Does Price Fixing Destroy Liberty?/The Real Meaning of the Lever Act
The Real Meaning of the Lever Act.
If the Act means what many have assumed, it has, unquestionably, not only wrought the greatest revolution that has yet taken place in our law; but has literally destroyed a public policy, to the development of which all our legislation has been passed during the last thirty years, and nullified the results of thirty years of intensive consideration by the Supreme Court of the United States.
And, what is more, all this has been accomplished by but three words in a general statute. It is simply astonishing, therefore, that, up to this time, no adequate inquiry has been found upon this subject; and that its discussion has been solely by law taken for granted, instead of law declared through judicial processes; as this is not only an unsafe method; but, as was to be expected, has resulted in most serious confusion and harmful results, there seems to be propriety in further inquiry.
Upon the point of the real meaning of the Act the strangest enigma of the whole subject must not escape our consideration. Bearing in mind that throughout the whole history of the Common Law, it has been considered that it was part of the common liberty for men to buy and sell their property in a free market, always restrained, but only restrained by free competition. Remembering, consequently, that all interference with such trading, whether by guilds, combinations, or even Government, were held illegal as invasions of that Liberty that our Constitution was adopted to safeguard. And not forgetting that all experience has always shown that no other system has ever either continued, or failed to be injurious, and finally, that these fundamental truths have been so wrought into our jurisprudence that for generations it has been settled that where prices are thus fixed they are not only "just and reasonable prices," but their best and conclusive evidence; and that Judges have for an unmeasured time always so instructed juries. How can it be explained, when the Act used exactly the same terms the Common Law had so continually defined, that so many have simply taken it for granted that it meant exactly the opposite; and thus destroyed the freedom of men to trade in open competition. That for the first time in all history, men were to be punished for following the guidance of the Courts, no other regulation for their conduct being even substituted.
How could it be possible for a learned Judge, in a suit for damages brought for the non-delivery of goods under a contract, to tell a jury that a just, proper and reasonable price as a measure of damages was the price fixed in an open and competitive market (called by our judges "the market price"); and in a criminal indictment for exactly the same transaction instruct it that the same thing was ample evidence upon which it, beyond a reasonable doubt, could convict for a "crime" committed within the Lever Act.
Certainly, heretofore, an unjust and unreasonable price has always been a price arbitrarily fixed other than by free trading, whether by Government or other freedom-destroying method. Is not the question as to how such a violent change is supposed to have taken place by a mere use of the words always used with this established meaning,—as Lord Dundreary would say, "one of those things no fellow can find out"? It certainly is not allowable by any judicial methods heretofore prevailing.
The language of Mr. Chief Justice White in the Wilder case, exactly covers the ordinarily assumed meaning: "In the first place," he says, "the contention cannot be sustained consistently with reason. It overthrows the general law. * * * In the second place, the proposition is repugnant to the Anti-trust Act."
The greater part of the material necessary to establish these contentions is to be found in the Act itself and Chief Justice White's exhaustive opinion in the Standard Oil Company case, treating of the Sherman Act, which, is in pari materia to the statute now under consideration: "We shall," he says, "make our investigation * * * in the light of the common law and the law of this country at the time of its adoption. * * * It is certain that those terms, at least in their rudimentary meaning, took their origin in the common law, and were also familiar in the law of this country prior to and at the time of the adoption of the Act in question. We shall endeavor, then, first to seek their meaning * * * by making a very brief reference to the elementary and indisputable conceptions of both the English and American law on the subject prior to the passage of the Anti-trust Act." After pointing out that "by the Common Law monopolies were unlawful because of their restriction upon individual freedom of contract and their injury to the public," and that one of the injuries that resulted "is an undue enhancement of price," and that the freedom of contract of the individual was preserved not only in his own interest, but "principally in the interest of the commonwealth"; and that "from the development of more accurate economic conceptions and the changes in conditions of society it came to be recognized that the acts prohibited by the engrossing, forestalling, etc., statutes did not have the harmful tendency, * * * but, on the contrary tended to fructify and develop trade," and had, therefore, been repealed. "This would seem to manifest, either consciously or intuitively, a profound conception as to the inevitable operation of economic forces and the equipoise or balance in favor of the protection of the rights of individuals which resulted. * * * After all, this was but an instinctive recognition of the truisms that the course of trade could not be made free by obstructing it, and that an individual's right to trade would not be protected by destroying such right. From the review just made, it clearly results that * * * outside of the want of right to restrain the free course of trade by contracts or acts which implied a wrongful purpose, freedom to contract and to abstain from