CORNELL UNIVERSITY LIBRARY FROM M.P.Rivera DATE DUt mt ^'' :A^-eS3 =*=5^M'««i=' l^W JUTS" 1957 Kl CORNELL UNIVERSITY LIBRARY 3 1924 096 442 706 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924096442706 CONCENTRATION AND CONTROL A SOLUTION OF THE TRUST PROBLEM IN THE UNITED STATES THE MACMILLAN COMPANY NEW YORK ■ BOSTON - CHICAGO DALLAS • SAN FRANCISCO MACMILLAN & CO., Limited LONDON • BOMBAY ■ CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA, Ltd. TORONTO CONCEOTRATION AND CONTROL A SOLUTION OF THE TRUST PROBLEM IN THE UNITED STATES \ BT CHARLES R. VAN HISE AUTHOR OF " CONSERVATION OF NATURAL RESOURCES XN THE UNITED STATES," ETC. REVISED Neb) gorft THE MACMILLAN COMPANY 1921 AU righU reserved <«?■•-<) LCOPYEIGHT, 1912, 19U. bt the macmillan company. Set up and clectrotyped. Published May, 1913. Revised edition , with new matter, September, 1914. NoiblOOlI VtMR J. S. CuBhing Co. — Berwick & Smith Co. Norwood, Mass., tJ.S.A. PREFACE It is the aim of this book to present an outline picture of the situation regarding concentration of industry in the United States, and to suggest a way to gain its economic advantages and at the same time to guard the interests of the public. The book is written because this is the most pressing problem now before the people and before Congress and state legislatures. No other problem is likely to have so large discussion in the political campaign now waging. If this book has the good fate to assist in the rule of enlight- enment, reason, fair play, mutual consideration, and tolera- tion, and thus advance the solution of the problem, the author will have been repaid many fold for his labor in its preparation. The scope of the treatment does not include the public utilities. They are only considered in so far as their devel- opment and control throw light upon the other industries. The reader who is familiar with trust hterature will recog- nize the influence of Ely's "MonopoUes and Trusts," Jenks's "The Trust Problem," von Halle's "Trusts or Industrial Combinations of the United States," Ripley's "Trusts, Pools, and Corporations," Montague's "Trusts of To-day," Nolan's " Combinations, Trusts, and Monopolies," Collier's "Trusts," Wyman's "Control of the Market," and Ma- crosty's "Trust Movement in British Industry." Aside from these standard works, the most important sources of information in presenting a picture of the situation as it is at the present time are the special reports on manu- factures in 1905 by the Census Office, reports of the Com- missioner of Corporations upon Standard Oil, tobacco, steel, beef, lumber, and water powers, and the hearings and reports before the committees of the Sixty-second Congress. Es- pecially important in this connection have been the hearings vi PREFACE before the United States Senate Interstate Commerce Com- mittee, the report of Mr. Hardick for the special Committee of the House of Representatives to investigate the Sugar Refining Industry, and the reports of the House Committee of Investigation for the United States Steel Corporation. Further, I had the opportunity to see the manuscript of a book now published by Dr. Charles McCarthy, upon "The Wisconsin Idea," from which I have taken material concern- ing the situation in that state. Professor T. K. Urdahl has prepared for insertion a summary account of the steel com- binations of Germany. Professor Richard T. Ely and Pro- fessor Urdahl have kindly read the manuscript and made many suggestions of value to me. Professor E. A. Gilmore has done the same for the chapter upon the law regarding cooperation. To these men I am especially indebted. Also I have had many valuable suggestions from other members of the staff of the University of Wisconsin in the departments of political science, political economy, history, and sociology. Finally, a number of the students in that university, under the direction of Mr. W. I. King, have given me important assistance in looking up decisions and summarizing material along special lines ; these are S. A. Barrett, W. K. Braasch, Harlow Brown, F. A. Buechel, N. B. Bunin, W. H. Butt, J. S. Josiassen, J. C. Pritzlaff, John Schmidt, R. A. Weir, E. E. Witte. In preparing the book, it has been the purpose to put in a small volume the information which is essential to reach a sound conclusion regarding the handling of the great problem of concentrations of industry, both in the way of legislation and administration. Following a statement of facts, the conclusions of the author are given in these matters ; and it is hoped that these may appeal to the judgment of the reader. However, even if the conclusions are not followed in all respects, it is still hoped that the summary of facts bearing on the problem of concentration may be helpful. The material published in the magazines and newspapers, even much of the testimony before the committees of Con- gress, shows a lamentable lack of comprehension of the facts PREFACE vii involved in concentration of industry ; and in many cases con- clusions are presented without taking into account more than a very small part of the facts. It is hoped that a brief and clear presentation of the more important factors of the prob- lem may help in leading to logical thinking, and thus assist in reaching a consensus of opinion which may finally result in sound remedial legislation. CHAKLES R. VAN HISE. The Univebsity of Wisconsin, AprU, 1912. TABLE OF CONTENTS PASB Preface v Introduction : The Self-suflBcient Community 2 The Civil War and Concentration 4 The Development of Transportation and Communication . . 4 CHAPTER I THE GENEEAIi FACTS REGAEDING CONCENTRATION Section 1 — The Economic Advantages of Concentration . 8 (1) The Handling of Material 8 (2) The Use of Machinery and Departments .... 9 (3) Subdivision of Labor 9 (4) Integration 9 (5) Parallel Consolidation and Specialization . ... 10 (6) Saving By-products 11 (7) Consolidation of Allied Industries 12 (8) Keeping Establishments up to Date 12 (9) Investigating Departments 13 (10) Business Advantages of Concentration . . . .14 (11) Opportunities for High Order of Ability .... 16 (12) Other Advantages of Concentration 17 Total Advantages of Concentration 17 Section 2 — The Causes of Concentration 21 (1) The Limited Liability Corporation 21 (2) The Protective Tariff 21 (3) RaOway Rebates and Drawbacks 22 (4) Local Underselling 23 (5) Patents 24 (6) Manufacturers' Rebates 24 General Statements 24 Section 8 — The Purposes of Concentration .... 25 (1) Elimination of Competition 26 (2) Regulation of Output and Division of Business and Terri- tory .......... 26 (3) Maintenance of Prices 27 (4) Profits of Promoters 27 ix X TABLE OF CONTENTS FASE Sectiok 4 — The Kinds op Btjsinbss Most Likely to become Concentrated 31 Section 5 — The Extent op Concentkation .... 84 Concentration in Management Greater than Concentration in Plants 35 Statistics confined to Factory Systems 35 Localization of Industries 35 Concentration in Representative Industries .... 36 General Statements 58 Section 6 — Forms of Organizations 60 (1) Informal or Formal Associations for the General Protec- tion or Advancement of a Business 60 (2) Formal Agreements 64 (3) Trusts 68 (4) Holding Corporations 69 (5) Complete Merger 71 General Statements 71 Section 7 — The Kinds or Competition 72 (1) Competition in Quality 72 (2) Competition in Price 74 (3) Competition in Service 75 Section 8 — The Break-down op Competition .... 76 The Faith in Competition 76 The Failure of Competition adequately to regulate Quality . 76 The Failure of Competition adequately to regulate Price . . 78 General Statements 83 Section 9 — The Wastes op Competition 88 (1) Expense of Salesmen 88 (2) Expense of Advertising 89 (3) Competition and Conservation 89 The Consumer pays for the Wastes of Competition ... 97 Wastes of Competition drive to Combination .... 97 Burn or Combination 99 CHAPTER II SOME IMPORTANT ILLUSTRATIONS OF CONCEN- TRATION Section 1 — The Michigan Salt Company 101 Section 2 — The Standard Oil Company 104 The Rise of the Company 104 The Monopolistic Position of the Company . . . 105 TABLE OF CONTENTS xi PAGE Margins and Profits 108 Price Discriminations 109 Excessive Profits 109 Summary of Evils 110 Section 3 — The United States Steel Corporation . . .111 Early Consolidations Ill Causes of Consolidation 112 Organization of the Corporation 113 Overcapitalization 115 Earnings 117 Proportion of Business 119 Cost of Production 120 Tlie Value of Iron Ore 129 Practices of the Corporation 132 The Eificiency of the Corporation 134 Relative Efficiency of Large and Small Steel Companies . . 136 Relative Efficiency of the Large Steel Companies . . . 138 Summary of EvUs 140 Section 4 — The American Tobacco Company .... 140 History of Company 140 Overcapitalization 142 Elegitimate Competition 143 International Combination 143 Expansion into Allied Businesses 144 Concentration of Manufacture 144 Excessive Profits ... 145 Monopoly and Competition 146 Summary of Evils 147 Section 5 — The American Sugar Repining Company . . 147 Commanding Position of the Company 147 Increase in Margins 148 Price of Raw Material 148 Capitalization 149 Excessive Profits 149 Evils Illustrated 149 Section 6 — The Meat-Packing Industry 150 The "Big Six" 150 Capitalization and Profits 152 Principles Illustrated 153 Section 7 — The Lumber Industry 154 The General Situation 154 xu TABLE OF CONTENTS PAas Concentrated Ownership of Timber 156 Rising Prices 159 Section 8 — The Water Powers 160 Amount and Distribution 160 Concentration of Ownership 162 Public Control 164 CHAPTER III THE LAWS REGARDING COOPERATION Section 1 — England 167 Section 2 — The United States . . . . . .170 Section 3 — The Sherman Antitrust Law .... 174 The Standard Oil Company 181 The American Tobacco Company 183 The DuPont Powder Company 186 The Shoe Machinery Case . 186 The Union Pacific and Southern Pacific Merger . . . 187 Dissolution by Mutual Agreement 187 Other Corporations under Attack 190 General Statements 191 Section 4 — State Legislation against Trusts . . . 192d The Statute Laws . .... 192d Decisions under the Statutes 197 General Statements 200 CHAPTEE IV THE SITUATION IN OTHER COUNTRIES Section 1 — England 203 Section 2 — Geemant 206 The German Steel Combine 207 The Potash Industry 218 Section 3 — Austria 219 Section 4 — France 220 Section 5 — General Statements 221 Section 6 — International Combinations 222 CHAPTEE V REMEDIES Section 1 — Specifications to be Met 225 Minimum Specifications 231 TABLE OF CONTENTS xiii PAGE Section 2 — Commission Contkol op Public Utilities . . 233 Early Commissions 234 The Wisconsin Commission 236 The Interstate Commerce Commission 238 General Statements 242 Section 3 — Pure Food and Dkug Laws 244 Section 4 — The Creation op Trade Commissions . . . 