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United States bank was chartered under the auspices of the Jeffersonian party, and the charter signed by James Madison, the "Father of the Constitution.” The validity of that charter was also sustained by the Supreme Court of the United States. Congress, undoubtedly, in my opinion, has the power to incorporate or require the licensing of all corporations engaged in interstate commerce.

Senator OMAHONEY. Dr. Beard, let me interrupt you and ask you whether there is in the Constitution any specific power to charter a national bank or a United States bank

Dr. BEARD. No. It was argued on the ground that it was an implied power connected with other powers.

Senator O'MAHONEY. Under the necessary and proper clause?

Dr. BEARD. Under the necessary and proper clause, and was sustained by Marshall on that ground and defended by Hamilton in his paper to President Washington on the bill for the first bank.

Now, having the power to require the Federal incorporation or licensing of all corporations coming within the authority delegated to it, the Congress of the United States has refused to exercise its prerogative. More than once the issue has been presented to Congress and every time Congress has evaded it. The plain and inescapable record of history places a heavy burden of responsibility for our present concentration of wealth and the accompanying economic distress squarely upon the honorable body represented by the members of this committee.

By refusing to act within a sphere where it has undoubted power to act, Congress has, by default at least, shifted the responsibility to the States. The corporations which have extended their control over industry throughout the country are the creatures of the States. In the absence of congressional action, State governments have created the industrial Leviathans which dominate our interstate and foreign commerce.

And how have the States discharged their obligations? That is a long story which I shall not attempt to relate. It may be summarized briefly: Many States, I think the majority, have sought by careful legislation to limit the purposes of their corporations, to impose principles of good management upon them, and to prevent abuses of corporate powers. I say many, perhaps a majority, but a few States have been notoriously lax in their corporate legislation. Indeed, some of them have deliberately offered to corporations a free hand to do about as they please. They have in effect said to corporations: "Take out a charter with us and we will ask no questions." These States have turned loose upon the other States a flock of corporate vultures I use that phrase deliberately and after mature consideration—to prey upon the economy and people of the other States. Now, sir, I do not call all corporations, or a majority of them, “vultures." Most of them, in my opinion, are honorably and well managed, so far as my knowledge goes. But I do say that negligent States have let loose of flock of corporations whose operations may be correctly called predatory. If you want to confirm that, read the testimony recently given before the Wheeler committee. And by so doing they have set in competition with other corporations, honorably and prudently managed, these legalized birds of prey.

Under State laws, operators in the corporation “racket” advertise for business in other States. I give you two examples from among many available. Both are taken from W. Z. Ripley's Main Street and Wall Street, page 29.

The first is an advertisement in the Scientific American. as follows:

It runs


Complete in 1 day. Any capitalization, least cost, greatest advantages. Transact business anywhere. Laws, bylaws, and forms free. Stoddard Incorporating Co., Phoenix, Ariz.

The second example is an advertisement in System. It runs as follows:

Charters-Delaware best, quickest, cheapest, most liberal. Nothing need be paid in. Do business and hold meetings anywhere. Free forms. Colonial Charter Co., Wilmington, Del.

That is what has been going on for years and years.

But Members of Congress desirous of passing the responsibility for our present plight to the States may reply: "Let the States reform themselves." That is another kind of evasion. Great energies have been devoted in States to this reform, and many reforms have been effected in some States. But as long as one State refuses to apply strict standards, all the others are penalized for their honor and prudence.

One illustration of this difficulty is afforded by experience in New Jersey. Under the leadership of Woodrow Wilson, after he was challenged by Theodore Roosevelt to reform his own State, the Legislature of New Jersey passed a series of laws doing away with corporate abuses and applying high standards to corporations. What was the result? The revenues of the State from taxes on corporations fell. Malefactors moved over into other States. In time the New Jersey Legislature repealed its strict and prudent legislation, and went back, not quite, but almost to old ways. That, sir, is honor penalized because Congress will not assume its responsibility.

Senator O’MAHONEY. Do you mean to say that all of the corporate reforms originated by Woodrow Wilson, while he was Governor of New Jersey, have later been repealed by the State?

