Does Price Fixing Destroy Liberty?/Annotated/The Act in Relation to the Uncertainties in Trade

by George Howard Earle, Jr.

CHAPTER VI.

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The Act in Relation to the Uncertainties in Trade.

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The great question that presents itself under this heading is—"how much must be guessed" in business? How many elements must be risked? The difficulty, under present conditions, consists not in finding instances in trade where the purest speculation and surmise are essential, but in deciding how many of these may be treated without overburdening the subject.

Economic decisions are self appealing, being founded on natural law. Human law cannot vary the inevitable results that follow human errors. In the end we are inevitably controlled by the uncontrollable, and part of that law is that nothing more decreases production, with its consequent increase of prices, than uncertainty. And we have uncertainty to the nth power when ordinary commodities, that are capable of unlimited production, are being dealt with in free and untrammeled competition. If this be but clearly kept in mind and made the touchstone, no other classification seems imperative. There are those who think it but a matter of nomenclature. That if the legislative power or some other proper authority but decree that certain things be called public utilities, thereby it changes the whole natural law, and that anything can be regulated in the same way. But that is placing the cart before the horse and asserting that the mere name brings about the constant distinction between these two classes, and not the economic differences. If, however, there ever has been a time when there was no excuse for falling into such error, it is the present.

In the case of commodities, the distressing preponderance of failure is easily accounted for. The lowest price for which men can safely sell goods, with the hope of remaining solvent, is the price fixed by the correct guess at what they can continually replace them, plus two additional sums. First, when goods are high, the amount below the normal, to which they are bound to fall; and, second, the amount that will carry them over the depressed period that is sure to follow all periods of inflation. What always happens when scarcity appears is that "the trade," indeed the whole world, insists upon the duty of increased production. As a result, wages and everything necessary in production advance. Costs sink to a second place. People having been frightened inevitably hoard, and finally when the joint effort of the world oversteps the market, there come the collapses called "panics," and thousands of business men are swept to ruin. Thus scarcity is the true mother of panic. It has always been the inherent nature of such transactions. It may be called "overproduction," or "inflation," or by any other name, but there must be insurance against it, or widespread disaster will follow. Most commonly the estimate of such insurance tends to be fixed too low in the fierce conflicts of free competition, not too high, and the estimated price is in reality a large part insurance against that which is inevitable and uncertain only as to time of its actual occurrence.

On the other hand, in the properly so-called public utility cases, where competition is eliminated, where the chief element is plant, and commodities but enter to a limited extent, and, where, as Mr. Justice Peckham points out,^[1] "risk is reduced, almost reduced to a minimum," public regulation, however unsatisfactory, is at least possible. This is true even though commodities used by public utilities do become a minor factor in the calculation. When on the other hand War or other cause makes the commodities used a superior factor, the system must break down, because of this overmastering difficulty. So it was absolutely necessary for the Government, no matter at what cost, to take over the railroads during the great conflict, in order that there might not be a complete collapse of national sustenance. It can, therefore, easily be seen why there is so much complaint, and so little defense of the excess profits tax, for when the matter is reduced to its fundamental principles, it is found that these taxes are but a depletion of what really is the fund that insures the continuance of the life of American trade. The panic, therefore, that may result from so uneconomic a method of taxation, may easily be of the most disastrous character in our history.

It may be well in this connection, though it involves restatement, to recapitulate some of the leading principles which it has been the endeavor to establish in the preceding chapters. Had any student of economic principle been told that since Adam Smith published his work, in 1776, there could possibly be a recrudescence of the theories of the mercantile system, he would not have been believed. And yet, that is exactly what is taking place and constitutes the chief difficulty in the cases that have been before the courts. To say that such a difficult economic problem can be reduced to the simple formula: "What did you pay for a specific lot of goods in money, and how much did you get for it in money" is to make the most complex question imaginable one of the utmost simplicity. Indeed, it is almost as simple as it is impracticable and erroneous. It might have been safely assumed that in this day, at least, every one was aware "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 any one wants or will take it."

Well is it said by Mr. Mill:^[2] "Almost every speculation respecting the economical interest of a society thus constituted, implies some theory of Value; the smallest error on that subject infects with corresponding error all our other conclusions; and anything vague or misty in our conception of it, creates confusion and uncertainty in everything else. Happily, there is nothing in the law of Value which remains for the present or any future writer to clear up; the theory of the subject is complete. * * * The word Value, when used without adjunct, always means, in political economy, value in exchange. * * * We shall henceforth understand * * * by the value or exchange value of a thing, its general power of purchasing; the command which its possession gives over purchasable commodities in general. * * * The distinction between Value and Price * * * is so obvious, as scarcely to seem in need of any illustration. But in political economy the greatest errors arise from overlooking the most obvious truths. Simple as this distinction is, it has consequences with which a reader unacquainted with the subject would do well to begin early by making himself thoroughly familiar. The following is one of the principal. There is such a thing as a general rise of prices. All commodities may rise in their money price, but there cannot be a general rise of values. It is a contradiction in terms. * * * Things which are exchanged for one another can no more all fall, or all rise, than a dozen runners can each outrun all the rest. * * * That the money prices of all things should rise or fall, provided they all rise or fall equally, is, in itself, and apart from existing contracts, of no consequence. * * * It makes no other difference than that of using more or fewer counters to reckon by. The only thing which in this case is really altered in value, is money." Well did Lord Coke say: "Certainty is the mother of quietness and repose," or, as has so well been said by the Supreme Court in the International Harvester case:^[3] "Value is the effect in exchange of the relative social desire for compound objects expressed in terms of a common denominator. * * * But what it would be * * * with exclusion of the actual effect of other abnormal influences, and, it would seem with exclusion also of any increased efficiency in the machines, * * * is a problem that no human ingenuity could solve."