248 Section 5 — Proposed Minimum Amendments to Antitrust Laws 249 (1) Business of a Public Interest 249 (2) Cooperation Reasonable 250 (3) Competition to remain Free 252 (4) Unfair Practices should be Prohibited .... 252 General Statements 252 Section 6 — Further Extension op Power op Commissions . 254 (1) PubUoity Required 255 (2) Regulation of Prices 255 (3) Conservation Enforced 262 (4) Good Social Conditions Securable ..... 263 (5) Fair Wages Realizable 264 (6) Control of Capitalization 265 (7) Delimitations of Powers of State and Nation . . . 265 General Statements 265 Section 7 — Other Plans pok Amendment to Sherman Anti- trust Law 266 Section 8 — Patent Monopoly 268 Section 9 — Possible Objections to Plan op Regulation Pro- posed 270 Section 10 — Conclusion 277 Appendix I — The Sherman Antitrust Law .... 279 Appendix II — The Congressional Situation .... 282 The Interstate Trade Commission Bill 282 The Clayton Bill 289 CONCENTRATION AND CONTROL INTRODUCTION The history of industry in the United States may be di- vided into two great periods, that antecedent to the Civil War of 1861-1865, and that following this conflict. In the years preceding the Civil War the Middle West became settled. A few railroads had crept as far west as the Missis- The Civil sippi River. The large cities east of that great north-south ^o'^j^j^'g^*'^ water thoroughfare were thus connected. The railroads were trial periods. wide apart ; their efficiency as compared with present times was small. West of the Mississippi River the population was sparse. That part of the country was still in its frontier stage, with the exception of portions of California and Oregon. Under the conditions above given many small manufac- tories had grown up to meet the needs of the communities in which they existed. Indeed manufacture in a small way had begun in the eastern cities before the end of the eighteenth century. During the first half of the nineteenth century there was steady and slow expansion of manufacture, not mainly by increasing the size of plants which already existed, but by the multiplication of plants wherever a clientele was found in the township, county, or district. Thus in the Middle West during these times almost every community had its gristmill run by the power of the adjacent creek or small river. Simi- larly there were many small plants for the smelting of iron. For the most part these were located adjacent to small banks of iron ore, and especially in districts where coal and lime- stone were near at hand to serve for fuel and flux. The great drift to the cities had not yet begun, and a large proportion of the population was rural, 87.5 per cent in 1850, and 83.9 per cent in 1860. B 1 CONCENTRATION AND CONTROL THE SELF-SUFFICIENT COMMUNITY The farmer in the sparsely settled districts of the Middle West was largely self-sufficient. For heat he cut his own wood. He raised his own wheat and corn, took the same to the adjacent mill and returned, after paying proper toll, with flour The farm- and corn meal for his family and bran for his stock. He stead a raised and killed his own meat ; in the winter he had fresh workshop. ' meat ; in the summer, salt pork and corned beef. As a matter of course each farmer raised his own vegetables ; he had cows which furnished him with milk, butter, and perhaps cheese ; he had his poultry yard, which might include chickens, geese, and ducks. The farmer of the North produced his own wool and many had a crop of flax. In the South cotton was the stable for textiles. In the earlier part of the nineteenth century the wool was cleaned and carded at the house, but at a little later stage of development was taken to a factory in the adjacent small town to be cleaned and made into rolls ready for spinning. The equipment of the farmer's house included the spinning wheel and often the loom. With spin- ning wheel the wool and flax were made into yarn or thread to be later transformed into stockings, mittens, or cloth. The home loom produced either somewhat coarse cloth or car- pets. Cotton very early found its way to the factories, which before the Civil War were largely located along the streams of New England. The village or town contained a shoemaker, whose raw material frequently came from leather supplied by the farmer. In a town of a few thousand inhabit- ants, there was likely to be a small agricultural implement factory. Not every farmstead would have all of the equipment indi- cated, but all would be found in the neighborhood; and by barter among the farmers, or trade between the farmers and the villagers, the chief necessities not produced at home were supplied. The articles not produced in a community were mainly those which are relatively light as compared with their value, sugar, tea, coffee, starch, tobacco, and cloth-cotton or woolen. INTRODUCTION 3 These were the staples which the farmer purchased from the sales of a part of his wheat or other crop. From the above, it is apparent that each community of fair size was essentially self-sufficient ; and this was true without reference to the different parts of the United States, although there were differences as to the approach to completeness of the self-sufBcient character of the community, the approach to this situation being nearer in the North than in the South. A city, and in many cases a county, if cut off from the rest of the world would have gotten along without any special hardship. Some luxuries and conveniences would have been missed, but no far-reaching change would have been made in the habits of the community. The situation above described has now ceased to exist for the United States, with the exception of those communities which, isolated by natural barriers, have been left behind in the industrial movement. Some such communities have remained nearly as they were a hundred years ago, Seif-suffi- not affected by the great stream of progress which has °'®°*y^' moved past them. In the coves of the Great Smoky still exist. Mountains to-day may be found essentially the situation described, and that not more than twenty or thirty miles from a city of considerable size, for instance. Cades and Tuckaleeche coves, a short distance east of Knoxville. In one of those coves, only a few years ago, I saw upon the porch of a little cabin the complete change from wool to stockings going on at the same time, one of the three daughters card- ing the wool, the second spinning it into hard yarn, and the third knitting it into stockings. What is true for the coves in this country still obtains for great regions in less-developed countries. For instance, in Brazil, in the province of Minas Geraes, the people are substantially self-sufficient. The ar- ticles which they raise are not the same as those produced in the United States. Their products are beans, bananas, other fruits, tobacco, coffee, etc. In the district are still nmning many small bloomeries for the manufacture of iron, the most primitive type known to man. From the blooms are wrought iron for rods, nails, horseshoes, etc. The walls 4 CONCENTRATION AND CONTROL of the houses are constructed of a lacework of poles between which mud is filled in, and the roof is of tile burned from clay close at hand. The Civil War de- manded large scale operations. THE CIVIL WAR AND CONCENTRATION In the United States, before the Civil War, industry was dis- persed, the shops and factories being small ; indeed, every farm to a considerable extent was a shop and factory. In any community the shops and factories mainly supplied the needs of the people. The Civil War, the most gigantic strife which to that time had existed among men, required that things be done on a great scale. More than a million and a half of men were in the field at one time from the North and the South together. The North built up the greatest navy that the world had then seen. The great armies required similar equipment for more than a million men, — a million blankets, a million muskets, etc. The artillery required great quantities of iron, and the newly devised monitors more. Metal was used upon a scale never before approached in this country. Above all, the mil- lion men must be fed. Thus as a result of the demands of civil strife the large manufactory grew up especially adapted to producing the materials and munitions of war. These supplies must be transported to serve a vast and shifting army. But even more important than the great factory was the training of many thousands of men, both South and North, to do things in a large way through the use of a multitude of men, in order that a given big result might be reached at a definite time and place. One of the most far-reaching effects of the Civil War was the acceleration of concentration under the tremendous necessity to do things on a great scale. THE DEVELOPMENT OF TRANSPORTATION AND COMMUNICATION Begiiming with the Civil War the period of concentration in industry was on; but a condition precedent to its full INTRODUCTION growth was the development of transportation and communi- cation. Following the Civil War came the time of great railway- building. The increase in the number of miles of railway in the United States by decades from 1850 to 1910 and the per- centages of increase per decade are shown by the following table: — Table 1. Railway Extension bt Decades since 1850' Yeak Miles !Pbh Gent 1850-1860 ;9,012to 36,626 306.0 1860-1870 36,626 to 52,922 44.4 1870-1880 52,922 to 93,262 76.3 1880-1890 93,262 to 166,703 78.7 1890-1900 166,703 to 194,262 16.4 1900-1909 194,262 to 238,356 22.6 Concurrently with the expansion of the railways was the extension of the telegraph lines, and finally, with the centennial exhibition in 1876, came the telephone. When the Union Pacific Railroad was completed in 1869, it was thought to be a mighty achievement ; and it was accomplished only through liberal, indeed extravagant, federal grants and guaranties. At the present time there are six continental roads stretching from the Mississippi to the Pacific coast. Also the increase in the railway mileage east of the Mississippi has gone on with accelerating speed. Thus the country is now linked together by agencies of transportation and communication. A large proportion of RaUways the population lives within a half dozen miles from a rail- everywhere, way ; it is only in the sparsely settled sections of the country that a railway is ten or twenty miles distant. Railway speeds and weights have been increased. A few trains move pas- sengers and the more valuable freight a thousand miles in twenty-four hours. A single train with one locomotive may carry five thousand tons of iron ore. The telegraph and the telephone make communication instantaneous. 