"I believe that the existing trusts have acquired the position which they hold largely through methods which are in and of themselves reprehensible. I mean either through methods which are abuses of competition or by such methods as were pursued by the steel corporation in paying ridiculous values for property for the purpose of monopolistic control.

"I am so firmly convinced that the large unit is not as efficient I not attain a monopoly and were therefore unable to fix prices have had but slight success as compared with their competitors. You will find daily evidence of their lack of success in market quotations of the common stock, where they are quoted at all, and the common stock of some has even fallen below the horizon of a quotation.

"Now take, in the second place, the trusts that have been markedly successful, like the Standard Oil Trust, the Shoe Machinery Trust, the Tobacco Trust. They have succeeded through their monopolistic position. They dominated the trade and were able to fix the prices at which articles should be sold. To this monopolistic power, in the main, and not to efficiency in management, are their great profits to be ascribed. "Leaving the realm of industry for that of transportation, compare the failure of Mr. J. P. Morgan's creation the International Mercantile Marine- and the astonishing success of the Pullman Car Co. The transatlantic steamship trade was open to competition, and could not, in spite of its price agreements, fix rates at an elevation sufficient to be remunerative. The Pullman Co., possessing an absolute monopoly, has made profits so large as to be deemed unconscionable.

"In the third place, take the class of cases where the trust has not controlled the market alone, but exerted control only through virtue of price agreements or understandings, as did the Sugar Trust and the Steel Trust. Those trusts paid large dividends, because they were able to fix remunerative prices for their product. But neither the Sugar Trust nor the Steel Trust has been able to hold its own against its competitors. "Take it in the Sugar Trust. At the time of the Knight Case, a little less than twenty years ago, the Sugar Trust had practically the whole business of the country I think the Supreme Court report shows something like 95 per cent. The company's reports to the stockholders of 1910, as I recall it, show that the company now controls only 42 per cent of the production of the country.

"The price agreements or understandings between the trust and its competitors had maintained the price, but they could not maintain for the trust its proportion of the business. The Sugar Trust's profits were maintained, as you so well know, not only through the price agreements, but through methods that were vulgarly criminalthrough false weighing; through stealing of city water; through extensive railroad rebating.

"Then take the Steel Trust that is a younger trust, only half the length of life of the Sugar Trust. But in the Steel Trust you have a similar manifestation of ebbing prestige. In spite of all this extraordinary power in the Steel Trust, the control of raw material, the control of transportation, the control of certain trade through its railroad associations, the control of other trade through its money power and the addition of the Tennessee Coal & Iron Co. in spite of all this the Steel Trust has been a steady loser in percentage of the iron and steel business of this country. And not only has it been a steady loser in the percentage of business in this country, but despite its ability to largely maintain prices, notably of steel rails, throughout that period, the later years show a diminishing return upon the capital invested as compared with the earlier years of the trust."

mean the very large unit is not as efficient as the smaller unit, that I believe if it were possible today to make the corporations act in accordance with what doubtless all of us would agree should be the rules of trade no huge corporation would be created, or, if created, would be successful. I do not mean by that to say that it is not good to have the limitation [on size] in the law. What I mean is that I am so convinced of the economic fallacy in the huge unit that if we make competition possible, if we create conditions where there could be reasonable competition, that these monsters would fall to the ground, that I do not consider the need of such a limitation urgent.”

53

It is quite obvious that the so-called trust cannot at the same time exclude others because of its size, and fail or decline by reason of the successful competition of others for the same reason. It cannot be that mere size alone tends to exclude others, and that size results in such inefficiency that others are able to enter the business easily and compete successfully. One or the other of these results must be discarded on the ground of inconsistency. As Mr. Brandeis' main thesis was that size breeds inefficiency and failure in the competitive struggle, it is fair to say that he does not place the "menace" of the trust which has no excluding purposes, and uses no excluding practices, upon the fact that mere size alone tends to exclude others. He would not argue that it was the usual effect of mere size to "overawe" the smaller competitor,54 or to "make men hesitate to enter the field against it," or "to prevent the entrance of new capital and new competition into the industry.'

1955

2. It has been urged that if five plants are supplying a given trade, the union of those plants tends to exclude others, because there will be no chance for anyone else to supply a demand which is already being adequately served.56 This exhibits a child-like power of reasoning as to economic effect. Mr. Brandeis, of course, made no such point. His main thesis, that size was so inconsistent

53

Report of hearing before the Senate Committee on Interstate Commerce, supra, 1170. Italics ours.

4 Brief of Government in International Harvester Co. v. United States (now pending in the Supreme Court of the United States), 88.

(5 Ibid.

56 Senator Sherman's speech, opening the debate on the Sherman Anti-Trust Act, 21 CONG. REC. 2460. (“But, they say, competition is open to all; if you do not like our prices, establish another combination or trust. As was said by the supreme court of New York [People v. North River Sugar Refining Co., 54 Hun (N. Y.) 354, 377], when the combination already includes all or nearly all the producers, what room is there for another?")

with efficiency that a trust without any excluding purposes or practices was an easy mark for independent competition, is utterly inconsistent with the contention that when all the units in a given business have combined, there is no room for anyone else.