With our currency's purchasing power of commodities falling to but thirty-five per cent. of its prior value, as has been pointed out by Professor Fisher, the making of these mere counters,—this mere facility for turning the trade in commodities, not only a test, but the final and sole test is not reasonable. In a prior chapter it has been shown how inevitably ruin would follow if business men bought on "real value," and were compelled to sell on "price," even without the added difficulty of our depreciated and ever fluctuating currency. This is but one of the innumerable problems "that no human ingenuity could solve."

Another, and, indeed, the most difficult element in business enterprise is b"risk." As has been pointed out, if not entirely overlooked, it has been completely ignored, and, yet, it is one of the chief considerations of all Political Economists. It has been definitely determined to be an absolutely essential consideration by the Supreme Court, even in rate cases concerning public utility monopolies. Adam Smith, again and again, treats of it with the greatest clearness. It would require much space to quote all he says on the subject. A few passages will suffice. He observes:^[4] "Profit is so very fluctuating that the person who carries on a particular trade cannot always tell you himself what is the average of his annual profit. It is affected not only by every variation of price in the commodities which he deals in, but by the good or bad fortune both of his rivals and of his customers, and by a thousand other accidents to which goods when carried either by sea or by land, or even when stored in a warehouse, are liable. It varies, therefore, not only from year to year, but from day to day, and almost from hour to hour. * * * The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed. It is this surplus only which is called neat or clear profit. What is called 'gross profit' comprehends frequently, not only this surplus, but what is retained for compensating such extraordinary losses. * * * The chance of loss is frequently undervalued and scarce ever valued more that it is worth. * * * In all the different employments of stock, the ordinary rate of profit varies more or less with the certainty or uncertainty of the returns. * * * The ordinary rate of profit always rises more or less with the risk. It does not, however, seem to rise in proportion to it, or so as to compensate it completely. * * * The presumptuous hope of success seems to act here, as upon all other occasions, and to entice so many adventurers into those hazardous trades, that their competition reduces their profit below what is sufficient to compensate the risk. To compensate it completely, the common returns ought, over and above the ordinary profits of stock, not only to make up for all occasional losses, but to afford a surplus profit to the adventurers of the same nature with the profit of insurers. But if the common returns were sufficient for all this, bankruptcies would not be more frequent in these than in other trades."^[5]

Henry George says:^[6] "Of the three parts into which profits are divided by political economists—namely, compensation for risk, wages of superintendence, and return for the use of capital," &c.

Professor Ely thus states the proposition:^[7] "Profits differ from other forms of income in the degree to which they are contingent upon successful risk taking."

Professor Laughlin says:^[8]" * * * the problem of price is one which includes a study of two sets of forces: (1) Those influencing the standard, and (2) those influencing the commodities in the price lists. A change in a list of prices, in itself, implies nothing as to the cause of the change. The originating cause may be operating upon gold, or upon the goods; or there may be causes working at once upon both sides, opposing or co-operating. It is, therefore, unsafe to dogmatize upon the causes of a change in prices without an investigation into all the facts touching both gold and goods. * * * Every owner of capital in its various forms must always take the risk that invention may devise something cheaper in operation than his existing machine.

Professor Taussig states:^[9] "The independent conduct of industry is the salient characteristic of the business man's work. He assumes the risks of the outcome of industrial operations. * * * This position as residual claimant explains one striking characteristic of business profits—the irregularity of the income. In one year the business man may earn nothing, may even lose. Another year he may gain great sums. The variations from year to year of the same individual's profits arise from the business man's assumptions of individual risks. * * * The business man more especially feels first the effects of changes in prices. When prices rise, he gains for a while; when they fall, he loses for a while * * * So great are the risks of business that many people, again, look upon it all as a game of chance. * * * Courage and some degree of venturesomeness are obviously essential to the successful business man: so much follows from that assumption of risks, which is of the essence of his doings. * * * Success in business is highly uncertain. Prediction as to any individual who enters it is extremely difficult. * * * In view of the risks and the obvious possibilities of failure, must there not be some prizes to maintain the resort to the occupation?"

Under the same heading comes, of course, "Replacement." Again, all economic thinkers agree. Adam Smith says:^[10] "When any expensive machine is erected the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out upon it with at least the ordinary profits." And he applies this to trained men as well as to machinery. Professor Turner treats this subject as follows:^[11] "* * * each item of the merchant's stock must normally sell at a price which will replace that item with one of equal price" (this truth is ignored by those who support an erroneous construction of the Act) "together with a surplus sufficient to cover all the costa of selling it. * * * Any item failing to do this is carried at a loss; and the merchant who continues to carry items at a loss will see his stock diminish and ultimately disappear. Likewise, a manufacturing plant gradually diminishes in worth unless the items composing it produce a sum sufficiently large to enable the owner to purchase another item of the same character, which, in turn, will produce enough to install its successor. * * * * upon applying this reasoning to a manufacturing plant, in which heavy fixed capital is involved, it will follow that in many cases sudden changes will involve heavy social losses."

Professor Ely and Wicker set forth:^[12] "A man is facing business ruin who takes and consumes as profits from his plant what should be set aside for its upkeep and replacement. The same may be said of the payment to provide against risk, which may be called insurance. The amount of money which a careful business man sets aside from the unusual gains of prosperous years to secure himself against disaster from losses in lean years is not profit."

A single plant is known which though now making large contributions to the supply of necessaries, and earning substantial profits that may prove purely illusory did not pay any return for over thirty years. Could anything better illustrate the absurdity of indictment for its present transactions than the proof that it at last was making a large percentage of profit, especially as the high prices now prevailing must mean more lean years to come?