1 Poor's "Manual of Railroads," 1910. CONCENTRATION AND CONTROL Decreasing freights. Navigable streams. The vanish- ing water traffic. The freight and passenger rates have steadily fallen. In 1864, the charge on a bushel of wheat, in carload lots, from Chicago to New York, was from 48 to 96 cents; in 1902, 7.8 to 9.6 cents, one sixth to one tenth as much. The heavier, cheaper products, such as coal and iron ore are transported ia great quantities at a cost of about one fifth of a cent per ton mile, and the rates for such commodities at various places are less than one half a cent a ton mile. It may cost the farmer who lives twenty miles from a railroad more to get his wheat to the station than it does from the railroad point to the central market. It is not meant to imply that the railways are the only means of transportation, although from the present point of view they are dominant Before railways existed, navigable streams furnished means of communication and transportation for commodities heavy and light for those communities which were fortunate enough to be thus reached. Thus there grew up in the early part of the nineteenth century a great traffic upon the Mississippi, Ohio, and upon many other rivers of smaller size. The Great Lakes furnished cheap transportation from Buffalo to Chicago and the head of Lake Superior. Inevitably, settle- ment and development proceeded much more rapidly along the naturally navigable waters than elsewhere. But even where the conditions were most favorable, navigable waters fur- nished transportation facilities to only a small part of the country, and for that part at a very low speed. The next stage in transportation development was the system of canals. The Erie Canal connected the Hudson and the Great Lakes. Many other less important canals were built. But even at best the construction of canals was expen- sive ; the transportation of materials upon them slow ; and only a small part of the country was ever reached by them. With the era of railroad development, canals began to wane. Many of them were acquired by railroad companies and put out of commission. Upon the Mississippi itself, through the acquisition of terminals, purchasing boat lines, cutting rates, refusing to prorate, etc. the railroad companies have reduced INTRODUCTION 7 river transportation above St. Louis almost to a negligible quantity. The country as a whole, even at the present time, has very few good highways. Only a few sections of the country have well-made roads. Before the Civil War, and locally since, until our own time, toll roads have connected some of the great cities. Upon the toll and free public roads wheel vehicles move; but before the automobile appeared speeds were limited to ten miles per hour, and quantities to a few tons per load. Consequently, by 1875 railroads had a leading place in transportation in this country, and they are now dominant. It is not meant to imply that the development of transporta- Transporta- tion went on without concentration of industry takina; place *^°" ^^'^ , , , , . TVT . 11 1 ... ooncentra- at the same time. JN aturally there was action and reaction tion. between them. Without concentration of industry and, con- sequently, large amounts of goods to ship, the railroads would not have developed so rapidly; and on the other hand, without the development of transportation and communication, concentration of industry would have been impossible. The development of transportation and communication furnished the fundamental basis for concentration of industry, because through them it became possible at a moderate cost to transport goods long distances in a short time and easy to communicate with the customer who desired goods. As soon as the freight rates became sufficiently low so that the advan- tages of concentration were greater than the cost of freight and doing business at a distance, the small concerns began to suffer in competition with the large manufactory. The treatment of the subject of concentration and control will be divided into five chapters: I, The General Facts regarding Concentration; II, Some Important Illustra- tions of Concentration ; III, The Laws Regarding Coopera- tion; IV, The Situation in Other Countries; and V, Remedies. CHAPTER I THE GENERAL FACTS REGARDING CONCEN- TRATION The general facts regarding concentration of industry will be considered under the sections; 1, The economic advantages of concentration ; 2, The causes of concentration ; 3, The pur- poses of concentration ; 4, The kinds of business most likely to become concentrated; 5, The extent of concentration; 6, The forms of organization ; 7, The kinds of competition ; 8, The break-down of competition ; 9, The wastes of com- petition. Section 1 THE ECONOMIC ADVANTAGES OF CONCENTRATION What are the economic advantages of manufacturing in a large plant and doing business on a large scale, and how im- portant are they? Different industries differ among them- selves very greatly in these respects, and any general state- ment will need modification when applied to a particular case. What is said will be more applicable to those groups of indus- tries which are better adapted for concentration. (1) The Handling of Material. — The handling of material on a large scale in itseK gives great economy. In any manu- factory the material must be there assembled. For instance, if it be an iron manufactory, and we have a primitive bloom- ery depending upon an adjacent bank of ore, it will not pay to go to any great expense in providing for transportation of the ore to the bloomery; and the ore will be hauled in a cart. When the bloomery changes to the blast furnace, the quantity of ore needed will be so great that the ore is brought with trams or some kind of mechanical haulage. The same is 8 FACTS REGARDING CONCENTRATION 9 true of the coal. Thus the economies due to mere magnitude of operation in this industry become very great. Also in the manufacturing process itself the large furnace has an advan- tage in economy of fuel and efficiency over the small furnace. (2) The Use of Machinery and Departments. — In the large manufactory it is possible to use machinery to an extent not possible in the small establishment. The introduction of labor-saving machines is well known to be one of the greatest causes of economic efficiency. The illustration of the cotton gin is classic. Where there are many processes in the manu- facture of an article, if the concern be a large one, it is possible to have a separate machine or a number of them for each process. Similarly for different departments. In making agri- cultural implements, if the plant be a large one, the iron and wood departments will be separate. These again will be specialized for different lines of work. The parts of iron and wood will be assembled in another department; and finally the painting and varnishing will be done in still another. (3) Svbdivision of Labor. — In most manufactories an article must go through many processes before it is completed. In the old primitive shop, the shoemaker at the bench did all of the different stages of work in making the entire shoe. In the large manufactory the part that any one man does has been steadily lessened until now in the making of a single shoe many persons participate. In the making of a wagon or a binder in a large manufactory scores of people take part. In the wagon shop which served the country community one man, or one man with his helper, made the wagon in all its parts except that the iron in bars or rods was furnished to him. Specialization of labor is only possible in the large manufactory, and it is generally agreed that such specializa- tion gives increased efficiency. (4) Integration. — A further step in the development of concentration of industry is its integration; that is, a cor- poration handles not one stage of manufacture only, but a number or even all of the stages from the raw material to the 10 CONCENTRATION AND CONTROL finished product. This again gives increased economy and efficiency, because all the different units of the integrated in- dustry are in harmony, one with reference to the other. Thus the United States Steel Corporation mines its raw materials, assembles them, smelts the ore into pig iron, changes the iron to steel, and the steel into structural forms, — • plate, wire, or nail. Other illustrations of in- tegrated industries are oil, sugar, etc., described pp. 104-150. While there is great economic advantage in integration for almost every industry, that of iron and steel furnishes one of the best illustrations. When the blast furnace was inde- pendent of the converter, the molten pig iron was allowed to cool, and was melted for the Bessemer converter. The steel from the converter was again allowed to cool in the ingot and was reheated before rolling into the rail. At the present time the molten pig iron goes to the converter, is transformed into steel, and then after solidification but before cooling goes to the rolls where it is wrought into rails. Similar methods are introduced for other products. The saving of energy by in- tegration is great, as is also the saving in labor. Independent blast furnaces, Bessemer converters, and rolling mills cannot possibly give the economic efficiency of integrated establish- ments combining the three. (5) Parallel Consolidation and Specialization. — The con- centration of management goes not only to the point of the manufacture on a large scale, integration, and saving of by- products, but extends to the point of ownership of manufac- tories of the same general kinds at various points. Under these conditions it is possible to make the same product at the different plants, or to specialize the different manufacto- ries under the same organization so that one shall handle one line of work, and another another. Further, the work of any one branch may become standardized and require com- paratively little shifting or changing of machines. Thus the shapes, forms, and sizes of the manufactured iron which comes from a given plant may remain the same month after month, or even year after year ; and this very greatly pro- motes efficiency. If the industry be tobacco, one manufac- FACTS REGARDING CONCENTRATION 11 tory may produce cigarettes, and another cigars. A proof of the superior efficiency of completely equipped concerns is fully admitted in the case of tobacco, as is shown by the objections filed by Messrs. Brandeis and Levy against the plan of disintegration of the American Tobacco Company (see pp. 183-187). As counsels for the independent com- panies they say that no independent tobacco company is now completely equipped to do tobacco business covering all the main branches of the tobacco trade, and that any plan to restore competition will be ineffective which does not compel each of the elements of the disintegrated tobacco company to confine itself to one line of business. They state: "It follows that any corporation taking over a part of the plug tobacco business or smoking tobacco business of the trust shall not take over any of the cigarette or cigar business; that a corporation taking over a part of its cig- arette business shall not take over any of its smoking to- bacco business, plug tobacco business, or cigar business; and that a corporation taking over any part of the cigar business shall not take over any of its smoking tobacco business, plug tobacco business, or cigarette business." ^ There can scarcely be stronger evidence of the economic efficiency of parallel consolidation and specialization under a single corporation than the above remonstrance of Messrs. Brandeis and Levy upon behalf of the independent tobacco companies. The consolidation in management of plants making the same class of products at different points is especially eco- nomical for those articles in which transportation is an im- portant factor. Cross freights are avoided to a large extent when the manufactories of one district supply the markets of that district. For articles which are heavy as compared with their cost, for instance salt and steel rails, this factor may be one of controlling importance. (6) Saving By-products. — A further advantage of magni- tude is the use of by-products. The small manufactory ' Hearings before the Committee on Interstate Commerce United States Senate, Part VII, p. 319. 