is felt by the Secretary of the Treasury against
manufactures. His opposition is to the protective system and not to
classes or individuals. He doubts not that the manufacturers are
sincerly persuaded that the system which is a source of so much
profit to them, is beneficial also to the country. He entertains a
contrary opinion, and claims for the opponent's of the system a settled
conviction of its injurious effects. Whilst a due regard to the just
and equal rights of all classes forbids a discrimination in favor of
the manufacturers by duties above the lowest revenue limit, no
disposition is felt to discriminate against them by reducing such duties
as operate in their favor below that standard. Under revenue duties
it is believed they would still receive a reasonable profit — equal to
that realized by those engaged in other persuits — and it is thought
they should desire no more, at least through the agency of govern-
mental power. Equal rights and profits, so far as laws are made,
best conform to the principles upon which the Constitution was
founded, and with an undeviating regard to which all its functions
should be exercised — looking to the whole country and not to classes
or sections."

Now, Hamilton, the protagonist of protection, argu-

48 COMPETITIVE TARIFF.

ing from the premise of primitive industrial conditions in
America, on the difTerence-in-cost-of-production theory,
found that a protection of from fifteen to thirty per cent
over the cost of foreign manufacture, in which w^as in-
cluded the expense of transportation and insurance, was
adequate for the profitable maintenance of manufactures
in America, and Walker, in his statement of the ideal rev-
enue tariff, found that the most successful average revenue
rate was twenty per cent ad valorem. Hamilton's aver-
age would be twenty-two and one half per cent from which
should be deducted charges for carriage and insurance.
Surely these theories are not so inconsistent as to prevent
their composition into a tariff of moderate and perman-
ent duties on imports.

There remains a difference of method as to the levy
of the revenues from the impost on importations. Mr.
Walker favored ad valorem duties and those who profess
the protective theory favor specific duties. This is a prac-
tical question, to be properly determined in the light of
the experience of the Treasury department as it relates
to the collection of the revenue. The settlement of this
question should be approached without prejudice — cer-
tainly without passionate partisan attachment to, or antip-
athy against either method. There are strong practical
considerations in favor of specific duties, particularly as
to commodities valued by weight and bulk. The ad
valorem rates seem best for highly finished articles of mer-
chandise, the principal value of which consists in the labor
and handiwork expended in their creation and production.
It may be that, generally speaking, such articles as seek
a market at prices fixed in our ports, would fall in the first
class and such as are purchased in and consigned on in-
voices from foreign countries at prices fixed in foreign
markets would fall within the latter class. Wool, wheat,
and sugar are within the first class, and the finished tex-
tiles and fabrics of the useful arts are within the latter
class. However this classification is a mere casual notion
which is only suggested as a possible basis for the compo-

COMPETITIVE TARIFF. 49

sition of both ad valorem and specific duties in the tariff
system.

The solution of the tariff question is a task for states-
men of liberal and composed views v^hich shall exclude
the predatory animus which has scandalized American
tariff legislation since the repeal of the Walker tariff. Abra-
ham Lincoln had this view when he said at Pittsburg, on
February 15th, 1861, while on his way to the Presidential
inauguration at Washington :

"Assuming that direct taxation is not to be adopted, the tariff
question must be as durable as the government itself. * ♦ * j
therefore recommend to every gentleman who knows he is to be
a member of tjie next Congress to take an enlarged view, and post
himself thoroughly so as to contribute his part to such adjustment
of the tariff as shall produce a sufficient revenue, and in its other
bearings, so far as possible, be just and equal to all sections of the
country and classes of the people."

The tariff cannot be taken out of politics. It is the
most vital question in our federal politics and can only
be properly settled in conformity to the soundest sense
and political judgment of the American people.

June 1, 1913,

A New System of Federal Banks.

The Congress of the United States should authorize
the creation of one Federal Bank in each of the larger cities
and clearing centers of the country, the capital to be at
least one million dollars with no limitation on the amount
which may be subscribed in excess of this sum — subscrip-
tions to be open to the public without reservation or limi-
tation to the end that the exclusive franchise of the bank
in any particular city shall not become a monopoly in the
hands of any particular cabal of bankers. Subscriptions
up to one million dollars should be paid at par at time of
organization and subscriptions subsequent to organization
should be paid at par plus aliquot part of the surplus, the
figure to be determined by the dividend of the capital and
surplus by the number of then outstanding shares of stock.
There should be no restriction as to the cities in which the
banks may be organized — only that the capital be at least
one million of dollars and that the directors reside in the
city where the bank is organized.