A most highly instructive instance of the uncertainty of money is given by Professor Fisher:^[13] "A farmer inquired from the manufacturer the present price of a certain type of buggy, such as he had bought once before. The price quoted seemed to him outrageously high, and he accused the manufacturer of 'profiteering,' reminding him of what the former price of the buggy had been. The manufacturer * * * * discovering that the farmer had previously paid for such a buggy by a shipment of wheat * * * replied: 'If you will ship to me for the new buggy the same amount of wheat you shipped for your old one, I will gladly ship you the buggy, and, in addition, will ship you a piece of household furniture and a good kitchen stove.' In short, everybody is eager to take advantage of rising prices, but feels aggrieved if anybody else snatches the advantage away. Thus the high cost of living becomes a veritable apple of discord.' * * * The fact is that among the worst consequences of price convulsions are the vicious remedies proposed."

There is a preponderance of further authority upon the subject, from the writings of economists, but we will turn now to some of the determinative decisions of the Supreme Court upon this phase of our inquiry.

Of course, as has been pointed out by the Supreme Court, where it is dealing with monopolistic enterprises, the rules are far different from those "concerning the ascertainment of value under contracts of sale," as in the Omaha case.^[14] But, even in such cases, the rules stated have been clearly applied, and there is no difference between economic and judicial opinion.

The great distinction rests on the legal principle that the law always requires the best evidence possible in every case. The best evidence of price is market price,—the price fixed by the joint inquiry and judgment of the world through its free competitive forces. Where that result is thus reached, no other evidence is admissable on the point. On the other hand the best evidence of excessive price is price fixed by monopoly, by private greed. So that it follows inevitably, in those instances where there can be no fair competition, where monopolistic condition is paramount, the State must assume control,—not that this is desirable, nor can ever be satisfactory, but that it is absolutely necessary to prevent a part of the taxing power being exercised by individuals,—and thus establishing "taxation without representation."

Referring again to the Knoxville Case,^[15] Mr. Justice Moody there 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 entitled to see that from earnings the value of the property invested is kept unimpaired, so that at the end of any given term of years the original investment remains as it was at the beginning. It is not only the right of the Company to make such a provision, but it is its duty to its bond and stockholders, and, in the case of a public service corporation at least, its plain duty to the public. If a different course were pursued * * * this course would lead to * * * a disaster either to the stockholders or to the public, or both."

The Court properly deals with replacement "value" and not merely "price"; and exactly the same rule necessarily applies to "stock" that applies to machinery or any other property. Stock is the real thing, not the counters by which it may at any moment be measured, and the wasting away of that real thing brings the predicted and certain ruin that follows its continuance.

In view of these vital principles, investigation has been made to ascertain the various questions—the "thousand other accidents" spoken of by Adam Smith—that must and only can be guessed at in the sale of commodities. In view of the fact that there has been discussed the opinion of Judge Faris in United States vs. Cohen^[16] relating to an indictment under the Act for an alleged unfair price in a sugar sale, an examination has been made into the uncertainties appertaining to the manufacture of that commodity. The mathematical problem reduces itself to this question: "What price must a man ask for sugar, which, after the deduction of many other sums which cannot possibly be stated, will leave a remaining sum that will satisfy any jury that no more than a reasonable profit has been made?" This problem reminds us of the teasing questions put to children beginning arithmetic, such as: "If a boy had thirteen marbles and his sister gave him a plate of ice cream, how many crows would it take to eat up the corn which his father was going to plant?" Well has the Supreme Court said that such guessing is not a judicial function, that: "To compel men to guess on peril of indictment what the community would have given for their wares, if the continually changing conditions were other than they are, to an uncertain extent; to divine prophetically what the reaction of only partially determinate facts would be upon the imagination and desires of purchasers, is to exact gifts that mankind does not possess."^[17]

Of course, the contention as to the Lever Act is that men have so far lost their freedom under it that these "reactions" are no longer to be permitted to take place—an unthinkable proposition to any one familiar with the world of business. We may well ask with Supreme Court, in United States vs. Trans-Missouri Freight Association:^[18] "What is a fair and reasonable profit? That depends sometimes upon the risk incurred. * * * It is quite apparent, therefore, that it is exceedingly difficult to formulate even the terms of the rule itself. * * * While even after the standard should be determined there is such an infinite variety of facts entering into the question * * * that any individual shipper would in most cases be apt to abandon the effort to show the unreasonable character of a charge, sooner than hazard the great expense in time and money to prove the fact."

In the case of commodities, the difficulties are a thousandfold greater, and under this merciful Act the business man not only has the expense and trouble mentioned, but, if his business is to go on, he must make the attempt under the further inducement of knowing that if for any sales he is indicted and brought to trial and the jury should not approve his results, he might go to jail, and suffer consequent loss of business and property.

If such an interpretation of this statute is a possibility, both Liberty and business will surely die. There is unquestioned power to make and execute laws, but there is no power to do more than pretend to reverse mathematical truths or avoid the results of attempts to defy them. No man can deduct from known quantities the unknown, and, beyond any reasonable doubt, mathematically define the answer.

Let us, again, turn to the Cohen case.^[19] The whole charge was that he had bought sugar at one price and sold it at another. This fact caused the Judge to feel it necessary to guard against the indignation that he felt. But, in the first place, the rule of freedom, under which men have acted for centuries, always allowed a man to ask for his own property, or to offer as much or as little for the goods of another as he chose, and thus, through bartering, to reach that normal price to which markets always tend. "Undoubtedly," said the Supreme Court,^[20] "as a general rule, the seller wants to get the highest price for his property, and the purchaser wishes to give the lowest, and in that sense it may be said that an expected difference between the parties is to be implied in every case." Can a real market ever exist, where one party must trade on market conditions alone, whilst the other has this same opportunity plus a power of appealing for the aid of the District Attorney? Is the rule hereafter to be that human characteristics and methods, universally existing and applied, are all to become the basis for a charge of crime, and that the law, in attempting to reach that equality and fairness which constitute justice, is going to allow those wishing to buy commodities produced by others to beat down the prices, whilst those who have added to the world's supply are to defend their rights in bargaining by a threatened intervention by the State that may end in their ruin as well as their loss of liberty?