3. Mr. Brandeis does suggest 57 that "the mere power of endurance of the large company would be sufficient to give it mastery of the field." He was speaking at the time of the Tobacco Trust. The context is as follows:

"I found, for instance, in the tobacco company this situation - and it was one of the many objections to the plan of so-called disintegration that the American Tobacco Co. in various departments were controlling about 40 per cent or over of the American business. We found there that in this way the American Tobacco Co. alone, and each one of the other two large companies, would control a proportion of the total business of the country in certain departments of the trade which was from one to seven times the aggregate of the business of all of the independents. Now, I believe that fair competition is not possible under those conditions, because the mere power of endurance of the large company would be sufficient to give it mastery of the field."

The purport of this is somewhat vague. If excluding practices are used, or if from the mere size of the Tobacco Company units which were provided for in the disintegration plan referred to, there was still a prima facie inference that excluding practices would be used, then of course the "trust" would have a "power of endurance" which would keep out its competitors, and give it mastery of the field. This is probably Mr. Brandeis' meaning, for his main thesis is that mere size without excluding purposes or practices is a source of economic weakness and operates to give competitors an advantage based on efficiency. This is entirely inconsistent with the view that mere size produces any mastery of the field. Others, however, may insist that the resources of a so-called trust are so great that the combination could practice universal price-cutting below cost in order to destroy all rivals and exclude others. The reserves, however, of such an organization are not necessarily proportionately larger than those of smaller units. It may fairly be denied that there are any such resources in the hands of a so-called trust as will enable it to keep up universal price-cutting below cost 57 Report of hearing before the Senate Committee on Interstate Commerce, supra, 1175. Italics ours.

on a country-wide basis longer than a smaller unit can keep up the same price-cutting in the smaller field where it operates. Of course no court can deal with the question of legality on the fortuitous basis of what proportion of reserve capital one corporation may have in comparison with that of its rival or possible rival. Even if one could imagine a trust punishing itself by universal price-cutting to the extent assumed, how is the public injured? Surely not by the introduction of prices so low that no one cares to enter the business or to stay in the business and the retention of such prices in general whenever any competitor appeared in any part of the country.

4. Perhaps it will be said that the large combination will absorb all the best talent in the community for the business, and so make competition impossible. This position, however, is equally inconsistent with Mr. Brandeis' main thesis. If such were the fact, then the "trusts" would not fail for inefficiency or be subject to successful competition from new capital. Furthermore, there will still be infinite dispute as to whether the "trust" does, in fact, secure the best talent. If the subject were investigated able men could no doubt be found to testify that the more progressive and inventive minds arise among the independent smaller units, and that the large unit tends to conservative methods, lack of initiative, and want of inventive power — indeed, that it is subject to all the evils of a bureaucracy. For instance, between the independent telephone engineers and inventors and the engineers and inventors of the Bell system will be found a long standing dispute as to the merits and abilities of the men in each group. Furthermore, it may well be doubted whether efficiency and experience can be regarded as limited to any such degree that it can be "cornered." 58

5. Combination resulting in a unit occupying a preponderant position in the business has been objected to because it tends unduly to enhance prices. The idea is that there is a necessary connection between size and high prices. This rests, of course, upon the belief that there is a necessary connection between mere size (without any excluding purposes or practices) and the exclusion of others from the business. When the latter is exploded, does anything re

58 Thus Mr. Justice Day, sitting as a Justice in the Circuit Court of Appeals in the Cash Register Case, 222 Fed. 599, 619 (1915), observed that "possibly, efficiency is so abundant that in experience there never will be as there never has been such a monopolizing."

main of the former? Any idea that there is a necessary connection must certainly be abandoned. It is significant that when Mr. Brandeis was asked whether he would regard 15 per cent return on $10,000,000 of capital an extortionate profit, he not only refused any percentage as a test of fair profit, but plainly indicated that the only test of extortionate prices which he had in mind was the fact that the market was unfree; — in short, that the unit fixing the prices had the excluding purpose and used unlawful excluding practices. He said: 59 [Italics ours]

"In a business which is a competitive business, I believe we can safely leave the percentage of profit to that which the business will bear, and I think it is in the interest of business and the interest of the community to let people who are conducting business which is competitive understand that there is no profit too great to be approved, if it is the result of the exercise of brains and character, under conditions of industrial liberty. I think we want to let people understand that it is not 15 or 20 or 30 or 100 per cent that we condemn. We ought to congratulate people in making that much, and we ought to congratulate ourselves that they are making it, if it is made under conditions of natural competition. And it is only when conditions are constrained that we have any interest in how large returns are made."

6. The difficulty in determining what size is illegal is a strong argument against making size, in and of itself, a judicial test of illegality. Whether the unit attacked occupies a preponderant position in the business may possibly be ascertained like other ultimate facts to which legal consequences attach. But in many cases it certainly cannot be known in advance. It will depend upon the conditions of each business and upon surrounding circumstances of an intricate and changing character. It may be that in one industry a single unit doing 25 per cent of the business might occupy a preponderant position, while in another, one with 40 per cent might not. When asked by the Senate Committee what limit he would place on the size of corporations, what standard he would fix, and how he would phrase it, Mr. Brandeis said: 60

"I do not think that I am able at this time to state the exact provision which I should make. I feel very clear on the proposition, but I do not

59 Report of hearing before the Senate Committee on Interstate Commerce, 1245. 60 Ibid., 1174.