12 CONCENTRATION AND CONTROL cannot spend much money in such utilization, although the coarser of them may be saved. In the production of meat, the by-products, — hides, fat, bone, etc. are a very important part of the income. These materials are much more largely util- ized in the large abattoir than in the small slaughter-house. For the great oil refiners, if kerosene be regarded as the chief, as it was the original product, then lubricating oil and gaso- line are by-products. Also in addition to these scores of other by-products are saved. In fact for all chemical and metallurgical industries by-products are the source of a large part of the profits. But to save these materials economically requires large scale manufacture. (7) Consolidation of Allied Industries. — The final stage in consolidation is the union of allied and connected industries. This frequently goes beyond integration, in that the lines of manufacture are absorbed which use as raw material the by-products of the central organization. Thus the United States Steel Corporation has begun the manufacture of cement, using slag, a by-product of the blast furnace, for that purpose ; but the manufacture of cement is itself a great industry which requires a large and expensive plant, and slag is therefore a by-product which it is not possible to save ex- cept in plants of great magnitude. The big beef firms have entered lines of business related to their own. Those having refrigerator cars have begun the transportation of fruit. They are largely interested in the stockyards. In order to use the by-products the packing house companies have formed fertilizer companies, soap companies, glue companies, curled hair companies, and felt companies ; all of which industries are large users of materials furnished by the packing industry. (8) Keeping Establishments Up to Date. — The large com- pany uses only the most modern manufactories which have complete and highly efficient machinery and practices, in- cluding the latest labor-saving devices and the best technical improvements. The weak company will frequently con- tinue to use an inadequate plant because it has not and cannot get sufficient capital to put its plant into an up-to-date FACTS REGARDING CONCENTRATION 13 condition. The American Sugar Refining Company after organization built one large new plant fully equipped with the most modern machinery, simply as a safeguard in case of in- creased demand or stoppage of other factories. Shortly after it abandoned altogether a number of refineries acquired at the time of consolidation, because of their inefficient equip- ment or disadvantageous location, or both. (9) Investigating Departments. — Not only is the large organization able to use the most modern methods, but it is able to have an investigating department in order that dis- coveries may be made for still further improvements. The economies which have come from such a department are strongly emphasized by many men connected with great organizations. The Cotton Oil Company has an experiment station. The Standard Oil Company carries on chemical investigations of the most elaborate and extensive kind in order to utilize fully the by-products of the oil ; as a result of which they have on the market some three hundred by- products, many of which come from the part of the oil which otherwise would have been thrown away.' The United States Steel Corporation, the General Electric Company, and indeed practically all great organizations have inves- tigating departments in which large sums of money are spent. Mr. Louis Brandeis,^ who is strongly opposed to the existence of large concentrations, recognizes the economic advantage of investigative departments to be so great as to threaten the practicability of retaining relatively small industrial units under the competitive system ; this is shown by the fact that he urges that all investigations which are necessary for the advancement of applied science should be carried on by the government. Apparently, he does not realize the enormous expense that this proposal, if taken seriously, would entail. Says Mr. Brandeis, " Whenever in- dustry requires for its advance investigations of the character which are so expensive that only a huge concern can assume 1 Ernst von Halle, "Trusts or Industrial Combinations in the United States," pp. 66-67. ^ Hearings before the United States Senate Committee on Interstate Com- merce, Part XVI, p. 1169. 14 CONCENTRATION AND CONTROL the burden, then it is the government's function to secure the information for all the people." In favor of this position he cites the investigations by the government for the farmer. This illustration seems scarcely apphcable, since the most distinctive feature of the farmer's business is the vast number of those following it and the av- erage smallness of a single holding of land. Because of this the individual farmer is wholly incapable of carrying on the necessary investigations. Hence the government, national and state, has undertaken the function. The proposal of Mr. Brandeis, if carried to its logical conclusion, would blot out, or at least profoundly modify, our patent system, under which discoverers are protected to the extent of monopolistic use for a hmited period. No stronger testimony than the proposal of Mr. Brandeis could be given as to the economic advantage of concentration of industry gained through investigating departments. (10) Business Advantages of Concentration. — Thus far the industrial advantages of concentration only have been given. Upon the business side there are also great economies. Some of the more" important of these are as follows : ■ — (a) Big organizations are able to buy in large quantities and thus gain the advantages of the lowest rates of purchase. (b) Big organizations are able to sell in large quantities and most advantageously. A large part of the cost of busi- ness under new conditions is the marketing of products. In the marketing there are great costs in commercial travel- ers, in advertisements, etc. (see p. 89). With the large concentration the advertising cost per unit of sale is much lower than with the small industry. Work is organized so that a traveling salesman or agent does the work in a given Marketing community for a large concern instead of several for the dif- pro uc a. fgrent plants of that concern. When the American Steel Hoop and Wire Company was formed, about two hundred salesmen were discharged. Similarly with the formation of the whisky combination three hundred salesmen were spared. With the organization of the International Harvester Company the expense of marketing was reduced by $500,000 a year. FACTS REGARDING CONCENTRATION 15 (c) When there is a single great federated estabhshment, orders can be received at a central office and from that office distributed to the different plants as best required by effi- ciency in manufacture, taking into account the expense of transportation. (d) Also the mere size of an establishment, so that it may be able to take a large order at almost any time and fill it promptly, gives a great advantage over smaller concerns. (e) For entering foreign trade the business economies of concentration are undoubtedly very great. Sending agents to foreign countries to build up a trade for an industry is an Foreign expensive undertaking. Especially is this the case when the *'"^'^® "^""^ 1-1 • r I- concentra- markets are already m the possession of foreign competitors, tion. In this respect the great corporations of the country, such as the United States Steel Corporation and Standard Oil Com- pany, have proved themselves to be economically superior to smaller organizations, more than 90 per cent of the export business in their respective lines being done by United States Steel and Standard Oil. Moreover, the foreign trade in iron and oil has been almost wholly built up since the organization of the steel combination and the Standard Oil Company. (/) The losses through poor debts are less with large organizations than with small ones. Frequently where there are many organizations having keen competition with a large number of travelling salesmen, sales are made without careful reference to the ability of the purchaser to pay. To illustrate, it is stated that after the American Steel and Wire Company was formed, the loss from bad debts for the constituent com- panies was reduced from one half of one per cent to one twentyfifth of one per cent.^ (g) One of the greatest advantages of concentration with cooperation of the independent units is the regulation of production. As we shall see in other connections, with the Regulation competitive system, underproduction alternates with over- ° o^tpu . building and overproduction. Where instead of fierce compe- tition there is cooperation (and this is only possible where there are large units), the great losses are avoided which re- 1 1'Trusts of To-day," G. H. Montague, p. 43. 