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"It is not hereby alleged that merely assembling and mutually exchanging information and declaration of purpose amount to an agreement or combination in restraint of trade."55 And in the opinion even more specifically the right to discuss prices is affirmed. However, a distinction is implied between past and future prices. Discussion and declaration of intent as to future prices may have the result of an agreement as to prices. But the open price plan contemplates neither of these; it provides only for a discussion of prices already quoted. Compliance with the association agree

55 United States v. United States Steel Corporation et al., District Court, District of New Jersey, June 3, 1915, 223 Fed. Rep. 55 et seq. Speaking of the Gary dinners, Judge Buffington says (pp. 154, 160):

"We may begin the discussion by quoting the Government's concession in the original petition-'It is not here alleged that merely assembling and mutually exchanging information and declaration of purpose amount to an agreement or a combination in restraint of trade.' With this concession we are in full accord. In these days every large business has its societies and associations, and these meet periodically to exchange information of all kinds, to compare experiences, to take notes of improvements in machinery or process, to discuss problems, and generally to profit by the interchange of ideas and the study of observed facts. When the business is manufacturing of course all this has a bearing on the subject of prices, and these conferences may therefore consider that subject specifically. It is probably unusual, however, to find such a meeting a declaration of intention to charge such and such prices, although a mere declaration to that effect could hardly be regarded as unlawful. Freedom of speech and freedom of action are justly prized in American society, and no legislation forbids men to come together and speak freely to each other about every detail of their common business. But at this point we approach debatable ground, for an individual is permitted to do some things that are denied to an association of individuals, and where, at a meeting of many persons, such action is taken whose legality is afterwards called into question, the decision may be vitally affected by ascertaining the fact whether such action was really taken by each individual acting for himself, or whether those present were in fact pursuing a common object. . . . The final test, we think is the object and effect of the arrangement, and both the object and effect were to maintain prices, at least to a considerable degree."

Mr. Eddy analyzes the bearing upon open price associations of this decision as follows:

"1. The fundamental proposition of the open price policy, namely, the right of men to meet and exchange information regarding prices that have been made, is approved.

2. The attempt to go farther and discuss prices to be made is disapproved. 3. The court explicitly recognizes the radical distinction between the analysis of past prices and the discussion of future prices.

4. The only fault found with the Gary dinners is that those present made announcements of intentions regarding prices."

Journal of Commerce and Commercial Bulletin, Nov. 19, 1915.

ment involves simply the giving of certain information. Still, it must be recognized that when competitors meet informally and frequently as they do in many open price associations, the danger is always present that implied or express consideration of future prices will not be completely avoided. Larger associations guard against this by having counsel present at every meeting whose duty is to warn the meeting when debatable ground is being approached. Nevertheless, from various sources it has been learned that in a number of so-called open price associations, price fixation is carried on either because of the ignorance of the members of what they can legally do, or through deliberate intent to evade the law. Needless to say, such associations depart from the open price policy in so doing and the open price organization is simply a cloak for illegal action.

In the last analysis, the legality of this form of organization will depend upon its effect upon public welfare. No matter how legal the type of organization or how innocent the purposes may be, if its actions result in restraining the rights of co-members or others, such actions will be condemned by the courts. If open price methods are rightly employed, the results will in all probability be such as would receive the approval of the law. Open price methods need not result in direct or indirect fixation of prices inimical to public policy.


The open price association is of too recent origin and other influences during the past few years have been too numerous and confusing to permit a study of the price movement in industries affected to have any value. A priori one would expect that the interchange of information placing in the hands of each seller the same market data, the accuracy of which is unquestioned, would have a tendency to stabilize prices. That this has been an actual result is asserted by members and officers of open price associations. Stability of prices is desirable; but only if the level is not unreasonably high. There seems to be no reason to believe, if associations confine their activities to study and discussion of past transactions, that the level of prices would be raised to an extent which could be said to be injurious from the standpoint of public policy.


56 It is conceivable that by long association the competitors in a given line might be led to regard as normal or desirable a higher margin of profit than that to which they had been accustomed; and in making prices individually

There are advantages both to consumer and producer of the spread through cost accountancy of a knowledge of costs of production. Study and comparisons of costs make for an increased efficiency resulting eventually in higher profits to the producer or lower prices to the consumer, perhaps both. Price cutting due to ignorance of costs is eliminated, to the immediate benefit of producers and to the ultimate good of consumers. Nevertheless, it must be recognized that in a well-developed industry, the costs of production in competing plants will not show great variations and that when prices are made upon the basis of costs ascertained by a uniform system, differences will often be less than before, although competition is not restrained.

Information as to competitors' business affairs, actual sales and transactions, does not prevent the free play of competitive forces. Each concern is as anxious to sell and to increase its sales as before and is as free to quote whatever prices it desires to secure its object. Such knowledge is little different in character from the information given out by our stock or produce exchanges as to bids, offers, and actual transactions; in fact, the furnishing of this information is an important and legitimate function; yet no one would deny the existence of a competitive market in wheat or cotton.

