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Trans-Missouri Case

( Originally Published Early 1900's )

THERE has been no other subject, perhaps, in the industrial world or in finance and economics for a long period, on which there has been a greater variety of opinions than on the decision of the United States Supreme Court in the case of the Trans-Missouri Freight Association, on the 22d of March, 1897. Nor has there been any other decision in a long time which took by complete surprise so many judges, lawyers, financiers, railroad managers, and newspaper men. It is my opinion that this famous decision has done more injury in the disturbance of values and the wrecking of fortunes than any half dozen judicial decisions that have ever been rendered in this country. It came, too, in the very worst possible time, just when the country was making the hardest struggle for recuperation. This Trans-Missouri Association, composed of eighteen railroads beyond the Missouri River, as its name indicates, and covering territory between that eastern boundary and the Rocky Mountains, had entered into an agreement, the real purport of which was to maintain rates up to a living standard on the "live and let live " principle for all, and so as to prevent any of the properties from being driven into bankruptcy by what is known in railroad circles as "cut-throat competition." Looking at the matter from a common-sense point of view, there seems to the ordinary mind, unbiased by any predilections, nothing unfair in a proposition of this kind. It was merely an arrangement for mutual defense, the bond of mutuality being assurance that the weaker brethren would not or could not readily shirk the maintenance of the principle of the Association upon which its efficiency, vitality, success, and very existence depended, namely, that of inseparable union for one and the same purpose- protection to all. The essential motive was to maintain reasonable rates, and the object of the association is stated clearly by itself in the following language, "For the purpose of mutual protection by establishing and maintaining reasonable rates, rules, and regulations on all freight traffic, both through and local." The particulars of the agreement, which are described in detail, relating to management and disposition of freight throughout the territory of the Association, are of no special interest. In I890 there was a law passed of which John Sherman, then United States Senator from Ohio, was the father. This law was directed against trusts that were organized in restraint of trade and against public policy. The act was termed "An Act to protect Trade and Commerce against Unlawful Restraints and Monopolies." The first short section describes, in brief, all that is material in the act, for the purpose of understanding its design. It reads as follows: - "Every contract or combination, in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments in the discretion of the courts." Now, the point to be proved in this case is that the Association in question had been guilty of the offense against which the act is directed, namely, conspiracy in restraint of trade," and arguments of great length were used for the purpose of proving this allegation. The opinion was written by Justice Wheeler H. Peckham and consisted of about 25,000 words. Some of the arguments are strong, but some of them are farfetched, and, to the minds of the able minority of four judges of the Supreme Court, were far from being conclusive regarding the guilt of the defendants. If the Sherman Anti-Trust Law and its latest interpretation by a bare majority of one in the Supreme Court are to stand, it is difficult to see how any business where more than one is concerned on either side, can be transacted legally. Almost any transaction can, by strict literal interpretation of the words of the statute and the nature of the case, be construed as implying "conspiracy and restraint of trade." It seems to me that the effect of the Joint Traffic Associations is to hold up the weak roads, whereas the decision of the Supreme Court is to drive them into bankruptcy, which will enable the strong roads to acquire them on their own terms. This will make poor corporations poorer and rich corporations richer. If railroads are to be compelled to surrender to the decision of the United States Supreme Court, then consolidation of roads will be the inevitable result, and before the close of the next decade we may witness in this country four or five great systems of railroads, instead of, as at present, several hundreds of them. Already strong evidences of this appear in the New York Central and Pennsylvania acquisitions. Neither the Supreme Court nor Congress can interfere with one road leasing itself to another, nor preventing one road from buying another; therefore, instead of discouraging consolidation of roads, which should be the case for the general good of the country, the Sherman Anti-Trust Law, under the Supreme Court decision, will drive them into a confederation comprised of few. This process would certainly be in "restraint of trade," and would so far restrain the smaller roads as to wipe them out of existence, making the monopolistic circle of management more and more circumscribed at every freezing-out operation, until the supreme managerial power would be in the hands of a few companies or possibly only one. This would be, as it appears to me, a very dangerous power, not only in restraint of trade, but in restraint of government as well. It might soon become powerful enough to dictate terms to government. Then what after that? Probably a railroad oligarchy to supersede the Republic, rendered possible by the manner in which the highest court of the nation had been forced to interpret an unwise statute which throttled