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labor may be the purpose of some combination's activity. The law also wishes to prevent cases of the latter kind, which, as the case of the miller's employees (Lohnmüllerei) shows, occur in other spheres, and are also conceivable within the scope of the present law.
The second criterion—namely, that of inadmissibility or incompatibility with public weal-demands again the concurrence of two events. In the first place, the action of the combination leading to the prohibition must overstep the limits within which it is justifiable, by reason of the economic situation, and compatible with public weal. These limits could not be better marked off, after mature deliberation, than by establishing a general economic category, namely, the objective economic situation. (Cf. the General Commentary, p. 127.) Furthermore, this action must run directly counter to the revenue interests, for whose protection the Government considered itself in duty bound to take special measures, especially with a view to the ever-increasing importance of these interests for the general problems of the executive. It is not always necessary that the detriment to the interests mentioned and to the revenue should directly lower the revenue receipts; it will be sufficient if the distribution of taxes according to the intentions of the law and the burden on the consumer is seriously affected.
It must often be considered an injury to these interests, of no less weight, if by abuses of combinations the development of production is endangered, an unjustifiable depression in the prices of means of production is produced, and, hand in hand with it, a decrease in the development of tax-paying enterprises and in the consuming and tax-paying power of the population in general occurs.
To the prohibited acts here treated must be added the special provision in the last clause of section 8, by which a special sanction is provided for violation by combinations of those provisions of the law on coalitions that remain in force. (Cf. the Commentary on sec. 3.)
Cartel commission.—By the very nature of the subject it seemed desirable to leave the determination of the conditions calling for State interventions not solely to the professional organs of the executive, but to call upon specially qualified persons from other spheres, who, from their acquaintance with the actual conditions, would most excellentiy supplement the judgment of the former and insure the proper working of the whole apparatus. These considerations led to the appointment, provided for in the law, of a special cartel commission. Among the different proposals aiming at the employment of other independent elements in the relations of the State with combinations, besides the proper organs of the State executive, the idea of a mixed commission seemed most practical. This is to insure organic cooperation of the members of the State executive with independent specialists. In order to make this cooperation as efficient as possible the Government intends to select these specialists, who are not properly officials of the executive, from among persons practically interested or from members of the combinations themselves; furthermore, from among other experienced persons in practical life, as well as from among scientific experts. This latter class is particularly included, because the problem of combinations has recently been the subject of detailed scientific observation, for which reason the opinion of scientific experts ought not to be neglected. From the deliberations of a commission of this character the Government hopes to attain a twofold advantage: First, the most efficient employment of independent expert opinion and judgment about the situation will thus be guaranteed for the (final) decision; furthermore, the impartiality and objective correctness of the decision will be accredited in a higher degree by the public. The authority which the cartel commission will presumabiy enjoy, merely from the manner of its composition, will also relieve the Government from part of its great responsibility for acts of State authority in this absolutely new field of action.
In accordance with the principles of government responsibility the State executive will always reserve the right of decision for itself, which will of course receive a thorough preparation and a material foundation through the opinion of the commission. The character of the commission as an advisory organ is in agreement with an idea which is constantly being worked out more thoroughly, as many analogies in other provinces of administrative work would show, namely, the idea supplementing the executive in the solution of difficult problems by an organic cooperation with independent specialists. To be sure, the work of the cartel commission promises to attain a special significance and to establish relations with practical life useful in the highest degree. Therefore the law provides for the eventuality of transferring to the commission also, beyond its merely advisory functions, the exercise of State supervision which belongs primarily and for the present to the ministry of finance.
While minor details about the work of the commission in its narrower or extended functions are reserved for regulation by a later decree, the practical organs of the revenue service are excluded by the terms of the laws, for good reasons, from serving as members of the commission or as officials under its authority (Comissäre), since a combination of such functions might lead to doubts about the impartiality of the commission or its employees.
In consequence of the necessity of applying the law to combinations already existing it was necessary to allow a longer term than ordinary for the first reports, which, from the status of these combinations, will have to be furnished at the time of the coming in force of the law, since the combinations will have to make, before furnishing their reports, certain arrangements in fulfilment of the provisions of the law.
Sections 14 to 18.
Violations covered by the penal enactments of this law are divided into offenses against order and judicial misdemeanors; the latter are all declared misdemeanors and therefore assigned, according to the general regulations of the order of procedure in penal processes, to the jurisdiction of the courts of law. Fines in contempt for violation of order, except in the case of a simple breach of official secrecy by members of the commission who are not State officials (sec. 17, clause 1), are to be imposed, first, as fines, and secondly, as judicial fines and imprisonment. The law imposes these always in a cumulative fashion. The offenses against order are characterized, apart from a breach of official secrecy by members of the commission, as negative transgressions, since by them the fulfilment of legal enactments is neglected or refused. The punishment of these offenses against order is left to the executive authorities (political State authorities). Since these offenses can be committed under most varying conditions, it was necessary to designate specifically the persons who might become guilty of such offenses. (Sec. 14, clause 1.)