contradicting and to exercise every reasonable right incident thereto became the rule in the English law. The scope and effect of this freedom to trade and contract is clearly shown by the decision in Mogul Steamship Co. vs. McGregor (1892), A. C. 25. * * * here, as had been the case in England, practical common sense caused attention to be concentrated * * * to the result itself and to the remedying of the evils which it produced. * * * It is also true that * * * the principles concerning contracts in restraint of trade * * * came generally to be recognized in accordance with the English rule, it came moreover to pass that contracts or acts which it was considered had a monopolistic tendency, especially those which were thought to unduly diminish competition and hence to enhance prices * * * came also * * * to be spoken of and treated as they "had been in England. * * * very briefly surveying the whole field, it may be with accuracy said that the dread of enhancement of prices and of other wrongs which it was thought would flow from the undue limitation on competitive conditions * * *, in view of the common law and the law in this country as to restraint of trade * * * and the illuminating effect which that history must have under the rule to which we have referred, we think it results: That the context manifests that the statute was drawn in the light of the existing practical conception of the law, * * * It indicates a consciousness that the freedom of the individual right to contract when not unduly or improperly exercised was the most efficient means for the prevention of monopoly, since the operation of the centrifugal and centripetal forces resulting from the right to freely contract was the means by which monopoly would be inevitably prevented. * * * In other words, that freedom to contract was the essence of freedom from undue restraint on the right to contract."
There could not be a clearer statement of the oft-demonstrated principle that the greatest protection possible against excessive prices was to be found in safeguarding the freedom of competition, which, of course, could not exist if its chief method of underbidding was wrested from free traders. In other words, it certainly has been the law heretofore, both statutory and common, that in accord with sound economic theories, unreasonable and excessive prices were those that were created by monopolistic restraints on trade, and which were best checked by preserving the right to engage in free competition. Since the time of King John, that has been steadily contended for, and without intermission. There has at no time been any excessive price, however high the price may be, when that price was fixed by freemen in a free market. Excessive price has thus, again and again, been defined for centuries. Excessive price is, and always has been, a price arrived at by some illegal method, and not by free competition, its only real cure.
Again, in the Tobacco case, it is pointed out that the remedial purpose which the Act contemplated was to prevent the destruction of liberty of contract and all substantial right to trade and not to cause "the Act to be at war with itself by annihilating the fundamental right of freedom to trade, which, on the very face of the Act, it was enacted to preserve."
Again there could be no more forcible statement that the law (unless repealed by the Lever Act because of its three words, "unjust," "excessive" and "unreasonable"), still is, according to centuries of Common Law and all our prior statutory law, that competition is not only "the life of trade," but also "the mother of cheapness." That freedom, if preserved by law against monopolistic restraint, is the best and, indeed, the only safeguard! It is difficult to understand how anyone familiar with the subject and the decisions, can reasonably think that three perfectly familiar words, that have had a legal meaning for centuries to the contrary, are sufficient to set at naught all the work of great lawyers and economic thinkers. The cases are numerous that when words in a certain connection, in statute or in law, are given a constant meaning, it takes demonstration to the contrary not to so understand them in a subsequent statute. In addition, this change of interpretation if constitutional, would cause the greatest confusion in fixing the measure of damages in all civil suits, in all accountings of Trustees, and in too numerous phases of the relations of individuals. The inconveniences would be enormous! But the Supreme Court has said, in the Knowlton case, "That where a particular construction of a statute will occasion great inconvenience or produce inequality and injustice, that view is to be avoided if another and more reasonable interpretation is present."
If the decisions of the Supreme Court are to be regarded, no such result can follow, for "in cases admitting of doubt, the intention of the lawmaker is to be sought in the entire context of the selection—statute, or series of statutes in pari materia," as decided in the Atkins case. "It is elementary when the constitutionality of a statute is assailed, if the statute be reasonably susceptible of two interpretations, by one of which it would be unconstitutional and by the other valid, it is our plain duty to adopt that construction which will save the statute from constitutional infirmity. * * * The rule plainly must mean that where a statute is susceptible of two constructions, by one of which grave and doubtful constitutional questions arise and by the other of which such questions are avoided, our duty is to adopt the latter," as held in the Delaware case. Again, in the Washington case: "Repeals by implication are not favored and usually occur only in cases of such irreconcilable conflict between an earlier and later statute that effect cannot reasonably be given to both." "Whenever a departure from common law rules and definitions is claimed, the purpose to make the departure should be "clearly shown," as said by Justice Brewer in his concurring opinion in the Northern Securities case.
