The decisions are probably years off in any event, but I would like to suggest that I do not see that we shall have reached a fundamental solution even if the Government gets everything it asks for in those cases. Du Pont will still be one the largest concerns in the world. General Motors will still be a huge aggregate of many billions of dollars. United States Rubber will still be one of the largest, if not the largest unit of its kind in the American field, so that while undoubtedly you will have clipped the question of mere bigness to some extent, you will not have really met the problem of concentration within an industry.

Now taking the contrary side for a moment, I should like to observe that the managers of either of these two concerns, that is, the Telephone & Telegraph, or du Pont, would have had no particular reason to believe that they were violating any law up to the time these proceedings were brought.

Any reading of the decisions up to that point would not have suggested that the antitrust laws would be applied to this kind of situation. They were really dealing with and are meeting, or may be meeting an evolution of those laws, and it is precisely that point that is raised, I think, by this new doctrine, that mere cross-ownership of big industries, one with the other, is in and of itself a control of the market. That leads us to the straight question, is bigness, per se, illegal? That is to say, is bigness to the point where it gives power to restrain the market illegal under the present law? I have to come back to something which was said earlier, and that is that here is a head-on conflict between two theories.

One is that there is no limit to the bigness under American law, provided it is honorably and legally acquired. The other is the fact that bigness, when it goes out of bounds, apparently leads to socialism, or at least it has in practically every other country in the world, and the problem here it seems to me is which you really want, which one of these two tendencies are we most interested in restraining if we are.

The United States is not a Socialist country nor Socialist minded, and it is pretty clear that it would not at this stage in its history certainly, willingly accept a course that would lead it into a Socialist form of organization.

Equally it is true that no one knows what is the optimum size of a big industry, even if you were to be able to say that an industry was efficient up to this point in bigness today, the engineers and inventors would probably make that obsolete the day after tomorrow, one way or the other, and there are all kinds of factors that enter this, so that no expert will tell you what is the logical limit of bigness; at least if anyone has yet been encountered, I have not had the pleasure of meeting him, and plainly a flexible limit would have to be set in any

1 case.

At the moment if the courts undertake to set it, we are going to get a more or less judge-made law on subjects from time to time depending on the complex and economic ideas of a court, without any preconceived guide, and a continuous confusion; because a precedent in one industry could not logically as a matter of economics be necessarily applied to any other.

You could not apply a standard of bigness in an obvious natural monopoly like telephone, or to another industry like, let us say, chemicals or motors. The considerations are different in each case, and we

should be in for at least a generalization of lawmaking via the courts if this has to be determined case by case and industry by industry, which of course is the only practicable way.

Now that this committee is taking a fresh look at the antitrust laws, and with great reserve I should like to suggest an examination of certain principles, and then at least that certain tentative possibilities be canvassed. I am not here urging any solution. I do not know the answers. I am merely wondering whether perhaps we cannot make great progress by asking the right questions.

I would like to suggest that the committee may possibly consider as principles that there is a top limit to magnitude beyond which mere size does become dangerous in and of itself. We all know historically that at one time or another every country or most countries have to wrestle with it, as Great Britain did at one time when land monoplies were threatened, and so forth.

It would seem to me that the historic common law policy against perpetual accumulation for trusts and so forth have some application to this situation. We do not need to go at this point into mathematical limits, but merely to establish the principle that there is a top limit of size which can in and of itself be dangerous.

Mr. WILSON. What is that limit, Mr. Berle?

Mr. BERLE. It would differ, I think, in the case of each industry, and the criterion, I think, would be the point at which the industry or the accumulation became so large that it threatened to engulf the state or force the state to engulf it. It would be a combination of elements, the size in and of itself, the essential nature of the goods or services which fell within control, the degree of control it exercised over the lives of the entire Nation, and conceivably could also be expressed in terms of a fraction of the national wealth.

In

I would not think that a legislative declaration of any particular size would be feasible, as I will try to point out in a moment. addition to size, I would say there is a second problem.