16 CONCENTRATION AND CONTROL suit from investments of capital in manufactories which run only a portion of the time and before they shut down produce more goods than can be sold at a profit. (h) Another advantage of concentration is that a less amount of capital is necessary in order to handle a combined business than would be necessary if a great organization Efficiency of Were Subdivided. If a concern be fairly independent of the capital. banks and the necessity to pay excessive rates of interest, it must keep a considerable amount of ready cash on hand to handle its business. A very large concern, in which the variation in the demands for the different products compen- sate for one another to some extent at least, is able to handle its business with a relatively small cash reserve. This is one of the advantages which the United States Steel Corporation has had since its organization. By keeping from $50,000,000 to 175,000,000 in cash, a very large amount as a whole, but rather small as compared with its total business, the corpora- tion has always had sufficient money on hand to meet its needs without borrowing, and therefore has been independent of the banks at times of financial depression. (11) Opportunity for High Order of Ability. — It may be that a final advantage of concentration will be the opportu- nity for the display of abihty of the highest order. A farmer who can successfully run a dairy with twenty cows may fail with a hundred. A man who can handle a single manu- factory may be unable to see the broader comparative aspects of a dozen. The manager of each factory will be required as before ; but also there will be needed the man who, while giving large hberty to the individual manager, will see the work of the whole in its broader relations. Concentration of industry will demand the highest and best trained intellect along all lines. Says Macrosty " : " Rule of thumb is dead in the workshop, the day is with the engineer and the chemist with their methods of precision ; in the countinghouse and board room there is no longer a place for the huckster or gambler, the future is with the commercial statesman whether in a large individual business or a combination." " "The TniBt Movement in British Industry," H. W. Macrosty, p. 337. FACTS REGARDING CONCENTRATION 17 (12) Other Advantages of Concentration. — Other advan- tages of concentration are frequently claimed. Among these are: steady employment of labor, better wages, better protection against industrial accidents, the maintenance of superior quality, etc. These points are not here introduced as advantages of concentration, since in reference to them there is a marked difference of opinion. In some cases it appears that concentration of industry has led to the steadier employment of labor, improvement in wages, and lessening Wages and of industrial accidents. In other cases the great industrial ^p^iaicondi. corporations have been careless or openly regardless of the conditions of the laboring population, and instead of im- provement there has been no improvement or even retro- gression. Theoretically the advantages mentioned should be possible with concentration, and under proper control they should become available; but they cannot be claimed as general advantages of the great corporations as they now exist. (See pp. 104-154.) Total Advantages of Concentration. — It is not easy to give the economic advantages in terms of percentages for any industry which result from the large factory, the subdivision of labor, the full use of mechanical appliances, the specializa- tion of departments, integration, utilization of by-products, entrance into allied industries, distribution of plants of the same kind, using only the most efficient plants, maintenance of investigating departments, economies of business manage- ment, and reduction of amount of capital; but it is safe to say that the gain is very great for the large concentration as compared with the small plant. While percentages cannot be given, the economic advan- tages of concentration have been conclusively proved Evidence of for many consolidations. Thus under the competitive <=<=°"o°"es. system some businesses became greatly overbuilt, as, for instance, whisky distilling. At the time consolidation took place when the whisky trust was organized, it was found advantageous to concentrate the business in a few plants. It closed 68 of its 80 distilleries, doing the entire business of the country with the remaining 12, furnishing 18 CONCENTRATION AND CONTROL the same output, and in a short time even an increased output. Von Halle ' mentions as evidences of efficiency that the cotton oil trust shortly after its formation closed more than a dozen of the small old-fashioned plants. The sugar trust after formation was able to supply the whole market with one fourth of its refineries. According to the census of 1900, many of its plants were idle. Under one of the pool arrangements in steel the Carnegie Company paid to a Maryland company which did not operate at all $300,000, this sum being paid to close the mill ; but the form was gone through of having the orders come to this mill while the rails were supplied by the Carnegie Company. It was more economical to close the mill and pay $300,000 than to pro- duce the rails in the smaller mill.^ Without further development of the economic gain of concentration, it is evident that the advantages are so great as to enable the large organizations to pay the freights to markets that are not local and to pay the expenses of market- ing products at a distance. Thus transportation once developed, concentration became inevitable. As already indicated the two have acted and reacted ; for once a market secured at a distance, freight and passenger service improved so as further to encourage the development of concentration, which in turn further assisted transportation, and so on continuously. The small manufactory in the little town, except for specialities and patent-protected articles, has either disap- Smaiimanu- peared for the most part under the stress of competition, factories ^j. gjgg ^y combination has become a unit of a larger disappear- "^ r- i ing. organization. The larger proportion of the small manufac- tories of standard and widely used articles have been discontinued ; but an occasional concern has been saved by becoming a part of a combination. Those whose years number fifty have seen the gristmill on the small stream become intermittent in its running, then cease altogether, although here and there one favorably located still continues its small business. The many widely dispersed 1 Von Halle, Tmats, pp. 65-66. " Ibid, pp. 62-63. FACTS REGARDING CONCENTRATION 19 small furnaces for smelting iron ore have gone, and their place is taken by the relatively few great blast furnaces. No longer is the spinning wheel or the loom found in the house. The work has gone to the great factory located where labor is available and adjacent to some stream which furnishes adequate power, or where coal is sufficiently cheap so as to furnish energy at a reasonable rate. The shoemaker of the village has become the cobbler, the shoes are manufactured at great industrial centers, such as Boston and vicinity. The concentration of industry during the past fifty years has been one of the chief factors which has led to the phe- Growth of nomenal growth of the cities, the inevitable centers for conggntra- manufacture because of their transportational facilities and tion. the abundance of labor. Thus Chicago, at the head of Lake Michigan, having cheap water transportation to all lake ports, and the center of the greatest railroad system in the world, has become a colossus among the manufacturing cities of the nation. The same is true of New York, the gate of the continent, and the great group of cities which cluster about that harbor. Boston and Philadelphia are centers less in importance only to the two mentioned. While it seems clear that the above statement regarding the economic advantages of concentration cannot be gain- said, there may be a limit beyond which additional economic advantages may not occur from further increase in magnitude or from federation of great establishments. Also in some industries in this country the concentration and Magnitude federation may have gone beyond the stage of magnitude ^^^f^' which does give economic advantage. This point of view has been strongly presented by Mr. Louis D. Brandeis.^ Mr. Brandeis mentions a number of trusts which have been finan- cial failures. He states that since the United States Steel Cor- poration was organized our foreign trade in iron has increased but slightly in ten years, from 1,114,000 tons to 1,533,000 tons; whereas the German foreign tonnage has increased during that time from 838,000 to 4,868,000 ; and that of the 1 Hearings before the Interstate Commerce Committee, United States Senate, Part XVI, pp. 1146-1166. 20 CONCENTRATION AND CONTROL Magnitude and cost of production. United Kingdom from 2,213,000 to 4,419,000. On the other hand, he gives illustrations of manufactories in which the business is fairly competitive, as that of book paper, in which there has been a steady increase in efficiency and decline in price. Unfortunately the illustrations given do not prove the general case. Had the Standard Oil or American Tobacco companies been considered, instead of United States Steel, an immense expansion of foreign trade could have been shown. Further, the question of prices is not the one under dis- cussion at the present time ; the question concerns the cost of production. It will be held in another place that the prices charged by the great organizations have been too high and that they should be lowered. Furthermore, if we consider only the cost of production we have dealt with but one half of the problem. As has been seen, the economic advantages which come from concentration are largely those on the business side of the enterprise, buying, selling, finance, etc. Therefore, the problem for consideration is not the cost of production at the factory, but the cost at which a given article can be placed upon the market. Taking the entire problem into account, it is believed future quantitative investigations will show that concentra- tion must go far in order to give the maximum of efficiency, although it is not held that it should go to the extent that the element of monopoly enters. If the public be able to secure a price based upon investment instead of capitalization, or what the traffic will bear, it is believed the price in most cases will be sufficiently low to justify the existing concen- trations. While it seems to the author that the weight of argument is strongly in favor of the increased efficiency of very large concentrations of industry upon the average, the opinions of Mr. Brandeis have been brought forward to show that this view is not universally accepted. The position which one holds at the present time for most industries must depend upon qualitative statements, since there have been few in- vestigations of the cost accounting in the same industry for different magnitudes, and under similar conditions. FACTS REGARDING CONCENTRATION 21 Section 