The open price association as an organization which endeavors to increase the profitableness of an industry by placing information as to past transactions at the command of members for consideration and analysis in individually deciding upon future prices has, therefore, potentialities both beneficial and injurious to public welfare. The coöperation of competing concerns in securing and distributing this information appears to be legal as well as economically desirable. Yet the open price organization is peculiarly susceptible of abuse. Whether the advantages of the new type of association will outweigh the disadvantages in actual operation is a question to be answered when the fund of experience and amount of reliable data available is greater and more conclusive than at present.

Boston University.


act so as to bring this about. In the absence of some basis for monopoly, this condition of higher than normal return would not continue indefinitely. New competition would be attracted and eventually the rate of return would be restored to normal.


At the present time railroad extension and improvement is more a financial than a technical problem. The high operating efficiency of the best of our railroads is one of the most notable achievements of American industry and the low efficiency of the worst of our railroads is due to lack of money rather than to lack of able men or the proper equipment. A railroad, by its very nature, must be continuously expanded and improved, otherwise it cannot keep pace with the social and economic demands put upon it. This cannot be done from earnings alone-except the carriers be allowed to charge excessive rates-so that railroads must come into the market continually for new capital. Then they must compete with other kinds of enterprises for a portion of the available savings fund, and they can succeed in this competition only if fortified by a good credit. In consequence of this continual need for new money the carriers have tried one device after another to reach the investing public with a kind of security, the issue of which shall not be hampered by previous promises and limitations, and which may command a ready and dependable market in competition with other forms of corporate securities. One of these devices is the equipment mortgage obligation-usually called equipment obligation.

Broadly speaking, an equipment obligation is a loan of money based on a direct lien on a specific lot of rolling stock. But, as a class, such obligations cannot be defined precisely because of the varying conditions usually required to render this lien direct and explicit, together with the cumbersome restrictions necessary to maintain a reasonable equity behind a lien on heterogeneous property forever in motion and susceptible to rapid depreciation. Equipment obligations are peculiar in form, in security, and in economic position. They may be bonds similar to other railroad bonds, they may be certificates of participation in a contract to purchase and hold a specific lot of rolling stock, or they may be shares in a permanent association. They are secured by tangible property, yet a kind of property which is movable from place to place and declines in value more rapidly than any other used as a basis of corporate obligations. They rest on the general credit of the corporation using the equipment, yet this general credit has little to do with determining their investment position, which is as a whole stronger than that of any other form of corporate

security. Their legal status has never been fully determined by the courts, yet their legality has never been seriously questioned and they have been given priority over first mortgage bonds in the ultimate test of relative strength. With all these contradictions, it is clear that only the most general statements can be rigidly applied to the group as a whole, and that innumerable exceptions and modifications crop out as attempts are made to draw definite and straight lines of demarcation. It is clear, too, that equipment obligations constitute an extremely complex, but fascinating group of corporate securities.

The first recorded instance of anything like the modern form of equipment obligation was in 1845. The Schuylkill Navigation Company contracted for the purchase of barges to be partly paid for from borrowings. The construction of the barges was to be under the control of the board of managers of the company but "the ownership was to be vested in three trustees, to be held as security for the payment of the loan." After the board of managers had built the barges, they transferred them to the trustees who, in turn, leased them back to the navigation company.2

The modern form of car trust association is to be traced to the Railroad Car Trust of Philadelphia created in 1868 for the purpose of furnishing equipment to the Lehigh Coal and Navigation Company. The idea arose, according to Rawle, in the mind of the president of the road, but the legal details, extremely perplexing in their bearing, were worked out by one Charles Gibbons, a Philadelphia attorney. Presumably their origin is to be at

1 F. Rawle in American Bar Association Report, vol. VIII (1885), p. 322. 2 This case seems to have been sporadic although almost identical in form with the issue of equipment obligations at the present time under the so-called Philadelphia plan. In this Schuylkill Navigation case, cars as well as barges were afterward included and the trustees issued bonds bearing interest and payable in ten annual instalments. The plan was subsequently modified to permit the trustees to sell the equipment and redeem the bonds with the proceeds. For description of early forms see F. Rawle, American Bar Association Report, vol. VIII (1885), p. 277.

In February, 1896, Mr. Oliver Adams, writing to the Commercial and Financial Chronicle (vol. LXII, p. 259) regarding the death of his father, William Adams, which occurred in England on January 31, 1896, said, “In 1873 he, in conjunction with myself, inaugurated the system of equiping railways in the United States with rolling stock on what is now known as the car trust plan." Although Mr. Adams did much to further the idea he cannot be considered the first in the field. Cited also Com. & Fin. Chron., vol. LXXXI, p. 1760.

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