CHAPTER VI THE POWERS OF CONGRESS-Continued THE REGULATION OF COMMERCE Chief Purposes of Regulation.-The Government to-day is a silent partner in every large business. Public regulation has grown steadily in all fields, and in spite of the outcry raised against paternalism and radicalism, a close examination of our regulative laws shows that most of them are really designed to protect and preserve the business welfare of the community. They are aimed to safeguard the interests of (a) the consumer and (b) the investor, and they represent two great changes in the public opinion of our time. (a) The consumer was formerly thought to be amply protected by the ordinary action of the laws of supply and demand. If the producer sold fraudulent articles or charged extortionate prices, or was guilty of other acts injurious to the interests of the consuming public this would soon be discovered and he would be displaced by competitors who would be more honest, more moderate in prices, or more thoughtful of the public interest. Such was the accepted belief of the leading thinkers of former days. Our laws were based on this doctrine, but the experience of the newer generations has shown us that the doctrine no longer holds true under modern conditions. The buyer to-day does not know personally either the manufacturer, the wholesaler or the retailer whose goods he purchases. Trade has ceased to be local and become national and even international in scope. An article may be what it seems, but it may also not be. Producers of some standard necessary of life may combine together to extort unreasonable prices from the public. Fraud may be practiced in manifold ways, so that the consumer is unable to protect himself. He has become thoroughly aware of this fact and demands protection. These changes in the conditions and in the beliefs of the people have produced a strong tendency towards Government regulation for the protection of the consumer. (b) The investor has likewise undergone a profound change in his beliefs and in his attitude towards the Government. We used to consider it the buyer's business to protect himself in any deal. The old English legal principle caveat emptor-"let the buyer beware"- meant that every purchaser was thrown on his own resources in the open market; if he were deceived it was from lack of due care and caution. Practical as this rule may have been some generations ago, we can no longer rely wholly upon it in the purchase of stocks, bonds, and securities to-day. The investor now demands that there shall be at least some minimum standard of safety and honesty in the issue of securities, and that this standard shall be fixed by the Government as far as possible and enforced by it. Closely related to this protection of the investor is the effort of the Government to safeguard the small producer. This is especially seen in such measures as the anti-trust laws. For over a century the common law of England and America has forbidden the formation of monopolies and attempted to uphold complete freedom of competition. Its purpose in doing so has been chiefly to secure the benefits of competition to the consumer, but more recently we have also been strongly influenced in our legislation by the demands of small producers themselves for protection against destructive practices, business piracy, and illicit or dishonest customs which are often resorted to in the war of competition. Such customs and practices injure the consumer indirectly, but they directly and immediately destroy the producer himself, and are felt first by him. No small part of the influences which have led to our anti-trust laws is due to organizations of producers who have banded themselves together for protection, and now demand Government regulation to this end. The Federal Power.-The authority to regulate commerce is the most frequently used of all the powers of Congress. Most of the questions of national politics in which we are deeply interested are based on the commerce power; these include the control of the trust, the railways, express companies, telephones and telegraphs, corporations, pure food, etc. In the moment that any corporation engages in trade between the States it becomes subject to the legislation of Congress. This explains why the attention of the people has become so closely fixed upon the regulative power as to make it the very center of government activity to-day. The business men of 1785 found that State regulations and State taxes were hampering the free flow of trade between the States. They met in a convention at Annapolis and called for a new system of government which would give to the national authorities the sole right to regulate business between the States. This movement was not successful until, in 1787, the new Constitution declared in Section 8 of Article I, that Congress shall have power "to regulate commerce with foreign nations and among the several States and with the Indian tribes." The government's control over business as contained in this clause of the Constitution has raised several practical questions: What is "Commerce"? Does it include manufacturing? What is the present system of regulating commerce? What is the relation of the Federal control to State regulation of commerce? Meaning of "Commerce."-What is Commerce? Chief Justice Marshall, than whom no greater authority can be cited, has said in Brown v. Maryland, 12 Wheaton, 419; 1827, "Commerce is intercourse." "The gradual expansion of the term is traced by Thomas H. Calvert in his Regulation of Commerce in which he quotes Justice Harlan of the Supreme Court as follows: "Commerce among the States embraces navigation, intercourse, communication, traffic, the transit of persons, and the transmission of messages by telegraph." It is fortunate that our highest court in defining "commerce" has taken such a broad and statesmanlike view. Had it adopted a narrow interpretation, the power of Congress might have been so severely limited as to deprive the national government of its authority. Since 1787, the economic progress of the country, the growth of mechanical inventions and the increase of population have all combined to make " commerce" one of the greatest businesses of the nation and with every step in this growth the Federal authority has kept pace. Every new invention and discovery which promotes intercourse, increases the power of the national government to that extent. Chief Justice Waite in 1877 said (Pensacola Telegraph Co. v. Western Union Telegraph Co., 96 U. S. 1): "The powers thus granted over commerce and postal mails are not confined to the instrumentalities of commerce, or the postal system known or in use when the Constitution was adopted, but they keep pace with the progress of the country, and adapt themselves to the new developments of time and circumstances. They extend from. the horse with its rider to the stage-coach, from the sailing vessel to the steam-boat, from the coach and the steamboat to the railroad and from the railroad to the telegraph, as these new agencies are successively brought into use to meet the demands of increasing population and wealth. They were intended for the government of the business to which they relate, at all times and under all circumstances." Does "Commerce " include Manufacturing?