2 CAUSES OF CONCENTRATION Thus far only the inevitable and legitimate causes which have led to concentration have been considered. There are in addition very important promoting causes of concen- tration about the legitimacy of which there will be difference of opiaion. (1) The Limited Liability Corporation. — The first of these is the rise of the modern limited liability corporation. Before the Civil War an occasional manufactory had a capital of a million or even two million dollars. These concerns were usually partnerships rather than joint stock companies. The general corporation act of New York was passed in 1848. Similar acts were later passed in other states. These laws were taken little advantage of until after the Civil War. The limited liability company gives immensely greater opportunities in the way of magnitude than the partnership. The owner of stock in such a company is not responsible for the debts of the company beyond his investment in the stock. A partnership at best is limited to a few ; the owners of a corporation may be thousands or even many thousands ; thus even relatively small individual holdings may make possible a large capitalization. A corporation which would have been regarded as large before the Civil War may have the majority of the stock in holdings of $10,000 or less. In fact it is not too much to say that without the device of the modern limited liability corporation, it would not have been possible to unite the enormous capital necessary for the great industrial combination under the control of a small group of men, the officers and directors of a corporation. (2) The Protective Tariff. — The second of the promoting factors is the tariff. It has been the policy of the United States to develop its industries and place a tariff upon for- eign goods sufficient to protect the American manufacturer. The theory upon which such tariff has been based has varied from time to time. First, it was to protect the infant in- dustry. The Republican party, still defending a protective 22 CONCENTRATION AND CONTROL tariff, has now come to the principle that the tariff should be sufficient to compensate for the difference of labor cost at home and abroad. The Democratic party stands by the position that the tariff should be for revenue only. It will scarcely be held by any one familiar with the situation that either party, when responsible for change, has framed the tariff in accordance with the theory held. Whatever views one has regarding the tariff, it will be conceded by all competent persons that the tariff on many articles has been more than sufficient to pay the differences of cost of labor at home and abroad; that it has been greater than necessary to give the maximum revenue; and thus has afforded a margin beyond either of these principles to pro- tect the home manufacturer. This has made possible a development of concentration in industry which might not otherwise have occurred. Not only so, but the high tariff, often prohibitive, has enabled the manufacturer to sell com- modities at home as high as the tariff permitted and the markets would bear, and to dispose of his surplus in the foreign markets at a lower rate. This practice has been so common that no detailed evidence regarding it is needed, but one or two illustrations may be mentioned. The Steel Corporation sells its products abroad to meet the world's markets at a lower rate than the same articles are sold for at home where the freight is lower. Steel rails from the great steel companies of the United States cost the railway com- panies of Canada less than do the same kind of rails the companies of the United States.' As shown on another page, a similar situation obtained for Standard Oil, that article having been sold in the markets of various parts of the world at a much lower rate than in America, when transportation charges are taken into consideration. (See p. 108). The same situation has obtained to a large extent with respect to agricultural implements. (3) Railway Rebates and Drawbacks. — Another impor- tant cause for the development of concentration in the past 1 Hearings, House Committee of Investigation, Steel Corporation, No. 57 p. 5135. FACTS REGARDING CONCENTRATION 23 has been secret arrangements between the railroad com- panies and manufacturing corporations under which rebates were given. The pubhshed rates apphed to the small or weak manu- factory. Many large concerns in various lines of industry received rebates greater or less in quantity, and frequently so great as to make it possible for the large manufactory to sell at a profit ; whereas the weaker competitor, obliged to pay the pubhshed tariff, could sell only at a loss. This practice was common before the interstate commerce law was passed in 1887, and has only ceased within a few years. It has had powerful influence in the concentration of industry, since the rebates were usually larger the stronger the corpora- tion; and hence a strong impetus toward concentration. Perhaps the best illustration of the importance of this factor in producing concentration was the Standard Oil Company, but the influence on other companies has scarcely been less important. In one respect Standard Oil perhaps surpassed all others in profiting by unfair freight rates, in that it not only received rebates upon its own shipments, but drawbacks upon the shipments of its competitors. In other words, the rebates which should have gone to the competitor went to the Standard Oil. Under these con- ditions the destruction of the weak corporations was inevitable. (4) Local Underselling. — Another factor very influential in promoting concentration is that of local imderselling, the purpose being to drive out the weaker competitor. The great corporation having the advantage of a large business and wide markets may sell even at a loss in a given community, until the competitor is obliged to discontinue, the loss to the large company being recouped by large profits elsewhere. This practice has been engaged in by many corporations; but probably the chief one was Standard Oil, which or- ganization almost to the time of its dissolution followed this method of killing competition with great success. Not infrequently the Standard Oil Company used for the purpose a company which was supposed by the public 24 CONCENTRATION AND CONTROL to be independent, but which secretly belonged to the Standard Oil. (5) Patents. — Another factor favoring concentration is the control of patents. The patent itself gives monopoly. If to produce a given article a certain patent is necessary, all other competitors are driven out unless an equivalent result can be reached in some other way. A complicated manufac- turing business is likely to have many details which are cov- ered by patents, so that many great corporations have the partial protection of monopoly through scores of patents. Such organizations are illustrated by the Westinghouse and General Electric companies. In some specialized lines of machinery, the patents may be so important as to become absolutely necessary for the industry, and in that case control may be secured by refusing to deal with a party unless all the machinery or all the material is purchased from the concern controlling the patents. This has been the practice of the United Shoe Machinery Company. Not only so, but this corporation has gone to the point of so fully controlling the machinery necessary for the cheap manufacture of shoes that it refuses to sell ; it merely installs the machines in the factory at a rental. The Shoe Machinery Company has absorbed or driven out all its com- petitors. (6) Manufacturers' Rebates. — Another practice of the large corporations, very successfully pursued, to secure the mar- ket, is to give a rebate upon the list price of the article at the end of a given period, provided the buyer has purchaesd exclusively from the corporation. This practice was very extensively followed by the American Tobacco Company. Thus, if at the end of the year a buyer had purchased only from that company, he could get a rebate of 5 to 7 per cent upon his purchases, the rate depending upon the magnitude of his business. (7) General Statements. — It is now universally agreed that many of these practices are unfair and should be prohibited. That of rebates by the railroads for interstate transportation was forbidden by the interstate commerce law, and many FACTS REGARDING CONCENTRATION 25 states have passed similar laws to apply within the states. While these laws were undoubtedly violated by the railroads upon an extensive scale after their passage, at the present time it is agreed upon all sides that rebates by railroads are morally indefensible ; and it is believed that rebating has nearly ceased in consequence of investigations of com- missions, federal and national, with attendant prosecutions. The protection of the tariff still holds ; but at the present time the tariff is being investigated by a commission and will probably be readjusted soon. It is generally agreed that such readjustment is necessary. The advantages gained from patents are legal under existing law, and they can only be overcome by a thorough revision of the patent laws. The legality of giving rebates by manufacturers upon pur- chases made, provided they are exclusive, has been upheld by the courts in some cases ; but such rebates are now regarded as contrary to law. In many of the states there is no law which prevents underselling to drive out a competitor, but in some states statutes and decisions place a ban on this prac- tice (see pp. 170-202). Many people have now come to the point of view that corporations should be required to make their charges in different parts of the country correspond to factory charge plus transportation. It is fully understood that there would be great difficulty in carrying out this idea, since it is one of the fundamental conceptions of the competi- tive system that a man who owns a thing may sell or refuse to sell; and if he decides to sell, he is without restraint as to the price he may ask ; also it has been a universally accepted principle of trade that it is legitimate to sell a large quantity of goods at a lower rate than smaller quantities. Section 3 THE PURPOSES OF CONCENTRATION The purposes which have led to federation and concentra- tion, in addition to the economic advantages already consid- ered, are the elimination of competition, the regulation of 26 CONCENTRATION AND CONTROL output and division of business and territory, the main- tenance of prices, and the profits of readjustment. (1) Elimination of Competition. — The ehmination of competition is the most potent force which led to coop- eration and combination. When in a village there are two competitors and they are able to cooperate, competi- tion is partly eliminated; when they imite it is wholly eliminated. This principle extends in its operation from the country cross roads to the great industries. In another place it is shown that keen competition leads to lessening of profits and oftentimes to wiping out profits altogether, or even to loss. It is obvious that the situation may be met by the union of the competing concerns; thus competition itself frequently leads to combination. The elaborate in- vestigation of the Industrial Commission of 1900 led to the conclusion that "among the causes which have led to the formation of industrial combinations, . . . competition, so common, so vigorous, that nearly all competing establish- ments were destroyed, is to be given first place." ^ A study of the history of any one of the great combina- tions which exist in the United States will show that a main purpose in the establishment of the combination wae the elimination of competition. Therefore only a single illustration will be mentioned. An elaborate investigation of the United States Steel Corporation shows that the first and most important of the purposes, not only in the for- mation of the groups constituting the steel corporation, but later in the union of the groups, was the ehmination of competition. 