Does Price Fixing Destroy Liberty?/General Considerations

by George Howard Earle, Jr.

CHAPTER I.

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General Considerations.

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"In favour of Liberty. * * * Impius et crudelis judicandus est, qui libertati non favet. Angliae jura in omni casu libertati dant favorem."

—Coke on Littleton, 124 b.

With the introduction understood somewhat as a syllabus of the many considerations involved, which cannot all be stated at once, a general knowledge of the scope of this inquiry is gained. Little difficulty or discussion would have resulted from the consideration of the Lever Act, had the constant admonitions of the Supreme Court been observed to the effect that whether in construing such Acts or the Constitution itself, there must always be considered both the Common Law and the conditions under which the Constitution was adopted, and Acts passed in pari materia. As Mr. Justice White says in the Knowlton case:^[1] "The then members of the Congress * * * must have had a keen appreciation of the influences which had shaped the Constitution and the restrictions which it embodied, since all questions which related to the Constitution and its adoption must have been at that early date, vividly impressed on their minds. * * * The people were content to commit to their representatives the enactment of reasonable and wholesome laws, being satisfied with the protection afforded by a representative and free government and by the general principles of the Common Law protecting the inalienable rights of life, liberty and property. * * * The necessities which gave birth to the Constitution, the controversies which preceded its formation, and the conflicts of opinion which were settled by its adoption, may properly be taken into view for the purpose of tracing to its source any particular provision of the Constitution, in order thereby to be enabled to correctly interpret its meaning." See also: Pollock vs. Farmers Loan and Trust Co.,^[2] The Knight case,^[3] The Standard Oil case,^[4] The Craig case,^[5] and Rhode Island case.^[6]

It will be remembered that, as will be shown in detail later, an unremitting struggle had been going on, at least from the time of Magna Charta, between the English people, on the one hand, and the Trade Association, known as "Guilds," and, finally, the Crown asserting a prerogative, to determine whether trade should be carried on, and prices fixed in a free competitive market, or whether this liberty to trade should or could be controlled by monopolistic price fixing and control either by combinations of men or the Government itself; and that by the Statute of James I^[7] the victory was definitely determined in favor of the people, and that which they had always contended was essential to their freedom.

It will be further remembered that in the year of our Revolution, in 1776, Adam Smith's Great work^[8] had been published, the nature of trade carefully explained; the "mercantile system" as completely routed; and the true nature of business and its relation to the wealth of nations clearly and finally expounded in its most essential features. It will also be remembered that for twelve years thereafter the Constitution was either being discussed, drawn or adopted, until the final signature of General Washington was attached on the seventeenth day of December, 1787, and that the first ten amendments were declared in force upon the fifteenth day of December, 1791, a period during which Adam Smith's work had been thoroughly digested and as thoroughly understood and accepted.

It is not thought necessary at the present moment to state the results that then had been reached at Common Law, and finally buttressed by the Constitution, with minute exactness or in great detail; but generally it was held that all restraints of trade—that is to say, "trade" itself, not merely "traders,"—where their restraint did not restrain trade itself,—were against the public welfare, and injurious; and that the greatest of all trade evils was when they reached the point of monopoly. On the other hand, the right freely to trade in commodities at the untrammeled discretion as to terms, and prices, of all who wished to compete, was thought, and correctly thought, not only to be a part of our Liberty, but perhaps, its most essential safeguard.

If this be not understood, error is sure to result, as it has already resulted, in a misunderstanding of the decisions of the Supreme Court of the United States; for, as Lord Coke has long since said: "The law is not known to him who knoweth not the reason thereof."

Monopolies, therefore, having come to be considered the most "odious," the most "pernicious," the most injurious of trade evils, almost the equivalent of treason,—because they enabled individuals, in effect, to tax the community, not through its representatives, but through their own arbitrary decrees, and thus strike at the very root of our Liberty,—were and have always been considered necessarily, a subject of State control. If this be not conceded, the public utility cases are sure to be misunderstood.

