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6. What industry first made use of the "trust" device?

7. What were to be the purposes and powers of the corporations formed by the adoption of this device?

8. How was the business of the combining concerns to be controlled? 9. Explain the relation between stock and trust certificates as provided for in the trust agreement.

10. What is the great objection to the trust?

II. Outline the charges against the National Cash Register with respect to the attempts of this company to learn the secrets of its competitors.

12. How did agents of this company attempt to injure the credit of its competitors?

13. What use did this company make of bogus concerns?

14. What was the chief purpose of these and other unfair tactics adopted by the company?

15. Why was the Sherman Anti-trust Act of 1890 passed by Congress? 16. What did this law say concerning combinations in restraint of trade?

17. What part were the circuit courts of the United States to play in the execution of the law?

18. What redress was allowed persons who had sustained injury as the result of trust activity?

19. In what year did the Sherman Act prove markedly effective? 20. What two great combinations were ordered dissolved in 1911? 21. What, in brief, was the decision of the Supreme Court in the American Tobacco Company case?

22. Why did there continue to be agitation for additional anti-trust legislation after 1911?

23. What two acts were enacted in 1914?

24. Outline the powers which the Federal Trade Commission may exercise over business.

25. What additional powers may be exercised by the Commission?

Public utilities classi

fied.

Unique position of the railroads.

CHAPTER XXVIII

PUBLIC INTEREST IN BUSINESS: OWNERSHIP

163. Social importance of public utilities

1

In so far as they affect the well-being of the community, all businesses are of social importance. However, some industries are more immediately and intimately connected with the welfare of the public than are other types of business. Of particular importance to the public is a group of industries which includes: (a) local utilities, including such industries as street railways, gas and electric light works, water works, and the telephone; and (b) steam railroads. The social significance of these public utilities was affirmed in the 1886 report of the Senate Select Committee on Interstate Commerce. The report of this committee was concerned chiefly with steam railroads, but the following passages are significant in connection with other utilities as well:

As a common carrier and as the privileged manager of the business of transportation upon a public highway, the relations and obligations of the railroad to the community and to the governmental authority are essentially different from those of the ordinary corporation which does not enjoy similar exclusive privileges or perform a public function. In the very nature of these distinctions and in the peculiar relations they occasion are to be found the reasons which justify and render necessary the legislative regulation of the railroad corporations engaged in the business of transportation for the public convenience. . .

The public nature of these corporations has been uniformly maintained by the courts and legislatures of the several states. In Massachusetts, for example, as Judge Russell, the chairman of the rail

1 From the Reports of Committees of the Senate of the United States for the First Session of the Forty-ninth Congress, 1885-1886. Report of the Committee on Interstate Commerce. Part 1; pp. 40-42.

tions are

road commission, stated to the committee: "Our supreme court has Railroad always held very strictly the doctrine that railroad corporations corporaare public corporations, created solely for the good of the public, and public cor that they are to be dealt with accordingly. A great many years ago porations. Mr. Choate said to the legislature, 'Railroads are made for the people and not the people for the railroads;' and that idea has been adopted by the supreme court in this state. . . ."

reasons why

the state

has the

right to

regulate the railroads.

These principles are well settled, and since the decisions by the Additional United States Supreme Court in the "Granger Cases" brought the railroads to a realizing sense of their obligations they have been substantially conceded. But when we consider the imperial influence which these most mighty engines of civilization can exercise upon the development, progress, and commerce of the country, making possible the ruin or prosperity of cities, states, or even larger areas of our territory, . . . it becomes evident that the state possesses the right to supervise and regulate the administration of such imperial power upon the broad ground of public policy, in addition to the fact a railroad corporation manages a public highway, exercises a public function, and is in the nature of a monopoly.

...

of the rail

road to

the state,

The extent of the obligations of the railroad to the state and of Obligations the state to the railroad is well expressed by the railroad commissioners of New York [as follows]: "A common carrier thus created becomes at common law a quasi public servant, bound, as the price of its privileges conferred, to carry all persons and property offered to it for a just and reasonable compensation, and with due regard to public safety and convenience.

