State. In the same year the United States Supreme Court declared unconstitutional the rate acts adopted by. Minnesota and North Carolina, on the ground that they were confiscatory, and that the enormous penalties which they imposed were unjust. Litigation regarding the constitutionality of the two-cent-rate-fare legislation is pending in half a dozen other States, and several decisions of the lower courts - notably in Missouri - have held such rates to be confiscatory. In States where the severest laws have been enacted, railroad extension and improvement have practically ceased. The Attorney-General of Missouri recently declared that the enforcement of the anti-trust laws of that State would paralyze one-third of the entire business of the State. Missouri, Kansas and several of the Southern and Southwestern States are now experiencing a reaction from radical legislation. During the past six years anti-trust laws in five States have been declared by the highest courts to be unconstitutional because they unfairly discriminated against corporations in favor of certain privileged classes in the community.

Still more disappointing has been the operation of the Sherman Anti-Trust Act. Judge Lacombe, in his opinion in the "Tobacco Trust" case, stated the consequences of the Act in vivid language:

The act may be termed revolutionary because before its passage the courts had recognized a "restraint of trade" which was held not to be unfair, but permissible, although it operated in some measure to restrict competition. By insensible degrees, under the operation of many causes, business, manufacturing, and trading alike has more and more developed a tendency toward larger and larger aggregations of capital and more extensive combination of conditions. In that way only can production be increased and cheapened, new markets opened and developed, stability in reasonable prices secured, and industrial progress assured. But every aggregation of individuals or corporations formerly independent, immediately upon its formation terminates an existing competition; whether or not some other competition may subsequently arise, the act, as above construed, prohibits every contract or combination in restraint of co npetition. Size is not made the test. Two individuals, who have been driving rival expresswagons between villages in contiguous States, who enter into a combination to join forces and operate a single line, restrain an existing competition, and it would seem to make little difference whether they make such a combination more effective by partnership or not.

The same logic determined the recent decision of the United States Circuit Court in the Standard Oil case. By the same logic, as Judge Lacombe points out, the smallest combination affecting trade between two States is subject to the same penalty that is prescribed for the most oppressive monopoly. In his annual message in 1906 President Roosevelt said:

The actual working of our laws has shown that the effort to prohibit all combination, good or bad, is noxious where it is not ineffective. No more scathing condemnation could be visited upon a law than is contained in the words of the Interstate Commerce Commission when, in commenting upon the fact that the numerous joint traffic associations do technically violate the law, they say: "The decision of the United States Supreme Court in the Trans-Missouri case and the Joint Traffic Association case has produced no practical effect upon the railway operations of the country. Such operations, in fact, exist now as they did before these decisions and with the same general effect. In justice to all parties we ought probably to add that it is difficult to see how our interstate railways could be operated with due regard to the interest of the shipper and the railway without concerted action of the kind afforded through these associations." This means that the law as construed by the Supreme Court is such that the business of the country cannot be conducted without breaking it.

In his annual message in 1907 and in his special messages of January 31, 1908, and March 25, 1908, President Roosevelt repeated the same criticism. Similar strictures have repeatedly been uttered by President Taft and by Attorney-General Wickersham.

At the present time, the normal transactions of business are forbidden by highly penal statutes. Business men now enjoy liberty only according as the prosecuting authorities indulge them in the open breach of the law. Plainly, our legislation respecting large business must be confessed to be a failure.

The causes of this failure are simple. The legislation upon which we heretofore have relied has been directed toward two absolutely inconsistent purposes: the furtherance of free competition, and at the same time the prohibition of the very agencies and organizations in which free competition most normally expresses itself. The Sherman Anti-Trust Act and the anti-trust laws of most of the States are striking illustrations of this hopeless contradiction of purpose.

Every one agreed that these laws were enacted to further free competition. Every one knows that no business man would undertake the strife of competition without the assurance that he may enjoy the price if he wins it. In order to preserve healthy competition, the legitimate growth and lawful extension of the business of the successful trader must be protected.

Now, the large business of the successful competitor, which the law logically must protect, presumes the disappointment of unsuccessful competitors. As Mr. Justice Holmes said in the Northern Securities case, "every concern monopolizes whatever business it does." Large business, for the time being at least, is the subjugation of competition, the victorious appropriation of the prize, and the exclusive enjoyment of it, subject only to the chance of losing it through the same rigor of competition by which it was won.

Just here is where the mistake of so much futile legislation has

arisen. Because a business becomes large- and every successful business grows large and because the large business temporarily displays the characteristics of a kind of monopoly, we have hastily concluded that every business, as soon as it becomes large, is a monopoly, actual or incipient, and must be cudgelled and cuffed, and either repressed or regulated, in the same manner and with the same rigor as monopolies which have arisen unnaturally through unlawful methods of competition, or which have arisen inevitably because the nature of their particular business made competition impossible.

Repressive and prohibitory legislation has its place in the field of business competition. It should be directed, however, not against the form of a business organization, nor yet against the power which its efficiency may develop; but only against the use of unlawful means of competition. "Destroying or restricting free competition," "smothering competition," 'extinguishing competition," "stifling competition," "eliminating competition," "preventing competition,' "annihilating competition" and "suppression of competition" are practices subversive of healthy business rivalry. They are sometimes resorted to by the obscure and unsuccessful competitor, as well as by his conspicuous and successful rival. These practices should be specifically forbidden to large and small competitors alike. Whether the concern which resorts to these practices exerts great or little restraint upon commerce should be immaterial.