It was found that in a certain class of cases, such as water, gas, electric, and transportation companies, the public convenience was best served by the organization of enterprises monopolistic in their nature; and so great has been the evil of monopoly that the State has never given up its continuing control of such enterprises; even preferring all the uncertainty, danger, and difficulty of arbitrary and noncompetitive price fixing to the greater evil of permitting a substantial power of taxation to rest in the hands of individuals not representative of the people who pay the taxes. So that all such grants have been received subject to the State's reserved power in this respect.

Accordingly, in such cases, price fixing has always remained a legislative function. At this point, however, the Constitution steps in and provides that the State, even in exercising this power, cannot overrule the constitutional provision providing against confiscation. Nevertheless, and this is one of the utmost importance, this being a legislative function, it has been determined that the rate fixed by the Legislature in such cases, being within its power, is presumptively correct to such a degree that nothing short of clear proof can abrogate it. It will thus be seen that this reduces the matter in these cases to a simple question of burden of proof and adequacy of evidence. There is nothing else involved.

On the other hand, when we come to consider the production and sale of common commodities, the production and sale of which are open to anyone, without State grant or assistance, and there being no danger of this monopolistic taxation, it has been proven through the centuries that they will always, and inevitably, seek the "natural" or "normal" price that will tend to fair exchange with other commodities, and that absolutely no other method was ever tried with any success. That prima facie, the market price, that is to say, the price that is ever resulting from freedom in competition, is the right price; the one that will restrict over production and at the same time stimulate the needed production in times of scarcity. So the matter is reversed and the "free" price becomes irrefutably the "fair price," and, therefore, in such case the burden of proof having shifted and the duty of showing the contrary by sufficiently clear legal evidence, resting upon those who question it, the attempt to supplant it by criminal statute, to supplant it not only in face of the continuing presumption of innocence, but by evidence that establishes every essential fact, becomes impossible. It is beyond all possibility to prove that a matter is not what it is, and always has been.

It is manifest that in cases of a monopolistic nature, a decision in favor of the Government price is not necessarily a decision that the price fixed is reasonable, much less reasonable beyond all reasonable doubt (the Supreme Court is ever pointing out how uncertain and difficult the matter), but is merely a decision that those complaining have not sustained the burden of proof placed upon them by public policy; whilst a decision against the rate by reason of the omission of any necessary element of calculation is conclusive proof of unreasonableness and consequently of illegality.

A finding, therefore, that any charge is illegal because of the omission of such an essential feature, is a conclusive finding that those traders who have included it in their calculations have done so reasonably, and that if there is no ascertainable basis of reaching a definite test, no basis that excludes as a necessary element speculation, guessing or surmise, they have not, at least beyond all reasonable doubt, violated their duty; and that, where such elements of uncertainty are fixed conditions of business enterprises, there does not, and cannot exist the data upon which indictment or conviction is possible in a free government, or after a fair trial within the meaning of the Constitution. Because free men cannot lose their liberty or property for errors of judgment resulting from the lack of powers or of the guiding of the necessary and adequate experience of the ordinarily reasonable average businessman.

With this understood, nothing more clearly demonstrates the accuracy of the position taken by the Supreme Court in the International Harvester case,^[9] the Collins case,^[10] and the Pennsylvania Railroad case,^[11] than the decisions already delivered in cases of monopolistic nature. Let us, therefore, now examine some of the principles therein enunciated, always remembering the rules of presumption and burden of proof therein involved. It will be found that, even if standing alone, they demonstrate that a criminal statute such as the Lever Act cannot possibly be constitutionally enforced, because of the natural impossibility of proving that which is absolutely requisite.

Mr. Justice McKenna, in the case of United States vs. United States Steel Corporation, which was decided by the Supreme Court on March 1, 1920, says:^[12] "* * * in a case of this importance, we should have something surer for judgment than speculation, something more than a deduction equivocal of itself, even though the facts it rests on or asserts were not contradicted. If the phenomena of production and prices were as easily resolved as the witness implies, much discussion and much literature have been wasted, and some of the problems that are now distracting the world would have been given composing solution. Of course, competition affects prices, but it is only one among other influences, and does not more than they register itself in definite and legible effect."