Rural federal banks might be permitted with less
capital in smaller cities but these should become by law
branches of the regular federal banks which should hold
the reserves of the branch banks to which they severally
are related. These new federal banks should become the
fiscal agents of the federal government for the collection,
disbursement and transmission of public moneys. They
should be required to hold adequate legal reserves of gold.
The present system of national banks should be abrogated
— the national banks themselves in any city should become
merged into the new federal bank or become branches of
it or take out state charters as they may severally elect.

FEDERAL BANKS. 51

There should be but one branch bank in any city except
the city where the federal bank is organized in which a
larger number of branches may be allowed. In the mat-
ter of the federal charter a preference in organization may
be accorded to the oldest or largest national bank in any
particular city, in the discretion of the Secretary of the
Treasury.

Of the legal reserves of these federal banks, all that
part not held in vault should be deposited in gold in the
treasury of the United States against which gold certifi-
cates should be issued which would be available to the
banks for legal reserve requirements as well as gold coin
which they may hold in vault.

The federal treasury should maintain at Washington
or New York a federal clearing house and discount bank
under control of a federal board with which all the federal
banks should carry balances to be drawn upon for New
York and domestic exchange and in which surplus funds
could be deposited available for expeditious transmission
on the call of the depositing banks, or for the payment of
accepted bills drawn by one federal bank on another in
the system.

From these concentrated deposits extension of funds
by the discount of bills could be made by the federal
board to federal banks having the most pressing legitimate
territorial need for the same. The federal board should
be an agency of the government and have no relation to
any stock corporation, thus insuring consistent and inti-
mate relations between the federal banks and the treasury
which is proper in view of the fact that the banks would
be legally constituted fiscal agents of the government.
Deposit of securities to cover extensions of credit and
funds should be required pursuant to regulations made by
the federal board.

The only ground upon which Congress may create
banking corporations is to provide fiscal agents for the
collection, disbursement and transmission of government
moneys, and there is no good reason why there should be

52 FEDERAL BANKS.

more than one fiscal agent in any one city. The erection
of one strong federal bank in each commercial center to
concentrate banking power and local reserves would com-
bine local direction and control with concentration at im-
portant clearing centers. By this means the 7,500 national
banks would become integrated and unified into strong
financial institutions with centers in such cities as Boston,
New York, Philadelphia, Baltimore, Richmond, Atlanta,
New Orleans, Buffalo, Cleveland, Detroit, Chicago, Min-
neapolis, Pittsburg, Cincinnati, Louisville, Saint Louis,
Dallas, Denver, Kansas City, Omaha, Salt Lake, Los
Angeles, San Francisco, Portland, and Seattle, to which
other cities might be added whenever a federal bank w4th
an initial paid up capital of one million dollars were organ-
ized in any such city.

The association of these federal banks in a clearing
house at Washington or New York for the clearance of
domestic bills drawn by one federal bank upon another in
the system, together with a discount bank to facilitate
advances and exchanges, would take care of domestic fed-
eral clearings and would gradually absorb for the system
of federal banks the domestic exchange business of the
country. If the federal banks had each a representative
upon a Clearing House Commission it would give the
federated banks administrative control of their concen-
trated New York balances, thus providing a discount mar-
ket for domestic bills, bearing the endorsement of a federal
bank, to the exclusion of loans to facilitate operations on
the New York stock market.

It is presently estimated that the clearings through
the New York banks are about two-thirds of the national
clearings ; that is to say, the clearings of New York are
twice the aggregate clearings of all other American cities.
This is because all the other American cities, to a very
large extent, clear their domestic exchange through New
York. The creation and maintenance by the system of
strong federal banks having an augmenting and unlim-
ited capital, of a Federal Clearing House at Washington

FEDERAL CURRENCY. 53

or New York under the patronage and visitation of the
Treasury Department of the United States, would re-
strict New York banks more nearly to the accommoda-
tion of New York business and would otherwise co-ordi-
nate and federate the banking facilities and resources of
the country into a truly federal system.