Except in the public utility and transportation fields where you have natural monopolies arising out of the nature of the business conceivably, and not necessarily even there, but those might be exceptions, there is a top limit of concentration within the industry in which control by one corporation or group of corporations becomes dangerous, and it might be that a principle could be established that there is a top percentage of any industry beyond which one corporate group ought not to go.

You may recall that the Congress of the United States in dealing with the public utility holding companies, decided that in a different way by establishing a geographical limit, that is to say, that a public utility holding company ought not to be allowed to dominate enterprise in an area greater than four contiguous States, and endeavored to make sure that no one holding company or two or three holding companies could get a strangle-hold on the public utilities of the country. A principle might be determined along that line.

Three, where a high degree of concentration is permitted or appears to be inevitable, that is, where it does exist, is going to go on existing and apparently is needed in order to provide the kind of service that the country wants, then some rules of the road ought to be laid down as they have been for years in the public utility industries, not

advocating that you correct those situations where they do exist and must exist.

The extent of public responsibility of that industry might be stated. That would merely recognize legislatively the responsibility which first-rate business executives always acknowledge when they make speeches before chambers of commerce, only it would permit perhaps something to be done about it and some responsible body to examine whether those responsibilities are being fulfilled. That would permit the imposition of quasi-public utility regulation in those industries where apparently a higher degree of concentration is necessary than would otherwise be considered safe.

I do not mean that it would be exactly the same kind as in the utility industry. It would have to be adapted, and in fact we have been doing that in one form or another in industry after industry where it was absolutely necessary.

I take steel as an illustration. When there was shortage in steel, and steel orders had to be allotted, the Congress of the United States established what was in the nature of a public utility regulation by passing the voluntary allotment act cutting a hole in the antitrust laws, and permitting a method by which agreements for priorities and allotting of orders could be made during the period of the shortage.

For good or evil, that was a recognition of just the principle that I suggest for study here.

Four, the United States itself, as the chairman has said, ought to be careful not to discriminate against or in favor of any business except on cause shown for valid reasons, and should endeavor to exercise its own buying power in favor of the policy which is finally adopted.

Now I do not claim that any of those four principles are ideal. I submit them for study, and I think that in this way we might conceivably make some progress toward avoiding another decade of chaos while we pound out the rules of the game rather slowly and point by point, and generally at the expense of some businessman who thought he was doing the right thing until he got hit with a subpoena to examine his files, followed by either a bill in equity or an indictment in criminal court.

The CHAIRMAN. Mr. Berle, would it be your opinion that the Congress should make a study, this committee or some other group, and report to the Congress as a whole at what point bigness in a particular industry is efficacious and beyond which it should not go, or should that be delegated to some administrative body like the Federal Trade Commission to advise the Congress?

Mr. BERLE. Yes; it would either have to be done by a congressional study or by some appropriate agency of the United States which I should assume would be the Federal Trade Commission, unless it were thought that some other was more useful.

In the Clayton Act, as you will recall, they split the work between the Commissions appropriate to the particular industry, that is to say, the Federal Reserve Board handled Clayton Act questions in respect to banking, the Interstate Commerce Commission in respect of the transportation within its jurisdiction, and the Federal Trade Commission the rest.

I would be inclined to think that because of the hugeness of the task, it might be desirable to delegate those studies. In all events, Mr.

Chairman, I was about to propose for consideration about six propositions which I can read very briefly and which I merely suggest as possibilities.

The CHAIRMAN. I did not know that you were going to still answer those questions which were agitating us temporarily.

Mr. BERLE. Please do not consider that I think I know the answers. Having spent many years studying this, I know very well that I do

not.

It seems to me that your alternatives are these for study:

1. You can leave the present laws as they are and let the courts do the legislation fundamentally. That is delegating the same question we are discussing here today to the catch and toss of the district courts, and the ultimate decision of the Supreme Court of the United States.

Now that is one thing that can be done, but it leaves the question unanswered, and the tide of concentration goes inexorably on while you do it.