2 (2) Regulation of Output and Division of Business and Territory. — Under the competitive system, to be more fully discussed later, at times of large demand and prosperity, man- ufactories are likely to become overbuilt. Then follows over- production in the attempt to reduce cost by a large output, and with this falling prices. When this situation is reached ■ Industrial Commission, Preliminary Report on the Trusts. 2 Hearings, Ho\ise of Representatives, Investigation United States Steel Corporation, 53, Part I, p. 3638. FACTS REGARDING CONCENTRATION 27 and a time of depression comes, the production of the fac- tories running full time would far outrun the demands. Manufactories in an industry which would, at fair price, give a profit if built for the normal demands of the country, when overbuilt, often become unprofitable or run at a loss, at least for many concerns, because of inability to dispose of their goods, or because of interest on capital and deprecia- tion when idle or not running full time, or partly both. The extent to which overbuilding may go is illustrated by the whisky industry, which before the trust was formed had distilleries with a capacity three or four times as great as the demands of the country. When after a time of pros- perity a time of depression came on, as in the panic of 1873, Overbuild- there was a strong desire on the part of the manufacturers to ™^ 1°*^ reduce the output of the different distilleries; but unless tion. they were imited, it was very difficult indeed to control them so as to make the output of each fairly proportional. This the manufacturers could not do through cooperation without breaking the law regarding restraint of trade. Thus greatly overbuilt, they were almost driven to combination to regulate output. A situation similar to that which led to the whisky combination led to combination in various industries. (3) Maintenance of Prices. — The competitive system inevitably leads to great irregularity in price. One of the chief purposes of all cooperation in industry is the main- tenance of prices. When the demand exceeds the supply, prices will be high and there will be little tendency to co- operate; but when the supply exceeds the demand, there will be falhng prices, and this leads to cooperation for their maintenance. The co5perations may take the form of agreements or pools, or may extend to consolidation. The extent of the control of prices will depend in large measure upon the proportion of the business which is included in the combination. (4) Profits of Promoters. — The fourth important purpose of union and concentration are the profits to promoters and capitalists in putting through the reorganizations. At each 28 CONCENTRATION AND CONTROL consolidation or reorganization, the capital obligations of the company are increased without the investment of additional money. The inflation takes the form of bonds or stocks, or partly both, of which the stock-holders get a large share, but great blocks often go to the promoters and underwriters. As we have seen on another page, the American Tobacco Company was first formed ; then there was another company formed, to which the American Tobacco Company was subordinate ; and then another reorganization made the American Tobacco Company the dominant one. Similarly, the development of the United States Steel Corporation went through several stages, the two chief ones being the consolidation of the elements of the great subsidiary com- panies into units, and later the union of these units. Usually at each consolidation the bonds and the pre- ferred stock of the new company represent the actual value of the constituent companies; and this frequently upon a very liberal estimate, sometimes much above the market value of the outstanding bonds and stocks. The Common common stock issued at such time is usually the capitaliza- stockpure ^j^j^ q£ ^j^g good will, the patents, and the economies which are believed will be effected. Since there is no way to cal- culate accurately in advance the amount of resulting econ- omies, the issue of common stock depends largely upon the constructive imagination of the promoters. It is the aim to capitalize the consolidation sufficiently so that the bond and stocks floated will fully utilize the earning power of the combination. The common stock is speculative, and the profits of the reorganization frequently depend upon the success of the stock promoters, financiers, and manipulators in getting the public to take the common stock, which usually is at the time aqua pur a; or if not that, it has no more sub- stantial backing than the capitalized somewhat hazy good will, including the trade marks and patents, and economies to be effected. As we have seen, the majority of the great concentrations of industry have gone through two or three stages of such reorganization, the promoters and financiers each time profiting greatly, and sometimes enormously. FACTS REGARDING CONCENTRATION 29 An illustration is furnished by the American Tobacco Company, which between 1890 and 1904 at its various re- organizations capitalized the good will of the company in stock to the extent of more than $110,000,000/ which. Tobacco, however, between 1904 and 1908 was reduced by $18,000,000. Another illustration of great overcapitalization was that of the United States Shipbuilding Company. According to James Smith, Jr.,^ who was appointed receiver for this Shipbuiid- company when it was imable to meet its obligations, the ^any?™" real value of the properties which were taken over was about $12,440,000; whereas it was capitahzed at $67,997,000, or more than five times as much. The directors of the company, according to him, appeared to have made a gift of $55,000,000 worth of stocks and bonds to various members interested in the manipulations. Probably the largest amount of water that went on to the market at one time was placed by the United States Steel Corporation; more than $500,000,000 of common stock when issued represented no substance whatever ; but this is not the present situation (see pp. 115-117). The speculative character of this stock is indicated by its wide market Steel, variations. This stock was placed on the market at about 45 ; went below 30 in 1902 ; in 1903 it ranged from 39 to 10 ; since that time, in 1909, it reached 94|, and March 30, 1912 had a market value of 68. Many other instances could be given of the very wide ranges of the common stock of the great corporations, varying from those like the writing paper The trusts trust, the upper leather trust, and the union paper bag trust, ^^^ faUed. the common stock of which has ranged from 50 cents a share up to $4 or $5 a share, to those in which the common stock has in large measure been made substance. As illustrations of common stock which have gone far above par may be mentioned American Tobacco and Standard Oil. American Tobacco has been above 525 and Standard Oil has reached 900. Even the preferred stock of the better industrials had very ' Report of Commissioner of Corporations, "Tobacco Industry," Part 2, p. 13. 2 "Trusts, Pools, and Corporations," Ripley, pp. 197-198. 30 CONCENTRATION AND CONTROL wide ranges in their market values in their earlier years; but there has been a tendency toward solidity and uniformity in the prices of the better class of American preferred indus- trials, a considerable number of which are now above par. This is shown by the following table : — Table 2. Range of Preferred Stock fob Some Important Indus- TRIALS FOR 1900 AND 1910 1900 1 19102 Highest Lowest Highest Lowest American Car and Foundry . . . 72 571 120 109 American Cotton Oil ... . 100 731 107 100 American Smelting and Refining . 99 85 1121 98i American Sugar Refining . . . 1181 106 124 110 American Tobacco . . 143 128 991 901 General Electric .... 200 120 1601 134 Laclede Gas 1021 95 116 J 93f National Lead 1071 83 110 lOlf Pressed Steel Car . . . 89 70i 1071 90 Pullman 204 176 200 153f Republic Iron and Steel .... 70| 49 104i 82f Union Bag and Paper .... 77J 561 73 521 United States Rubber .... 