Federal Currency.

American fiscal experience is against paper bank cur-
rency. Our banks are banks of deposit and discount, not
banks of issue for circulating bills. Even the states by the
Federal Constitution are forbidden to emit bills of credit.
What we in America need is neither a Canadian, nor a
Scotch, not 3, Continental system of banking, but rather
an extension; development and perfecting of the American
clearing system,* together with an enlarging discount

♦MUNICIPAL CLEARING HOUSES.— Every encouragement
should be given to the development of the American clearing system.
Local municipal or mercantile clearing houses might permit the regis-
tration and deposit of debtor's bills acknowledged by the signature of
the debtor and deposited to the credit of the person or firm who had
earned the debt by extending credit of money, goods, or labor. The
deposit of credit represented by these acknowledged bills of debt
would merge and pay bills of debt given by such person and deposi-
ted in the clearing house by his creditors. Every thirty days there
should he a proscription of petty debtors whose unsecured paper in
the clearing house had not been paid, and publication should con-
tinue until such debtors make payment. Persons whose delinquencies
were published could then be refused credit in the mercantile and
industrial community, and would have to extend credit of labor or
goods themselves rather than seek further credit from others while
they should remain on the proscribed list. The dissipation of credit
in every city is something tremendous and calls for drastic correction.
In one prosperous western city of an hundred thousand population,
more than 35,000 actions of law have been brought within the last ten
years for the recovery of petty mercantile debts. A recurring public
proscription of petty debtors in the newspapers or otherwise would
contribute to the creation of a higher sense of public honesty and
duty and would stimulate the acquisition and maintenance of personal
creditable standing in the community. To facilitate this system every
person, firm, or company which extends credit of money, goods, or
labor, should thereupon take a bill of debt subscribed by the debtor
with the stipulated time and terms of payment. This of course would
not apply to cash transactions. Banks never extend credit without
taking written evidence of the debt, and if such practice became more
general in those who extend mercantile and industrial credits, collection
litigation would be much simplified and diminished.

54 FEDERAL CURRENCY.

market for legitimate commercial bills. And bankers' bills
and acceptances, like those of other mercantile persons,
should be redeemed upon maturity by payment in money
of the realm and not by the issue of bills of debt to con-
tribute to a cumulative inflation of paper circulation.

Federal currency should be of two kinds : silver cer-
tificates in the denominations of 1, 2, 3, 5, and 10 dollars,
and gold treasury notes* in the denominations of 20, 50,

*JEFFERSON ON 16 TO 1.— Thomas Jefferson and Andrew
Jackson believed in hard money of gold and silver coined at the rela-
tive value of sixteen to one. When it was suggested, during the recent
debate on the Currency Bill in the House of Representatives, that
reserves should be of gold and not of gold and lawful money, quite
a number of silver populists were at once on their hind legs to protest
against the insult of the proposition.

The whole trouble with the double or bi-metallic standard is with
the ratio of silver to the gold unit. Congress can no more fix a double
standard of value than of weights and measures. Jefferson understood
this thoroughly. In his Notes on the Money Unit and the Coinage,
he said:

"The proportion between the values of gold and silver is a mer-
cantile proj^lem altogether. It would be inaccurate to fix it by the
popular exchanges of a half-Joe for eight dollars, a Louis for four
French crowns, or five Louis for twenty-three dollars. The first of
these would be to adopt the Spanish proportion between gold and
silver; the second, the French; the third, a mere popular barter wherein
convenience is consulted more than accuracy. The legal proportion
in Spain is sixteen for one; in England fifteen and a half for one, in
France fifteen for one. The Spaniards and English are found in ex-
perience to retain an over proportion of gold coin, and to lose their
silver. The French have a greater proportion of silver. The differ-
ence at market has been on the decrease. The Financier states it at
present as at fourteen and a half for one. Just principles will lead
us to disregard legal proportions altogether; to enquire into the market
price of gold in the several countries with which we shall be principally
connected in commerce and to take an average from them. Perhaps
we might witb safety lean to a proportion somewhat above par for
gold, considering our neighborhood, and commerce with the sources
of the coins and the tendency which the high price of gold in Spain
has to draw thither all that of their mines, leaving silver principally
for our and other markets. It is not impossible that fifteen for one
may be found an eligible proportion. I state this, however, on con-
jecture only."

