knowledge that his wife or his dependents are denied the comforts of life while the companions of his school days are amassing fortunes. (g) The present depression presents another strong reason for the passage of some such law. It will not be denied, we think, that Congress has the power to pass any reasonable measure that tends to relieve the acute conditions through which we are now passing. The primary function of the Federal reserve system is to prevent the panics that arise from a rigid currency. What is the reason for the present depression? Men may differ about this, but many reasonable men entertain the belief that its underlying cause is the undue inflation of war times. That deflation must follow an abnormal inflation is a mathematical certainty. That deflation is accompanied by public distress cannot be denied. If the exorbitant profits are taken out of war, there will be no inflation; if there is no inflation, there will be no deflation.

(h) That reasonable men may believe that such a proposal will serve the public good is proven by the list of distinguished men who have approved of the policy of this legislation. President Wilson exercised such power during the war; and the three occupants of the Presidential chair since the war have expressly approved this proposal. The first President of this country disapproved of the profiteering that accompanied the prosecution of the Revolutionary War. The United States Chamber of Commerce, in 1917, expressly acknowledged the necessity and power of the Government "to control prices." That other nations, such as Great Britain and France and Germany, have taken steps to prevent recurrence of the economic situation attendant upon the last war is strong proof of the propriety of some such legislation. In Block v. Hirsh, Mr. Justice Holmes, in sustaining the Washington rent law cases, supported his opinion in part by saying:

It is enough that we are not warranted in saying that legislation that has been resorted to for the same purpose all over the world is futile or has no reasonable relation to the relief sought. Chicago, Burlington & Quincy R. R. Co. v. McGuire, 219 U. S. 549, 569. (256 U. S. 135, 158.)

(i) There is a law of physics that says in substance that something cannot be had from nothing. If men behind the lines amass great fortunes in time of war, those fortunes come from somewhere. War does not increase the national resources but decreases them. The wealth of a nation is always less after a war than before it. Great fortunes were amassed during the recent war. They came from somewhere. They came, of course, from the great common people. The war-time profiteers created no wealth; they were simply acute enough to centralize it. And by doing so they took from the men and women, in the lines and back of them, who were not engaged in amassing wealth. To prevent the cunning and avaricious from capitalizing the misfortunes of those who are compelled to serve is certainly a proper end of government.

The war power is as elastic as the law of self-defense, and like the law of self-defense it is the first law of the land. An examination of the various laws enacted under that power, and the attitude of courts toward that power, leads us to the conclusion that the courts will not interfere with any enactment of Congress designed to aid in the successful carrying on of war, unless it is so arbitrary

and capricious that no reasonable man can say that it is appropriate to the end designed. In our opinion the proposed legislation is within the power of Congress.

We believe that business men will not insist on more than a fair during war times. Most of them would prefer to keep their

running to capacity, with a 6 percent return, rather than make an 80-percent return and be compelled to return 75 percent of the excess profit in taxes and be bothered by tax collectors and inspectors for years to follow. That the United States Chamber of Commerce approved the principle and that its members cooperated loyally with the war-time commissions is submitted as proof of this

statement.

III. METHODS OF EXERCISING THE POWER CONFERRED, AFTER THE EMERGENCY HAS ARISEN

Members of the commission, during the hearing, invited suggestions as to a practical method of carrying out the powers conferred by the proposed statute. Upon this question it is very doubtful whether this committee can be of any service to the commission. None of the members of this committee had the opportunity of observing the operations of the various war boards which functioned during the recent war. Some of the witnesses before the commission have an intimate knowledge of the workers of such boards and a large grasp of business methods, and have a much greater source of information upon which to draw than do the members of this committee. But in order to respond to the invitation of the commission, and with great hesitation, we make the following observations as to the possible method of exercise of power when it is called into play.

Such luxuries as tobacco, theaters, pleasure automobiles, and a great many other similar articles might well be eliminated from the equation for the purposes of simplicity of administration; upon these could be placed a tax, either a sales tax or an excess-profits tax, which would help make up the depletion in revenues which will necessarily be occasioned by the elimination of excess profits on necessaries.