But let us return to our sugar case and ascertain a part of the guesses that could not be answered if such a case were fairly tried. 1. Under existing conditions, what must be the amount of taxes to be deducted, National, State and Municipal? Would it be fifty per cent. and upward, as at present, or eighty, or ninety, or one hundred? 2. What is the exact percentage of plant idleness through failure of raw sugars and materials to arrive, by reason of never ceasing strikes, embargoes and like contingencies, and the impossibility at times of procuring necessary supplies of coal? Every one knows that the cost of production not only may, but does, go up by leaps and bounds, as output decreases. 3. What are the increases in cost price going to be? We know that labor has advanced from fifteen cents to fifty-five cents an hour. We know that coal has advanced from two and one-half dollars a ton to sixteen and one-half dollars, and raw sugars have mounted from $.0327½ to $.2462 per pound. One hundred per cent. advance in price for this commodity, therefore, is really very insignificant. We know that some sum must be allowed to stimulate improvement, inventive genius and production, if the present scarcity is not to continue. At what sum are enterprising business men to be permitted to fix that item, without inviting ruin and a loss of their freedom and consequent usefulness? 4. We know it is vital that, if these improvements in plant are stimulated, an enormous amount of property must be discarded and scrapped in order that the public may receive the benefit. As an instance of this constant occurrence by reason of an improvement in the filters used in refineries, sugar plants are scrapping a very expensive portion of their machinery. What sum are they to determine, in advance of unknowable inventions which should be applied for this purpose? 5. All men who have given any attention to economic thought know that risk taking in trade constitutes the chief difference between business men and wage workers. Without it, the world would never have reached its present necessary production. What is the proper sum to be allowed in any or all cases to provide for this most essential element? 6. And what sums are to be charged, not merely for the losses of the past, but for the losses of the future? We start with the advantage, in this respect, that hope so predominates over fear that this sum is rarely, if ever, estimated in sufficiently large amount. 7. What sums should be allowed for the losses that are sure to arise in the times of such advances that have taken place, for the failure or refusal of the foreign producer of the necessary raw materials to make delivery to purchasers who, upon the faith of their contracts, have, in turn, sold against such contracts? 8. What sums should be reserved to cover penalties, fines, or the expenses and costs of litigation of those who may have honestly differed with the government's enforcing officers. It cannot easily be ascertained how enormous these unknowable items have already been even in cases where those charged with a violation of the Act have been exonerated by the Court, or acquitted by the jury. 9. What sum must be calculated to cover the enormous variation in the value of money that has taken place, and which has really turned all business into a most dangerous gamble? 10. And what sum, under all these conditions, is a man fairly to be allowed for the fact that from his profit he must buy his living from others whose commodities have likewise enormously increased, if not in value, at least in price? Are some to be denied the equal protection of the law in this respect, and others given it? That must in such case be the inevitable effect! If justice is to be done, all these questions, and many more like them, must be answered, even thought it is beyond the power of the human intellect to do so. Of course, the difficulties enumerated are passed along the line. The manufacturer has to meet it; the wholesaler, in turn, is governed by what the manufacture has to guess at, before the retailer has his turn.

If this be called theory, let us turn to real facts, and reason that from what has happened we may form a fair conclusion as to what may happen. Let us continue with the sugar case, as that is the most discussed subject.

In the case recently decided of United States vs. United States Steel Corporation, is found an enunciation of a great truth:^[21] "It has become an aphorism that there is danger of deception in generalities, and 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 implied, 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."

It is no doubt because of this truth that our law of Freedom, out law that lets all of the people take part in finding natural values and fair and reasonable prices, has, in the end, always asserted its triumphant and necessary superiority. If there be at least found a method by which business men can reduce all these uncertainties to that degree of proof necessary for criminal conviction, may it not be asked why Congress did not announce it, instead of imposing a task impossible of performance upon business men and the Courts?

It is fortunate that in dealing with the sugar cases arising under the Act we have an illustration of the wisdom of settled principles, where the history of the matter and its results have so largely become public property. Raw sugar has, within recent years, sold as low as $.0327½ per pound. Notwithstanding the War, Mr. Herbert Hoover, with the aid of the Refiners, purchased it at five and one-half cents per pound, with the result that it became relatively the cheapest of all food commodities, and with the natural result that it advanced enormously in consumption. It is important to remember that everybody was left free to buy or not to buy, and that there was no interference with the liberty of trade. All that Mr. Hoover really did was, with rare good judgment, to foresee conditions and make a wonderfully advantageous purchase, and subsequently to fix his own selling terms, thereby giving the benefit of his endeavors to the people at large. He made no one sell to him or buy from him, but left each dealer free to accept his terms or do as he pleased otherwise. Prohibition laws and the increased consumption from the unnatural price established as compared with other commodities necessarily enormously increased the demand, indeed, to an extent that has not yet been measured because of the inadequacy of available supply. Matters were so successfully handled that the President of the United States thereafter received a further offer of another year's crop of raw sugar at the price of only six and one-half cents per pound. This price, however, was double that at which sugar had actually sold under normal conditions. Had he accepted it, this discussion, as far as sugar is concerned, would have been entirely unnecessary. But, though he had the advantage of all the resources of the National Government to guide him, he refused to purchase. Now, this is not stated by way of criticism, because the great majority of those expert in the trade were unwilling to purchase adequate supplies at a similar price. Moreover, since that time duty paid raw sugars actually have been purchased, and in far less quantities than was called for and desired, at upward of twenty-four and one-half cents a pound. This figure is between three and four hundred per cent. increase over the price which some of the ablest men in the business in this country felt was too high previously thereto, and, no doubt, honestly so felt. We see how easy it is for even the most expert men to fail in reaching a correct conclusion on these unascertainable and difficult questions. To say, therefore, that those men who in rare exceptions had guessed the market price of sugar correctly, or probably less than half correctly, as to the prices that they would be compelled to pay for the replacement of their stock, for no other reason than their sales at this inadequate price, had acted criminally, seems preposterous.