• .

tions of the railroad.

state to the

"It is the right and duty of the state to see that the citizen and obligahas service to which he is thus cntitled, to prevent railroads from assuming rights and privileges not granted, to compel the correction of abuses, and to require the performance of duties assumed. No less has the railroad at least a well-recognized equitable right to insist that the state shall guard its property; that it shall be protected in the exercise of its chartered privileges, and that subsequent legislation shall not exceed the limits above stated."

Causes of

the move

ment toward
municipal
ownership
of local
utilities.

Extent of municipal ownership of

1

164. Extent of municipal ownership 1

Confining our present attention to those public utilities which are local in character, i.e. street railways, gas and electric light works, and similar industries, it should be noted that two factors have stimulated the movement for public ownership of these utilities. In the first place, such industries are natural monopolies, and tend by their very nature to integrate and combine. In the second place, the social importance of these utilities renders dangerous their natural tendency toward monopoly conditions. The result is a movement toward the municipal ownership of local utilities. The extent of this movement in 1917 is described by Mr. Carl D. Thompson in the following passage:

At the beginning of the last century, there were 16 water plants in the United States, only one of them municipally owned. By the close of the century there were perhaps 3500 plants, more than half of which were publicly owned and 200 of which had changed from private to public ownership. Practically every one of the larger water works, cities owns its water plants, the only exception being San Francisco.

electric

and gas

And of all the cities of the United States of 30,000 population and over, there are 150 municipal to 50 private plants, or three public to one private. . . .

...

A similarly rapid growth has taken place in electric lighting. The first municipal lighting plant was established in 1881. At that time there were seven private plants. From that time forward the number of municipal plants increased rapidly, until by 1912 there were 1562 municipal plants. Moreover, the percentage of increase of municipal plants has been much greater during the ten years ending with 1912 than that of private plants. Moreover, while there have been 13 plants that have changed from public to private ownership, there have been 170 plants that have changed from private to public ownership. . . .

.

The development of municipal ownership in the field of gas light plants, production has been less rapid. And the reasons are obvious. The development of electricity as a mode of lighting is more practical

1 From Carl D. Thompson, Municipal Ownership. B. W. Huebsch, New York, 1917; pp. 1-6.

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and convenient for municipal purposes, and besides is better suited to small cities where municipal ownership in lighting has had its chief development. However, there has been considerable development even in this direction. There were only nine municipal gas plants in the United States in 1890, and only 15 in 1899. By 1907 there were 25 in the United States and 10 in Canada. Comparing this with the growth of the private plants, the report of the Civic Federation finds that the number of private plants has grown about 48 per cent, and the number of municipal plants 67 per cent,

in six years.

The first city in the United States to undertake the municipal and street ownership of its street car lines was Monroe, La. That city took railways. over its lines about 15 years ago and reports indicate that the lines have been making a surplus of over $16,000 per year in recent years.

St. Louis, Mo., has operated a short electric line in connection with its water works plant for some years, but it is a very small part of the city's transportation system.

San Francisco is the first city of any size to really go into the municipal ownership of its street car lines. After nearly ten years of agitation, and after ten years of struggle in repeated elections, and after encountering and overcoming all sorts of court proceedings and other difficulties, the city finally started its first municipal cars in December, 1912. Since then it has steadily developed its system. . .

165. The future of municipal ownership 1

Ownership

The agitation for the municipal ownership of local utilities has Municipal been accompanied by a number of investigations of the subject. Of ownership investigated these investigations one of the most comprehensive was that con- by the Commission ducted for the National Civic Federation by the Commission on on Public Public Ownership and Operation. This Commission, appointed in 1905, made a thorough study of local utilities at home and abroad, and submitted its report in 1907. With respect to the prospects of municipal ownership in this country, the commission offered the following resolutions and recommendations:

1 From the Commission on Public Ownership and Operation, Report to the National Civic Federation on Municipal and Private Operation of Public Utilities. New York, 1907. Part 1, Vol. 1, pp. 23-25.

and Operation.

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