-The importance of this question for the business man may be seen at once from the fact that practically every business except farming, mining and the professions, would be subject to the direct control of the National government if commerce were so broadly defined as to include industry. This interesting problem came before the Supreme Court in the case of United States v. E. C. Knight, 156 U. S. 1; 1895. Congress having passed an act prohibiting monopolistic combinations in interstate commerce the question arose, is a manufacturing combination subject to this law? The attorneys for the Knight Co. declared that manufacturing was the change of form while commerce was the change of place, and that Congress had control over commerce but not over manufactures, according to the plain meaning of the constitutional clause. This view was upheld by the Supreme Court. Industry is not commerce. But practically, this distinction is becoming daily of less importance since every large manufacturing enterprise is now obliged to engage actively in trade between the States. It must transport its raw materials and sell and ship its finished product. The assembling and distribution of these materials and products has now become so closely connected with their manufacture as to be inseparable in practice; which amounts to saying that our large industrial companies have become subject to the commerce regulating power of Congress. Over this great current of interstate trade the authority of Congress is absolute and plenary, subject only to the restraining clauses of the Constitution. 1 It may pass laws to remove obstacles from trade, to protect commerce from dangers and evils which are threatened, to regulate the kinds of commerce which shall flow from State to State and the channels by which it shall flow, and even to prohibit commerce temporarily, for a proper legitimate purpose. The National System of Regulation.-How has Congress used its power to regulate commerce? Originally the power was exerted chiefly for the protection and encouragement of shipping and navigation. Lighthouses, harbors, coast surveys, fisheries, etc., were controlled in great detail to the exclusion of other matters. But in the last twenty-five years an important change in our national policy has taken place. Popular attention has been directed towards the trusts, a strong demand has arisen for some control over these large corporations, and Congress in response has exercised its authority along entirely new lines. Three different kinds of corporate regulations have been attempted, corresponding to three interesting stages of popular sentiment on "trusts" and combinations of capital. First, the thought was that, since the trust thrived on secret rebates and discriminations granted by the railways, if these could be prevented the trust would be destroyed. This feeling caused the passage of the commerce law of 1887, prohibiting rebates. In the second stage, the people felt that the act of combination itself was an evil and should be prohibited by law; hence the Sherman Anti-Trust Act of 1890. In the third stage, the combination was acknowledged to be a sound economic form of business but the chief evil seemed to be over-capitalization or stock-inflation. This should be checked by publicity, hence the laws of 1903 and 1909. Let us examine briefly the various evils which were aimed at by this legislation and the practical results achieved. Foremost among these lies the question of railway discrimination in favor of the larger shipper as against the smaller. Railway Discriminations and Rebates.-One of the chief purposes of the national laws regulating commerce has been to suppress railway discrimination and the rebate. The original form of this practice was a lower rate quoted to the large shipper, but as this inequality soon became known and aroused antagonism the discrim 1 The most important of these clauses are the prohibition of taxes on articles exported from any State and of preferences to the ports of any State, also the declaration that vessels in the coasting trade shall not be obliged to enter clear or pay duties while passing from one State to another; all are contained in Article I of the Constitution. The purpose of these restrictions has already been explained under Taxation. ination was then changed in form. The large shipper was quoted the same rate as his small competitor, but he received a secret discount or rebate of part of this charge. The practice of rebating became so general in certain industries that all shippers asked and secured these secret variations from the published railway rates, the amount varying according to the size of the shipper's tonnage. Many of the railways had oral or written agreements providing for a return of part of the freight charge in this way, and some of these agreements have been produced in judicial proceedings and are matters of record. After the rebating practice had become thoroughly established, the large shipper decided to extend his advantage one step further by demanding a rebate not only on his own shipments but also on those of his competitors. He was not always able to secure this but if he controlled a sufficient amount of freight to make it worth while for the railway to accept his terms he was successful. Court records show for example that one railway allowed its largest freight shipper a rate of 10c per barrel of oil, whereas his competitors were paying 35c per barrel, and that the railway furthermore paid to the large shipper the sum of 25c per barrel, on his competitor's freight, which was the difference between his rate and that charged the small shipper. The large company thereby enjoyed an advantage of 50c per barrel over its competitors in the cost of marketing its product. This entire practice is now forbidden by the Act of 1887, and the amendment of 1903, providing that "it shall be unlawful for any person, persons, or corporation to offer, grant, or to solicit, accept or receive any rebate, concession, or discrimination in respect to the transportation of any property in interstate or foreign commerce by any common carrier subject to said act." "Every person or corporation whether carrier or shipper who shall, knowingly, offer, grant, or give, or solicit, accept, or receive any such rebate, concession, or discrimination shall be deemed guilty of a misdemeanor." So long as the Act punished only the railways, it was difficult if not impossible to enforce it, since the initiative in rebating did not usually come from the carrier but from the shipper, who demanded a drawback. But the amendment of 1903 just cited, which visited a punishment upon the shipper who demands, as well as the carrier which offers or grants the rebate, speedily put an end to the grosser forms of drawback and the practice has steadily diminished. In 1906, four of the principal railways of the country and three large industrial combines were fined for rebating, some of the traffic managers being penalized as much as $10,000 each and one railway company being fined $118,000. That the illicit custom has not died out yet is due to the fact that some hope has remained until recently of devising new indirect methods of rebating which might stand as legal. Private Cars. The special freight car owned and used by shippers or by large private concerns like the refrigerating companies, |