them with the power of continuity and limiting the liability which they shall incur in the enterprise.

Senator AUSTIN. Will you permit a question?

Mr. PECKHAM. Yes.

Senator AUSTIN. As I gather the trend of your comment, it is to this effect: that if it is ethical and moral, from the point of view of public welfare, that a private individual may engage in interstate commerce and not be subject to these clogs upon business contained in this bill, why should it be unethical for a corporation to do it?

Mr. PECKHAM. I do not see any difference. I still believe, with reference to the antilynching bill, that because there are isolated offenses at which such legislation is aimed, that is no excuse or justification for the Federal Government injecting itself unnecessarily into that situation, even if it may have the power to do so. The same reasoning applies to this bill.

Senator O'MAHONEY. What do you think of dummy directors? Mr. PECKHAM. I have heard of them. I do not know any of them. Do you mean directors who take no part in the deliberations?

Senator O'MAHONEY. NO. I do not mean that so much as I mean the organization of a corporation by persons who are really not the directing heads of the corporation, but are merely lending their names, such as a person desiring to organize a corporation for a particular purpose naming his stenographer or bellboy or bootblack to act as director of the corporation. They have no interest in it and no capital invested. They are mere dummies to do what the persons behind the scenes want them to do. You recognize the fact, do you not, that there has been built up in this country a very intricate system of corporate devices by which the investors have been robbed? Mr. PECKHAM. I suppose there have been such cases.

Senator O'MAHONEY. Do you think there is anything wrong about making it impossible for corporations to organize in that way?

Mr. PECKHAM. I suppose there is nothing wrong about it, but I do not believe that the Federal Government should do it.

Senator O'MAHONEY. All right. If we can segregate the provisions of this bill or any bill which, from your point of view, gives the Government the power to meddle, from the provisions which affect the corporate structure and maintain integrity in the management of the corporation, would you have any objection to the second group of rules?

Mr. PECKHAM. I would object to any licensing, because I think the Federal Government has practically exhausted its power already in the antitrust and fair-trade laws.

Senator O'MAHONEY. That, of course, is a question of law.
Mr. PECKHAM. Yes.

Senator O'MAHONEY. Your feeling, I take it, is that the Federal Government does not have the power to regulate the nature of the instrumentalities which carry on interstate commerce?

Mr. PECKHAM. Yes. I think it can control the channels, but cannot go beyond that.

Senator O'MAHONEY. It cannot define the powers and responsibilities of the corporations?

Mr. PECKHAM. No.

Senator O'MAHONEY. Do you recognize that corporate development has resulted in the creation of a new sort of economic system which dominates the entire economic life of the country, without giving individual citizens the protection which they thought was given by a free government?

Mr. PECKHAM. I suppose there has been to some extent. I remember William Jennings Bryan postulated the same hypothesis, that the existence of corporations and their activities beyond State borders made it necessary that they be taken under control. I do not agree with that. I think there are ample means of control of any violation of ethics or morals, now already inhibited by Federal law. When people attempt to do those things in the course of interstate commerce, which affects interstate commerce, I think Congress has sufficient authority to punish them. I do not agree with the apparent theory of those who say the laws cannot be enforced, any more than I agree that under this bill the Federal Trade Commission would enforce them any better than it does now. The fact that such situations may exist is no excuse for a law of this kind, or any new law. There are already laws that are ample to control such conditions.

If there are unfair trade practices in the course of interstate commerce, they are already punishable, and the agency you are setting up under this bill would have no more power to control that situation than it does now. Why does it not do it? Do you think by saying it twice to them they will do it any better? I think the answer to the problem is to find out why our law officers do not enforce the laws that now exist.

Senator AUSTIN. I would like to make this comment; that I have personally been told by one who spoke apparently with some authority from the Federal Trade Commission that the reason why they have not succeeded in enforcing the Federal Trade Commission Act and the Sherman antitrust law and the Clayton Act is because of the uncertainty of their power, the indefiniteness of the law as written and now interpreted. That is why I, for one, believe that the law should be restated, even to the point of writing into it in the form of a statute the interpretation that has become settled by repeated adjudications.

Mr. PECKHAM. I do not think that is a valid answer. As Senator Borah pointed out, we have the interpretation of the courts to guide us, and there is danger in attempting to enumerate in a statute all of these different specifications.

Senator BORAH. Perhaps another reason why the Federal Trade Commission was unable to enforce those laws is that for a long time it was not supposed to enforce them while we had the N. R. A. and those things. They became somewhat discouraged, because the policy at that time was monopoly.

Senator O'MAHONEY. We will recess at this time until 10:30 tomorrow morning.

(Whereupon, at 12:15 p. m., a recess was taken until the following day, Thursday, March 10, 1938, at 10:30 a. m.)