In formulating a method for the exercise of the power there are two principal matters, we take it, to be considered: In the first place, the plan should, as nearly as may be, allow to each individual engaged in the production, manufacture, or distribution of essential commodities, the actual cost of the service rendered, plus an allowance for the depreciation of property engaged in the enterprise, plus a reasonable return on the capital invested. Second, the plan must not be so cumbersome as to be unworkable. It is probably true here, as it is in many other affairs of life, that exact justice must to some extent give way to practical considerations.

It has been suggested that there be determined the investment of each citizen in his particular business; ascertain the cost incurred by him in the operation of that business, and add thereto a fixed percentage of the investment to cover depreciation and profit. This seems fair on its face, but it is very doubtful whether this plan is practicable. Certainly the courts as at present constituted, with their present procedure and rights of appeal, could not hope to discharge this task in any reasonable time. It is constitutionally pos

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sible to provide additional courts, charged with the exclusive duty of ascertaining such facts, as was done in the case of the interstate commerce court some years ago and as is now done with the Court of Customs and Patent Appeals. There need be no appellate tribunals, unless thought desirable, for the right of appeal is not a constitutional right (Luckenbach v. United States, 272 U. S. 533). The plan of separate courts for that purpose is much more feasible if the ascertainment of investments in individual businesses is attempted, but it would seem that the task of ascertaining the underlying facts as to every factory and wholesaler and retailer in the United States would be unending. There is one other serious objection-such a plan would provide different prices for the same commodity. It is, of course, a known fact that the cost of operating varies with the particular business; that is to say, an efficiently managed and up-to-date flour mill with low power costs may be able to keep its manufacturing cost to 40 cents a barrel of flour; the less efficient and less efficiently operated flour mill, of small capacity, and with higher power costs, might very well have an actual manufacturing cost of 60 cents a barrel. These two mills must compete for the same civilian business. It is said that if you fixed a lower price for the barrel of flour from the efficiently operated mill, the less efficiently operated mill either loses its civilian trade, or operates at a loss. One alternative, of course, is to fix a price that will enable the smaller mill to make 6 percent and apply that barrel price to the larger mill, which will, of course, result in the larger mill making 10 or 12 or 15 percent profit. But the milling business is highly competitive in time of peace, and the smaller mills do operate under this handicap; they can do so in time of war. The same dilemma is presented in the effort to fix fire-insurance rates, which must be uniform if the small companies survive. The customary solution of the dilemma is to fix a rate that will allow a reasonable profit to the average company. A normal tax should be laid on the 6 percent profit, and the excess profits of the more efficient operator should be recaptured by an excess-profits tax.

Probably the simplest plan would be to make it a criminal offense to charge a price for a commodity that reflected more than a 6 percent profit on the invested capital. The facts could be ascertained from the income-tax reports. Under the excess-profit-tax laws of 1917 and 1918, a separate tax was levied upon excessive profits, and profits were figured upon the invested capital of the industry. Invested capital has been construed to mean just what it says, the amount invested in the property, and excludes inflated values. (La. Belle Iron Works v. United States, 256 U. S. 377.) This would put upon each individual, in making his income-tax return, the burden of seeing to it that his prices do not reflect an exorbitant profit upon the pain of imprisonment. This offers the same objection as the preceding one, in that it would prescribe varying prices among different individuals for the same commodities, and result in the strong and efficiently operated plants absorbing all of the business. It is necessary in time of war that even the less efficiently operated plants he run to capacity, and any plan that would eliminate the small eperator from the picture, should be avoided.

During the late war a percentage up to 75 percent of the excess profits was absorbed by taxation. Under the taxing power these rates could be adjusted so that there should be a tax of 90 percent on all profits in excess of 6 percent. This again would be a simple method of adjustment, but would only serve in part the end desired.

Perhaps the best method of all is the establishment of one or more boards whose duty it would be to fix prices for the various commodities. This puts tremendous power in the hands of individuals, but in war times such becomes necessary. Such individuals would have no more power than a colonel of a regiment has over the lives of the men under him, and it is a necessary concomitant of the proposition that wars cannot be successfully conducted by debating societies.