In the earlier Knoxville case,^[13] the Court said: "Before coming to the question of profit at all, the Company is entitled to earn a sufficient sum annually to provide not only for current repairs but for making good the depreciation and replacing the parts of the property when they come to the end of their life. The Company is not bound to see its property gradually waste, without making provision out of earnings for its replacement. * * * It is not only the right of the Company to make such provision, but it is its duty, etc."

Of course, this duty is simplicity itself in the kind of case there treated, because the stock of the Company was chiefly invested in real property, but when one comes, in a rapidly fluctuating market, to calculate what may be necessary for replacement of commodities that must be entirely parted with, and then replaced,—not merely used, the calculation, as will be shown, is absolutely impossible. Again, the Court says in the same case:^[14] "The operations of the preceding fiscal year, or of any other past fiscal year, were valueless if the year was abnormal. * * * If, as in this case, sufficient time has passed, so that certainty instead of prophecy can be obtained, the certainty would be preferable to the prophecy. In this case there could be no absolute certainty, because the ordinance had^[15] never been put in operation. * * * Suppose, by way of illustration, that before bringing suit the Company had put the ordinance into effect and had observed it for a number of years, and the result showed that a sufficient net income had been realized, it is possible that a suit then could be brought and the evidence confined to a period prior to the ordinance, and by a process of speculation the conclusion reached that the ordinance would be confiscatory? * * * Where the case rests, as it does here, not upon observation of the actual operation under the ordinance, but upon speculation as to its effect, * * * we will not guess whether the substantial return certain to be earned would lack something of the return which would save the effect of the ordinance from confiscation. It is enough that the whole case leaves us in grave doubt." And the Court thus concludes its opinion with the following enlightening statement:^[16] "Regulation of public service corporations, which perform their duties under conditions of necessary monopoly, will occur with greater and greater frequency as time goes on. It is a delicate and dangerous function. * * * The Courts ought not to bear the whole burden of saving property from confiscation, though they will not be found wanting where the proof is clear. The Legislatures and subordinate bodies, to whom the legislative power has been delegated, ought to do their part. Our social system rests largely upon the sanctity of private property, and that State or community which seeks to invade it will soon discover the error in the disaster which follows. The slight gain to the consumer, * * * is as nothing compared with his share in the ruin which would be brought about by denying to private property its just reward, thus unsettling values. * * * If hereafter it shall appear, under the actual operation of the ordinance, that the returns allowed by it operate as a confiscation of property, nothing in this judgment will prevent another application to the Courts."

After this statement of principles enunciated in a case where the Government started with the presumption in its favor, how could the decision in the Harvester case^[17] have been otherwise, under the much more difficult conditions of estimating in the case of commodities, and in relation to a criminal statute, whether a price is in excess of "real value," or not, especially where there were no sales, or possibilities of real tests. And the Government labors under the burden of proof,—the duty to establish its case not by a mere guess, but also beyond all reasonable possibility of doubt. But the merchants under the Lever Act have thrust upon them, as will be seen hereafter, a far more delicate and dangerous function than ever before was imposed under any statutory or other enactment.

In the Wilcox case,^[18] Mr. Justice Peckham says: "All these matters make questions of value somewhat uncertain; while added to this is an alleged prospective loss of income from a reduced rate, a matter also of much uncertainty. * * * And we have a problem as to the character of a rate which is difficult to answer without a practical test from actual operation of the rate. * * * A Court of Equity ought not to interfere by injunction before a fair trial has been made of continuing the business under that rate, and thus eliminating, as far as is possible, the doubt arising from opinions as opposed to facts. * * * Such compensation must depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor. * * * The less risk, the less right to any unusual returns upon the investment. One who invests his money in a business of a somewhat hazardous character is very properly held to have the right to a larger return without legislative interference, than can be obtained from an investment in Government Bonds or other perfectly safe security. * * * It, in other words, becomes matter of speculation or conjecture to a great extent. * * * Taxes, even if founded upon an erroneous valuation, were properly treated by the Company as part of its operating expenses." Although the proof had again failed to show clearly error in the governmental rate, the bill was again dismissed without prejudice.

