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regulate interstate commerce. The commerce clause has been chiefly used to prevent the interference by States with interstate commerce. 6. The creation of this Bureau affords a means for getting essential facts. In addition to the value to Congress of such information, the publication of facts, the dissemination of knowledge, will bring into existence the influence of an enlightened public opinion which properly applied would go far to develop the sense of public trust involved in the control of private wealth and the sense of personal responsibility on the part of officers or managers of corporations.
7. The work of the Bureau can proceed along the lines of inquiry and report, adding fact upon fact in proof of existing conditions, but no real remedy can be expected until Congress takes action by affirmative use of the great powers granted under the commerce clause of the Constitution.
8. The possible Congressional actions are:
(a) Delegation to the States of control over interstate commerce. This is believed to be unconstitutional, and secondly subject to all the objections applicable to the present "State system."
(b) Compulsory Federal incorporation of interstate commerce companies. This is probably legally practicable, but it involves radical industrial and political changes by the centralization of power in the Federal Government, and presents serious difficulties because of its effect upon the authority of the States over such corporations in matters of taxation and local regulation. Any optional law of this character would not overcome these difficulties.
(c) Federal license or franchise for interstate commerce. Legally this is practicable; it avoids the legal difficulties of national incorporation as well as the practical one of centralization of power, and gives the national Government direct regulation of the agencies of interstate and foreign commerce.
Í therefore beg to suggest that Congress be requested to consider the advisability of enacting a law for the legislative regulation of interstate and foreign commerce under a license or franchise, which in general should provide as follows:
(a) The granting of a Federal franchise or license to engage in interstate commerce.
(b) The imposition of all necessary requirements as to corporate organization and management as a condition precedent to the grant of such franchise or license.
(c) The requirement of such reports and returns as may be desired as a condition of the retention of such franchise or license.
(d) The prohibition of all corporations and corporate agencies from engaging in interstate and foreign commerce without such Federal franchise or license.
(e) The full protection of the grantees of such franchise or license who obey the laws applicable thereto.
(f) The right to refuse or withdraw such franchise or license in case of violation of law, with appropriate right of judicial appeal to prevent abuse of power by the administrative officer.
This Bureau, under the direction of the Secretary of Commerce and Labor, affords the appropriate machinery for the administration of such a law.
It is fully appreciated that this recommendation is not new, but has been the subject of most serious and exhaustive consideration by public officials and commissions, as well as private persons technically well qualified to speak. The Industrial Commission, in its final report on V this subject, recommended, among other things, the adoption of a plan quite similar to this. It is neither necessary nor wise to attempt, in this report, to elaborate the details of such an act; but the Bureau has upon its files abundant and, in many particulars, exhaustive information which would be immediately available for the use of Congress or any committee thereof which might have under consideration such a
JAMES RUDOLPH GARFIELD,
The SECRETARY OF COMMERCE AND LABOR.
FEDERAL INCORPORATION-CAN CONGRESS CREATE CORPORATIONS TO ENGAGE IN INTERSTATE COMMERCE, AND ALSO GRANT THEM FRANCHISES TO PRODUCE?
There are a number of legal principles to be considered in this question, some of them well determined and others not wholly settled. It may be asserted definitely— (a) That Congress has the power to incorporate a company for the purpose of regulating interstate and foreign commerce.
McCulloch v. Maryland, 4 Wheat., 315;
California v. Pacific Ry. Co., 127 U. S., 39-40;
Luxton v. North River Bridge Co., 153 U. S., 529.
(b) That Congress, for the purpose of regulating interstate commerce, may prohibit a State corporation from engaging in such commerce. Congress has never attempted specifically to make such prohibition, but a number of laws prohibiting commerce in various forms, especially the Embargo and Non-Intercourse Acts, have been upheld, many of which are much more radical in their nature than the said prohibition of State corporations from interstate commerce.
Embargo and Non-Intercourse Acts; U. S. v. Brigantine William, 2 Hall's
U. S. v. Joint Traffic Ass'n, 171 Ú. S., 505.
And as to the similarity of foreign and interstate commerce on this point, see
Bowman v. Railroad Co., 125 U. S., 482;
Crutcher v. Kentucky, 141 U. S., 57.
(c) That a State can not interfere with the operations of a corporation, chartered by the United States for the purpose of regulating commerce and acting within such charter, in any such manner as will hinder, impede, or burden such corporation in carrying out such purpose.
McCulloch v. Maryland, 4 Wheat., 315.
(d) That a corporation constitutionally chartered by the United States and not expressly limited in its operations to any part of the United States is not a foreign corporation as to the soil of any State, nor does its status there depend upon "the comity of States."
(e) Any State can prohibit a corporation of a foreign State from doing domestic business within the borders of the first State, or place such conditions as it chooses upon the right to do such domestic business.
Paul v. Virginia, 8 Wall., 168;
Pembina Mining Co. v. Pa., 125 U. S., 181.
(f) A State can lay no burden or impediment upon the interstate business of a foreign corporation doing such business within such State, subject, however, to the possible modification referred to below in (a).
Case of the State Freight Tax, 15 Wall., 232;
Railroad v. Peniston, 18 Wall., 5;
Gloucester Ferry Co. v. Pa., 114 U. S., 196.
