sometimes not far removed from the ridiculous. Unless, which seems entirely possible, a combination reconstituted as a combination of common owners may be said to have suffered a sea-change "into something rich and strange" and in its new condition be given a charter of indulgences permitting it to do what before was in violation of the law. Or it may be that interlocking ownership has enjoyed this immunity from attack because of much doubt as to just how far the government can go, constitutionally and practically, in compelling the owners of illegally combining properties to liquidate their properties in part to others. The practical difficulty of a thorough-going measure of this kind would assuredly be extreme, while its constitutional implications might prove most embarrassing.

As a matter of fact all of these things and more must be taken into consideration in any attempt to do justice to the existing state of mind

to its blind side as well as to the side on which an optic nerve is beginning to develop. It was only yesterday, so to speak, that the significance of common ownership was thrown into sharp relief, when the Standard Oil agglomeration emerged from its ordeal of disintegration seemingly more closely integrated, more thoroughly concentrated, more narrowly held than ever before, so far at least as common ownership is concerned. The Standard Oil system stands dissolved and the little shareholders in it own perhaps less than they did before, the big shareholders more. Genius itself could not have contrived a scheme better adapted to the automatic and perfectly noiseless elimination of the little fellows.

It is perhaps not to be wondered at that the political physician still remains transfixed, that the lips of the prophets are dumb though of course there is no big surprise without its sequel. It may be that we have some preliminaries of the sequel already, in the Union. Pacific-Southern Pacific decree. How far-reaching the principles enunciated in that decision may prove to be remains to be seen.

and,

Moreover the anti-trust evolution is just now at a point must it not be said, a healthy one? - where most attention is directed to practices, to acts, to deeds; to the nature and the incidence of those things which tend to throttle healthful competition, and make desert the conditions under which opportunity for men of little means and power flourishes. We have reached the point where we may hope to see Congress and the government come to grips with realities. Something already has been done. We are on the threshold of this achievement. One or two pushes how great the misfortune of the pulls backward! and the government will be straight over the bars, laying about it right and left, at the cut-throat price discriminations, at the stifling of competitors by refusing to sell anything to those who will not buy everything, at monopoly espionage, at fake independence, at any and every similar device. We shall have regulation of

competition, regulation of reasonable coöperation, of combination that is not destructive of opportunity, more liberty, and more enterprise. It is not surprising that with a prospect of being thus engrossed we should not yet have begun to examine very critically the more or less abstract questions of interlocking directorates, or the perhaps even more abstract questions of interlocking ownership.

There is in this an excellent chance of escape for director or owner who in the past has directed or owned to the end that trade might be unreasonably restrained. If he is intelligent enough to take warning from the growing demands for the suppression of practices inimical to a régime of economic freedom and justice and as director or owner of one corporation can achieve the feat of truly competing with himself as director or owner of the other he may be allowed to lead his dual and difficult life in all the peace that is economically possible. But if he does not do this - if he lacks the requisite intelligence to do it he may well beware the bale that is in store for him. For suppose that in the effort to put an end to practices that stifle competition and throttle opportunity, the struggle should seem vain and largely perhaps because of interlocking contracts, the interlocking directorate or the common owners. Suppose that the men earnestly working for the improved conditions become convinced of that. Does any one doubt what they will do? Will they hesitate to suppress such contracts? The courts have already shown the way to do that and in many instances they have done it. Will they stop at the interlocking directorates? The legislatures, state and national, have already entertained some measures of this kind, and at least one of them enacted into law has been most successful. Will they stop even at common ownership? Perhaps there they may pause and look about them questioningly, but that they will stop there if the common welfare urges them onward, who will prophesy?

We know that there is a very general feeling among laymen and a certain conviction among lawyers that under our system of jurisprudence there is no way of preventing a man from owning almost anything he pleases and as much of it as he pleases, provided he has the means of acquiring it. But once the demand arises and becomes distinct, a demand of the deliberate majority, we may be surprised at the comparative ease with which the change is brought about and brought about according to the forms of existing law. To-day many might ridicule any suggestion that through the power of taxation, the power of eminent domain, the "police power," the power to grant and so to limit corporate franchises, or the power to control interstate or intrastate commerce, really practical and effective limitations could be put upon the amount of stocks of a given kind that any man could own. But each of these branches of the law taxation perhaps the least, the power to restrict corporate franchises and the

power to control commerce perhaps the most contains the seed from which in the fertile soil of judicial construction or extension some hardy plants may grow.

Perhaps the least difficult device for control of interlocking ownership — but one not without many difficulties under our dual government would be to grant corporate franchises only to those who own no stock or only a limited amount of stock in competing corporations, making this restriction a condition on breach of which the corporation's franchise would be forfeited. No one who realizes the tremendous extent of power which Congress has over interstate commerce -how it reaches into details, into incidents but remotely related — no one who has observed the almost furious pace at which this power has developed and is still developing, could be very greatly surprised if out of it there should be evolved far-reaching limitations upon the amount and character of stockholdings in all corporations engaged in interstate commerce, corporations which now include the big manufacturing or industrial corporations with the others.1

The time may not yet have come for broad, general laws forbidding intercorporate directorates. For the next few years we seem destined to give most attention to deeds, to the acts that are hostile to our economic and social welfare. It is well that the emphasis is placed there. The energy that seems now behind it might be dissipated, even destroyed, if it were sunk in the abstractions of mere organization. But we shall be fatuous beyond belief if in hammering at deeds. we lose sight of these abstractions, for they embrace the real. There are even now certain corporation aggregations which menace the movement against destructive trade practices and agreements, chiefly because of the fact that they are dominated by common directors. or common owners. If in any cases the situation is worse than this, if there is beyond a preponderance of doubt a class of corporations in which interlocking management means an inevitable breach of that public policy which has declared for reasonable competition and fair opportunity, there can hardly be a choice. Interlocking management for that specific class of corporations will have to give way or the public policy itself will have to give way.