In the Northern Pacific case,^[19] the Court says: "There are many factors to be considered * * * the risk assumed." And the Court again speaks of "the difficult question of determining what is a reasonable rate."

Again, in the Louisville case, it is said:^[20] "Where an existing freight rate is attacked, the burden is on the complainant to establish that it is unreasonable in fact. * * * While some elements of value are fixed, the market price of property and work is affected by so many and such varying factors as to make it impossible to lay down a rule by which to determine what any article or service is worth.

In the Lincoln Gas Company case,^[21] the Supreme Court says: "As early as the month of January, 1909, this Court, in two notable rate cases, indicated its view of the importance, in any but a very clear case, of subjecting prescribed rates to the test of practical experience before attacking them in the Courts. * * * There are too many doubtful items for us to adjudge the ordinance void, in the absence of an actual and timely test. * * * It is a matter of common knowledge that, owing principally to the world war, the costs of labor and supplies of every kind have greatly advanced since the ordinance was adopted, and largely since this cause was last heard in the Court below. And it is equally well known that annual returns upon capital and enterprise the world over have materially increased, so that what would have been a proper rate of return for capital invested in gas plants and similar public utilities a few years ago furnishes no safe criterion for the present or for the future." As before in these cases the Court modified the decree of the Court below to be without prejudice.

Remembering what has already been pointed out as to the burden of proof and necessary evidence, it was impossible that a Court, having such knowledge upon the subject, could have possibly thought otherwise than as it did in the Harvester and Collins cases, or could require citizens, at the peril of financial ruin and imprisonment, to guess what they could only guess at; and hold them to a correct guess where all experience, all economic thought, shows that they not only could not do so with any degree of certainty, much less beyond any reasonable doubt; and this at probably the most difficult time in the whole history of the world. What man, when inflation and war have driven prices 400 per cent. above normal, can predict beyond reasonable doubt, when and how prices will recede below normal, although all know that this terrible decline and consequent risk are inevitable?

No more complete demonstration of the impossibility of the average human mind solving such uncertainties can be found than in the results of these efforts of the Courts, made necessary because of the monopolistic nature of this class of enterprise. As has been pointed out by the Supreme Court, the ablest specialists have consequently been employed in this work. In considering these problems, first the Legislatures act, taking all the time necessary to reach just conclusions, then there is called into service to do the best, either an able master, selected by the Court, or a commission of trained experts, again taking all the time requisite, weeks, months or years; and, in turn, there is an appeal to a court of justice, and from its consideration it passes through Courts, until finally determined by the ablest and highest judicial body in the world. It, in turn, has had to introduce the new practice of offering opportunity of additional tests; although the cases have been fully heard. Finally, with all this the Supreme Court had to predict the disaster that has come, were it not to receive still further and better assistance. And all these high experts were dealing with the easiest possible cases of price fixing; all of them had all the resources of the Government at their service, and, as has been said, none of them had to act hourly, with no time for deliberation or investigation, as is inevitably the case in the sale of commodities. Everyone knows now that because of the impossibility of performing the burden of supplying adequate facts, millions of dollars of property, as a fact, have failed to receive the protection of the guarantees of the Constitution, and have suffered confiscation by the Government. Not only this, but the calculations have been so far astray that the Government itself, these industries being essential, has already had to tax the people millions of dollars, and will probably ultimately have to increase the taxpayers' burdens even by billions to relieve the situation. And, further, that nothing has done more, not even the inflation of the currency, than the confusion and failure of service which has followed, to increase the cost of living and inflict a general demoralization of production, with an enormous enhancement of cost, resulting from all this new uncertainty—as well as from the general uncertainties which have always surrounded the subject. Well has the Supreme Court declared it "A difficult and dangerous task"! If anybody could know price fixing it would be the Supreme Court. Its decisions have been, in effect, always wise and right, and as correct as human genius permits, because it has always protested against and thoroughly realized the impossibility of performing this task satisfactorily even to itself. That no one else could have done better is easily demonstrated.

