A further effect of combinations in this sphere is frequently the restriction of production of the various articles of consumption, which is resorted to to preserve prices at a certain level. In the first place, this opens up the possibility of a decrease of consumption, but besides a decrease in the number of workingmen (workingmen proper as well as brain workers) usually takes place in the industries under the control of combinations, or the wages are lowered, which brings about a further decrease in consumption. The effect on the revenue of the state is quite apparent also in this way.

But combinations contain dangerous possibilities not only in regard to indirect taxation, but in reference to direct taxation as well. It is an effect of combinations, positively established, though probably not always foreseen and intended, that they impede or even hinder the establishment of new industrial enterprises, since the combination frequently directs its whole undivided strength against outside, particularly new, enterprises. Furthermore, the possibility of competition with capitalists united in a combination is more than formerly dependent on the possession of capital. An unfavorable influence on the revenues and the natural growth of tax receipts is seriously to be feared from these effects of combinations.

An unhindered development of combinations in the sphere mentioned leads to fears of an economically harmful influencing of the distribution of incomes. The compact and exclusive character of the combinations might easily bring it about that the rise of workingmen, of the artisans, and the brain workers now employed in the managing and planning of the enterprises into independent undertakers is made more difficult or possibly, in the one or the other branch, impossible. Such a condition would clearly affect seriously the distribution of income and consequently, in its final results, the entire revenue system of the State, not to mention social effects.

But apart from these grounds of revenue policy reasons of a general nature also speak in favor of State interference.

The attempt to curtail or do away with free competition, the fundamental principle of the present economic structure according to prevalent scientific views, is a general characteristic of combinations. But just as the State considers it more and more its duty to resist any infraction of this principle by taking measures against unfair competition, on the other hand weighty considerations compel it to combat the preventing or impairing of a fair competition as soon as these forces become to a considerable degree a social evil. In these tendencies is expressed the common aim of all combinations, however different they may be in external appearance. It is not without significance that the opponents of our present social order have made special observation of this throttling of free competition through combinations and have rested on it, here and there, definite hopes for their plans of a socialistic state of the future.

Assuming an unhindered development of combinations, it is difficult to avoid feeling some concern as to whether technical improvements in production would continue to inure to the benefit of the community. It did not seem necessary to test the correctness of the claim that the certainty of gains obtained without increased enterprise and the resulting relaxation of industrial activity might lead to a general retardation of technical progress in production; but nevertheless there is a danger that the economic benefits of these improvements resulting from the decrease in the cost of production, with absolutely stable prices of the finished product, will not benefit the community, but will solely increase the undertaker's gain, through a decrease of the difference between the cost of production and the price of sale.

The knowledge of these facts might in our time aggravate still more the attacks which are made even on a legitimate undertaker's profit. It would indeed be easier to claim, particularly when whole industries are combined, that the industrial undertaker was saved an amount of intellectual labor otherwise necessary (information, calculation, disposition, management), which is the essential characteristic of his activity, and also in consequence the just title to the undertaker's earnings. It might, indeed, go so far, if the system of combinations develops and expands uncontrolled, that, instead of the fluctuating gains representing the success of the undertaker's efforts, a fixed rate would become prevalent, a kind of an undertaker's annuity, so that the undertaker's profit would undergo, as it were, a transition from the fluid into the solid state.

A number of these socially injurious results of combinations are attended, furthermore, with certain other effects, namely, a lessening of the stimulus and the opportunity to employ capital in industrial and other enterprises. This effects an interruption in the circulation of capital essential to sound conditions of social economy, as well as a disturbance of the necessary balance in the distribution of capital. Furthermore, available capital is forced into investments paying a fixed rate of interest, and the lowering of the rate of interest, which of course is to be welcomed from a social point of view, takes place, in consequence, by bounds and leaps

instead of in stable development, as is desirable. Finally, business enterprise and initiative, which unfortunately are as yet little developed with us, will be still more checked; and in the place of capital employed in the labor of its owner, the sphere of interest for use of capital by others, that is, the sphere of income without labor, is enlarged excessively. Many of these points discussed can be summed up in the words that, just as the combinations represent the most advanced form of organizations of capital in modern development, so they are also felt to be an improved instrument of the ascendancy of capital over against economically weaker circles. This is the case not only with a view to the great mass of consumers, but especially with a view to the workingmen employed in the industrial branches which are in the hands of combinations.

These are much hampered in their freedom of labor when instead of a number of separate enterprises they find themselves confronted with a concentrated management comprehending the whole branch of production; and they fall into a condition of greater dependence upon their employers, by which fact class feelings might be seriously aggravated.