The judicial offenses, divided according to their gravity into two groups, with penalties of different severity (secs. 15 and 16), have a common characteristic, namely, that the provisions containing the principal purpose of the law have been violated either knowingly or through negligence so gross that an ordinary degree of conscientiousness would have at once revealed the nature of the act as a violation of law. This constitutes such violation of the established law that a penal prosecution is amply justifiable according to the fundamental principles of law. For the realization of the purposes of the law it was necessary to place essential incompleteness, as far as punishment was concerned, on the same level with false statements in the reports or information furnished. (Sec. 15.) The offenses subject to the severer penalties of section 16, 1-3, are all in the nature of acts whereby existing combinations seek to withdraw themselves or particular policies which they pursue from the supervision of the State—where we have, as it were, actual cases of “blind corners (Winkelcartelle). The violation of the prohibition of agreements made by combined capitalists to the disadvantage of their workingmen, which prohibition is regulated by the law on coalitions and provided by the present law with further penalties, is pụt on the same level with the former cases as far as the severity of the penalty is concerned. (Sec. 16, 4.)
By the provisions of the present law the application of general penal law is of course not excluded; according to the circumstances of each case there will be applied either the legal provisions about competition or the severer law will take its
Sections 19 and 20.
The sanctions of this law shall be supplemented, apart from the subjective responsibility of the contravening party, by an objective responsibility the individual undertakers themselves as well as of their aggregate combination.
These provisions are justified by the consideration that violations of law should be accompanied with serious consequences for those who expect material gains from the violations. Such offenders, apart from the eventuality of individual responsibility in penal law, are to be brought by special enactments into such legal relations to their representatives and employees that the penal action of the latter shall be undertaken at the expense and risk of their employer. The temptation to break the law arising from eagerness to serve the interests of an employer will be counterbalanced by the fact that every violation of the law by the representative or the
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employee may bring on, in due course, certain material losses or the possibility of such to the undertaker.
In determining this objective liability a distinction had to be made between the cases where the liability exists without further presuppositions, as in the liability for fines of order and for judicial fines for violations in the making of reports, and secondly, those cases where the liability is connected with the presupposition of a certain want of diligence in the undertaker. (Sec. 19, 3.) If an independent penal responsibility exists on the part of the undertaker, which is frequently though not always the case, the objective liability of the undertaker for the fines imposed on his representative remains. (Sec. 19, 2.)
The reason for unconditional liability in the first group of cases is to be found in the fact that the violations coming under this head (neglect to furnish reports and information, falsity, or incompleteness of reports) can be more easily prevented by the selection of the right persons and the giving of the proper instructions than those other violations of sections 15 and 16 where the unconditional liability of the undertaker, if a penal complicity does not exist to begin with, to objective penalities for the violation of the laws might perhaps appear out of all proportion severe. In these cases it has been assumed that there is at least a certain want of diligence.
As a more perfect security for the sanctions of the law the liability of the undertakers united into a cartel could not be omitted. The organization of this common liability was effected in the form of a security exacted of cartels. The liability of this security, and with it indirectly of the undertakers, is conceived from two points of view: First, as a further objective liability, without further special presuppositions, for the fines (fines of order and judicial fines), and next as a perfection of the sanctions imposed for the severest cases of violation of the law. In these cases (sec. 16, 1 and 2) a forfeiture of the security may be pronounced, the amount of which may be decided according to the gravity of the individual case and after a hearing by the cartel commission.
Finally, a provision was necessary with regard to the actual deposit of the security after its amount had been fixed, as well as for the deposit of additional security in case of forfeiture. In reference to this the eventuality of collecting the amount of the security by way of political execution was provided for in addition to the prohibition of the cartel, the practically most efficient sanction.
DEVELOPMENT AND EXTENT OF THE COMBINATION MOVEMENT.
In Germany we find the combinations of the modern type first in the latter half of the last century. Among the first found are the Neckar Salt Union and the rail combinations, early in the sixties. Some 10 years later other combinations among the salt producers arose, and then early in the seventies the potash combination, which still remains as one of the most important in Germany. First after the industrial crisis of 1873 and the following years did the movement toward combination become noteworthy. The cause in this case, as in so many of the other countries, was the pressure of competition which was forcing prices below remunerative rates. In 1876 and 1877 there was a beginning of the coal syndicate in western Germany, which has since become in many ways the most important combination in Germany, if not in the world. Within a year, however, several other combinations in various iron manufactures, rails, locomotives, and cars were organized. From that time on the movement became more important and more rapid.
It was thought at first that the protective tariff would form a suíficient means for che improvement of industrial conditions in Germany. After the increase in the protective tariff in 1879 there was an increase in prices in many industries, but of course the protective tariff does not prevent very sharp competition within the country itself. Liefmann again calls attention ? to the phenomenon witnessed so frequently in the United States and elsewhere that, although the protective tariff checked the competition from foreign countries, it in no way prevented combinations within the home country from organizing.