Regulation by governmental commission has its place in the industrial world. As a remedy for the abuses of business competition and of industrial trusts, however, it is destined to more disastrous failure than has overcome the prohibitory anti-trust laws.

In the control of public-service companies such as railroads, street railways, water, gas, electric-light and water companies, public warehouses, stock-yards, and the like which enjoy exclusive franchises granted by law or extraordinary powers conferred by the State, such as eminent domain, or which, by the very nature of their being, constitute a natural monopoly permitting of no competition, regulation by governmental commission has amply justified itself. In these anomalous businesses, which really are governmental functions entrusted to private capitalists to insure the most enterprising development, the Government very properly enforces the same principles that control the police and fire service. The duty to serve all, with adequate facilities, without discrimination, and at a reasonable price, is enjoined upon such businesses. Just as the administration of the police force and the fire department is naturally deputed to individual officials or commissioners responsible to the community, so the enforcement of the duty of public-service companies is properly vested in governmental commissions. Very naturally, the powers of both classes of commissions include the right absolutely to prescribe the

character of the facilities and the price of the service, subject only to the limitation that, in so doing, the legal rights of the persons affected by their orders shall not be molested. Regulation by commission, however, is only necessary where the law or the nature of the business virtually prohibits competition. In fixing the price and conditions of service in these businesses, the law seeks merely to levy an equitable tax to defray a public expense. It presumes that competition which in ordinary businesses adjusts the character of the facilities and the price of the service is extinct, and, in fact, would be harmful, if revived. The effect, therefore, is to render real competition impossible in business which it regulates.

To extend regulation by governmental commission to businesses which do not enjoy exclusive franchises granted by law, or extraordinary powers granted by the State, or a monopoly arising from the nature of the business, and to apply regulation by commission wherever a business has developed large size, is to deny the efficacy of competition in its most normal working, and to hamper competition in every branch of industry. In such businesses, competition naturally exists, and, in order to maintain a healthy condition, should be encouraged. Interference with prices and with the form of organization of such businesses only creates artificial barriers, behind which lurk forms of privilege quite as dangerous as monopoly. Such interference stultifies the avowed purpose of all anti-trust legislation, and violates the first principle of economic progress, and subverts the fundamental proposition of individual liberty upon which this Government was founded.

The abuses of business competition are real and serious, and must be cured by legislation. The remedy, however, lies in the direction of free competition, rather than paternal control. Every statute which furthers free competition, and strikes specifically at the various forms of unlawful competition and fraud which impede it, will hasten the cure. Any statute which imposes governmental interference upon a business merely because it is large whether that interference be indiscriminate prohibition, or the more insidious form of regulation by governmental commission will delay the cure, and prolong the uncomfortable situation in which business has stood before the law for the past twenty years. The principle which should guide all legislation upon this intricate subject was tersely expressed by the committee which drafted the Corporation Law of Massachusetts in 1903: "So far as purely business corporations are concerned, and excluding insurance, financial and public service corporations, the State cannot assume to act directly or indirectly as guarantor or sponsor for any organization under corporate form. . . . The State should permit the utmost freedom of self-regulation, if it provides quick and effective machinery for the punishment of fraud.

II

THE RESPONSE OF LEGISLATURES AND
COURTS TO THE NEWER DEMANDS

AMERICAN LEGISLATION ON PROPERTY RIGHTS1

BY FREDERIC JESUP STIMSON, OF THE HARVARD LAW SCHOOL

(Chap. VII of "Popular Law Making," published by Charles Scribner's Sons, Copyright 1910)1

There are two processes by which the changing public opinion on property relations become fixed: legislation and adjudication. Under a written constitution the latter is scarcely a flexible, while under a democracy the former is a constantly and easily changing, process. The following articles indicate the extent to which recent legislation has responded to popular demand and the attitude of the courts toward changing conditions. EDITOR'S NOTE.

When we come to the vast field of legislation in the United States, comprising the law-making of forty-six States, two Territories, the National Congress, and the Federal District, it is difficult to decide how to divide the subject so as to make it manageable. The division made by State codes and revisions, and the United States Revised Statutes, hardly suits our purpose, for it is made rather for lawyers than sociologists or students in comparative legislation. The division made by the valuable "Year Book of Legislation," published by the New York State Library, comprises some twenty subjects: Constitutional Law; Organic Law; Citizenship and Civil Rights; Elections; Criminal Law; Civil Law; Property and Contracts; Torts; Family; Corporations; Combinations and Monopolies; Procedure; Finance; Public Order; Health and Safety; Land and Waters; Transportation; Commerce and Industry; Banking; Insurance; Navigation and Waterways; Agriculture; Game and Fish; Mines and Mining; Labor; Charities; Education; Military Matters; and Local Government. This division, however convenient in practice, crosscuts the various fields of legislation as divided in any logical manner. The same criticism may be applied to a somewhat simpler 1 Copyright reserved.