Of course, it may be a theoretical estimate, but there is a general conclusion among economists that only about one man in every ten succeeds who assumes these risks of business. The rest fail chiefly because of the constant variation and inevitable losses of those taking the risk in business not even averaging with the possible gain. This again demonstrates Adam Smith's contention that the ever present tendency is for hope unwisely to overbalance fear.

Business will not and cannot go on, or production continue, much less increase, if, when the occasional year of profit comes, it is to be made more dangerous and cruel than even the years of loss. It is probable that most, if not all, of the men now under indictment for sugar profiteering were only indicted because of a failure on the part of the Government to distinguish between "price" and "value"; and, when the cycle that constitutes business is completed and their stock replaced, they will find that they are much poorer instead of richer than if they had been guided by "value" instead of mere "price." They will wish that they had adhered to Adam Smith and all his followers, instead of losing sight of the truth by an attempt to re-establish the impossible mercantile system.

And again it must be recalled that of the many considerations involved, the present value of our currency approximates only thirty-five per cent. of its former value. Therefore, a dealer, to obtain for himself an "exchangeable value" that will enable him "to replace his commodities" or obtain other commodities in equal quantity must, without regard to all the other complications and difficulties, receive above three hundred per cent. of his former prices. For the Act to punish him for doing so, is to penalize him for trying to safeguard against the ruin of his business.

Something should be said of the opinion of Judge Hazel in the Weed case,^[22] for it may well be used as a basis for summarizing the conclusions already stated. Although he says: "Candor compels the admission that the objection of uncertainty is not altogether free from doubt," he, like the other Judges of the lower Courts, makes no examination at all as to the real meaning of the Act, or as to the serious Constitutional questions that are raised by interpreting it to mean that all the prior doctrines of our common and statute law are swept away by his assumed interpretation. He supports his decision that the Act is constitutional upon the basis of legal principles which abrogate the Constitution itself, and so far as commodities are concerned, upon principles which will establish Communism in this country. It is submitted that if his contentions be correct, Mr. Justice Brewer's classical opinion in the Monongahela Case,^[23] so constantly followed and maintained heretofore, has ceased to have any purpose or effect, and that many other Supreme Court decisions are likewise overruled. And this is particularly true from Judge Hazel's conclusion that if any things can properly be defined as "necessaries," in which of course the public has an interest, "the Lever Act does not deprive any one of his property without due process of law, it merely limiting the rate of charge for dealing in or with any necessaries." "For the foregoing reasons," he says, "I am of the opinion that this Court ought not to declare unconstitutional the provision to which exception is taken by the defendant."^[24] In other words, the decision in the case, if it be correctly understood, would lead to the conclusion that the Judges have been continually in error, at least from the time of Lord Chief Justice Coke, who it will be remembered said,^[25] "for what is the land but the profits thereof," to the case of Cleveland vs. Backus^[26] and down to Branson vs. Bush,^[27] decided by the Supreme Court in November, 1919. Mr. Justice Clarke, in direct contradiction to such a conclusion, there says: "The value of property results from the use to which it is put and varies with the profitableness of that use, present and prospective, actual and anticipated. There is no pecuniary value outside of that which results from such use."

The Fifth Amendment is really of no consequence, if all that is necessary to deprive citizens of their property is for a Court to determine that the public needs the property, and, therefore, has a right to impair or destroy that which alone constitutes its value. If this really be the law, the inspiring opinion of the Supreme Court in the Monongahela Case^[28] has been overruled. The great necessity for a commodity naturally increases its value. But it is contended that that which creates value deprives it of the protection which the Constitution gives it. However, the Supreme Court, in the case just mentioned, said:^[29] "Obviously, this question, as all others which run along the line of the extent of the protection the individual has under the Constitution against the demands of the Government, is of importance, for in any society the fullness and sufficiency of the securities which surround the individual in the use and enjoyment of his property constitute one of the most certain tests of the character and value of the Government. * * * Illegitimate and unconstitutional practices get their first footing * * * by silent approaches and slight deviations from legal modes of procedure. This can only be obviated by adhering to the rule that constitutional provisions for the security of person and property should be liberally construed. A close and liberal construction deprives them of half their efficiency, and leads to gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of Courts to be watchful for the constitutional rights of the citizen, and against any stealthy encroachments thereon. Their motto should be obsta principiis."

Certainly the Supreme Court was wrong in thinking that the danger to the Constitution was "in silent approaches and slight deviations" and in "stealthy encroachments," if all the purposes of the Constitution were to be swept away by a simple finding of the Judge that property was of sufficient value to be a public need. It can be believed that the worst and most despotic Government that ever existed did not take any property that was of no use. Even in the case of monopolistic enterprises, where some public check has been held to be necessary, no such doctrine has ever been applied as that the greater the value the smaller the right to Constitutional protection. It is certainly not construing the words "private property" "liberally" to hold that, although it is unqualified in the Constitution, it is to be read and confined to "private property of no use." But the Constitution cannot thus be frittered away, as the Courts have said so many times, and as early said in the Prigg Case,^[30] and even in the Craig Case.^[31]

It has already been shown what a disastrous effect such a ruling will have upon production. There are some other phases of this opinion which not go without comment. Judge Hazel then continues:^[32] "Presumably, Congress intentionally used the words 'unjust or unreasonable rate or charge' without qualification or the inclusion of a maximum price or standard to the end that there be a determination by the jury * * * in view of existing economic conditions." But he continues, properly: "In determining such question it is essential to consider all the facts and circumstances, whatever they may be, relating to the exacted rate or charge," having, however, frankly said further in the opinion that:^[33] "Candor compels the admission that the objection of uncertainty is not altogether free from doubt." It is, however, believed that had he examined the real economic principles involved, he must have concluded that there could be no doubt that the Act as he assumed its meaning was unconstitutional; that even because of his own grave doubts upon this question of Constitutionality, he would have interpreted the Act to be in pari materia to the Common Law and the Sherman Act. He would not have supposed that the class of monopolistic enterprises, because of the necessity of curbing monopolies, established a general rule. On the contrary, he should have seen that because they could not properly be curbed by the better rule of freedom in trade, where prices would be fixed in free competition, the cases of monopolies constituted an exception to the general rule. As he himself points out:^[34] "It is essential to consider all the facts and circumstances" in matters where the most essential perhaps are inevitably still contained in the womb of the future.