In discussing this same question, Jefferson said in a letter written
at Paris April 3, 1789:

"I believe all the countries in Europe determine their standard of
money in gold as well as silver. Thus, the laws of England direct
that a pound Troy of gold, of twenty-carats fine, shall be cut into
forty-four and a half guineas, each of which shall be worth twenty-one

FEDERAL CURRENCY. 55

100, 500, and 1,000 dollars. These should be clean bills
printed from new plates such as proposed by the late Sec-
retary of the Treasury, in order to facilitate the retirement
of the existing greenbacks and bank notes which should be
taken up by the Treasury in exchange for the new cur-
rency.

The silver certificates should be issued in exchange
for gold or government bonds as demands shall be made
for small currency to supply the requirements of retail
trade. The gold notes should be issued in exchange for

and a half shillings, that is, into 956^ shillings. This establishes the
shilling at 5.518 grains of pure gold. They direct that' a pound of
silver consisting of 11 1-10 ounces of pure silver and 9-10 of an ounce
of alloy, shall be cut into sixty-two shillings. This establishes the
shilling at 85.93 grains of pure silver, and, consequently, the propor-
tion of gold to silver as 85.93 to 5.518, or as 15.57 to one. If this be
the true proportion between the value of gold and silver at the general
market of Europe, then the value of the shilling, depending on two
standards, is the same, whether a payment be made in gold or silver.
But if the proportion of the general market of Europe be as fifteen to
one, then the Englishman who owes a pound weight of gold at Am-
sterdam, if he sends the pound of gold to pay it, sends 1043.72 shill-
ings; if he sends fifteen pounds of silver, he sends only 1030.5 shillings;
if he pays half in gold and half in silver, he pays only 1037.11 shillings.
And this medium between the two standards of gold and silver, we
must consider as furnishing the true medium value of the shilling.
If the parliament should now order the pound of gold (of one-twelfth
alloy as before) to be cut into a thousand shillings instead of 956^,
leaving the silver, as it is, the medium of true value of the shilling
would suffer a change of half the difference; and in the case before
stated, to pay a debt of a pound weight of gold, at Amsterdam, if he
sent the pound weight of gold, he would send 1090.9 shillings; if he
sent fifteen pounds of silver, he would send 1030.5 shillings; if half in
gold and half in silver, he would send 1060.7 shillings; which shows that
this parliamentary operation would reduce the value of the shilling in
the proportion of 1060.7 to 1037.11."

"The proportion between the value of gold and silver is a mer-
cantile problem altogether. * * Just principles will lead us to dis-
regard legal proportions altogether; to enquire into the market price
of gold in the several countries with which we shall be principally
connected in commerce and to take an average of them."

These are propositions so obviously sustained in morals and math-
ematics that one must wonder why they have never penetrated the
consciousness of William Jennings Bryan. It is the fluctuation in the
market price of silver when measured by the gold unit (and gold is
always one or unit), that has destroyed the stability and utility of a
given weight of silver as a unit of account, exchange, or estimation
of value. Even the populists should understand this in the experience
of the years intervening since 1896.

56 FEDERAL CURRENCY.

gold or government bonds, and the surplus of gold notes
should be retired as received by the treasury in payment
of taxes or otherwise so as to facilitate the conversion of
outstanding bonds into gold notes with a view to the re-
tirement and payment of the public debt. Warrants on
the treasury for the current expenditures of the govern-
ment could be paid in gold or currency at the option of the
holder of the warrant. Appropriations of public money
should never exceed revenues, and warrants should always
be paid out of revenues. Indeed, revenues should be main-
tained and rather augmented and appropriations restricted
in order to permit the retirement of bills received in the
revenue, for the purpose of reducing the public debt, and
stimulating the conversion of bonds into bills. The gold
notes should not ordinarily be used as bills of credit by
the government except as they shall have been received
in payment of taxes. The creation of government credits
by legislative fiat in the laying of taxes and duties in pay-
ment of which treasury notes may be returned, gives these
notes a more stable basis than ordinary bank bills, and
leaves the bank resources available for current commercial
discounts.

