2. (b) In 1914 an important change in the laws relating to combinations and competitive methods of doing business was introduced by the repeal of the act creating the Bureau of Corporations, and the enactment of two addi tional statutes for the better regulation of the activities of business enterprises. The first of the two acts was that creating the Federal Trade Commission*• the second, the Clayton Act.t The result of the legislation of 1914 was to establish a commission of five persons in place of the Bureau of Corporations and to impose upon the newly-created commission cer tain additional duties, of which the most im portant are: the enforcement of fair methods of competitions and the establishment of certain standards by which fair competition may be judged. During the year ending 30 June 1918, the Commission received 332 complaints charg ing unfair competitive methods or other viola tion of the acts under which they were oper ating. Since the creation of the Federal Trade Commission much more attention has been given to maintaining fair competition among competing business enterprises and less to the investigation of the combinations of various kinds. If, as confidently believed by many students of industrial conditions, the establish ment and maintenance of fair competitive con ditions by government action is efficacious in preventing many types of combinations, then the problem of industrial monopoly for the immediate future is partially if not completely solved.
3. While the state has always either directly or indirectly exercised its sovereign right of taxation for the purpose of providing revenue to meet its expenses, it was not until recent years that tax systems were designed with the avowed purpose of controlling the production and the distribution of wealth. Taxes for the purpose of controlling production, either directly or indirectly, are illustrated by those on bever ages, narcotics and certain drugs. Sometimes the article itself is taxed, sometimes the privi lege of selling, as license fees for saloons and other articles whose consumption it is desired to check. Another example of ancient lineage is the tax on importation or exportation. In this case production is checked in one country and promoted in the other, the ultimate effect of the tax being determined by the rate of the tax and by the elasticity of the demand. The international economic effects of State control through import duties is aptly illustrated by the historical evolution of Great Britain and Germany. The former nation has followed the policy of laissez-faire with respect to foreign trade, the latter that of public control through the tariff. Great Britain became a specialist in manu facture with a consequent large development of international commerce. Germany became an all-around producer, a farmer, a manufacturer, a trader and a financier, good in each without being pre-eminent in any. When the World War came on, England's most vulnerable spot was her dependence on foreign trade for food as well as for a portion of her raw materials, and Germany, well knowing this, launched her sub marine campaign as her best line of attack. To parry this offensive, England was obliged to maintain at her peril her acknowledged mastery of the seas in order that her merchant marine might bring the requirements which her position as a specialist daily demanded. Ger many on the other hand was able to withdraw from the seas since her diversified powers of production were sufficiently extensive to pro vide for her major wants for a considerable period of time. In view of the experience of England and Germany some publicists have argued that taxation through tariffs ought to be more widely used for the purpose of forc ing a nation to become more largely self-suffi cient in the production of the essentials of a complete national life.
Taxation for the purpose of controlling the distribution of wealth has long been under stood by economists and statesmen but, for rea sons that are patent, little used until the recent World War furnished the necessary stimulus by imposing burdens upon the participating gov ernments so stupendous that the historic meth ods of raising revenue were found to be en tirely inadequate. To find additional reve
nue without at the same time imposing burdens of crushing weight upon the poorer classes of society, rates of taxation, it was thought, must progressively increase with the size of the income. As a result of the war, then, we have a new system of taxation in actual operation, one whose ultimate effect is to change profoundly the distribution of wealth by relieving certain of the poorer classes largely if not entirely from the paying of taxes based upon incomes and imposing far weightier bur dens than ever before upon those whose in comes exceed the requirements of rational life.
V. War, by emphasizing the importance of concerted action, strengthens the hands of those who believe in an efficient and extensive system of state control, and at the same time and for the same reason weakens the cause of those who favor the policy of economic liberalism. On this account the period beginning with the Civil War of 1861 and terminating with the Franco-Prussian War of 10 years later marks a turning point in the growth of state control. It was generally conceded that the Prussian system was efficient and the results of the three wars by means of which Prussia became the dominant force in central Europe argued so eloquently for strongly centralized governments acting under wide powers that even England and the United States began to study, to admire and then to copy the style of government which they had previous to this period condemned in theory* and avoided in practice.f But even though yielding somewhat to the adherents of the Prussian system the rank and file of the Eng lish and American people resisted the proposed innovations, and when the World War came in August 1914, both nations, Great Britain and the United States, were still predominantly exponents of a modified laissez-faire system. Germany on the other hand, partly as a result of certain habits and traditions and partly be cause of the fact that she was always either en gaged in, or preparing for war, continued to extend the activities of her government so widely and so deeply that no private interest and no individual was left untouched. By this process of prussianization, individuals instead of being left free, either partially or wholly, 'to pursue their own courses as it seemed best for their own interests, were forced to shape their activities in accordance with the policies de termined upon by the government of the day. Industries that were thought to be essential for success in war were fostered and protected by subsidies or other favoring legislation. Economic and social institutions were en couraged and established or discouraged and prohibited according as they were thought to be elements of national strength or causes of national weakness. The general results of this policy became evident immediately the World War was well under way. England and the United States, strong in peace, were weak in war. France, a nation historically opposed to extensive state control, had so far copied the Prussian system as to maintain a formidable standing army while otherwise following the policy of England and the United States. France therefore was able to hold the German forces in check while England and the United States, the pronounced exponents of economic liberalism, began to prepare, the former because she became a participant at the outset, the latter because it early became evident that she might be involved at any instant. Both England and the United States thus found it necessary in the interests of national efficiency to abandon their historic methods of managing their domes tic affairs and substitute therefor the one by which Germany had so completely unified her national resources, men and materials, labor and capital, and turned the machine thus created upon those who threatened to block her path in her quest for world empire.