As has been pointed out, no one can tell what taxes may be levied; no one can tell what the risks of business may be; no one can tell what the replacement cost may total; every one that enters business has to guess at these and a thousand other factors—and nine men out of ten in the long run guess at them incorrectly,—to their ruin.

Of course, the learned Judge would be right had the Weed case fallen within the principle of the Nash case;^[35] but the Supreme Court has, again and again, so plainly marked the distinction between it and the Harvester,^[36] Collins^[37] and Pennsylvania Railroad^[38] Cases, which have been discussed, that it is perplexing to understand why there should be any conflict or difficulty in arriving at the one correct result. To repeat, again, where all the facts and circumstances are known, ordinarily intelligent men can reasonably and lawfully make deductions from them. With a preponderance of evidence, men can find only from their common experience whether they have exercised the care of reasonable men, or whether they have compiled with certain duties, even where they have intended the natural consequences of their acts. But the cases where these fundamental rules of conduct have been laid down deal generally with Common Law wrongs. When, however, it comes to dealing with property and exercising the property rights appertaining to freemen, there has been built up and safeguarded an absolutely different system. It has become fundamental that men should compete with each other and with an absolute and untrammeled freedom of discretion, and it is not only the best system, but the only system that is practicable in a free country.

Reviewing the authorities to which Judge Hazel refers in his opinion, it may be noted that the cases he cited are plainly and clearly within the Nash Case^[39] and as plainly and clearly distinguishable from and unlike the Collins^[40] or Harvester Cases,^[41] and do not in any way touch the present matter. The Fox Case,^[42] to which he refers, could not have been decided otherwise than it was. Mr. Justice Holmes there repeats what has been contended for that "so far as statuses fairly may be construed in such a way as to avoid doubtful constitutional questions, they should be so construed"—a rule of law that has been disregarded in all the cases under the Lever Act—and shows that the offense there was plainly wrongful because it was an encouragement to a positive breach of law.^[43] The Miller Case,^[44] cited by Judge Hazel, was one of gross and perhaps criminal negligence, and the Supreme Court properly says in its opinion: "The case falls, therefore, under the rule of Nash vs. United States, and not under the rule of International Harvester Co. vs. Missouri"—recognizing the distinction which none of these learned Judges in the lower Courts have referred to or recognized.

And finally in the Omaechevarri case,^[45] to which Judge Hazel refers upon the point that rules of conduct must necessarily be expressed in general terms and depend upon varying circumstances, it was clearly pointed out that in a criminal statute general provisions are not necessarily in violation of constitutional rights where common experience in the subject matter renders such terms definite. The Court said in this case, construing an Act regulating sheep rangers: "Men familiar with range conditions and desirous of observing the law will have little difficulty in determining what is prohibited by it." This decision, therefore, is directly contrary to that arrived at by Judge Hazel in the Weed case.^[46]

Consequently a close analysis of the Weed Case forces the conclusion that the broad, underlying principles of constitutional rights and of economic necessities have been almost completely disregarded in the course of reasoning which brought the Court to its decision. Furthermore, that the Circuit Court of Appeals, although it turned aside from the contentions and authorities given so much weight in the Court below, and based its affirmance principally upon the exigencies of a great conflict ended, nevertheless failed to realize that the remedy, for the ills of which the Act was intended to be curative, lay in a reaffirmance of the principles of free competition in trade, by which only, through forces naturally operating, prices of commodities could be maintained at a level fair, just and non-excessive.

There are no men so gifted with wisdom and prescience who can tell what future replacements will cost, what future taxes are to be or when levied, what strikes, what transportation difficulties, what idleness, what storms, what droughts, what earthquakes, what fires, what wars, what revolutions, what crop failures, and really what everything else is going to be.

As has been pointed out, the general tendency is to underestimate these things, just as the President of the United States underestimated them in the case of sugar.

The sugar refining industry affords a striking illustration of the uncertainties for which due allowance should be made in determining prices. A Refiner, having in mind the possible results of these uncertainties, inquired of the greatest Insurance Agency in the world what would be the rate of insurance against a decline from the high prices of its supplies of raw sugars, owned or under contract.

The correspondence is so interesting and instructive that it may prove of real value to those engaged in the effort to solve the same problems. The following are fac-similes of the letters, but with the name of the Refiner omitted:

Philadelphia, May 1, 1920.

Insurance on Raw Sugar Against Depreciation in Market Value.

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-----------------

Referring to your recent inquiry for insurance to pay any loss which you might sustain during the policy period by reason of a fall in market value on raw sugar, held or contracted for by you, no loss to be payable unless such market value fell below 15c. a pound, we regret to advise you that we have been unsuccessful in finding any market for an insurance of this character.

We have made a thorough canvass of the Insurance market, and, through our London correspondents, have thoroughly tried the market at London Lloyd's, but have not obtained a single offer to write such a policy at any rate.

We regret our inability to assist you in obtaining this protection, but it is our opinion that losses of this character are uninsurable losses at any obtainable premium.

Yours faithfully,

Mather & Co.

---

May 29, 1920.

Mather & Co.,

226 Walnut Street,

Phila., Pa.

Gentlemen:—

After the trouble that you took in communicating with Lloyd's, I dislike troubling you again, but, can you accomplish my purpose, you will render me a great service.

