Augustus O. Stanley to Woodrow Wilson

In pursuance to your request, I am more than pleased to very respectfully submit in the briefest possible compass, a few suggestions touching pending legislation designed to prohibit monopolies and conspiracies in restraint of trade.
In my humble opinion, this infinitely varied and complex question is materially simplified by a close adherence to the cardinal principle that all men have the same inherent right to industrial that they have to political freedom.
Trade among the several states has been likened to a navigable stream. The Government has the absolute right to prevent the choking or impeding of this stream by any means whatsoever. As aptly expounded by Judge Day in the case of the US vs C&O Fuel Company, 115 Fed. Rep. 610:
"By the constitution of the United States, Congress is given the plenary power to regulate commerce between the states and with foreignnations. In the exercise of this power, Congress may prevent interference by the states with the freedom of interstate commerce, and maylikewise prohibit individuals by contract or otherwise, from impeding the free and untrammelled flow of such trade. xxx
In the exercise of this right, it has declared for that policy which shall keep competition free, leave interstate commerce open to all withoutthe right to any to fetter by contracts or combinations which shall put it under restraint."
As you have graphically put it Mr. President, in your address at the Jackson Day Dinner on January 8, 1912, –
“What do we stand for here tonight, and what shall we stand for as long as we live? We stand for setting the Government of this country free and the business of this country free”. This expression in my opinion could well be made the motto and shibboleth my colleagues in securing the much needed reform in the unfettering of fiscal and industrial conditions.
Trade is restrained and monopoly created by the centralization of capital and by concerted action on the part of capitalists. Property is centered under a single control by the manipulation of stock ownership, ie – the formation of holding companies. Corporations apparently distinct legal entities are directed by a single influence under a practical unity of ownership, by the duplication of directorates. That is, a few men by reason of their wealth or dominating influence, secure positions of authority as directors in various concerns and each of the many corporations thus controlled is operated with an eye single, not the development or the prosperity of any particular unit, but for the success of the group of which it has become actually a component part, while retaining the shell of a distinct corporate entity. The holding company is used to consolidate vast properties. Interlocking directorates insure harmony and unity among these consolidations.
Congress can and should prevent the formation of holding companies. As far as concerns engaged in mining and manufacturing operations are concerned, I would make the prohibition absolute. There are corporations of course like insurance and trust companies which could not be subjected to this regulation. The holding company can be subjected to drastic treatment without the slightest fear of injury to any legitimate business. Under the common law it is both mala in–se and mala prohibita. It is not the evolution or the legitimate development of corporate ownership, it is distinctly an abuse of the privileges originally conferred upon corporations. The holding company does not facilitate or cheapen in any way either the production or distribution of any commodity. The placing of the stock of a number of corporations in the custody and under the control of a holding company which elects the officers and directors, manages the affairs and distributes the profits of the constituent concerns, has been wisely prohibited by law, because it is industrially pernicious and morally wrong. The brokers and promoters who usually organize such concerns, seldom have any technical knowledge of the businesses they dominate and add nothing to the efficiency of these corporations. Such control has never tended to increase the excellence or cheapen the output of any mill or factory.
The sole purpose is, and has always been, to limit production, stifle competition and to fix prices. The enormous salaries and promoters fees paid the great financiers who have organized and operated these concerns act as an overhead charge, which can not be met except by the practice of extortion upon the public.
The holding of the stock of one corporation by another is in violation of the cojmmon law. More than that, it is a recognized principle of the law that a partnership between corporations is indefensible and illegal. The subsidiaries of these great trusts are to all intents and purposes partners in business sharing each others profits and losses and submitting to a common control.
Congress has the absolute right to say upon what conditions any association or person shall engage in interstate commerce. There can be no question as to the constitutional right of Congress to exclude holding companies from interstate commerce and they should be so excluded. This is a simple and efficient remedy for a manifest abuse which in late years has become intolerable. The duplication of directors should be prohibited between competing concerns and no person should be permitted to act as a director in any corporation engaged in the business of production and similar concerns engaged in transportation.
Monopoly as now constituted in this country exists almost without exception by virtue of the manipulation of stock through holding companies or the close association of capitalists through interlocking directorates.

“CORPORATE DEVICES”.