Mr. Beard. I should say substantially all. The former principles have been abandoned.

Hence, I suggest the following conclusion from the record of history: It is folly to expect all the States and Territories to apply strict and uniform principles to corporate legislation; the business of controlling corporations engaged in interstate commerce belongs to the Government of the United States. That seems to me to be the lesson we learn from history.

Senator O’MAHONEY. Senator Austin desires to propound a question.

Mr. BEARD. Yes.

Senator AUSTIN. Doctor, I am interested in one particular in that chapter of your testimony.

Mr. BEARD. Yes.

Senator AUSTIN. What is your judgment about the effect of S. 10 permitting, as it does, States to continue the business of issuing charters and leaving it optional with the proponents of a corporation whether they will come to the Federal Government for a charter or go to some State that has statutes that seem to favor lax practices? What do you think would be the effect of having these two avenues open ?

Mr. BEARD. I would not open them, Senator, myself.
Senator AUSTIN. Your idea would be to make it exclusive?
Mr. BEARD. Yes.
Senator AUSTIN. I see.

Senator O’MAHONEY. Perhaps I might interrupt and say that may be largely a technical question, Senator. As the bill was conceived, it was not intended to compel corporations now existing to take out new charters. It was not intended to deprive corporations now existing of their charters.

Senator AUSTIN. I understand that.

Senator O'MAHONEY. But by license from the Federal Government to require them to adhere to those principles which appear to us to be necessary in the public interest. It might be said, in answer to Senator Austin's question, that the theory was to provide Federal licenses for corporations already existing, and Federal charters for those which may be incorporated in the future, leaving the matter of organization under the Federal law to be a matter of discretion for the incorporators, because it is conceivable that some incorporators might not desire to engage in interstate commerce to an extent that would require Federal supervision. I say that in explanation of the theory.

Senator King. Is it not a fact, Mr. Chairman, that by the licensing provision of the bill the same objective is sought to force every corporation now in existence under a Federal charter, or, at any rate, to subject it to whatever provisions may be incorporated in the law with respect to corporate organization under the Federal statute?

Senator O'MAHONEY. I would say whatever just provisions.

Senator King. I do not assume that every provision of the Federal Government is just.

Senator O’MAHONEY. Certainly not, but Congress tries to be just. Proceed, Dr. Beard.

Senator NORRIS. Dr. Beard, I get the idea from Senator Austin's question that it might mean that we ought not, if we want to do anything about this, pass a Federal statute that will prevent any State from issuing a charter, for any reason that might be set up in the law. As a matter of fact, I take it that the author of this bill clearly understood that we have not any authority to interfere with any State granting a charter of any kind it may see fit to grant, if the corporation thus chartered confines its operations to that State. The only place where we can come in is where such corporation engages in interstate commerce. I understand that is what this bill seeks to do.

Senator O’MAHONEY. Exactly, Senator.

Senator NORRIS. It is inconceivable, it seems to me, that we should exempt, as the question of the Senator from Utah might indicate, from the provisions of the bill corporations that exist now, but apply them to those which might come into existence after the passage of the bill. To be effective, it seems to me we must apply them alike to all corporations, those now in existence as well as those that may be organized afterward.

Senator KING. Then you would make it retroactive?
Senator NORRIS. No.

Senator King. In the sense that, with reference to corporations now existing, which may have issued stocks and bonds, may have obligations to industry, obligations to stockholders and to creditors, you would compel them to submit to such regulation?

Senator NORRIS. Yes; if they do any interstate business.

Senator KING. And under such licensing provisions as the bureau set up by the Federal Government might determine!

Senator O'MAHONEY. That is not in the bill at all.

Senator NORRIS. I do not so understand it. I want to call attention to the fact that, if we do not apply the provisions of the proposed law to corporations now existing, if we only undertake to confine its operations to corporations that may be organized after its passage, we will have two classes of people doing interstate business, one without any restraint and one with restraint, which I do not see how anyone could tolerate for a moment.

Senator McCARRAN. My understanding is that the bill would require those corporations in existence under State authority now to adapt themselves to the regulations prescribed in this bill in practice.