For all these reasons State interference is perfectly justified. It is, by the way, not without precedent. Even if we leave out of account the historical development of our State, which shows numerous similar legislative regulations of economic problems (although the full significance of these was probably not realized in most cases), the present stage of development shows a number of quite important spheres where the State interferes, for public reasons, with the free economic activity of the individual. It is probably sufficient in this connection to recall the well-known cases of mining, forestry, and in a certain sense also the private railways.

Forms of State interference.-If the necessity of State interference is granted the question arises in what forms this interference shall take place? One could think of two types: One in the economic, the other in the legal sphere. The economic interference has usually been proposed in the form of a lowering of the protective tariff. Apart from the fact that in consequence of the customs and commercial union with Hungary, a modification of the duties fixed in the tariff can not be made by one party, such a measure can not be considered, because it would endanger the prosperity and existence of whole industries for the sake of preventing temporary abuses, and would introduce uncertainty and rapid changes into the desirable stability of production and of commerce and trade. Besides such a lowering of the tariff would essentially amount to a penal measure, and, in direct contradiction to the fundamental requirement of all punishment, that it should be meted out only to the guilty, it would be an unjust punishment for all undertakers who had not joined the combination, as well as other circles interested in the branches concerned, and it might finally be paralyzed in its effects by the formation of international combinations. Apart from the matter of taxation other economic legislative measures against abuses of the combinations are conceivable Without wishing to assert the applicability of these measures to home conditions, it may be pointed out, for the sake of completeness, that in a great foreign State the administration of finances took action against the sugar cartel by becoming itself an importer of refined sugar. Likewise the establishment of State enterprises in competition would be imaginable in the branch of production concerned, and complete State ownership of the industrial branch would be the final development of this principle. It scarcely calls for special mention that the economic conditions of our country do not yet call for such extreme measures, and that, as will be shown hereafter, quite efficient and not so radical measures in another direction are at our disposal.

The second type of interference falls within the legal sphere. Three things have been proposed under this head: (1) Interference by penal law; (2) by civil law; (3) by administrative law.

I. Penal law. The combinations do not furnish a tangible and promising basis for treatment under penal law; in fact, all attempts of this kind from the provisions of Justinian's Code up to the most modern American antitrust legislation are a succession of failures.

In Austria the penal law of the year 1803, whose provisions (secs. 227 to 229) have been continued in the penal law of the year 1852 (secs. 479 to 481), has already attempted a regulation of this question by declaring agreements of artisans, manufacturers, etc., in regard to fixing the prices of goods or wages to the disadvantage of the public or the workingmen, and also the withholding of wares from the market, as penal offenses. This treatment under penal law in Austria originated about the time when similar provisions were made by the Prussian code (Landrecht) and the French code pénal. Their inefficiency has been proved in all these jurisdictions alike, and has everywhere left a demand for more efficient legislation.

In Austria the law on coalitions of April 7, 1870 (R. G. B. No. 43), was supposed to fulfill the requirements. It changed the punishable facts against former conditions in such a way that no longer agreements as such, but only certain forbidden means to bring about such agreements or to preserve them (threats, intimidation, force) were declared punishable. The law on coalitions abstains from a treatment of agreements themselves by penal law, and affects them solely by nullification in civil law. These provisions of the law on coalitions furnished, as is well known, no efficient means for combating the socially harmful abuses of combination of undertakers. The same is true of the well-known article 419 of the French code pénal, which has led to many disputes among jurists, but to no practical results. Last of all, American legislation, which could scarcely be excelled in threats of Draconic penalties, has been an absolute failure.

The principal reason for the inefficiency of these penal experiments is to be found in the difficulty, caused by the peculiar nature of the subject, of obtaining a concise formulation of the punishable facts. Either the definition is too broad, and then the inadvisability of a strict application of the penalties leads, as usual, to laxness, or the definition is too narrow, in which case many things, to begin with, lie outside the limits of the law, and it fails to a great extent in its purposes. The same difficulty presents itself on attempting to fix the severity of the penalty. If the law is too severe, it restricts the whole freedom of industrial life and is not applied; if the severe penalties are confined to the most glaring cases, the whole conception of such penal laws is one sided, and fails in a large number of cases demanding a legal regulation. But the more difficult a satisfactory definition of the punishable offense is the more difficult is also a judicial condition which by its essential character is tied to the employment of clear definitions and which must necessarily be embarrassed by great and unaccustomed difficulties in trying to judge such complicated economic questions. Finally the inducements and, as American experience has shown, the success in evading the laws grow in direct proportion to the severity of the penalties.

These experiences always led to such results that now the method of penal repression of combinations is no longer considered adequate by itself.