121861-38-pt. 4—————11

FEDERAL LICENSING OF CORPORATIONS

MARCH 10, 1938

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON THE JUDICIARY,

Washington, D. C. The subcommittee met, pursuant to recess, in room 324 Senate Office Building, at 10:30 a. m., Senator Joseph C. O'Mahoney (chairman), presiding.

Present: Senators O'Mahoney (chairman), Borah, and Austin.

STATEMENT OF WILLIS J. BALLINGER, ECONOMIC ADVISER, FEDERAL TRADE COMMISSION

Senator O'MAHONEY. Please state your name and the position you occupy.

Mr. BALLINGER. My name is Willis J. Ballinger. I am economic adviser to the Federal Trade Commission.

Senator O'MAHONEY. You have been requested by the chairman of the committee to appear, because we desire to have your analysis of the subject matter with which this bill deals. Will you be good enough to proceed?

Mr. BALLINGER. Mr. Chairman and Senators, at the request of Senator Ashurst, chairman of the Judiciary Committee, I am appearing before this committee.

I understand from Senator O'Mahoney, chairman of this subcommittee, that I am called upon to furnish data and make some comment upon certain provisions of the Corporation Licensing Act proposed by Senator Borah and Senator O'Mahoney.

This bill, Senators, has been widely hailed in many quarters as putting real teeth into the antitrust laws. In other quarters it has been criticized as putting too many teeth into such laws. Now at the present time I do not wish to be drawn into the controversy of whether the power of the courts to revoke the license of a corporation which has violated the antitrust laws is wise, sound, effective, or an overdrastic, dangerous way to promote an observance of the antitrust laws. What interests me a great deal is that the distinguished sponsors of this proposed measure have apparently come to the conclusion that a strong penalty for violating the antitrust laws is advisable.

A good many lawyers and economists have believed for a long time that the antitrust laws should be amended in a number of respects to make them more effective. Some hold that the basic antitrust law, the Sherman statute, was dealt a mortal blow when the Supreme Court promulgated the Rule of Reason in 1911. As this group sees it, the Rule of Reason caused the court to sanction mergers, if in its

judgment their monopolistic power was offset by advantages assumed to be passed on to the public. An extreme section of this group goes so far as to charge that the Rule of Reason caused the Court to cease to enforce the Sherman statute, that the Court took unto itself the power and assumed the benevolent role in each particular case of deciding whether the net balance of public benefits offset the evils of monopoly.

Some other thinkers lay great stress upon the majority opinion in the U. S. Steel case (1920). In this case Justice McKenna, writing the majority opinion for the Court, declared that size per se was never illegal. Only when size was accompanied by an unlawful overt act, such as inducing or coercing. competitors to fix prices did such large size become illegal. Justice Day, on the other hand, contended that size per se could be illegal and was in the case of the United States Steel Corporation-that where a corporation attained dominancy in an industry and possessed tremendous financial strength this power was unlawful whether benevolently or malevolently employed.

Senator BORAH. Before you depart from the Steel case, I would like to put in the record the statement that the majority opinion was rendered by four members of the Court, which was a minority of the Court. Justices McReynolds and Brandeis did not sit.

Mr. BALLINGER. Many students feel that Justice McKenna's opinion legalized the "follow-the-leader" type of monopoly, whereas if Justice Day's opinion had become law the Government would be able to reach this kind of monopoly. It is found in many industries today-industries where smaller units are tossed a few crumbs in return for which they prudently observe their feudal obligations. The small-business man knows that the Sherman statute is one thing in theory and quite another in practice. To bid for business against the giant corporation would mean a retaliation. Such retaliation would, of course, be unlawful. Little-business men know from bitter experience that the stopping of such retaliation by action of the Government takes time. Sometimes it takes many years. And while the mills of justice are grinding slowly, the little fellow is ground up. In many cases he could not possibly hang on until relief was given him by the Government. So he wisely sits quietly at the foot of the table and accepts the one-sided carving of the turkey.

I am not opposed to size which is exposed to competitive restraint. Even if solely through efficiency one corporation could eliminate all competitors the resulting monopoly could not be justified by sound capitalistic economics. But size due to the employment of predatory or uneconomic business practices, size which maintains itself because it can intimidate competitors and muzzle competition, is size which has no justification whatsoever. In many cases the remedy for this kind of size will not mean that the Government must take a goodsized hammer in its hand and attempt to pulverize a number of large corporations. If we will make it a very risky business for one corporation to attempt to punish another corporation which desires to compete with it, a recrudescence of competition in many fields of industry will speedily determine the useful limits of size. If littlebusiness men in many industries can be given protection from retaliation if they choose to challenge the price structures of giant corporations, I believe that size will very quickly adjust itself so that such size will be founded on genuine efficiency and capitalistic ability.