THEODORE ROOSEVELT Boxed Set. Henry Cabot Lodge
of the people as a whole; and the conscious and the unconscious advocates of an unlimited and uncontrollable capitalism gradually secured the whittling away of the National power to exercise this theoretical right of control until it practically vanished. After the Civil War, with the portentous growth of industrial combinations in this country, came a period of reactionary decisions by the courts which, as regards corporations, culminated in what is known as the Knight case.
The Sherman Anti-Trust Law was enacted in 1890 because the formation of the Tobacco Trust and the Sugar Trust, the only two great trusts then in the country (aside from the Standard Oil Trust, which was a gradual growth), had awakened a popular demand for legislation to destroy monopoly and curb industrial combinations. This demand the Anti-Trust Law was intended to satisfy. The Administrations of Mr. Harrison and Mr. Cleveland evidently construed this law as prohibiting such combinations in the future, not as condemning those which had been formed prior to its enactment. In 1895, however, the Sugar Trust, whose output originally was about fifty-five per cent of all sugar produced in the United States, obtained control of three other companies in Philadelphia by exchanging its stock for theirs, and thus increased its business until it controlled ninety-eight per cent of the entire product. Under Cleveland, the Government brought proceedings against the Sugar Trust, invoking the Anti-Trust Law, to set aside the acquisition of these corporations. The test case was on the absorption of the Knight Company.12 13 The Supreme Court of the United States, with but one dissenting vote, held adversely to the Government. They took the ground that the power conferred by the Constitution to regulate and control interstate commerce did not extend to the production or manufacture of commodities within a State, and that nothing in the Sherman Anti-Trust Law prohibited a corporation from acquiring all the stock of other corporations through exchange of its stock for theirs, such exchange not being "commerce" in the opinion of the Court, even though by such acquisition the corporation was enabled to control the entire production of a commodity that was a necessary of life. The effect of this decision was not merely the absolute nullification of the Anti-Trust Law, so far as industrial corporations were concerned, but was also in effect a declaration that, under the Constitution, the National Government could pass no law really effective for the destruction or control of such combinations.
This decision left the National Government, that is, the people of the Nation, practically helpless to deal with the large combinations of modern business. The courts in other cases asserted the power of the Federal Government to enforce the Anti-Trust Law so far as transportation rates by railways engaged in interstate commerce were concerned. But so long as the trusts were free to control the production of commodities without interference from the General Government, they were well content to let the transportation of commodities take care of itself—especially as the law against rebates was at that time a dead letter; and the Court by its decision in the Knight case had interdicted any interference by the President or by Congress with the production of commodities. It was on the authority of this case that practically all the big trusts in the United States, excepting those already mentioned, were formed. Usually they were organized as "holding" companies, each one acquiring control of its constituent corporations by exchanging its stock for theirs, an operation which the Supreme Court had thus decided could not be prohibited, controlled, regulated, or even questioned by the Federal Government.
Such was the condition of our laws when I acceded to the Presidency. Just before my accession, a small group of financiers, desiring to profit by the governmental impotence to which we had been reduced by the Knight decision, had arranged to take control of practically the entire railway system in the Northwest—possibly as the first step toward controlling the entire railway system of the country. This control of the Northwestern railway systems was to be effected by organizing a new "holding" company, and exchanging its stock against the stock of the various corporations engaged in railway transportation throughout that vast territory, exactly as the Sugar Trust had acquired control of the Knight company and other concerns. This company was called the Northern Securities Company. Not long after I became President, on the advice of the Attorney-General, Mr. Knox, and through him, I ordered proceedings to be instituted for the dissolution of the company. As far as could be told by their utterances at the time, among all the great lawyers in the United States Mr. Knox was the only one who believed that this action could be sustained. The defense was based expressly on the ground that the Supreme Court in the Knight case had explicitly sanctioned the formation of such a company as the Northern Securities Company. The representatives of privilege intimated, and sometimes asserted outright, that in directing the action to be brought I had shown a lack of respect for the Supreme Court, which had already decided the question at issue by a vote of eight to one. Mr. Justice White, then on the Court and now Chief Justice, set forth the position that the two cases were in principle identical with incontrovertible logic. In giving the views of the dissenting minority on the action I had brought, he said:
"The parallel between the two cases [the Knight case and the Northern Securities case] is complete. The one corporation acquired the stock of other and competing corporations in exchange for its own. It was conceded for the purposes of the case, that in doing so monopoly had been brought about in the refining of sugar, that the sugar to be produced was likely to become the subject of interstate commerce, and indeed that part of it would certainly become so. But the power of Congress was decided not to extend to the subject, because the ownership of the stock in the corporations was not itself commerce."
Mr. Justice White was entirely correct in this statement. The cases were parallel. It was necessary to reverse the Knight case in the interests of the people against monopoly and privilege just as it had been necessary to reverse the Dred Scott case in the interest of the people against slavery and privilege; just as later it became necessary to reverse the New York Bakeshop case in the interest of the people against that form of monopolistic privilege which put human rights below property rights where wage workers were concerned.
By a vote of five to four the Supreme Court reversed its decision in the Knight case, and in the Northern Securities case sustained the Government. The power to deal with industrial monopoly and suppress it and to control and regulate combinations, of which the Knight case had deprived the Federal Government, was thus restored to it by the Northern Securities case. After this later decision was rendered, suits were brought by my direction against the American Tobacco Company and the Standard Oil Company. Both were adjudged criminal conspiracies, and their dissolution ordered. The Knight case was finally overthrown. The vicious doctrine it embodied no longer remains as an obstacle to obstruct the pathway of justice when it assails monopoly. Messrs. Knox, Moody, and Bonaparte, who successively occupied the position of Attorney-General under me, were profound lawyers and fearless and able men; and they completely established the newer and more wholesome doctrine under which the Federal Government may now deal with monopolistic combinations and conspiracies.
The decisions rendered in these various cases brought under my direction constitute the entire authority upon which any action must rest that seeks through the exercise of national power to curb monopolistic control. The men who organized and directed the Northern Securities Company were also the controlling forces in the Steel Corporation, which has since been prosecuted under the act. The proceedings against the Sugar Trust for corruption in connection with the New York Custom House are sufficiently interesting to be considered separately.
From the standpoint of giving complete control to the National Government over big corporations engaged in inter-State business, it would be impossible to over-estimate the importance of the Northern Securities decision and of the decisions afterwards rendered in line with it in connection with the other trusts whose dissolution was ordered. The success of the Northern Securities case definitely established the power of the Government to deal with all great corporations. Without this success the National Government must have remained in the impotence to which it had been reduced by the Knight decision as regards the most important of its internal functions. But our success in establishing the power of the National Government to curb monopolies did not establish the right method of exercising that power. We had gained the power. We had not devised the proper method of exercising it.
Monopolies can, although in rather cumbrous fashion, be broken up by law suits. Great