If combinations were freely permitted and no limit placed upon their magnitude, neither actual nor potential competition would be an adequate check upon prices and charges for service. This was, I think, sufficiently demonstrated in the first lecture. Government regulation would unquestionably be necessary.

Some have suggested that regulation would be comparatively simple. Good trusts would be left alone and only bad trusts interfered with, and the fear of government intervention would make most of the trusts good. The government, some seem to think, could let the trust go its own way until it was proved to have become extortionate or to have used unfair competitive methods, and could then step in and punish its officers, or suspend its right to do business for a season, or even dissolve it altogether. Such a course is fundamentally inconsistent with the principle of permitting combinations at all. How is the trust manager to know in advance what prices or what practices will be adjudged so unreasonable as to call for criminal prosecution? What advantage would there be in breaking up a trust the first time it went too far, if another trust could be formed in its place the next day? It would be intolerable to the users of the products or the services of a trust to stop its business, even temporarily, as a punishment for unreasonable prices or unfair methods of competition. A good trust may become a bad trust overnight. Shall it be a lawful organization today and an outlawed wreck tomorrow? Regulation of combinations implies continuity of the combinations.

Even if the government adopted the policy of punishing trust managers or breaking up combinations, as a penalty for extortionate prices and unfair practices, it would require almost as thoro and continuous investigation and quite as difficult judgment on the part of the

government to determine when to inflict such penalties as to determine the proper prices and practices for the future. It would be most unjust to take drastic action against a trust or its managers without possession of most detailed knowledge of all the conditions.

In its very essence, however, regulation implies, not punishment of past action, but prescription of future action. This means simply that the government, if it undertakes to regulate the trusts and combinations, will ultimately have to fix their prices or limit their profits, or both. After all, the one thing in which the general public is interested is the reasonableness of prices and charges. The prevention of combinations in restraint of trade and of unfair competitive methods are not ends in themselves. There is no way to insure reasonable prices under monopoly except to restrict them, - to fix them outright, or to limit the profits in such a way as to remove the incentive to unreasonable prices.

If the government enters upon the policy of fixing prices and profits strictly, ought it not to go a step further and guarantee to the combinations a permanent monopoly, protecting them against competition? It has long been urged by the owners of railroads and other public service industries that justice to investors demands protection against competition as a concomitant of regulation of rates and charges. The public

has been gradually coming to accept this view. If for a series of years the investor in trust securities has had his profits held down to a low percentage by government regulation, it is hardly fair for the government to permit those profits to be still further lowered, perhaps wholly destroyed, by the advent of a competitor.

Whatever might be the outcome of government regulation in this respect, there can be no doubt of the

immense difficulty of just and efficient regulation of the prices or the profits of industrial combinations. As already shown, the field to be covered by regulation would probably be exceedingly wide and diverse. The federal government and the states would have to maintain elaborate and powerful machinery to control the combinations. The task of regulation could not possibly be left to the courts, lacking as they are in the necessary machinery for investigation and occupied as they are with many other duties.

Consider for a moment the nature of the task which would confront such an administrative body. In the first place, it would have to possess at all times detailed information regarding all the concerns under its jurisdiction. It could not rest content with making special investigations from time to time on its own initiative or on complaint. Railroad rates and the charges of public service corporations are ordinarily comparatively stable, and properly so; but the prices of many other commodities, if not of most, are necessarily variable. The costs of materials may change greatly and rapidly. The conditions of demand are changeable. Grave injury might be done to the public during the time required for securing information on which to base action if such information were not continuously in the possession of the regulating authority. Even annual reports would not always be adequate; quarterly or monthly data might be required.

In the second place, the amount of detail involved would be enormous. A proper fixing of prices would require complete knowledge of the costs of production and of the amount of investment. In order to make sure of obtaining accurate information, the government would have to prescribe the methods of accounting. It would be impossible to prescribe uniform methods, as

is done by the Interstate Commerce Commission in the case of the railroads. The bewildering variety of conditions in the different industries would have to be provided for. On the basis of accounting methods thus prescribed, detailed reports would have to be made to the government and these would have to be scrutinized and studied with utmost care. The federal government particularly would have to employ a vast corps of expert accountants, statisticians, and specialists familiar with the peculiar conditions in the different industries.

The difficulties of cost accounting are so great that many even of the largest business concerns have found it impossible to ascertain the costs of their products on scientific principles, or at any rate have considered it not worth while to incur the necessary expenses for that purpose. The business concern can get along without accurate knowledge of its own costs. Its prime interest is in demand and in profits. The government, however, in fixing prices, must know all about costs - both operating costs and capital charges. They are the very things which primarily determine the reasonableness of prices. The limiting of profits would require somewhat less detailed information than the limiting of prices, but would still require a vast mass of data.

In the third place, the determination of costs and of investment for the purpose of fixing prices or profits would involve immensely difficult problems of judgment. The judgment of the regulating body would be constantly challenged by the combinations and the probable result would be endless litigation. The proper allowance for depreciation and obsolescence, the proper apportionment of overhead charges among different products and services, the proper methods of valuing the different elements of investment, these and

similar matters would have to be passed upon by the regulating authority. Such problems are difficult enough as they confront the Interstate Commerce Commission, which has to deal with one kind of business only. They would be far more difficult for a body dealing with multifarious combinations in widely differing industries.

Even if the regulating authority should succeed in working out a satisfactory determination of costs of production and value of investment, it would still be beset with troubles in fixing prices or limiting profits. Demand for goods is variable even in non-competitive industries. Even if the combinations should be protected against competition from domestic concerns, foreign concerns would have to be reckoned with. Unchanging prices or prices bearing an unchanging relation to costs would not be practicable in mining, manufacturing and mercantile business. A combination might at times be justified in reducing prices and consequently profits below a normal level in order to stimulate demand and keep its force employed, or in order to meet foreign competition. The government would have then to determine to what limit prices or profits could subsequently be advanced in order to offset these reductions. In other words, the government would be dealing with a constantly changing problem of demand, just as the manager of any private business does. Particularly difficult would be the fixing of proper prices for products produced at joint cost. Take petroleum, for example. A wide variety of commodities are derived from the one raw material, crude oil. Some of these are in so little demand that they must be sold for less than the price of crude oil itself. Others are in great demand and can be sold for high prices. It is impossible to use cost as a basis for deter