As sugar has been chiefly discussed in the cases, arising under the act, it may be herein used as the illustration. It is the most discussed subject, and, indeed, the only commodity as to which President Wilson has himself been willing to assume the risk and undertake the task of price fixing which the Act he signed, no doubt with the utmost patriotism and good intent, has placed upon the merchant; imposing as the act does fine and imprisonment as a penalty for not performing it to the satisfaction of the Government. What is now said is not stated with any purpose of criticism, indeed, is only strengthened by the admission of the President's great ability, of his long and careful deliberation, before acting; and his unprecedented advantages for reaching correct results. He was offered an amount of sugar that would have taken care of the national needs and have made sugar relatively the cheapest food commodity in the country. The price, however, was perhaps double the prior minimum price. With all his advantages for decision, he declined the offer, and the market promptly advanced to over four hundred per cent. of normal price, costing the country, and adding to the price of living, hundreds of millions of dollars! He has been severely criticized, but, I think, very unjustly criticized, and for the reason given by the Supreme Court in the International Harvester case.^[22] The task was not capable of certain performance by even the powers of his active intellect. This can be demonstrated! In the first place, the great body of Cuban planters, with their long experience and expert knowledge, all thought the transaction was desirable. They were just as much in error as he. In the second place, it is demonstrated that the great body of Americans engaged and expert in the business were equally wrong, because, had they purchased their supplies in an adequate amount at the then market price, the subsequent rise would have been impossible, because of a lack of market. Again, you have a demonstration of the impossibility of which the Supreme Court so well treats in the Harvester case. If the President erred, it was in a mere matter of belief, not founded upon, but in contradiction to, the principles of the Common Law and of established political economy. Such attempts at price fixing, from their very nature, could not permanently succeed, and only tended to confusion and a resulting increase of prices through the accompanying increase of risk and uncertainty.

That the Harvester case is right, the Lever Act wrong, if it is to be so interpreted, seems of the easiest test.

Men may, of course, be indicted if (as Justice Holmes says in the Nash Case) "in many instances," they do not use the ordinary reasoning of the average man; to punish them for not having higher powers would be pure despotism.

Now, the Lever Act, if anything, is an act to punish, not for mistake, but for inordinate greed; not for taking precautions against risk, where uncertainty abounds; but for doing what the supposed "reasonable man" must beyond any reasonable doubt know was not necessary to meet all contingencies.

But, if the average reasonable man had power to do this, all ordinary men must be enormously rich, for guessing being no longer necessary, men need not limit their wealth except by their wishes. So that the Act would require criminal punishment for not having extraordinary powers! It would be by legislation, an attempt to do the impossible, and by edict to turn mere surmise into mathematical deduction, and necessary speculation into deliberate crime! But, as statisticians generally agree that but one man who attempts business out of each ten, succeeds, that would be to declare a thing only guessed at, proven beyond reasonable doubt, in the face of the fact that the chances of the guess being right is "only one in ten."

And when that does occur to any large degree, it is largely the result of unusual and superior ability in guessing. Under modern methods, most of these great businesses are conducted by corporations, whose stocks can readily be obtained on the Exchange. It is manifest, therefore, that if this power of forecast really existed, those happily possessing it would shortly divide the wealth of the world. It is equally manifest that if the agents of Government, or members of juries could, even in a majority of cases, forecast such matter, no amount of salary that could be paid them would be adequate to keep them in Government employ. The world would be at their feet. The truth is that if laws against profiteering could be just, there would be no occasion for profiteering at all; for if there were no excessive risks or inordinate losses to be guarded against, there would be no occasion for equal profits to balance them, as all men could grow enormously rich, by the continued flow of never-failing gain. A broker, some years since, stated that not one per cent. of his customers, who continued to trade, ultimately made money, and that the most successful of them were those who acted on the principle that the general estimates must prove wrong, and so bought in contradiction of the general belief. That all this has been realized by the generations who have built up the Common Law upon the subject, through an unvarying experience, came from the fact that during that time the nature and character of business was gradually being learned and understood.