Large-scale production may be desirable, in some branches of trade it is undoubtedly essential to prosperity. We should do everything possible to mediate between those economic forces which make toward the most efficient units of production and the struggle of individuals for freedom of opportunity, which is even more important. Mediation of course is far removed from dogmatic politics. It puts the emphasis

1 It may be that the existing Anti-Trust legislation, with some not fundamental changes, will prove adequate to accomplish such an end, should there prove to be a public need for it. Since this paper was written Attorney-General Wickersham's proposition for the regulation of the Union Pacific and Southern Pacific stockholdings - a direct blow to interlocking ownership - has been made.

on the facts; condemns the contract between interlocking corporations only when it is contrary to the interests of the private stockholder or offends public policy; condemns interlocking directorates where the facts show that they should be condemned, and therefore in the absence of sufficient information waits awhile before it makes up its mind; condemns the common ownership of competing corporations only when it is demonstrated that neither the surveillance of such corporations, the supervision of their contracts, nor the prescription of their organization has been enough. Mediation, however, is not mere meditation. Its time is now and its method is one of ceaseless activity.

THE POWER OF CONGRESS TO ENACT INCORPORATION LAWS AND TO REGULATE CORPORATIONS

BY VICTOR MORAWETZ OF the New York Bar

(From the Harvard Law Review, June, 1913)

This article might properly have been placed in a subsequent division on "Tendencies toward Federal Centralization," on p. 498. It is inserted here because the problem of federal control has become the latest and most vital phase of the corporation question. EDITOR'S NOTE.

I. THE POWER OF CONGRESS TO ENACT INCORPORATION LAWS

The formation of corporations is not a primary purpose or power of the national government. Corporations are not mentioned in the Constitution. But, subject to the limitations expressly imposed by the Constitution, Congress has power to enact laws to execute any of the purposes or powers entrusted by the Constitution to the national government; and, therefore, Congress can pass an act of incorporation, or an act regulating corporations, if such an act is merely a means of executing some constitutional purpose or power.

In 1791 the first Congress passed a bill incorporating the Bank of the United States, a private stock corporation with power to establish branches and to engage in a general banking business. President Washington called upon Thomas Jefferson, the Secretary of State, and Edmund Randolph, the Attorney-General, for opinions as to the constitutionality of the bill. Their opinions being adverse, the President called upon Alexander Hamilton, who was Secretary of the Treasury and had been the principal author of the bill, to state the reasons which induced him to consider the bill constitutional. Hamilton submitted a persuasive opinion in favor of the constitutionality

of the bill,1 which thereupon was signed by the President. The charter of the bank expired in 1811 and for political reasons Congress refused to renew it; but in 1816 Congress passed an act chartering the second Bank of the United States, which also was a private stock corporation with power to establish branches and to engage in a general banking business throughout the United States. The United States was a shareholder in the bank, and the latter was constituted a depositary of the United States government. In the case of M'Culloch vs. Maryland' the Supreme Court decided that the act incorporating the bank was constitutional because the creation of such a banking corporation was an appropriate instrument for conducting the fiscal operations of the government. The court held that the creation of a corporation was not a substantive and independent governmental purpose, but was merely a means employed to effect some ulterior purpose; that, except so far as expressly limited by the Constitution, Congress was impliedly empowered to resort to any appropriate means of effecting any of the constitutional purposes of the national government; that it was not a subject of controversy that the creation of a banking corporation was a convenient, useful, and essential means for carrying on the fiscal operations of the government, and that there was no reason why Congress should not resort to the creation of a corporation for that purpose.3

In 1863 and 1864 Congress passed general acts for the incorporation of national banks. In Farmers' and Merchants' National Bank vs. Dearing the Supreme Court said:

4

The constitutionality of the act of 1864 is not questioned. It rests on the same principle as the act creating the second bank of the United States. The reasoning of Secretary Hamilton and of this court in M'Culloch vs. Maryland (4 Wheat. 316) and in Osborn v. Bank of the United States (9 id. 708) therefore applies. The national banks organized under the act are instruments designed to be used to aid the government in the administration of an important branch of the public service. They are means appropriate to that end. Of the degree of the necessity which existed for creating them Congress is the sole judge.

Although undoubtedly the court was right in sustaining the constitutionality of the National Bank Act, the grounds upon which the court based its conclusion seem questionable. The act incorporating the Bank of the United States was sustained because it was created to serve as an instrument of the government in carrying on its fiscal

1 Hamilton's opinion is printed in the edition of The Federalist edited by Paul Leicester Ford, published by Henry Holt & Co. in 1898.

2 4 Wheat. (U.S.) 316 (1819). See also Osborn vs. Bank of United States, 9 Wheat. (U.S.) 738, 859-(1824).

See the opinion of Chief Justice Marshall, 4 Wheat. (U.S.) 411, 422, 423 (1819). 4 91 U.S. 29 (1875).