Monopolies whether created as I have indicated or by any other means make use of a few well known devices. Practically every great combination of capital in the United States secures its “unearned increment” —By the ownership and operation of common carriers or discrimination in freight rates non the part of carriers not owned and controlled buy it, or –By the ownership and manipulation of brands and patents, or –By the control of credits.
The Pujo Committee has dealt extensively with the subject of the control of credits and I have every reason to believe that the currency legislation now pending will to a great extent cure existing evils.
The purchasing and “junking” of patents and the harrassing of weaker competitors by long and vexatious litigation intended not to protect any legitimate right but to bankrupt or exhaust the defendant should command the attention of Congress. The Patent Committee however, has dealt with this matter at some length. No patent should be protected unless put to a bona fide use. Our patent laws and the procedure under them needs radical revision. I am sure the Attorney General will concur with me in this opinion.
The most crying abuse however, is the control of common carriers by industrial concerns. The Commodities Clause of the Interstate Commerce Act was designed primarily to prevent the abuses to which I refer. Unfortunately this Act is open at both ends. It prevents a railroad company from owinning a mine or mill, but under the interpretation of the Supreme Court, it does not prevent a railroad company from owning the stock of a corporation engaged in mining or milling and it does not prohibit the manufacturer from owning a railroad. The Act serves only a point and moral. It was manifestly the purpose of Congress in the enactment of this law to divorce the business of transportation and the business of production.
They should be absolutely and definitely divorced. The operation of a public highway is a public business. The production of the freight to be transported upon that highway is a private business. No individual, no corporation should occupy this dual relation by which the public official may subvert the peoples’ business to the aggrandizement of the private individual.
The efficient and permanent separation of the business of transportation and the business of production can be secured by

–FIRST – Forbidding industrial corporations from owning and operating any public highway, railroad or otherwise.

SECOND – By denying to the “plant facilities” of industrial concerns the right to receive terminal allowances or divisions of rates.

THIRD – By prohibiting any manufacturing concern to seell or supply materials to any common carrier in which it or any of its officers or directors are interested financially.

FOURTH – By prohibiting any officier or director or agent or employee of any common carrier from acting in a similar capacity in any industrial concern.

“OVER–CAPITALIZATION”.
The scope and authority of the Bureau of Corporations should be enlarged, and the Commissioner of Corporations should be authorized to report not only to the President but to the Congress of the United States.He should require all corporations doing an interstate business to make a full and complete report showing their capitalization and stating separately their amount of

(Preferred Stock
(Common Stock
(Bonds.

They should state what portion of their common stock was issued for cash; what if any was issued for services rendered and the character of such services; what part was sold at par and what part if any, was issued to promoters.He should be empowered to ascertain the relations of their intrinsic value to their capitalization.He should ascertain to what extent their “earning power or merger value” has been capitalized. Whether or not such corporations are authorized under their charter to convert common stock into preferred stock and preferred stock into bonds.
The relation of their capital stock to their bonded indebtedness.
They should state whether their bonds were issued at par and for cash or for the absorption of stock.Whether or not the proceeds of the bonds issued were used in the development of property and if not, for what purpose it was diverted.Such publicity will tend to the discouragement of over–capitalization. Properties can not be over–capitalized unless their securities are sold and securities based upon fictitious values can not be sold if the public knows that they are mere promises to pay, unsupported by any tangible value whatever.
The Government can and should exclude gflagrantly over–capitalized concerns from interstate commerce. I do not hesitate however, to express my unequivocal condemnation of any scheme of Federal License or Federal Incorporation. From the days of the Industrial Commission when Rockefeller and H.H. Rogers and others of that ilk plead for Federal Incorporation until recently when Judge Gary and Andrew Carnegie, George Perkins and Theodore Roosevelt and the rest of them came before the Steel Committee, urging the same thing, it has always been the specious plea of the guilty seeking immunity or of those who consciously or unconsciously spoke for the guilty. It has never been the sane, well–digested demand of disinterested students who have gone to the bottom of this thing.Judge Gary in collaboration with Morawetz and Stetson, Attorneys for J.P. Morgan & Co. at one time actually succeeded in inducing the President of the United Statesand prominent members of Congress and the Senate to endorse a bill which was actually prepared by these monopolists, and which provided for the creation of a political Father Confessor in the Commissioner of Corporations and clothed him with the right to grant plenary indulgences to “good trusts”. The rights of corporations like the rights of individuals should be clearly defined by laws passed by legislative bodies and not determined by regulations adopted by bureaus. Restraint of trade is a crime and a crime should be punished by courts and not by commissions. In addition to that, the Democratic Platform has unequivocally condemned the whole scheme by which the control of the states is destroyed and that of the Federal Government substituted. There is no such thing as an “interstate corporation”. Any corporation may do interstate business. Every corporation not organized in the District of Columbia or some territory is and should be a citizen of some state. The right of incorporation should not be taken from the states since federal incorporation means federal jursisdiction. It means that the property owned by these corporations shall be immediately transferred from the cognizance of the state to the Federal Courts. The Federal Government, having secured absolute control of the property of the citizen, will not be long in taking control of his person, and the result will be a federal despotism in place of a union of indissoluble and indestructible states.