Senator OʻMAHONEY. That is correct, Senator, to the regulations in the bill.

Senator Austin. I had quite a different intention in my question. I wanted to apply the logic of the doctor to this bill in this way: I understand the effect of having one set of statutes more liberal than another set of statutes is to take away all the business from the State that has not the liberal statutes. That is, it shows the tendency of promoters and stockholders to go where they can get the most for their money. Now, this bill apparently does not compel anybody to come to the Federal Government for a charter, unless he wants to have a national charter.

Senator O’MAHONEY. Unless he wants to engage in commerce among the States.

Senator Austin. Does it compel anybody to come here to get a charter if he wants to engage in that commerce?

Senator O'MAHONEY. Yes. Either a license or a charter.
Senator AUSTIN. I cannot find that in the bill.

Senator OʻMAHONEY. It does require that, Senator. If Dr. Beard will wait just a moment, I shall call attention to it.

Senator Austin. I think it would be a good idea to get that point clear.

Senator King. I think the bill is very plain as to that. It provides that corporations in futuro, which would conceivably affect interstate commerce, are compelled to take out a charter.

Senator Austin. I could not find any such thing as that. Senator O’MAHONEY. On page 10, Senator, section 4, line 18, you will find the following:

On and after January 1, 1938– the year, of course, being subject to changeit shall be unlawful for any corporation organized under the laws of any State, Territory, or possession of the United States, or of any foreign country, or for any corporation heretofore or hereafter organized under the laws of the United States or the District of Columbia to engage directly or indirectly in commerce without first having obtained a license therefor from the Commission.

Senator AUSTIN. That does not touch the point.

Senator NORRIS. I do not quite get your point. I thought that covered it.

Senator O’MAHONEY. It is intended to cover it. Maybe we have been inefficient in drafting the bill.

Senator Austin. That does not govern corporations that have their domicile in States, does it?

Senator O'MAHONEY. No. The bill says, in line 22, page 10, "organized under the laws of the United States."

Senator Austin. It does not require a set of stockholders to come to the United States for a charter?

Senator O'MAHONEY. It does not require a set of stockholders to come to the United States for a charter, but it does require them to come to the United States for a license if engaged in commerce among the States. If we should call the “license" a "supplementary charter", it might clear the matter up in your mind?

Senator Austin. That is a different thing.

Senator McCARRAN. They must come to the Federal Government for a license before they can engage in commerce among the States.

Senator O'MAHONEY. I think it was probably an error in public psychology to use the word “license.” It seems to connote in the public mind a power to grant or withdraw, as the administrative agency chooses. That is not the purpose or the concept of the bill. I may say that the N. R. A. was held unconstitutional primarily because it contained a delegation of legislative power. I have sought to avoid in this bill all question of delegation of power. Congress and only Congress lays down the specifications.

Senator AUSTIN. Perhaps I can make my object clear by propounding a definite and specific question to the doctor and have it go in the record.

Doctor, assuming that it is optional in the future whether citizens shall come to the Federal Government to obtain incorporation or whether they may go to the State for a charter, in your opinion, do you think that the economic effect of this bill, as now drawn, would ever attract a citizen of this Government to the Federal Government for a charter?

Mr. BEARD. That is a point of law, Senator, as to the effect of law, that I hardly feel competent to answer. What I am trying to develop is what I regard as the logic of the situation, namely, that I would not require all corporations to come to the Federal Government for a charter or a license, if they intend to do business only within their own respective States. If that is the intention of a prospective corporation, there is where it should take out its charter. But, in my opinion, where it engages in interstate commerce, although it may have a charter from a State, it should be required to come to the Government of the United States for authorization to do that business. I am not a technical lawyer and, therefore, I do not know just what language you should use.

Senator Austin. My question is not a legal question at all. I thought it was directed to your particular special knowledge, which is economics. I am asking you whether it is your opinion that the disadvantages and the brakes on enterprise, contained in the provisions of this bill relating to a Federal charter, are not so severe that they would drive all business to States, in order to obtain charters

121861–37-pt. 1-6

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