In many cases the combinations during the seventies and eighties became so strong and exerted so powerful an influence upon the world market, especially in competition with England, that a good many combinations were made with foreign producers in order to lessen the severity of foreign competition, 41 international combinations being known in 1897. The greater number of these agreements were with Austria and England, but several were with Belgium; some even included certain South American States. Many more such combinations were talked of, but did not come into existence. In Germany, during the years 1888 to 1891, as in the United States, the movement toward the formation of combinations reached its height. Then it subsided again until within the last two or three years, when the movement has again apparently taken a new lease of life, inasmuch as two or three of the most important industries—such, for example, as the refining of sugar and distilling of spiritsseem finally to have reached a form in which they can probably last. At the time of the publication of his book (1897), Liefmann claims that he has known as many as 345 combinations in Germany. In this number he includes really only combinations in the stricter sense of the word, excluding all local agreements on prices—as, for example, breweries in different cities, a form of combination which is almost universal in Germany—and excluding also speculative rings of various kinds and absolute fusions into corporations. The number includes really only the industrial combinations in the ordinary German sense. Wherever there have been different agreements at different times among the same parties, these are counted only once.
1 R. Liefmann, Die Unternehmer-verbände, Freiburg, 1897, p. 139.
He thinks that from 230 to 250 out of the 345 were still in existence in 1897. He divides the 345 combinations as follows: Chemical industry 82 | Coal industry
17 Iron industry 80 Metallurgic (excepting iron)
15 Stone and clay industry. 59 Food products.
12 Textile industry. 38 Leather...
5 Paper industry
19 Wood industry.
Besides these, he knows of 6 in connection with transportation. Of these combinations he has learned the time of organization of 260, and these distributed by years are as follows: In the year 1865, there were 4; in 1875, 8; 1879, 14; 1885, 90; 1890, 210; 1896, 260. Of course these figures can not be complete as regards either the date or the number, but they show, nevertheless, with a good deal of accuracy the very great extent of combinations in Germany.
Liefmann then attempts to give the industries that are covered by combinations, and from reading his list, which covers considerably more than a page, one can see that most of the more important and many of the less important industries are included. In his judgment, Germany stands really at the head of all countries as regards the number of its combinations. This is something, of course, that one might well dispute, but it would probably not be possible to reach any positive conclusion. In the United States many efforts have been made to get lists of the so-called trusts or combinations, but a careful examination of any one of those lists will show that often articles of incorporation for a combination have been taken out, when the new corporation, as a matter of fact, never went into active existence. Besides these, there are doubtless hundreds, quite possibly even thousands, of agreements regarding prices and output that in Germany would be counted among the combinations (Kartelle), which we have not been in the habit of counting here among them because they are merely temporary and possibly entirely informal in their nature. In comparing thus the extent of German combinations with those in the United States, we need to take both these facts into consideration–difference in meaning of the word combination itself, although the effects may be the same, and with that the greater degree of stability in one sense that the American combinations have secured from their organization into single compact corporations which preclude the possibility of their separating into their original forms, as is not infrequently the case in Germany. It may, however, be assumed beyond question that the movement in Germany has been more extensive, and that in many ways the German combinations have been more successful than those found elsewhere in Europe. A consideration of the reasons for these facts, of course, will come up under heads that follow.
The feeling in Germany regarding combinations seems to have been on the whole not unfavorable until, at any rate, within the last few years. This is doubtless due in part to the fact that the agreements have been ordinarily merely upon output and prices. Without the organization of any new companies with large capitalization, there is not so much to arouse the imagination of the people and to make them feel that the capitalists are in any sense taking control of the State. Moreover, it has been true apparently that, although there have been agreements upon prices, the prices have not generally been placed so much higher as to arouse great hostility. Again, as will be seen later, the German courts have been inclined to consider the agreements on the whole as not contrary to good morals nor invalid, but in many cases, at any rate, as justified by economic conditions and enforceable. Until comparatively lately, then, the combinations have not aroused much public hostility. Within the last two or three years, however, owing possibly in part to the combinations, but also doubtless in good part to the flourishing condition of most industries and the consequent strong demand, there has been in many lines of business a marked increase in price, which has aroused public opposition. It is probable that this has been noticed to a considerable extent in other industries, but the one which, on the whole, seems to have aroused the greatest hostility is that of coal production. The details of the organization of the coal syndicate will be given later. Suffice it to say here that in the western part of Germany the Westphalian Coal Syndicate has substantially complete control of all of the coal production. Within the last two years there has been a marked increase in the price of coal. Besides that, the syndicate has in many cases refused to furnish coal to the extent that has been demanded and this act has naturally enough aroused hostility to a considerable degree. Two or