oughly enforced, so that those who respect it shall not be at a disadvantage as compared with those who disregard it.

2. That the organization of trading and industrial corporations, whether under general or special laws, be permitted only under a system of careful governmental control, also uniform, if possible, in all jurisdictions, whereby many of the evils of which complaint is now made may be avoided.

3. The objects of the corporation should be confined within limits definite and certain. The issue of stock and bonds, which has been a matter of so much just criticism and complaint, should be guarded with great strictness. If mortgage bonds seem to be required, they should be allowed only for a moderate fraction of the true cash value of the property that secures them. As for issues of stock, they should be safeguarded in every possible way. They should only be allowed either for the money or for property actually received by the company, and dollar for dollar, and when the property is so conveyed it should be on an honest appraisement of actual value, so that there may be no watering of stock.

4. And finally, there should be a thorough system of reports and governmental inspection, especially as to issues of bonds and stock and the status and value of property, whether corporeal or incorporeal. Yet, at the same time, in the matter of trading and industrial companies, there are legitimate business secrets which must be respected by the general public. In short, we need to frankly recognize the fact that trading and industrial corporations are needed to organize the activities of our country, and that they are not to be scolded or belied, but controlled, as we control steam and electricity, which are also dangerous if not carefully managed, but of wonderful usefulness if rightly harnessed to the car of progress.

APPENDIX B

FINAL REPORT OF THE INDUSTRIAL COMMISSION

1902*

Recommendations of the Commission.

Early in the year 1900 this Commission submitted to the Congress a preliminary report of findings and recommendations on the subject of industrial combinations. Said report was in part as follows:

To prevent the organizers of corporations or industrial combinations from deceiving investors and the public, either through suppression of material facts or by making misleading statements, your Commission recommend

(a) That the promoters and organizers of corporations or industrial combinations which look to the public to purchase or deal in their stocks or securities should be required to furnish full details regarding the organization, the property or services for which stocks or securities are to be issued, amount and kind of same, and all other material information necessary for safe and intelligent investment;

(b) That any prospectus or announcement of any kind soliciting subscriptions, which fails to make full disclosures as aforesaid, or which is false, should be deemed fraudulent, and the promoters, with their associates, held legally responsible;

(c) That the nature of the business of the corporation or industrial combination, all powers granted to directors and officers thereof, and all limitations upon them or upon the

*Vol. XIX, p. 649. This report is of historic value. Some of the recommendations have already become law. Others should be enacted into law. It shows that the opinions of experts were distinctly in advance of legislation.

rights or powers of the members, should be required to be expressed in the certificate of incorporation, which instrument should be open to inspection by any investor.

The affairs of a corporation or industrial combination should be carried on, without detriment to the public, in the interest of its members and under their lawful control. To this end the directors or trustees should be required

(a) To report to the members thereof its financial condition in reasonable detail, verified by a competent auditor at least once each year;

(b) To inform members regarding the method and conduct of business by granting them, under proper restrictions, access to records of directors' meetings, or otherwise.

(c) To provide for the use of members, before the annual meetings, lists of members, with their addresses and their several holdings; and

(d) To provide, in whatever other ways may be named in the certificate of incorporation, means whereby the members may prevent the misuse of their property by directors

or trustees.

The larger corporations-the so-called trusts-should be required to publish annually a properly audited report, showing in reasonable detail their assets and liabilities, with profit or loss; such report and audit under oath to be subject to Government inspection. The purpose of such publicity is to encourage competition when profits become excessive, thus protecting consumers against too high prices and to guard the interests of employees by a knowledge of the financial condition of the business in which they are employed.

The further consideration given to the subject by the Commission has justified in nearly all particulars our former conclusions and recommendations. Since that report was made, combinations and their methods, both here and in

Europe, have been more thoroughly studied. The influence of combinations in the United States in extending our foreign trade and the methods and influence of foreign combinations in competition with them have been observed. These matters are presented in accompanying volumes.

We now further recommend—

1. That district attorneys of the United States be authorized and directed to institute proceedings for violations of the Federal anti-trust laws.

2. That combinations and conspiracies, in the form of trusts or otherwise in restraint of trade or production, which by the consensus of judicial opinion are unlawful, should be so declared by legislation uniform in all jurisdictions, and as to all persons, and such statutes should be thoroughly enforced.

3. That stringent laws be enacted by the Congress and the several State legislatures, making both penal and criminal the vicious practice of discriminating between customers, and cutting rates or prices in one locality below those which prevail generally, for the purpose of destroying local competition; and that such laws should give to any person damaged the right to sue for and recover prescribed penalties, and make it the duty of prosecuting officers to proceed against the offenders. !

4. That to prevent overcapitalization, the several State legislatures enact laws similar to the anti-stock-watering laws of Massachusetts; also to provide for State supervision of all public-service corporations, with power to recommend or regulate rates for service and to pass upon the public need, desirability, or exigency of any proposed new service.

5. That Plan Three-Federal taxation and supervision -heretofore outlined, be adopted, and to accomplish its purposes

(a) That an annual franchise tax be imposed upon all

State corporations engaged in interstate commerce, calculated upon the gross earnings of each corporation from its interstate business; that the minimum rate of such tax be low, but that the rate be gradually increased with increases in earnings.

(b) That there be created in the Treasury Department a permanent bureau, the duties of which shall be to register all State corporations engaged in interstate or foreign commerce; to secure from such corporations all reports needed to enable the Government to levy a franchise tax with certainty and justice, and to collect the same; to make such inspection and examination of the business and accounts of such corporations as will guarantee the completeness and accuracy of the information needed to ascertain whether such corporations are observing the conditions prescribed in the act, and to enforce penalties against delinquents; and to collate and publish information regarding such combinations and the industries in which they may be engaged, so as to furnish to the Congress proper information for possible future legislation.

The publicity secured by the governmental agency should be such as will prevent the deception of the public through secrecy in the organization and management of industrial combinations, or through false information. Such agency would also have at its command the best sources of information regarding special privileges or discriminations, of whatever nature, by which industrial combinations secure monopoly or become dangerous to the public welfare. It is probable that the provisions herein recommended will be sufficient to remove most of the abuses which have arisen in connection with industrial combinations. The remedies suggested may be employed with little or no danger to industrial prosperity and with the certainty of securing information which should enable the Congress to protect the public by further legislation if necessary.