Later, that the writer may not be thought to stand alone in his conclusions, undisputed authority will be quoted to sustain the views expressed. The present effort is only to state their results succinctly. The primary distinction of business from other means of gaining livelihood is "risk taking." The business man is the "risk taker"; and, as Adam Smith correctly points out, the universal rule is that hope triumphs over fear, and that this vital element of risk is nearly always underestimated. It will be remembered that the Supreme Court has already decided that requiring compensation for the consequences of this risk is not profit at all. Again, it must be borne in mind that the function of money in trade, misunderstood until the time of Adam Smith, merely consists in aiding in the circulation of commodities, and is not the substance of the matter at all. That its real utility is not in changing commodities for money, but in facilitating the change of commodities for commodities. "The fact is, that all trade in the last analysis is simply what it is in its primitive form of barter, the exchange of commodities for commodities. The carrying on of trade by the use of money does not change its essential character, but merely permits the various exchanges, of which trade is made up, to be divided into parts or steps, and thus more easily effected. When commodities are exchanged for money, but half a full exchange is completed. When a man sells a thing for money, it is to use the money in buying some other thing—and it is only as money has this power that anyone wants or will take it." Beyond that, a most lurking danger is in the ignorant assumption that money has a stable value, whilst other things fluctuate. And this misconception constantly ruins a large part of the community; whilst an equally large part is lured to dangerous extravagance by the illusion that its wealth has been enormously increased when nothing has changed except a depreciation of the mere counters that thus merely revolve trade. It has been said Professor Fisher pointed out that money, before the war, had nearly three hundred per cent. of its present purchasing power; this decline resulting from the enormous inflation that took place during the war. Beyond that, the dealer in commodities has the problem of replacing these commodities and making the necessary calculations to do so many times a year. He has to be always "guessing," and, in a vast majority of cases, he guesses wrong, and so ultimately fails. Perhaps, indeed, the most vital error is in confusing "price" with "value." A great number of indictments under the Lever Act are pending from this very mistake. The proof that a man has paid one price and has charged a hundred per cent. more and upward for the same goods, standing alone, really means absolutely nothing. The real question is whether he has properly guessed what the replacement price will be; and that, of course, he can only do, in most cases, by mere surmise. His wealth consists in his commodities, and he is going straight to ruin, if deceived by the depreciation of the counters of exchange, he fail not to replace that real wealth with a sum fully adequate to secure an equivalent amount. A Pacific Coast Judge on this account has just, very properly, directed a verdict where the illusory profit was apparently one hundred and fifty per cent. of the cost price. That the price of goods is not the wealth, but that the goods themselves are, and that the price is but a method of exchanging wealth for real wealth—that is, other goods—is an indisputable axiom of political economy. But let us again test this by the example of sugar, which we have heretofore used, taking that example for the additional fact that a great part of the facts actually are of record.

Suppose a refiner has a stock worth ten million dollars with the price five cents a pound. Suppose that price from his best guess, is going to advance, or does advance, to ten cents a pound, and he sells it on that basis, not his mere purchase price, plus a living profit, which is consumed. He is, therefore, demonstrated, if price be a just test instead of replacement value, to have made upward of one hundred per cent. profit. But he only can replace his stock, for all that has taken place is that, in relation to that stock, money has depreciated. Now suppose, as has happened, he calculated correctly again that sugar would go to twenty cents, and again charged its replacement value plus a living profit. He now, apparently, has turned his ten million dollars' worth of counters into forty million dollars. The average jury, and even some judges, might think that atrocious. The informed business man would probably lie awake at nights trying to devise means of escaping bankruptcy. And why? As the Common Law, and the Supreme Court of the United States, have demonstrated by the Harvester and Collins cases, he understands the real situation. In the first place, at the end of the year, his illusory profit would, at the lowest, have to be divided with the Government. His taxation would, at the least, be fifteen million dollars, and then at any moment, and certainly some time, under demonstrated rules of political economy, the tremendous increase of production, inevitable from the stimulus of such prices, must drive the price below the original price, and probably keep it there for years, until increased consumption catches up with the oversupply thus resulting. His forty million dollars of stock must, therefore, at some time, shrink below the original ten millions, demonstrating a countervailing loss of fifteen million dollars. His account thus would stand at the end with no profits except those upon which he had lived, and with deductions of fifteen million dollars for taxes, (and nothing to meet them with except the sum below ten million dollars which his maintained stock would then bring), so that he would be bankrupt at least to the extent of five million dollars, and, incidentally, have additional fines to pay and perhaps be put in jail for criminal profiteering. And all this would be the result of a reversion to the exploded theories of the mercantile system! Most of these prosecutions when the matter is understood, are simply attempts to punish men for not exchanging a greater amount of sugar, for a less amount, or in other words for not agreeing to an actual confiscation of their stock. Indeed, in the Myatt case,^[23] the indictment was for selling sugar at fourteen cents per pound and making four cents; and as sugar subsequently reached twenty-eight cents, remembering that the real transaction consisted of exchanging commodities for commodities, in that case there was a charge of crime, probably for no other cause than not giving two pounds of sugar for one pound.