In estimating the cost of our production, we have, among other things, to include risk, and would very much like to insure this item. Raw sugars usually sell at about one-fourth of the present market price. We are compelled to buy large quantities, and, on the average, considerably ahead of the dates of delivery, and are under the constant necessity of replacing the sugars manufactured by us. If we have to estimate these items, we are largely guessing on a very uncertain and highly speculative market. Under these circumstances, it would be a relief to us and prevent misunderstandings between ourselves and the Government, if we could cover this risk for the periods likely to be involved.

Don't you think if you made a serious effort, and were able to pay say three cents a pound on a 20c. market, that Lloyd's or some one else in like enterprises, might be willing to assume the risk for us, and, could it be arranged, I feel great confidence that our Board would not only approve, but highly appreciate your service.

Yours truly, etc.

---

May 29, 1920.

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-----------------

We beg to acknowledge receipt of your letter of May 29th with reference to insurance to protect you against loss by reason of a fall in the market value of sugar held by you, and it is needless to say that it would be a great source of satisfaction to us if we could obtain this protection for you.

In response to your inquiry for insurance of this character in April we placed this matter before our London correspondents, who endeavored to develop a matter for this insurance with London Lloyd's, whom we know to be the only possible source from which insurance of this character might be obtained, but our correspondents were unable to secure any quotations at any rates whatever.

In our opinion the risk which Underwriters would take upon themselves in issuing such a policy would be so great that is could not be undertaken at even double the rate of three cents a pound mentioned in your letter. Indeed, considering the present abnormal price of sugar we do not believe that Underwriters would be warranted in writing this insurance at any obtainable premium.

We greatly regret our inability to be of assistance to you in this instance, but to the best of our knowledge and belief it is quite impossible to obtain the insurance which you desire.

Yours faithfully,

Mather & Co.,

Per Joeseph A. O'Brien.

---

Of course, the Refiner would be entitled to a fair insurance risk in his calculations, whether he covered it with an insurance company or assumed it himself; and as this can easily be ascertained to amount not only to more than the whole general profit, but to more than insurance, production cost and profit put together, it can easily be seen how correct Adam Smith and other economic thinkers are in stating that it is nearly ways underestimated. The explanation of this is, again, free competition. In order to keep their trade, men have a tendency to underrate possible loss, and to take chances in business with reference to the elements which are uncertain and undeterminable. Thus we have the high percentage of failures in business enterprises, where the preponderating element and distinction necessarily consist of risk taking.

If the Act is to be thus interpreted, Judges will have an impossible task in their instructions to juries in the cases tried before them. They will have to say, in effect:

"Gentlemen, this is a criminal proceeding; you cannot guess men out of their Liberty; you must have evidence that satisfies you, beyond any reasonable doubt, that the defendant, in dealing with matters looking largely to the future, and about which no one can be guided except by surmise or guess, didn't guess at all, but correctly drew deductions from the known facts and circumstances, which could not be known at the time he acted. You must be guided by the knowledge and experience of the ordinary reasonable business man in determining that the defendant, beyond every reasonable doubt, drew improper deductions from known facts in fixing the prices of the necessaries in which he deals. You must be careful, however, to remember that it was impossible for him to know all these essential facts, and that the common deductions of the ordinary man upon such matters are, to an excessive degree, entirely wrong. You are also to remember that as one section of the Act, itself, provides, in supplying the President of the United States with funds for business purposes, that such funds are recognized as 'revolving' items. That is to say, that business proceeds in a cycle, and, so long as it continues, is never completed, nor its profits really ascertainable. That in such matters the real result is never really ascertainable until the final cycle is completed. But you are to ignore all this, and stop it anywhere you please, although you know that business varies, and that the profits of inflated years are, as a rule, more than lost in the succeeding years of deflation and depression. You must guess and you must not guess. You can reach a verdict in this case only by guessing, but you must not guess as to the facts, or consider other than the positive evidence (if there is any that has been offered) of the case."

The foregoing, for the purpose of emphasizing the difficulties arising under an erroneous interpretation of the Act, may have gone somewhat to the extreme of illustration, but it is entirely consonant with the true and existing conditions which a dealer faces every day in determining the prices of the "necessaries" which he offers for sale, all of which considerations should be given full weight by a jury, or other tribunal attempting to pass upon the issue whether such prices charged were, in fact, unfair, unreasonable and excessive.

No one who thinks the matter out can have any doubt as to what would be the final conclusion as to such an inquisitorial attempt. It will be exactly the result that has ever been reached after such attempt and throughout the centuries. Although to the present time there have been various conflicting decisions under the Act, there has been none in which the Court has not shown marked evidences of embarassment and reluctance.

The final consideration of the Court in the Weed Case suggests a matter that seems to have been overlooked. It is of most vital importance, and involves the question whether it was not necessary for the Government, through the President, to "fix the prices of * * * necessaries." The opinion thus refers to this subject: "His failure to do so, perhaps, because of its recognized futility, does not render the indictment invalid." If the President could not determine prices of necessaries safely and effectively, as was shown in the case of sugar, then far less should it fairly be required of his fellow citizen to make such decision under peril of indictment. This phase of the matter is, however, not now under consideration, but a more serious one. A citizen, having used his best judgment as to prices which he fixed, and having reached a conclusion conscientiously and without any complaint or threat from the Government, has, in turn, no right to complain. He has no right to redress where no wrong is threatened. But he has a constitutional right, where his property or its fruits are to be taken from him, freely to submit his contentions to a court of justice and have the matter judicially determined, both for his redress and guidance. That right has been for centuries the chief aim of civilization. An Act that discourages such procedure is both against civilization and the Constitution. Even a sovereign state cannot check the right that now "freely exists" to have proper Constitutional questions involving rights of citizens determined by the Supreme Court, as was decided in the Harrison Case^[47] and in the Wadley Case.^[48]

It, of course, follows under the latter case and those cases which are approved and relied upon therein, that defendants, before they can be either fined or imprisoned, are entitled to their day in Court, and the determination by some judicial tribunal of what is a fair and reasonable price. It also appears that by reason of the varying factors determining commodity cases, no adjudication could establish a precedent, and a constant recurrence of decisions would be necessary from day to day. The cases would become so numerous that it would be impossible to enforce the penalties of the Act, which would become as futile as if it were entirely without penalty.