II. Civil law. The second method of combating the harmful social abuses of combinations leads into the domain of private law. In this domain the measures proposed consist principally of denying to agreements of combinations, more or less completely, efficiency in private law, be it that the right of entering complaint, solely, is denied, be it that the nullity, invalidation, or legal inefficiency is expressly stated. The mere denial of the right of complaint has up to the present, as far as is known, been employed by no legislation, and such a measure would indeed be a half measure and clearly inefficient. Nevertheless, attempts at legislation to establish a norm for the invalidation of the agreements made by combinations are anything but rare. this category belongs, particularly, the legislation of countries that apply to combinations penal sanctions from which the invalidation of such agreements also in private law follows as a self-evident consequence.

In

But a solution of the difficulty by civil law is attempted by that legislation which finds protection against the harmful social effects of combinations solely in a refusal to recognize them in civil law. Apart from the principal question still to be consid ered, namely, that of adequate efficiency of such civil-law provisions, the purely technical side of legislation, namely, the comprehensive formulation of the provisions for the whole subject of combinations, offers some difficulty, and parallel with this difficulty the practical application by the judge will usually be vacillating, if for no other reason on account of the necessary classification of the individual cases under the head of the economic categories made, from which fact the practical efficiency of the law becomes doubtful. An example in point is the law on coalitions of the year 1870, which in its civil-law parts (secs. 2 and 4) does not comprehend the subject of combinations at all exhaustively and has remained almost without application in practice.

As far as the civil-law part of the law on coalitions is concerned it is, to say the least, doubtful from the wording of section 4 if it is applicable to agreements about the quantity of the output, the dividing up of market territory, and in general to such agreements as effect an increase of prices only indirectly; but it is certain that section 4 of this law does not apply:

(a) To agreements which aim at no increase, but solely at the fixing of the prices of wares, in spite of the appearance of more favorable conditions of production, so that the profits from the conditions of the market are confined solely to the combined undertakers, while the people are excluded from participation in them.

(b) To agreements which concern the purchase price of partially manufactured articles, raw materials, etc., whether by a direct agreement about prices or by a division of the territory of the markets where purchases are made. (Rayonirung.)

(c) To agreements in reference to the more favorable development of other conditions of production, as, for instance, agreements fixing the amount to be paid for transportation, insurance, etc. [Probably referring to discriminating rates of various kinds.]

But even in the remaining limited domain of the applicability of the law on coalitions this law has almost never been applied, since an occasion for asserting the invalidity in civil law of combinations coming under this law has never arisen. Quite naturally, for it is the nature of these organizations that members of the combination need the protection of the State and recognition by the State much less than in most of the other domains of private law. This is the case principally because through the customary means of courts of arbitration an enforcement of contract is possible in spite of the invalidity of an agreement in civil law. It must at least be considered very doubtful whether under the present law of legal procedure the awards of courts of arbitration which refer to the fulfilment of the agreements of a combination can be attacked in their material contents or in their enforcement on account of the invalid agreements of a combination which is their foundation. A change was indeed brought about with reference to this point through the new legislation relating to suits in civil law by declaring invalid in future (by force of Sec. 595, 1, 6, and Sec. 598 of the law of August 1, 1895, R. G. B. No. 113) awards of arbitration which violate binding provisions of the law, and, in consequence, also such awards as aim at enforcing an agreement legally invalid according to section 4, and therefore incapable of execution. In reference to the decisions of bourse courts of arbitration, similar provisions have been made by article 25 of the law introducing the civil-law statutes of August 1, 1895 (R. G. B. No. 112), and by article 54 of this introductory law the provisions are already in force.1

But even such a perfecting of the sanctions of invalidity in civil law would scarcely be sufficient for combating socially harmful combinations. It is an innate characteristic of combinations that invalidity in private law amounts to but little. For the injury resulting to the members of a combination, both at present and in the future, from an infraction of the agreement would be so considerable that simple considerations of self-interest are sufficient to prevent a breach of the agreement. These interests, as well as considerations of business honor and of trust and faith in business relations, are a firm bond that holds and unites the members of a combination in spite of all invalidity in private law. It should be added that agreements of combination can almost without exception be so worded as to allow of withdrawal at certain terms, so that withdrawal from a combination is also possible without breach of contract.

A recognition of the inefficiency of legislation in private law has caused some legislatures of America to make a more thorough experiment in the domain of private law, and to proceed against socially harmful combinations and its members with a civillaw anathema, as it were, such as a remission of the obligation of purchasers to pay over against members of certain combinations of undertakers, the enactment of a special liability to damages, finally the general right of any individual to appeal to the courts in the manner of an actio popularis, in order that these may declare invalid certain combinations as contrary to public policy. These attempts also seem to lead to no satisfactory solution of the problem. Either they are a combination with the penal-law treatment, in which case the objections already stated hold true, or they are an accessory attached to invalidity at civil law, which then shares in inefficiency the fate of the principal. This is the case because such legislation as the release from obligation to pay for purchases made from combinations is unreasonable; it is not in accordance with popular standards of justice, and therefore is not enforced. Thus experiences with mere legislation by civil or penal law lead to the conviction that the significant functions of the combinations go far beyond the domain of civil and penal law, and that, therefore, a solution of the problem can only be found by methods progressing beyond these limits.