For emergency currency the federal board upon appli-
cation of a federal bank, and the deposit of securities which
may include prime commercial paper bearing the endorse-
ment of the applicant bank, may extend to such bank gold
treasury notes, the sum extended by the credit to bear
interest at a specified rate on the principal sum or any
unpaid balance of the same so long as the loan is not re-
paid by a return of government notes or by payment in
gold. This would afford elasticity in the currency without
multiplication of species of current paper and keep the
currency of uniform kind — gold notes of the United States
with proper and efficient means of contraction and ex-
pansion of the circulation. The rediscount of prime com-
mercial paper bearing the endorsement of a federal bank
could be accommodated by an extension of gold notes, an
equivalent amount of notes to be retired on payment of

FEDERAL CURRENCY. 57

the paper. Gold should not be used for this purpose. If
deposits of gold are made in federal banks, they should
take the form of deposits on such security as the Secretary
may require, rather than the purchase or discount of com-
mercial paper. It should be the policy of the law to facili-
tate the deposit and holding of the gold capital and re-
serves of the system in the federal treasury.

There ought to be no restriction on the application of
postal savings deposits for the purchase and retirement of
government bonds. There is no w^ay to retire the billion
dollars of bonded government debt but to buy it or pay it.
Sinking fund schemes are fatuous. The funding of debts
by provision of revenues to pay stated interest charges
establishes public credit, but will never merge or sink the
debt. And public moneys held in idle sinking funds are of
neither public nor private utility.

This paper is a general sketch, the suggestions of
which would have to be refined and elaborated for com-
position into a general system.

October 1, 1913.

/

Outlines for the Organization of
Local Government.

"There are two subjects, indeed, which I shall claim a right to
further, as long as I breathe, the public education and the subdivision
of Counties into Wards. I consider the continuance of republican
government as absolutely hanging on those two hooks." — Thomas
Jefferson.

Political Divisions.

Divide all the territory of the State, within County
boundaries however, into municipalities to which shall be
assimilated the township and city governments, the result
being a compounding of the townships , and cities into
common territorial limits which shall cover all the territory
in the counties as the counties cover all the territory in
the State.

The method of division of territory among these mu-
nicipalities to be as follows : In a given county take the
centres of population as concentrated in hamlets, villages,
towns or cities, and expand the territorial limits outward
from these centres until the limits or boundaries meet at
convenient lines for local administration.

The municipalities are to be classified or graded into
hamlets, villages, towns and cities according to population
and the respective powers of each class are to be deter-
mined by legislation. Give the municipalities generally
control of all local police, including constabulary, sanita-
tion, education, care of paupers, care of local roads and
streets and all the functions now exercised by townships
and cities and by County Commissioners where the func-
tions of the latter duplicate the powers of cities and towns
as at present constituted.

These municipalities are to be given full local gov-
ernment with administration by local elective boards or

LOCAL GOVERNMENT. 59

commissions* having direct local responsibility to the peo-
ple. The small municipalities may have their town meet-
ing and the larger municipalities a representative assem-
bly vvrith legislative powers. Ordinances upon petition
may be referred to a vote of the people for confirmation
or rejection.

Taxation.

In the matter of taxation the municipalities are to
have the exclusive power to tax buildings and improve-
ments on land, to lay poll taxes and taxes on occupations
and professions, and to license trade and business. The
municipalities are not to have the right to tax land except
for local improvements abutting on the land assessed, such
as taxes for roads, pavements, sewers, water mains and
other highway improvements. The people by special
election to have the right, however, to lay a tax on land
for the erection of permanent municipal buildings and
structures.

Land values are to be taxed at a uniform rate through-
out the State for the general benefit and use of the State
and for the support of the county and state administration.
The State treasury is to support the whole judiciary sys-
tem, the current cost of public education (not including
construction of school houses for local or primary schools)
and such other appropriations, the benefit of which would
be generally distributed over the State.