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1. Wilcox vs. Consolidated Gas Co., 212 U. S. 19 (see page 49). 1909.
2. John Stuart Mill, Political Economy, Vol. I, pages 420 to 424.
3. International Harvester Co. vs. Kentucky, 234 U. S. 216 (see page 222). 1914.
4. Adam Smith's "Wealth of Nations," Book I, Chap. IX.
5. Adam Smith, "Wealth of Nations," Book I, Chap. X.
6. Henry George, "Progress and Poverty," Chap. I, page 161.
7. Richard T. Ely's "Outlines of Economics," Chap. XXV, page 536.
8. Laughlin's "Money and Prices," Chap. III, page 97.
9. F. W. Taussig's "Principles of Economics," Vol. II, Chap. 49, pages 158, 159, 160 and 164; also Chap. 50, page 173.
10. Adam Smith's "Wealth of Nations," Book I, Chap X.
11. Turner's Introduction to Economics, Chap. 25, .
12. Ely and Wicker's "Elementary Economics" (Revised), .
13. Fisher's "Stabilizing the Dollar," Chap. III, Sec. 14, page 73; also Sec. 15, page 75.
14. Omaha vs. Omaha Water Co., 218 U. S. 180 (see page 203). 1910.
15. Knoxville vs. Water Co., 212 U. S. 1 (see page 13). 1909.
16. United States vs. Cohen, 264 Fed. Rep. 218. 1920.
17. From the opinion of Mr. Justice Holmes in International Harvester Co. vs. Kentucky, 234 U. S. 216 (see page 224). 1914.
18. United States vs. Trans-Missouri Freight Assn., 166 U. S. 290 (see page 331). 1897.
19. United States vs. Cohen, 264 Fed. Rep. 218. 1920.
20. In Omaha vs. Omaha Water Co., 218 U. S. 180 (see page 195). 1910.
21. In United States vs. United States Steel Corporation, 251 U. S. 417 (see page 448). 1920.
22. Weed & Co. vs. Lockwood, 264 Fed. 453. 1920.
23. Monongahela Navigation Company vs. United States, 148 U. S. 312. 1893. Justice Brewer said (page 324): "The question presented is not whether the United States has the power to condemn and appropriate this property of the Monongahela Company, for that is conceded, but how much it must pay as compensation therefor. Obviously, this question, as all others which run along the line or the extent of the protection the individual has under the Constitution against the demands of the government, is of importance; for in any society the fullness and sufficiency of the securities which surround the individual in the use and enjoyment of his property constitute one of the most certain tests of the character and value of the government. The first ten amendments to the Constitution, adopted as they were soon after the adoption of the Constitution, are in the nature of a bill of rights, and were adopted in order to quiet the apprehensions of many, that without some such declaration of rights the government would assume, and might be held to possess, the power to trespass upon those rights of persons and property which by the Declaration of Independence were affirmed to be unalienable rights."
24. Weed & Co. vs. Lockwood, 264 Fed. Rep. 453 (see page 456). 1920.
25. Littleton, 4 b.
26. The Cleveland, Cincinnati, Chicago & St. Paul Railway Company vs. Backus, 154 U. S. 439. 1894.
27. Branson vs. Bush, 251 U. S. 182. 1919.
28. Monongahela Navigation Company vs. United States, 148 U. S. 312. 1893.
29. Id., 148 U. S. (see page 324).
30. Prigg vs. Pennsylvania, 16 Peters 539 (see page 612). 1842.
31. Craig vs. Missouri, 4 Peters 410. 1830.
32. Weed vs. Lockwood, 264 Fed. Rep. 453 (see page 456). 1920.
33. Id., page 457.
34. Weed vs. Lockwood, 264 Fed. Rep. 453 (see page 456). 1920.
35. Nash vs. United States, 229 U. S. 373. 1913.
36. Harvester Co. vs. Kentucky, 234 U. S. 216. 1914.
37. Collins vs. Kentucky, 234 U. S. 634. 1914.
38. U. S. vs. Pennsylvania R. R. 242 U. S. 208. 1916.
39. Nash vs. United States, 229 U. S. 373. 111.
40. Collins vs. Kentucky, 234 U. S. 634. 1914.
41. Harvester Co. vs. Kentucky, 234 U. S. 216. 1914.
42. Fox vs. State of Washington, 236 U. S. 273. 1915.
43. In Fox vs. Washington, supra, a statute made criminal editing of printed matter tending to encourage or advocate disrespect of law. The defendant edited an article that tended to encourage the breach the State laws against indecent exposure. The defendant contended that the statute was unjustifiable restriction of liberty and too indefinite for a criminal statute. The statute was held constitutional and the conviction affirmed.
44. Miller vs. Strahl, 239 U. S. 426. 1915. The case concerned a police statute, in which keepers of hotels were required to give notice to guests in case of fire. It was held that the statute was not void for uncertainty in not prescribing rules of conduct in other than general terms.
45. Secundino Omaechevarri vs. Idaho, 246 U. S. 343. 1918. A statute of Idaho, in order to avert clashes between sheep herdsmen and cattle rangers, prohibited any person having charge of sheep from allowing them to graze on a range usually occupied by cattle. The object of the statute was to prevent the encroachment of sheep upon cattle ranges, resulting in driving out the cattle and impairing the industry. It was contended that the act was indefinite in its terms. The court held that the act was to be interpreted in the light of the common experience and knowledge of those familiar with the subject matter of the statute.
46. Weed & Co. vs. Lockwood, U. S. Atty., 264 Fed. 453. 1920.
47. Harrison vs. St. Louis & San Francisco Railroad Company, 232 U. S. 318. 1914.
48. Wadley Southern Railway Company vs. Georgia, 235 U. S. 651. 1915.