The Chief Justice has shown, in the Standard Oil case, as plainly as it can be made, that undue prices are prices that result from monopoly, because the normal or proper price, the non-excessive price, is the price fixed in free competition. For, as the political economists have declared, this always tends to an equalization of profits and the exchange of commodities upon a fair basis. When, however, you come to civil cases, the uninterrupted definition of fair prices has always been the same. Where damages have to be fixed by a jury, a reasonable price has always been the market price fixed in free competition. It would be impossible to cite all the cases upon this point, but reference is made to Hopkins vs. Lee, where the Court says: "Otherwise, the vendor, if the article have risen in value, would always have it in his power to discharge himself from the contract and put the enhanced value in his own pocket." To the same effect is the principle sustained in New York vs. Estill, Roberts vs. Benjamin, and Western Union Telegraph Co. vs. Hall. The Supreme Court, as now constituted, declares the same law in the Gulf case. Trustees are surcharged if in the performance of their duties they do not obtain a known market price in a sale of property belonging to the trust estate. The reasonable price under the common counts in pleading at Common Law was always the market price.
If it is not to be so, how are the Judges ever to instruct a jury? Shall they now say that there no longer is any measure of damages except that which may, some time in the future, be determined by the Supreme Court of the United States after a criminal prosecution has been brought? The state of trade will become appalling and impossible.
But we may dismiss all this, for, if all the sections of the Act be examined, it shows that it was adopted in full recognition and agreement with the law as laid down in the Standard Oil case. In the first place, the words in Section 4 as amended are used in connection with acts so unlawful at Common Law and under the Sherman Act as to make the profit resulting "unreasonable," "unjust" and "excessive," as constantly determined. In the second place, one of the sections of the Act actually protects, by double penalty, "the market price" from unfair manipulation which would have no effect if it contemplated other than the meaning universally given to the term. Thirdly, it properly denominates the funds given to the President to be used in business as "revolving funds," showing a keen and exact perception of the necessary nature of business transactions, as well as the difficulty of following them to an ultimate conclusion, before that conclusion has even been reached. In the fourth place, even where the President does fix the price, it is still to be fixed, if unsatisfactory, on the usual basis. His decree is to be nowise final. And, finally, and most conclusively, in the case of certain of the essential commodities, it actually provides for the establishment of a governmental guarantee for the maintenance of a price, perhaps, over two hundred per cent. of the normal price, to stimulate increased production, showing a complete realization of the truth enforced by the Common Law that such is the proper and most effective way of securing "adequate supplies in times of scarcity." To say that such a statute, in pari materia with similar statutes, without a word of repeal, demonstrates an implied determination to wreck our whole system of statutory and judicial determination of this matter, goes beyond the bounds of reason. As has already been said, nothing could be more astonishing than that it should have been even discussed as a possibility, much less assumed without any argument. So far as this question is concerned, the statute, properly construed "in the light of well-settled principles," is plainly constitutional.
Two considerations pointed out by Judge Connor in the Myatt case, are of value. The first that "a fair and reasonable construction of the entire section would make the purpose or intent an essential element in the unlawful character of each of them"; and second, as he thus states it: "It is significant that neither of the words 'price' or 'profit' is found in either of the prohibited acts which may be committed by a single person."
This leads to a fact constantly overlooked. At Common Law men were not only permitted to obtain bargains, but profit by them. Indeed, with free competition, the more bargains that were obtained, the better for the consumer, as those having obtained them would in their competition be naturally able and tempted to give the public at least a portion of the benefit. If the incentive were to be taken away, it would inevitably tend to higher prices. Now, the Act scrupulously avoids any mention of such profits. And it cannot be written into a criminal statute. The supposed offense is restricted to unjust, unreasonable and excessive prices. That a large profit was made is unimportant, provided that the price charged was not excessive. And excessive prices were already defined by law! The Act in nowise overrules Hopkins vs. Lee; but most of the indictments are under a non-existent supposed Act, and, in substance, merely charge that a man bought at one price and sold at a higher price. Whether this was an excessive price is not made clear, and leaves the matter in equilibrio, as is well illustrated by the case where a man was indicted for selling an article at one-half the price at which he might on the actual results have had to replace it, if his business were to continue. When it is remembered that the Act requires merely that he be "reasonable," the proof required must be at least beyond reasonable doubt that he could not reasonably have even made such a surmise as to risk—which, of course in the case of commodities, is substantially an impossible task.