If this were done, the President should have power, through boards, to fix prices today predicated on prices that existed 6 months or more ago. It is very unlikely that there will ever be a war without some premonition thereof. With such a statute in existence as the one proposed, some people might begin to get their houses in order long before the actual declaration of war and gradually increase prices on the theory that when the date came for freezing the prices they would be ready. It would be impracticable, from a diplomatic standpoint, to exercise this war power a considerable period in advance of war. That in itself would be nearly as serious à declaration of intent as would the mobilization of military forces. But in the Federal Government there is no constitutional objection to retroactive legislation, as is indicated by the fact that nearly all of our tax legislation is retroactive. The President, through a board familiar with the particular industry, could look far enough back into the past to enable him to determine that the normal pre-war level of the price of flour was predicated upon a milling cost of 40 cents, a selling cost of 20 cents, and a milling profit of 5 cents. He could look far enough back to see that the pre-war level of the price of wheat was a dollar a bushel. He could proceed to fix the price of wheat at a dollar a bushel, and fix the price of a barrel of flour at the price of 4.6 bushels of wheat, plus 65 cents, or a price of $5.25 a barrel, even though the prospect of war had stimulated the current price to $8 a barrel. Since the milling cost varies, and in order to keep the smaller mills in operation, the board should probably fix the price of a barrel of flour at $5.50. This would then become the temporary frozen price, until hearings could be held, at which a permanent war-time price (subject to change) could be fixed with the same general considerations in mind. The so-called "permanent price "the one fixed after the hearing-should, of course, be subject to change if conditions demanded it. If raw materials were required which must be imported, and therefore not subject to the power of the United States, the price-fixing order could be so worded as to allow for an automatic adjustment as the price of such imported raw materials went up or down. If labor costs increased, or if there became sound reason for increasing the price of wheat, the price of flour could be adjusted accordingly.

This plan, of course, would result in some lack of uniformity: it would mean that the more efficiently operated plants would make more than 6 percent, while the less efficiently operated might have to

either increase their efficiency or get along with a little less than 6 percent. But this is a condition that exists in industry today; the weak are competing with the strong, and are getting along. A large life-insurance company with millions of policies outstanding necessarily has a less overhead cost per policy than a small company. Nevertheless they do compete, just as the less efficiently operated flour mills are competing with the more efficiently operated ones. But the spread is not great, and while high-class mills might make a little more than 6 percent, such a plan should at least prevent the exorbitant profits and the amassing of great fortunes which followed in the wake of the recent war.

The statute should be as plenary and as flexible as possible. It would be well to provide therein that the President be authorized to take steps now, either through existing or new officials, to set up the personnel for the emergency, so that there would not be months of delay after the emergency arises. Such officials would now ascertain what boards would be necessary in event of war. Such officials should be required to keep informed as to the men who would be available and willing to serve on such boards, so that when war was declared, members of such war boards would be able immediately to assume their responsibilities. Prices should be automatically frozen, pending the hearings before such boards, at the prices existing as of a date to be fixed by the President; summary hearings should be provided by each board for those representing the industry affected, and at the conclusion thereof, a price fixed which in the judgment of the board would reflect a fair profit for that particular commodity; the board, of course, reserving the right to change that price from time to time as conditions might require it.

CONCEDING THE POWER, IS SUCH A PLAN A CONSTITUTIONAL EXERCISE THEREOF ?

If the Government has power to fix prices in war time, by any method, there is no reason to doubt that the suggested plan is constitutional. The plan proposes, as has been seen, two steps, one a temporary expedient to brook over the time until hearings can be held and a fair price fixed; the second step, the fixing of prices after a hearing. The first step-freezing the prices as they exist or as of a date some time prior-is but a temporary expedient to prevent extortion pending the hearings. It is comparable to the restraining orders regularly issued by the courts to preserve the status until there can be a hearing; courts cannot take property without due process, and yet no one has or can challenge the power of the courts to issue orders, without notice, which preserve the status until there can be a hearing. Nor do we believe anyone can contend that he has been arbitrarily deprived of his property when he is compelled to sell his goods tomorrow for what he was willing to sell them for today, particularly since all prices of raw materials, manufacture, and distribution are frozen at the same time. But even so, he would not be hurt much or for long, and the philosophy of Noble State Bank v. Haskell (219 U. S. 104) is that you can take a little of a man's property without due process, but you can't take much. In that case, the Supreme Court, speaking through Mr. Justice Holmes, said: