And as to this argument, urged before the Supreme Court in the Minnesota rate case, recently decided, the opinion of Mr. Justice Peckham says:

Still another Federal question is urged growing out of the assertion that the laws are, by their necessary effect, an interference with and a regulation of interstate commerce, the grounds for which assertion it is not now necessary to enlarge upon. The question is not, at any rate, frivolous.

XXI

THE NORTHERN SECURITIES COMPANY 1

THE

HE certificate of incorporation of the Northern Securities Company was signed by the three incorporators and acknowledged in the state of New Jersey on the twelfth of November, 1901. During the three days immediately following, resolutions were adopted by the newly organized company, authorizing the purchase of any shares that might be tendered to the company, under specified conditions and terms. Power to do so was expressly granted in the charter. "The objects for which the corporation is formed are: To acquire by purchase, subscription, or otherwise, and to hold as investment, any bonds or other securities or evidences of indebtedness. . .. To purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of, any bonds or other securities or evidences of indebtedness created or issued by any other corporation. . . . To purchase, hold, etc., shares of capital stock of any other corporation . . . and, while owner of such stock, to exercise all the rights, powers, and privileges of ownership, including the right to vote thereon. . . ." The nature of these powers, with respect to the signs of indebtedness of other corporations, has caused the company to be commonly described as a holding company.

This particular idea of a holding company antedates the Northern Securities Company by seven or eight years; and, in a larger sense, the principle involved in the holding company has found at least partial expression in the organization of railway companies for half a century. The voting trust may also be regarded as an antecedent of the modern holding company,

1 From "A History of the Northern Securities Case," Bulletin of the University of Wisconsin, No. 142, July, 1906, pp. 225-241. Elaborate footnote references are omitted. The problems of railroad combination both economic and legal are discussed in Ripley's Railroads: Finance and Organization. — ED.

and the causes which have produced the one are analogous to those which have produced the other. The process of metamorphosis between the voting trust and the holding company does not appear to be either long or complex.

Both the remote and the immediate causes of the organization of the Northern Securities Company were partly personal and partly economic. They were personal in so far as the Securities Company was the outgrowth of a desire on the part of certain men to perpetuate a certain policy. They were economic in that the execution of certain large, almost empire-building plans could be promoted, in the estimation of its founders, by the company. The founders of the company, through years of effort, had become accustomed to associate their railway properties with a certain economic policy. And thus the personal and the economic causes of the organization of the company practically become merged into one, namely, the desire to insure uninterrupted progress in the building of a great system of transportation. The existence of other causes, like the desire to suppress competition, to inflate values, has been alleged. An examination of these will be taken up later.

The original idea of the Securities Company was that it should embrace the ownership of about one third of the Great Northern stock. A small number of the Great Northern stockholders, not to exceed eleven out of about 1800, felt that they were getting along in years. One of them was eighty-six, another eighty-two, and several of them past seventy years of age; and they desired to work together as they had done for more than twenty years. Some of these stockholders lived in foreign countries. Their powers and privileges had to be exercised by their legal representative. This might continue to work satisfactorily as long as the old circle of associates remained unbroken; but a number of them felt that a more permanent arrangement would be preferable. A close corporation, embracing six or eight men, was suggested, to which others objected because such an arrangement would violate the principle of equality which had always prevailed among Great Northern stockholders. As soon as the idea of exclusiveness had been abandoned and an inclusive

organization decided upon, "the question came up: Why not put in the Northern Pacific? That is the way it occurred." This, in substance, is the manner in which President J. J. Hill summarizes what has been alluded to above as the "personal" element in the organization of the Securities Company. And to place at the head of the new company the guiding spirit and constructive genius of that group of men at once made the Securities Company doubly a matter of "moral control," of "fortification," and of "strength." In the words of a colleague, who is familiar with the territory through which the Great Northern railway runs, that road is "regarded as a personality. People know that there is some one whom they can see and talk to. If other means fail, they know they can go to see Jim' Hill about it, and he will give them a fair hearing." From the threefold point of view of public policy, of personality, and of business, the actual course of the organization represents the best that could have been done.

The desire to secure a permanent basis for the interchange of commodities between great producing sections of the United States and of the Orient may be characterized as the largest economic cause of the organization of the Securities Company. The Great Northern and the Northern Pacific railways had lived in comparative peace with each other for twenty years. Both had maintained joint rates with other roads like the Burlington. The Burlington taps the principal live-stock markets, important cotton, coal and mineral areas of the United States. The unified control and management of these three great systems of railways - Great Northern, Northern Pacific, and Burlington - makes it possible to secure a sufficient variety and quantity of freight to make systematic back loading a certainty. Back loading, together with a steady flow of freight large enough to insure the economical utilization of motive power and car capacity, results in a general economy of operation which makes rates that would bankrupt numerous other roads remunerative to the systems embraced in the Securities Company. Such a flow of freight had been developed on the basis of joint rate agreements with railways and agreements with stea

The value of the railway properties concerned, as well as the continued prosperity of the commercial and industrial interests served by them, depended largely upon the permanency and security of the arrangements which had begun to crystallize with the turn of the century, and to which the opening of the Orient promised to bring still greater returns. However, joint rates may be withdrawn at any time, and it was thought too hazardous to build up a great business "extending across the continent and even across the ocean on the basis that to-morrow the rate might be changed or the party with whom we were working to reach the different points of production or consumption had some other interest or some greater interest elsewhere. It was necessary in doing this that we should have some reasonable expectation that we could control the permanency of the rate and that we would be able to reach the markets. In other words, if the man producing lumber on the coast, or cattle on the ranches, or ore in the mines, could not find a market for it and if we could not take it to a market that would enable him to sell his stuff for a profit, he would have to stop producing it. That was the line we worked upon, and that was the reason we felt called upon to put ourselves in a position where we could control access to the markets."

A glance at a railway map of the territory west of the Mississippi reveals the importance and strength of the Burlington system. West of the Missouri river it lies in the very lap of the Union Pacific, while east of that river it forms a great bridge, with its terminal pier in Chicago. The Northwestern, St. Paul and Burlington systems largely complement each other in the great manufacturing, agricultural and mineral regions of the greater northwest. In relation to the Great Northern and Northern Pacific, the Burlington is like the point and moldboard of a plow, the beam and handles of which are constituted by the former systems. The Burlington connects Chicago with St. Louis, Kansas City, Omaha, Denver, St. Paul and Minneapolis, and numerous smaller but important cities, which, taken collectively, represent the manufacture and sale of every staple commodity and the raw materials therefor.