the freedom of contract and broke up the government for, of, and by the people. The decision, however, settles the question in the meantime regarding any combination or agreement among railroad companies to prevent ruinous rate-cutting where the facts are so clearly on record that they are capable of proof; and it would never do to invent or devise mere schemes of evasion of the law, for this would be a false and fraudulent method of doing business. The companies, however, can act individually and independently, and if they would only observe the amenities of good society toward one another, things might go very well practically. If the Joint Traffic Association, for instance, should be compelled to disband under the decision of the United States Supreme Court, why could not the members of that association form themselves into a social club, where they could meet and confer with each other? It would certainly tend to preserve a harmonious feeling amongst them, and most likely result in uniformity of action in the conduct of their business. They could talk over the rate question among themselves and easily arrive at conclusions. One of the number could then establish on his road the rates talked of, and all the others would have the right to adopt similar ones voluntarily. Such action could not be considered as a combination or an agreement in restraint of trade and commerce. It is a well-known fact that most of the important diplomatic matters in the relations between civilized nations are talked over and virtually arranged at the social board, which is about the same method as that proposed above for the railroad managers to meet the present unfortunate predicament in which they are placed. Though the opinion of the majority of the court observes in many of its paragraphs an apparently strict adherence to the letter of the law, it may, perhaps, neglect the spirit to a certain extent. The law, in its essence, is the very thing that the court asserts its infraction to be. It is in restraint of trade and against public policy. The only reliable relief, therefore, is to be found in its repeal. All plans that may be invented to help tide over the trouble will prove nothing but temporary makeshifts, and will be likely to involve the experimenter in further difficulties. Returning to the decision, it will be seen that the chief point of disagreement between the majority and the minority reports is that the majority adheres to an extremely literal construction, unmindful of the scriptural admonition that " the letter killeth, but the spirit giveth life"; while the minority dwells on the spirit and the supposable intention of the law; for nobody who knows the man can conceive of the possibility of John Sherman framing a measure that would drive people, possessed of the most honest intentions, out of business, and help to throw into chaos that financial fabric which he has spent many of the best years of his life in helping to construct. This view the minority more fully elucidates by the following strictures on the forced construction of the majority: - " But, admitting argued the correctness of the proposition by which it is sought to include every contract, however reasonable, within the inhibition of the law, the statute, considered as a whole, shows, I think, the error of the construction placed upon it. Its title is 'An act to protect trade and commerce against unlawful restraints and monopolies.' The word 'unlawful' clearly distinguishes between contracts in restraint of trade which are lawful and those which are not. "The plain intention of the law was to protect the liberty of contract and the freedom of trade. Will this intention not be frustrated by a construction which, if it does not destroy, at least gravely impairs both the liberty of the individual to contract and the freedom of trade? If the rule of reason no longer determines the right of the individual to contract, or secures the validity of contracts upon which trade depends and results, what becomes of the liberty of the citizen or the freedom of trade? Secured no longer by the law of reason, all these rights become subject, when questioned, to the mere caprice of judicial authority. "Thus, a law in favor of freedom of contract, it seems to me, is so interpreted as to gravely impair that freedom. Progress, and not reaction, was the purpose of the act of Congress. The construction now given the act disregards the whole current of judicial authority, and tests the right to contract by the conceptions of that right entertained at the time of the year books, instead of by the light of reason and the necessity of modern society. To do this violates, as I see it, the plainest conception of public policy, for, as said by Sir G. Jessel, Master of the Rolls, in Printing Company vs. Sampson, 'If there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the uttermost liberty of contracting, and their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice.' "The remedy intended to be accomplished by the act of Congress was to shield against the danger of contract or combination by the few against the interest of the many and to the detriment of freedom. The construction now given, I think, strikes down the interest of the many to the advantage and benefit of the few. It has been held in a case involving a combination among workingmen that such combinations are embraced in the act of Congress in question, and this view was not doubted by this court." But the destructive and inequitable tendency of the act is probably most clearly discerned in the light thrown upon it by Judge White's opinion on its far-reaching influence on labor combinations - I "The interpretation of the statute, therefore, which holds that reasonable agreements are within its purview, makes it embrace every peaceable