In 1910, President Howard Taft proposed that Congress that Congress enact a general law allowing trusts doing business across state lines obtain their charter from the federal government rather than one of the states. A trust is a corporate entity owned and managed by a bank, law firm or independent partners. This idea of federal incorporation was supported by both President Theodore Roosevelt and President William Howard Taft. It promised to remove the trust issue from the see-saw of partisan politics by giving corporations prior government approval of mergers and remove the threat that some politically motivated President might prosecute them under the Sherman Act. Federal incorporation was not new. In 1787 James Madison proposed that the new federal government be given power "to grant charters of incorporation in cases where the public good may require them, and the authority of a single State may be incompetent". These laws were never enacted, and today we find businesses often seeking to incorporate in states with the least restrictive laws as states compete with one another by relaxing protective laws to gain the corporate revenue.
As part of William Howard Taft's "New Nationalism", he wanted to take control of truss and on January 7, 1910, he delivered a special message to Congress amendments to interstate commerce laws and "the wisdom of federal incorporation". In previous years, to stem the rise of this concentration of wealth and power, the federal government began passing anti-trust laws. One of the more famous laws was the Sherman Antitrust Act, passed in 1890 to prevent groups from dictating, controlling, and manipulating prices in a specific market. After 40 years of antitrust legislation, the public remained dissatisfied as did Taft. He explained that the intention of the antitrust laws was to suppress the abuses, not to interfere with an organization's ability to take advantage of its size and maximize profits, but when the "employment of large capital" came "under one management", the intention to economize ceased and was replaced with the intention to monopolize. There was a cherished hope that somehow Congress could distinguish between "good trusts" and "bad trusts” and with proper laws in place, they could prosecute "criminal trusts" while permitting others to carry on their business. Unfortunately, there was no such distinction in the laws, and it was left up to the courts to determine what was a "reasonable restraint of trade". Taft feared such power given to the courts would lead to a disaster for our entire judicial system. Instead of a series of antitrust laws and court decisions, Taft’s proposal of federal incorporation would give the federal government the legal authority to issue stock and require them to provide full and complete reports of their operations to the Department of Commerce and Labor at regular intervals. The federal government would be granted the power to tax the corporations, but at no higher rate than the states they are located in.
"I, therefore, recommend the enactment by Congress of a general law providing for the formation of corporations to engage in trade and commerce among the States and with foreign nations, protecting them from undue interference by the States and regulating their activities, so as to prevent the recurrence, under national auspices, of those abuses which have arisen under state control."
Such an idea was not without controversy. Taft acknowledged that there was opposition to the law. Some opposed federal incorporation and instead wanted the trusts "completely broken up and their property destroyed", others questioned the constitutionality of federal incorporation and saw it as an overreach of government. Taft defended the law as a mechanism to maintain the "business supremacy" of America in the world and aligned with the constitutional authority of the federal government to regulate interstate commerce. As for government overreach, Taft suggested that "no other method can be suggested which offers federal protection on the one hand and close federal supervision on the other of these great organizations that are in fact federal because they are as wide as the country and are entirely unlimited in their business by state lines". Taft further argued that only the "largest corporations would avail themselves of such a law, because the burden of complete federal supervision and control that must certainly be imposed to accomplish the purpose of the incorporation would not be accepted by an ordinary business concern." Registration under this law would be voluntary, but for the largest corporations it would allow them to carry on business without being subject to the punishing antitrust laws or conflicting laws of differing states.
In his 1910 State of the Union Address, President Taft reinforced his desire to replace what he called a "purely negative statue" anti-trust with federal incorporation statutes that provide "specific provisions for the building up and regulation of legitimate national and foreign commerce" (federal incorporation). Here is the full section from Taft's 1910 State of the Union Address.
"FEDERAL INCORPORATION RECOMMENDED.
In a special message to Congress on January 7, 1910, I ventured to point out the disturbance to business that would probably attend the dissolution of these offending trusts. I said:
'But such an investigation and possible prosecution of corporations whose prosperity or destruction affects the comfort not only of stockholders but of millions of wage earners, employees, and associated tradesmen must necessarily tend to disturb the confidence of the business community, to dry up the now flowing sources of capital from its places of hoarding, and produce a halt in our present prosperity that will cause suffering and strained circumstances among the innocent many for the faults of the guilty few. The question which I wish in this message to bring clearly to the consideration and discussion of Congress is whether, in order to avoid such a possible business danger, something can not be done by which these business combinations may be offered a means, without great financial disturbance, of changing the character, organization, and extent of their business into one within the lines of the law under Federal control and supervision, securing compliance with the anti-trust statute.'
'Generally, in the industrial combinations called 'trusts,' the principal business is the sale of goods in many States and in foreign markets; in other words, the interstate and foreign business far exceeds the business done in any one State. This fact will justify the Federal Government in granting a Federal charter to such a combination to make and sell in interstate and foreign commerce the products of useful manufacture under such limitations as will secure a compliance with the anti-trust law. It is possible so to frame a statute that while it offers protection to a Federal company against harmful, vexatious, and unnecessary invasion by the States, it shall subject it to reasonable taxation and control by the States with respect to its purely local business. * * *'
'Corporations organized under this act should be prohibited from acquiring and holding stock in other corporations (except for special reasons, upon approval by the proper Federal authority), thus avoiding the creation under national auspices of the holding company with subordinate corporations in different States, which has been such an effective agency in the creation of the great trusts and monopolies.'
'If the prohibition of the anti-trust act against combinations in restraint of trade is to be effectively enforced, it is essential that the National Government shall provide for the creation of national corporations to carry on a legitimate business throughout the United States. The conflicting laws of the different States of the Union with respect to foreign corporations make it difficult, if not impossible, for one corporation to comply with their requirements so as to carry on business in a number of different States.'
I renew the recommendation of the enactment of a general law providing for the voluntary formation of corporations to engage in trade and commerce among the States and with foreign nations. Every argument which was then advanced for such a law, and every explanation which was at that time offered to possible objections, have been confirmed by our experience since the enforcement of the antitrust, statute has resulted in the actual dissolution of active commercial organizations.
It is even more manifest now than it was then that the denunciation of conspiracies in restraint of trade should not and does not mean the denial of organizations large enough to be intrusted with our interstate and foreign trade. It has been made more clear now than it was then that a purely negative statute like the anti-trust law may well be supplemented by specific provisions for the building up and regulation of legitimate national and foreign commerce."
References
Presidency.ucsb.edu. 2021. Second Annual Message | The American Presidency Project. [online] Available at: <https://www.presidency.ucsb.edu/documents/second-annual-message-17> [Accessed 28 December 2021].
Presidency.ucsb.edu. 2021. Special Message | The American Presidency Project. [online] Available at: <https://www.presidency.ucsb.edu/documents/special-message-378> [Accessed 28 December 2021].
Brabner-Smith, John W. “Federal Incorporation of Business.” Virginia Law Review, vol. 24, no. 2, Virginia Law Review, 1937, pp. 159–66, [online] Available at: <https://doi.org/10.2307/1067341> [Accessed 28 December 2021].
No comments:
Post a Comment