The purpose of the Lever Act, of course, was to insure, as far as possible, an indefinite and increased continuation of these revolution from goods to goods, called "business," so as to require not only a guess for a present turn, but for a security against risk in the many subsequently to take place.

But everyone knows that none can forsee what our taxes are to be. Propositions now before Congress, if these errors are to prevail, would sweep away one hundred per cent. and upward of profit. Everyone knows that prices are enormously high. No one can, of course, know when the inevitable drop will take place. A merchant knows only that it must take place, as it already has in the case of silk and leather commodities involving not only many individuals, but a great nation, in serious financial difficulty. All of us now know, as John Stuart Mill says, in "Principles of Political Economy,"^[24] "When a commodity * * * can be made in indefinite quantity * * * if the value * * * is such that it repays the cost of production with a higher rate of profit, capital rushes to share in this extra gain, and by increasing the supply of the article, reduces its value. This is not a mere supposition or surmise, but a fact familiar to those conversant with commercial operations. * * * There is sure to be, in a short time, so large a production or importation of the commodity, as not only destroys the extra profit, but generally goes beyond the mark, and sinks the value as much too low as it, before had been raised too high; until the over-supply is corrected by a total or partial suspension of further production." It is the one case where reaction actually exceeds action.

Indeed, where has there ever been a more complete demonstration of these truths than is now passing before our eyes? Under the law of supply and demand, raw sugars, notwithstanding repeated indictments for alleged profiteering, moved in continuing advance. There then came the inevitable competition from all parts of the world, and an enormous drop of nearly the equivalent of thirty-eight dollars a barrel for refined sugar has taken place—a decline, doubtless, largely in excess of any advance for which anyone has been indicted, and, yet, a decline that was as inevitable, at some time, as further large declines that are sure to take place. And this decline took place, at just the busiest season when all would have expected the highest prices!

It will thus be seen from the cases referred to in this inquiry that the Supreme Court of the United States has done an immense service to the world in placing the freedom-preserving principles of the Common Law upon the right ground, and bringing them within constitutional protection; whilst, at the same time, acting in full accord with the demonstrated truths of economic, as well as civil law; but no other court, as yet, seems to have examined the whole subject.

Mr. Mill thus states the matter:^[25] "Loans are not the only kind of contract of which Governments have thought themselves qualified to regulate the conditions better than the persons interested. There is scarcely any commodity which they have not, at some place or time, endeavored to make either dearer or cheaper. * * * In some cases, as for example the famous 'maximum' of the Revolutionary Government of 1793, the compulsory regulation was an attempt by the ruling powers to counteract the necessary consequences of their own acts; to scatter an indefinite abundance of the circulating medium with one hand, and keep down prices with the other; a thing manifestly impossible under any regime except one of unmitigated terror. * * * All that Governments can do in these emergencies, is to counsel a general moderation in consumption, and to interdict such kinds of it as are not of primary importance. * * * A limitation of competition, however partial, may have mischievous effects quite disproportioned to the apparent cause."

We have so far been treating this Act on the basis that its generally assumed meaning is its real meaning. In the next chapter the inquiry will be whether there is any ground whatever for such an assumption.