To discuss the propositions less well settled—
(a) The question of the power of a State to tax the gross receipts of a corporation engaged within that State in interstate commerce, which receipts are derived from such commerce, is in an unsettled condition, owing to the last important decision on the subject, to-wit, the case of Maine v. Grand Trunk Railway, 142 U. S., 217. Up to the time of that decision it was supposed that the doctrine had been settled that gross receipts, derived from interstate commerce, could not be taxed by a State. The court, in the Maine and Grand Trunk case, by a majority of one, held that the franchise or right to do interstate commerce of a railway company engaged in such commerce in the State of Maine could be taxed by laying a tax upon a fraction of the entire gross receipts, determined by the ratio of the entire mileage of said road to the mileage in the State of Maine. This decision was based on the reasoning that the tax was one upon a franchise granted by the State, and was a condition of the grant of such franchise, or of its continuance; and that the basing of such tax upon a proportion of the gross receipts was merely a formal method of determining the value of such franchise. A vigorous dissenting opinion by four judges was filed. It would seem that if this case is conclusive, the old rule against the taxation of interstate commerce can be readily evaded, at least as regards domestic franchises, by a mere form of words in the statute. (For further discussion of this subject see Appendix D.)
(b) Of a similar nature to the above question is the question whether a State may practically tax the interstate commerce of its own corporations, or under its own franchises, by making it a condition of such charter or franchise that an annual tax shall be paid upon the receipts from interstate commerce by such corporation. Such a condition has been held valid.
Railroad Co. v. Md., 21 Wall., 456.
It is to be noted that these last two principles are based upon the theory that a State has the right to make any condition it chooses upon its own grant or franchise. This would accordingly extend this principle of taxation only to corporations holding a franchise from the taxing State; but inasmuch as many interstate corporations must ordinarily have a State franchise to carry on their business (e. g., railroads), it gives this taxing power a wide scope, and could only be conclusively avoided by corporations taking out a franchise under Federal authority.
(c) A further principle, which, however, may be modified by future decisions, has been established in the Knight case (U. S. v. E. C. Knight Co., 156 U. S., 1), to-wit, that the intent of a manufacturer to use his manufactured articles in interstate commerce, and the great probability that he will do so, do not render such manufacturing operations interstate commerce, so as to give the United States the right to regulate such operations; that is to say, that production does not imply interstate commerce, however likely it may be that the intent of the producer and the ordinary course of business may make the articles produced the subjects of interstate commerce. It should be noted here, as brought out later in more detail, that this is not the same thing as saying that interstate commerce does not imply production.
Cases subsequent to the Knight case seem to have deprived it of considerable force, and to be tending to the establishment of the principle that the existence of a power to control interstate commerce, together with the intent to use this power, makes that power subject to Federal regulation, regardless of whether such power has been actually exercised or not.
Northern Securities Co. v. U. S., 193 U. S., 197.
With these principles in view, there appears to be but one important legal difficulty in the way of a compulsory Federal incorporation act, which shall have as its three main features
(a) The creation of corporations by Congress with power to engage in interstate
(b) The prohibition upon all other corporations from engaging in such commerce. (c) The granting to such Federal corporations of the right to manufacture and produce within the several States.
The first two powers can be met with no legal objections, nor can a State make any essential opposition to them, even by the right of taxation, it being unquestioned that, while a State may possibly tax its own franchise, although used for interstate commerce, it can not tax a Federal franchise.
The third proposition, (c), is the one which raises the chief legal difficulty, to the consideration of which this appendix is mainly devoted, to-wit: Can Congress give to an "interstate-commerce corporation" the valid additional power to produce or manufacture within any State? In other words, is the power to produce a sufficiently proper and necessary incidental to the power of regulating interstate commerce by the creation of such corporations?
Two reasons may be asserted, therefore, for the validity of such a power(a) That it is an appropriate incidental to the object in view.
(b) That it is an absolutely essential means for carrying out such object.
THE POWER TO PRODUCE AS AN APPROPRIATE INCIDENTAL.
It is submitted that the power to produce to be granted by Congress to a Federal interstate-commerce corporation is a proper incidental to the powers of such corporation for the purpose of regulating interstate commerce. Congress, as in the Knight case, may perhaps be unable to regulate production by State corporations, because such corporations are not necessarily, or are only imperfectly and partially, the instruments of interstate commerce; but if Congress itself creates a corporation as an instrument expressly to carry on interstate commerce, the power of Congress over such corporation, inasmuch as it is strictly an instrument of interstate commerce, is unlimited, and the powers of such corporation must be plenary to carry out the constitutional object of its creation. And if production is a proper incidental of interstate commerce, then such corporate powers must include production.
The statement of Chief Justice Marshall, so often quoted, seems to cover completely the power to produce and the right to grant a franchise for that purpose—
Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are constitutional. (4 Wheat., 420.)
Even if it be granted that the power to produce is not an absolutely essential incidental to the power to engage in interstate commerce, is it not clear, however, that this power to produce comes easily and plainly within the appropriate and unprohibited means described in the said quotation? The "end," the regulation of interstate commerce, is "legitimate" and "within the scope of the Constitution." The "means," a corporate franchise to produce, is "appropriate," "plainly adapted to that end," in no way "prohibited," but consistent "with the letter and spirit of the Constitution."
The power to charter a corporation to carry on interstate commerce, other than companies connected solely with transportation, means the power to charter a corporation that shall deal by sale and exchange in the subjects of commerce. A natural and appropriate part in ordinary business usage and by all commercial practice in such transactions is the manufacture and production of such articles of commerce— that is, the ordinary corporation that sells articles also usually produces them. Any complete separation of these two functions of production and exchange would be exceedingly unusual and wholly inexpedient from the economic standpoint. No business man would think of permanently dissociating them. Thus it follows that if a Federal corporation can be chartered as a means of regulating commerce, one of the usual and appropriate parts of such powers is the power to produce.