organization or combination of the laborer to bene2 fit his condition either by obtaining an increase of wages or diminution of the hours of labor. "Combinations among labor for this purpose were treated as illegal under the construction of the law which included reasonable contracts within the doctrine of the invalidity of contract or combinations in restraint of trade, and they were only held not to be embraced within that doctrine either by statutory exemption there from or by the progress which made reason the controlling factor on the subject. " It follows that the construction which reads the rule of reason out of the statute embraces within its inhibition every contract or combination by which workingmen seek peaceably to better their condition. It is, therefore, as I see it, absolutely true to say that the construction now adopted, which works out such results, not only frustrates the plain purpose intended to be accomplished by Congress, but also makes the statute tend to an end never contemplated, and against the accomplishment of which its provisions were enacted. "' To my mind, the judicial declaration that carriers cannot agree among themselves for the purpose of aiding in the enforcement of the provisions of the Interstate Commerce Law will strike a blow at the beneficial results of that act, and will have a direct tendency to produce the preferences and discriminations which it was one of the main objects of the act to frustrate." As an instance of some of the fallacies and inconsistencies of the reasoning on the part of the majority, the following from the majority report is very pertinent: — " In business or trading combinations, they [meaning the conspirators aforesaid] may even temporarily or perhaps permanently reduce the price of the article traded in or manufactured, by reducing the expense inseparable from the running of many different companies for the same purpose. Trade or commerce under these circumstances may, nevertheless, be badly and unfortunately restrained by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings. Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class, and the absorption or control over one commodity by an all-powerful combination of capital." This language is noteworthy, for the pathetic sympathy it indicates is even more remarkable when the source from which it emanates is thoroughly appreciated. Shocking as it may seem at the first blush, these Supreme Court judges have all been guilty of the offense which they here seem to deplore. They have either established or been prominent members of large law firms open to the charge of the same kind of " conspiracy and restraint of trade" aforesaid, and without any compunction, so far as the public know, until exhibited in this opinion. They have, to use their own language, " driven out of business [the law business, however] worthy men whose lives have been spent therein, and who might have been unable to readjust themselves to their altered surroundings," were it not for the law trusts. To such disaster have these hard-working, educated, honest lawyers been brought eventually through the restraint of trade and the unlawful conspiracy practiced by the large law firms. Yet this is not the worst of it, as regards the case of the law firms compared with other monopolies and trusts. The latter have the merit of reducing the price of the commodity dealt in, which Judge Peckham declares "might be dearly paid for" by the ruin of the class producing the commodity. But who ever heard of a large law firm reducing the price of its advice and services? If it did, its brethren of the bar would in all probability apply for a writ de lunatico inquirendo for the purpose of testing its sanity, or the Bar Association would be induced to introduce a bill in Congress for the maintenance of " reasonable costs." In contradistinction to the majority of opinion it seems, on a fair reading of the Interstate Commerce Act, without being too closely technical, that Congress must have had in mind the idea of protecting reasonable rates when that measure was passed. The first section of the act reads as follows: “All charges for any service rendered, or to be rendered, in the transportation of passengers or property as aforesaid, or in connection therewith, or for the receiving, delivering, storage or handling of such property, shall be reasonable and just, and every unjust and unreasonable charge for such service is prohibited and declared to be unlawful." This would seem to recognize the principle of maintaining reasonable rates, and the terms are evidently employed emphatically in conspicuous contrast to "unjust and unreasonable" rates, which are declared to be unlawful. One of the worst features connected with the Sherman Antitrust Act has been its uncertainty, coupled with the possibly unwitting deception that has been practiced in its administration. The law had not only reposed quietly for six years without its mischievous or fatal tendency being discovered, and without giving any intimation of the coming explosion, but it had lulled the people, and especially the railroad companies, into a feeling of perfect security through the several decisions of the United States District Court and Circuit Court of Appeals. In every instance the pooling clause and the agreement to sustain reasonable rates had been sustained until the TransMissouri case arose. A series of decisions by these inferior courts, therefore, had induced the parties concerned to believe that contracts, like that of the Trans-Missouri Freight Association, were perfectly legal, until the surprise came from the highest court of appeal. These circumstances all tended to intensify the demoralization to business interests when the certainty was revealed.

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