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1. Knowlton et al. vs. Moore, 178 U. S. 41 (at page 57). 1900.
2. Pollock vs. The Farmers' Loan & Trust Company, 157 U.S. 429 (see page 558). 1895.
3. United States vs. Knight, 156 U.S. 1. 1895.
4. Standard Oil Company of New Jersey vs. United States, 221 U. S. 1. 1911.
5. Craig vs. Missouri, 4 Peters 409. 1830.
6. Rhode Island vs. Massachusetts, 12 Peters 657. 1838.
7. The Statute of 21 James I C. 3 (Statute of Monopolies) demolished all existing monopolies, with the exceptions of grants of privileges under Acts of Parliament, patents, printing, etc. It abolished monopolies owned or controlled by the Crown.
8. Adam Smith's "Wealth of Nations."
9. Note: In International Harvester Co., etc., vs. Kentucky, 234 U. S. 216, 1914, the company had been prosecuted, convicted and fined for having entered into agreement, as it was alleged, with other companies for the purpose of controlling the price of harvesters, enhancing such price above the "real value" of harvesters, and for having sold them at a price in excess of their "real value." The Kentucky statutes, under which the prosecutions were brought, made punishable by fine or imprisonment agreements, or combinations entered into for the purpose of limiting, fixing or changing the price of articles or in any way to diminish their output; and also to prevent "all trusts from combining to depreciate below its 'real value' any article, or to enhance the cost of any article above its 'real value.'" The Harvester Company contended that the law offered no standard of conduct that it was possible to know in advance and to obey. The Court held that the statutes were invalid upon the principle that to compel a guess what the fair market value of commodities manufactured or sold would be under other than existing conditions is beyond constitutional limits.
10. Note: In Collins vs. Kentucky, 234 U.S. 634, 1914, under a statute of Kentucky a pool or combine of the crops of tobacco and other farm products was permitted to the growers for the purpose of obtaining a better or higher price than by separate sale. It was made unlawful and punishable by a fine for any person who had made a "pooling agreement" to make separate sale of his crop. Collins, after entering into such an agreement, sold his tobacco crop by independent sale, and his indictment followed. He contended that the statute was in violation of the Fourteenth Amendment of the Constitution in that it deprived him of liberty and property. The Court decided that the statute was unconstitutional, and fundamentally defective by reason of its uncertainty. It made it necessary for Collins to determine his conduct not according to known standards, but by speculating upon imaginary conditions in determining the value of his tobacco crop.
11. United States vs. Pennsylvania Railroad Co., Collins vs. Kentucky, 242 U. S. 208. 1916.
12. United States vs. U. S. Steel Corporation, 251 U.S. 417 (see pages 448 and 449). March 1, 1920.
13. City of Knoxville vs. The Knoxville Water Company 212 U. S. 1 (see page 13). 1909.
14. Id., page 15.
15. The ordinance in question was enacted by the City of Knoxville fixing in detail the maximum rates to be charged by the company in its business of supplying the city and its inhabitants with water for domestic and other uses, etc.
16. City of Knoxville vs. The Knoxville Water Co., 212 U. S. 1 (see page 18). 1909.
17. International Harvester Co. vs. Kentucky, 234 U. S. 216. 1914.
18. Wilcox vs. Consolidated Gas Company, 212 U. S. 19 (see page 42). 1909.
19. Northern Pacific Railway Company vs. North Dakota, 236 U. S. 584. 1915.
20. Louisville & Nashville Railroad Company vs. United States, 238 U. S. 1 (see page 11). 1915.
21. Lincoln Gas & Electric Light Company vs. City of Lincoln, 250 U. S. 256 (see page 262). 1919.
22. International Harvester Company vs. Kentucky, 234 U. S. 216. 1914.
23. United States vs. Myatt, 264 Fed. Rep. 442. 1920.
24. John Stuart Mill, in "Principles of Political Economy," Book III, Chapter III, Section I.
25. John Stuart Mill, in "Principles of Political Economy." Book V, Chapter X, Section 3.