The result of this arrangement would be that farmers
and occupants of agricultural lands would all belong as
citizens to their nearest towns and would participate di-
rectly in their local government. The taxes presently
paid on farm improvements would contribute to the sup-

*The old form of city government constituted of a mayor and
aldermen is a relic of medisevalism come down to us from the walled
cities of the middle ages when cities were independent bodies politic
having no political relations to the feudal social structure by which
they were surrounded. But we have no distinctive bourgeoisie or
peasantry in the United States, and the cities being but municipal
agencies of the State governments, they should be assimilated in
government to the form of the counties; that is to say, the adminis-
trative affairs of the cities should be placed in the direction of a mod-
ern executive board or commission.

60 LOCAL GOVERNMENT.

port of these towns and the farmers' land and land values
would not be taxed for local or city administration but only
at a uniform state rate in common with all land and land
values for general state and county purposes. A city in
its physical aspects is a collection of houses, business
blocks, hotels, and other buildings, the presence of which
with the people who inhabit them render necessary police
and fire protection, light, sewers, waterworks, pavements
and other public service. It is proper that the taxes levied
from such buildings and improvements should be used for
the maintenance of the public service required by the pres-
ence of such buildings and appurtenant improvements;
the land values created by such accumulated improve-
ments and population to be taxed at a uniform state rate
for the general good, public education, administration of
justice and such appropriations for local purposes as may
be uniformly distributed throughout the State in the dis-
cretion of the legislature.

Elections.*

Municipal elections are to be by ballot on the plan of
the Massachusetts ballot. The ballot is to contain the

*In the game of practical politics it is the ballots in the box that
count. We are ruled by major numbers. In the older day we were
ruled by major force. And the transition from the rule of force to
the rule of numbers is not necessarily a transition from the rule of
might to the rule of right. For there is no difference in principle
between major numbers and major force, because the human units
being equal, the greater number would be the greater force. It is
more convenient, however, to count heads than to fight, as thus there
is a saving of those who would otherwise be felled or maimed in the
conflict. And so it may be said that the rule of the majority of voices,
or of polls, or of ballots, is in its results, only the more righteous, to
the extent that reason and judgment are exercised by a sufficient
number of voters to hold the balance of power between passionate
contending factions.

A political campaign has become a battle of contending factions
and in some of its aspects a great sporting event for the delectation
of the populace. An election, however, is properly a sober judicial
act of selection of magistrates with a view to promoting the public
welfare. And there should be less of sport and more of judgment
on the part of electors before our frequent elections will best fill their
proper office for purification and succession in our representative in-
stitutions.

There is great need of men with public views, and public con-
sciences, and public minds, which in the determination of public
policy shall exclude the selfish motives which actuate and impel men

LOCAL GOVERNMENT. 61

names of persons duly nominated for the respective offices
but shall not contain any partisan name, emblem, or device.

The names of persons holding of^ce are to go on the
ballot as candidates for re-election as of course. Nomina-
tions may be made by party conventions as under existing
lav^. The State is not to interfere v^ith the free assemblies
of the people for political purposes or for the nomination
of candidates for public ofBce, and on the other hand, the
State is not to promote the permanent division of the
people into factions or parties by affording special facilities
for voting partisan slates and tickets.

Political parties are to rest upon the free conventions
of the people and the State is to promote freedom of elec-
tion by requiring the voter to make up his own ticket so
that his ballot represents the result of selection and judg-
ment so far as this may be induced by requiring the voter

in private affairs. And there can be no reward for such men unless
it be that public appreciation and recognition which the public has
never yet adequately rendered for faithful public service. A United
States Senator of wide political observation and experience once said
to me, that the people in the mass did not' sensibly appreciate faithful
and efficient service in their public men and did not rally to the sup-
port of faithful public servants at critical times. But let a Congress-
man, for example, offend some powerful private or selfish interest and
it at once has an acute sense of being hurt and would forthwith begin
to contrive ways and means of vindication and revenge. And one of
the favorite methods was to go into the Congressional district of the
offending Congressman and induce some perfectly good man to enter
the field for the nomination against the man whom the interests de-
sired to rebuke and humiliate. They would begin by printing com-
plimentary notices in the newspapers in the district. The vanity and
pride of the man they desired to use would be worked upon by the
methods of flattery, and all the time this good man would not realize
that he was being supported, not for his own sake, but only to defeat
and rebuke a Congressman who had given offense to special interests.
What we need are free elections — free not only from intimidation,
duress, and fraud, but free from passion and prejudice without which
no free or honest judgment may be had. The embracery of electors
by attempting to influence them by promises, money, entertainment or
entreaties should not be permitted. The solicitation of votes by offers
of free carriage to the polling places has been brought to great abuse
in many cities. People attend to their private affairs without such
assistance and certainly every upright citizen should attend to his
serious public duty without such assistance.