2. You could provide the Federal Trade Commission and possibly the other Commissions with jurisdiction, with power to inquire whether the size or degree of concentration in any industry restrains trade, prevents competition, or results in unduly high prices or profits of exploitation, and that power might include the power on a finding to set a top limit on size in that industry, or a top limit on the percentage which any one group should be allowed to control of that industry, leaving it open to the Government to require dissolution as a matter of course under the antitrust laws in case any concern transcended that size. That is a second possibility.

3. Or possibly in combination, after a finding of the Trade Commission or other Commission having jurisdiction, the Congress might permit that Commission to permit the imposition of public utility responsibility and regulation on those companies which elected to go beyond the permissible size or concentration. I personally, if that were seriously considered, would like to see it considered as a subitem, leaving it to the company to elect whether it would split itself and diminish its size, or whether it would like to assume public responsibility, public-utility responsibility.

In other words, if the company has got to 70 percent of the industry where there is a finding that 40 percent is the maximum of concentration which ought to be permitted, perhaps the company might be allowed to choose whether it will split itself down the middle in some appropriate fashion within a reasonable time, and travel competitively, or whether it will assume the privileges and burdens of being a regulated virtual public utility in that field. There is the thing which should be studied, and is a possible consideration.

Fourth, in any case the existing measures of course have to be continued and ought to be amplified to assure that if the capital market is unable to provide credit and equity capital for the smaller businesses, some Government banking mechanism is available for that purpose. The Reconstruction Finance Corporation did a great deal toward that end during the war, and does a considerable amount now in the credit field. Equity fields we have not solved yet, and how to provide adequate equity capital, including therein a study of the tax laws, seems to me an essential in this business, to the end that the small

business growing up does not have to fight its way at a staggering disadvantage as against the large concern which is already there.

Sixth, my sixth point is the tax question. Study should be made of measures giving some tax advantage, or at least relief to the risk capital in the smaller enterprises so that the smaller enterprise has a chance at least to draw even on capital investment with the large enterprises which are already able to generate their own.

Gentlemen, in closing I should like to say that it need hardly be pointed out that this is a very tentative and very preliminary approach to a very huge subject. The objective, it seems to me, should be the greatest degree of freedom of action for business. We cannot run business, up to the point at which, through size and concentration, it becomes an essential part of the state, albeit informal as it really is now, in many cases. Beyond that size, that concentration, and that importance, we really have only two alternatives:

Regulation, or socialized ownership, and since the American habit has never favored socialized ownership, it seems to me that we have got now to wrestle with the problem of size, and so the real choice is keeping size and concentration within bounds where size is not essential, and where, because of the technical state of the industry or the demands of the American public, huge size and great concentration are necessary, then meeting and stating the duties and responsibilities of those units as we have with the public utilities and transportation industries long ago.

Let me thank you for your courtesy.

The CHAIRMAN. Are there any questions?

Mr. Berle, we are indeed, and I am sure I express the opinion of the members of the committee, very grateful for your very, very splendid statement. I presume that we have the right to call upon you for some more advice and counsel later on in this study.

Mr. BERLE. I am always at your service.

(The prepared memorandum submitted by Mr. Berle reads, in full, as follows:)

MEMORANDUM FOR JUDICIARY COMMITTEE, HOUSE OF REPRESENTATIVES, HEARINGS ON THE PROBLEM OF REVISION OF THE ANTITRUST LAWS

INTRODUCTION

There can be no intelligent revision of the antitrust laws until some preliminary questions are settled.

What result is wanted from the antitrust laws? That is the first problem. Are there areas in which the antitrust theory does not apply? If so, what are they?

Are the antitrust laws designed to prevent bigness as such? Or are they designed to maintain competition? You can have bigness with competition; if you want competition, without bigness, you have to have something.

Do you really want unlimited competition-for instance, selling below cost? Or do you want the antitrust laws to set up rules for competition?

Finally, can there not be some clear-cut definition of the rules of the road, so that business, big or little, knows clearly what is expected of it and can handle itself accordingly?

This memorandum deals with some of these questions?

I

BIGNESS AND CONCENTRATION

When the antitrust laws were passed in 1890 and again in 1914, the emphasis was on mounting competition. The problem of bigness-of concentration in