III. Administrative law.-The next proceeding is usually designated as the administrative. The conviction which lies at the basis of the proposals herein made is that the most interesting aspect to the State in the development of combinations is the demarcation of the limit beyond which combinations become an evil to the community. But this demarcation belongs undoubtedly to the domain of economic policy and, therefore, among the problems which belong, in the modern State, to the executive in the proper sense, for which reasons all the norms for the solution of these problems through the executive belong to the sphere of administrative law. To this internal reason for the competence of the State executive is added this very important consideration of expediency, that the nature of the subject requiring regulation

1 Cf. also art. 30 of the law introducing the statute of execution of May 27, 1896, R. G. B. No. 78.

demands an elastic apparatus, such as can only be furnished by the executive. This branch is by its nature capable to attain that which the inelastic appliances of mere invalidity in civil law and responsibility in penal law are incapable of: adaptation to all the varying demands of the complex and many-sided modern economic life, which has reached in combinations a particularly remarkable phase of development.

The recognition of these facts has in recent times led to the conviction that only administrative regulation of combinations of undertakers can lead to a satisfactory solution of the problem. Prof. Adolf Menzel particularly advocated this measure in his report made in the autumn of 1894 to the Association for Social Politics (Verein für Social Politik), and since that time this conception has gained many adherents. Even with this form of regulation many systems are conceivable. The idea that first suggests itself is to extend also to combinations the system of concessions introduced by law of November 26, 1852, R. G. B. No. 253, for our industrial associations. But serious considerations may be adduced against this. There would be a danger that the combinations, which would hold a concession from the State, would envelop themselves with the mantle of State authority and that they would employ for their purposes the dignity of the State, and in this way strengthen their economic ascendancy still more. For these reasons misgivings have often been felt with reference to the system of concessions prevailing in Austria, although these concessions concerned forms of association that are more removed from the conflicts of economic life. How much more strongly would these misgivings make themselves felt if the system of concessions, and with it a portion of State authority, were applied to associations which at present represent the most highly potentiated form of the power of united capital, the most hotly disputed ground of fierce conflicts of different interests and different classes, yea, are in many cases fighting organizations directly intended for economic warfare.

Secondly, a pure registry system (Anzeigesystem), after the model of the law on associations of November 15, 1867, R. G. B. No. 134, is conceivable. According to such a law all combinations would have to be reported to the administrative authorities, and if, after a certain term, no objection was raised they would then obtain a legal existence and would have claim to a certification of this existence or of the absence of any objection.

While on the one hand the State executive would thus be forced into the indirect approval of the legality of combinations, it would on the other hand be without beneficially effective influence on the actions of the combinations. For the forms of a State interference (Ingerenz) provided by the above-mentioned law, the sending of an official (Commissär) and dissolution in case of the subsumption of the combination under the head of certain specified kinds of facts, without the possibility of a continuous satisfactory control from point of view of public welfare, do not at all suffice for the demands of the State over against the very peculiar and manifold forms of the combinations.

The establishment of a cartel bureau [special government department of industrial combinations] would afford a third kind of administrative regulation, many varying forms of which have been proposed, ranging from a mere "bureau of publicity" up to a kind of bureau of concession, which, by entering and striking out combinations in a special register, would be authorized to formally pronounce their recognition by the State or withdraw it. But the more closely the different proposals about the organization of such a bureau are scrutinized the more it becomes apparent that the organism of this bureau is of no particular significance-that rather everything depends on the character of the material norms, whose execution is intrusted to it. Naturally the question arises whether in the execution of these norms the establishment of a separate organ of the administration is necessary or whether this problem can not be just as well solved within the limits of the existing administrative organism.

If, namely, the cartel bureau is to have merely the function of registering, this can be done as well by making the registry obligatory with any public department, and in that case the name "cartel bureau," with which would be associated ordinarily the idea of a far more comprehensive governmental authority, would scarcely be appropriate. The question is entirely left out of consideration how far such a mere function of registering would at all answer the legal aims of a regulation of combinations. If the registry system is developed and if, with the obligation to report, there are connected material effects (validity, the right of legal complaint under certain circumstances, liability to punishment), then it appears that the principal significance does not lie in the institution of the cartel bureau as such, but in the regulations to be applied by the same, the interpretation of which will be different, according to

1 Cf. the memorial of the chamber of commerce and trade at Prague, directed to the imperial royal ministry of commerce in reference to the regulation of combinations, Prague, 1896, pp. 126 ff.