Another consideration that has been strangely overlooked is that under the provisions of the Act there is such a recognition of the principles underlying the working of the law of supply and demand through free competition that the Government itself actually and by arbitrary edict fixed the price of wheat, for instance, at largely upward of two hundred per cent. in excess of the "dollar wheat" that the farmers, not so long since, were actually praying for. To argue, therefore, that an Act, thus actually applying the Common Law standard of free competition to obtain its natural results, was an Act intended to repudiate its own method, and make it criminal should the same incentive come about through the free course of trade approaches absurdity. To indict citizens, should their combined efforts in a free market bring about the same results as the Government's edicts, could not have been the intention of the Act. And the Government could not have intended that prices so resulting were to be punished as excessive and in violation of its provisions.
But there are other questions of constitutionality that should be discussed, and they will be reserved for the next chapter.
- The Lever Act (Act of Congress approved August 10, 1917, Section 4, as amended by Section 2 of the Act approved October 22, 1919), reads thus amended as follows:
"That it is hereby made unlawful for any person wilfully to destroy any necessaries for the purpose of enhancing the price or restricting the supply thereof; knowingly to commit waste or wilfully to permit preventable deterioration of any necessaries in or in connection with their production, manufacture, or distribution; to hoard, as defined in Section 6 of this Act, any necessaries; to monopolize or attempt to monopolize, either locally or generally, any necessaries; to engage in any discriminatory and unfair, or any deceptive or wasteful practice or device, or to make any unjust or unreasonable rate or charge in handling or dealing in or with any necessaries; to conspire, combine, agree, or arrange with any other person, (a) to limit the facilities for transporting, producing, harvesting, manufacturing, supplying, storing, or dealing in necessaries; (b) to restrict the supply of necessaries; (c) to restrict distribution of any necessaries; (d) to prevent, limit, or lessen the manufacture or production of necessaries in order to enhance the price thereof; or (e) to exact excessive prices for any necessaries, or to aid or abet the doing of any act made unlawful by this section. Any person violating any of the provisions of this section upon conviction thereof shall be fined not exceeding $5,000 or be imprisoned for not more than two years, or both; Provided, That this section shall not apply to any farmer, gardener, horticulturist, vineyardist, planter, ranchman, dairyman, stockman, or other agriculturist, with respect to the farm products produced or raised upon land owned, leased, or cultivated by him: Provided further, That nothing in this Act shall be construed to forbid or make unlawful collective bargaining by any co-operative association or other association of farmers, dairyman, gardeners, or other producers of farm products with respect to the farm products produced or raised by its members upon land owned, leased, or cultivated by them."
- That is—"unjust," "unreasonable" and "excessive."
- Wilder Mfg. Co. vs. Corn Products Refining Co., 236 U. S. 165 (see page 173). 1915.
- Standard Oil Co. vs. United States, 221 U. S. 1. 1911.
- The terms "restraint of trade," "attempt to monopolize" and "monopolize."
- The Sherman Act, the Clayton Act, the "Commodities Clause of the Hepburn Act," and the Lever Act, together with other like enactments of Congress, are "in pari materia" in the sense that they relate to the general subject of trade regulation and must be considered with reference to each other.
- United States vs. American Tobacco Company, 221 U. S. 106 (at page 180). 1911.
- Knowlton et al. vs. Moore, 178 U. S. 41. 1900.
- Atkins vs. The Fiber Disintegrating Company, 18 Wall. 272. 1874.
- United States vs. Delaware & Hudson Company, 213 U. S. 366, 1909.
- Washington vs. Miller, 235 U. S. 422. 1914.
- Northern Securities Co. vs. United States, 193 U. S. 197 (at page 361). 1904.
- Hopkins vs. Lee, 6 Wheat, 109 (at page 118). 1821.
- New York, Lake Erie & Western Railroad Co. vs. Estill, 147 U. S. 591 (at page 616). 1893.
- Roberts vs. Benjamin, 124 U. S. 64. 1888.
- Western Union Telegraph Co. vs. Hall, 124 U. S. 444 (at page 456). 1888.
- Gulf, Colorado & Santa Fe Railway Company vs. Texas Packing Company, 244 U. S. 31 (at page 37). 1917.
- United States vs. Myatt, 264 Fed. 442. 1920.
- Id., page 448.
- Hopkins vs. Lee, 6 Wheat. 118. 1821.