We finally have under the commission form of city government
a free ballot upon which each elector may record his individual judg-
ment and voice, and that this be honestly done affords assurance that
the result of the election will indicate the consensus of the best civic
opinion of the people.

62 LOCAL GOVERNMENT.

to mark the name of each person for whom he votes.

The policy is to encourage the people to use the fre-
quently recurring* elections not primarily to bring about
rotation in office, but rather to return good men to office
and retire bad men from office. As a general rule there
should be no change except to improve. This process of
intelligent selection will induce higher and better public
service, will promote fidelity in office and consistency and
stability in matters of policy. Public appreciation and
approval of fidelity and efficiency in office would have great
potency for the improvement of the public service. But
this is a matter of morals rather than of law.

Counties.

The counties are to be maintained for judiciary, state
police and supervisory purposes, to promote uniformity,
and system in education, construction of roads, etc. The
counties are to be agencies for the administration of State
law and police. The county officials are to be subordinated
to the state officials for the collection of the land tax and
for the state administration generally. The county treas-
urers are to be the representatives of the state treasurer,
the county superintendents of education are to be the rep-
resentatives of the state superintendent of education; the
county road engineers are to be the representatives of the
state engineer. The sheriff is to be the highest adminis-
trative officer in the counties and he is to be the represen-
tative of the Governor. These county officers may be
elected in the counties or preferabl}'- appointed by the Gov-
ernor with the advice and consent of the Senate. This
would enlarge the administrative powers of the Governor,
and make him a real executive, responsible to the legisla-
ture and the people. The Governor should likewise appoint
the state administrative officials and the functions and
powers of all these should be particularly defined by law.

The plan is to make the municipalities local, self-
governing units with a large measure of direct power in
the inhabitants and to make the counties agents of the
State administration for supervision, direction, and unifi-

LOCAL GOVERNMENT. 63

cation, and for the execution of State laws as distinguished
from local ordinances.

Judiciary.

In each municipality have one or more civil magis-
trates as population or business may require, to enforce
local penal ordinances, to sit as committing magistrates
in felony cases, and to have civil jurisdiction in actions at
law up to $500.00 or $1,000.00 in larger cities. The mag-
istrates should be paid salaries and not fees as has been
customary with justices of the peace, whose ofifice is to be
replaced by that of the magistrates. Appeals should lie
in all cases to the higher county or circuit courts. The
whole system, including the Supreme Court of Appeals,
Circuit Courts of general original jurisdiction. County
Courts of probate and administration, and local magis-
trates courts to be formed into a co-ordinating system of
judicature.

Legislature.

The House of Representatives is to be elected by pop-
ular suffrage from the municipalities. Each municipality
to have at least one representative and the larger ones to
have apportioned to them a number according to a certain
ratio of population. These are to be elected at large or
from separate districts in the municipality as the munici-
pality shall determine.

The Senate is to be a select body elected by the free-
holders of the counties, apportionment to be to the coun-
ties according to population. This would place the Senate
upon a different footing from the House, — make it. a con-
servative revisory body, and representative of the tax-
payers, thus giving full recognition to the principle of the
reciprocal relation between representation and taxation.

The principle of procedure would be to adapt existing
local institutions and functionaries into the general scheme,
— the detail to be worked out in the State Constitution and
by legislation.

Tune 1, 1912.

BERKELEY ^I^KAET,

THIS BOOK IS DUE~^ j^, ^^^^

STAMPED EEl^w ST "^^^

MAR 23 ;j24

/Pf 23

'S25

lOw-12,'23

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