105i 741 1161 99 United States Steel (1901) . . lOlf 69 125| 110 J Many consolidations organized in the United States have put a variable amount of watered stock upon the market from a small sum to the $500,000,000 of the United States Steel Corporation. The most serious of the evils of overcapitalization are as follows : — (a) That portion of the stock which is pure water or is largely diluted, through stock manipulating campaigns, is sold to the public, oftentimes for several times its real value. (b) When watered stock is placed upon the market, the ' Bradstreet's, January 5, 1901, p. 8. ^IbM., December 31, 1910, p. 251. FACTS REGARDING CONCENTRATION 31 officers of a company try to make earnings sufficient to pay dividends upon it; and in order to do this, if practicable, excessive prices are charged. (c) Sometimes the officers of a company, which has a large amount of watered stock, put earnings back into the business with the purpose of making the water substance; to do this further adds to excessive prices. (d) Oftentimes the necessity of paying dividends upon watered stock makes it difficult to accumulate a sufficient re- serve to protect the business ; and when a time of depression comes, the concern is likely to fall into the hands of a receiver. Closely coimected with overcapitalization are the profits which come to the financiers in connection with the manip- ulation of the stock on the market, especially the common stock. In this country there is no law which prohibits offi- cers and directors from dealing in the stocks of their own companies. Having inside information, they are able to take advantage of the situation, buying when there is likelihood of a rise, selling when there is likelihood of a fall. Indeed, it is certain that the officers of some companies, by giving stock favorable and imfavorable information, by timing the news manipiiia- to their purposes, and in other ways, have both bulled and beared their stock, having as their aim their own personal advantage rather than the benefit of the stockholders. Such practices are unlawful in European countries and should be prohibited in America. It is but just to say that for the majority of the greater corporations there is no evidence that this grosser form of manipulation has been practiced on a large scale. In general the officers and trustees of a company have tried to increase the value of its stock, since in most cases they are holders of the securities of the com- pany. Section 4 THE KINDS OF BUSINESS MOST LIKELY TO BECOME CONCENTRATED Certain classes of business are especially adapted to con- centration. These classes are as follows ; — 32 CONCENTRATION AND CONTROL The West Shore road. Public utilities and monopoly. (1) Industries in which the element of natural monopoly enters are likely to become concentrated. Here are included the public utilities. For a long time it was supposed that the railroads were on the same basis as any other business, and that the desirable thing to do was to have as many companies as possible. Parallel lines were regarded as ad- vantageous because they would compete for trade and in price. The disastrous costliness of this theory was clearly brought out by the paralleling of the Vanderbilt lines between New York and Chicago by the West Shore and the Nickel Plate. As the railroad business developed it became evident that if great sums of money were put into unneces- sary railroads the public must bear the expense; that if there were two railroads between two given points when one could do the business, the rates must be higher rather than lower in the long run in order to pay interest upon the investment. This view was accepted only after ruinous com- petition had occurred upon a great scale with enormous eco- nomic loss. The principles of this part of the subject are so well known that they need not be elaborated. It is now accepted doctrine that railroads, electric lines, both city and urban, telegraph and telephone, and other means of transportation and communication, should only be developed sufficiently to do the required business. The business is best done when the number of railroad lines from one city to another are just sufficient to handle the traffic, when a single com- pany controls all of the city raihvays, when the telegraph business is done by two companies instead of by a score, when the telephone business of the country is substantially controlled by a single organization. Indeed, these facts are so well recognized abroad that in Europe the means of communication are always goverimient monopolies, and the means of transportation largely or exclusively so except in Great Britain. (2) Businesses depending upon a natural resource hmited in quantity and locahzed in its occurrence are hkely to become concentrated. This is well illustrated by anthracite coal, FACTS REGARDING CONCENTRATION 33 all of which for the United States is contained in one small Limited area in Pennsylvania of about five hundred square miles. ^^^^^^^ The entire anthracite business is now substantially controlled by a half dozen corporations. (3) Businesses in articles which can be standardized, and which in quality are sometimes controlled by inspection, are likely to become concentrated. Here are included sugar, oil, salt, whisky, and to a less extent those industries in which standard- there are standard forms and dimensions, as, for instance, >2:ed articles, steel, matches, etc. Salt is inspected and must reach a definite quality ; oil must meet the test of the pubhc inspector for safety ; sugar is easily tested by the polariscope. It is notable that the early group of trusts included salt, whisky, oil, and sugar. During recent years by large scale manufacture there have developed various lines in which articles of commerce in themselves very complex may be regarded as standardized. A manufacturer by producing a very large number of ma- chines of exactly the same kind is able to standardize the machinery and standardize methods of operation and thus reduce cost to a minimum; whereas this would not have been possible without such standardization. Common il- lustrations of this type of standardization are certain kinds of automobiles, cash registers, and typewriters. "^ (4) Articles which are demanded over a wide territory are likely to become concentrated in production. In this connection the development of transportation is of para- mount importance. If an article be used throughout the Widely country, a company producing it may be very large and have "^'^'^ ,._ many plants even if the object itself be small ; thus the ties. Diamond Match Company produces the greater part of the matches of the United States. The strength of a very large corporation producing an article of wide use may lie not in a single plant at one locality but in many plants of the same kind in different localities. Thus a single lumber company may have hundreds of yards in ' Hearing before the committee on Interstate Commerce, United States Senate, Part XXI, p. 1784. D 34 CONCENTRATION AND CONTROL Protection by patents. Large capital. as many cities ; a hardware company may have shops distrib- uted throughout a large part of the country ; and recently, we have seen the development of shops under one company in various cities for groceries, dry goods, and other commodities. (5) Businesses protected by patents are especially likely to become concentrated. A patent gives a monopoly by law, and thus the same principle applies to the making of patent- protected products that applies to a natural monopoly. Here also are to be included trade-marks, which, protected by law, have the same effect as patents, although their influence upon concentration is by no means so far-reaching. (6) Businesses which in themselves are of a kind to require a large amount of capital are likely to become concentrated. To build a sugar refinery costs several millions of dollars. To build a steel plant adapted to one line of product, as, for in- stance, steel rails, may involve the expenditure of many mil- lions of dollars. As will be seen in another place, there is likely to be greater fierceness of competition among relatively few and large companies than among many small ones. At the time of the formation of the sugar trust, in consequence of the killing-competition, consolidation became inevitable. At that time, in 1887, there were forty sugar refineries in the United States, and the combination only occurred after some eighteen had gone into bankruptcy.' Section 5 THE EXTENT OF CONCENTRATION The manufacturing census of 1905 enables us to trace the stages of concentration, so far as the establishments are con- cerned, for a number of decades. By establishment is meant a plant which is owned by a single individual, firm, or cor- poration, located in a single city, town, or coimty, and en- gaged in a single industry. Concentration in Management Greater than Concentration in Plants. — There are certainly hundreds of corporations in the > "The Trust Problem," Jenks, p. 19. FACTS REGARDING CONCENTRATION 35 United States to which the term " trust " has been popularly applied, because each represents a consolidation in manage- The number ment of establishments once independent. No list of organ- °^ t™sts. izations of this kind is available, but it has been estimated that there are five hundred or more such in the United States. Often a considerable number of establishments of different kinds and of the same kind located in different parts of the country are owned or controlled by a single corporation. The greater corporations control several scores of establishments, and some of them, illustrated by the United States Steel, more than two hundred. If a list of organizations were available controlling more than one establishment, and the number of establishments constituting each organization were known, it would be practicable to give a more accurate estimate of the extent to which concentration has gone than is now possible. Statistics Confined to Factory System. — The census reports are confined to those establishments which are included within the factory system. They do not include such plants as the small custom grist and saw mills, the small shop such as the blacksmith shop, or manufacture in the household. Considering all industries together, the census report of 1905 for the country as a whole includes 216,262 establish- Dominance ments. As showing the extent to which the large establish- °"^^yg|j. ments control industry, the 24,181 establishments which have ments. products exceeding $100,000 per annum, being only 11.2 per cent of the total number, have control of 81.5 per cent of the capital, employ 71.6 per cent of the wage earners, and pro- duce 79.3 per cent of the value of the products. In some lines of industry every establishment has a product exceeding $100,000 in value. Here are included rubber, glucose, loco- motives, smelting and refining of zinc. Localization of Industries. — In connection with concentra- tion there has grown up, as a corollary, a localization of many industries, the larger part of an industry for the country per- haps being located in a state, and sometimes even in a county. In other cases the localization is in a great section of the 36 CONCENTEATION AND CONTROL country in which the conditions are similar. The localiza- tion in connection with concentration is dependent upon a number of causes. Sometimes the resources upon which the iudustry is based are found only in one section of the country. Another frequent cause for localization is that when once an industry has become established in a certain district, there maybe found trained workmen for it. In con- sequence, when the existing corporation is enlarged, a plant is built in the same vicinity ; or when a new company enters the business, it builds its plant in the locality in which there are available workmen. Other factors favoring localization are nearness to markets, water power, and favorable climate. If an industry be an important one, it may have a number of centers, and in these few centers a large part of the busi- ness be located. In no case is any industry completely local- ized ; there will be chief centers in which we find the larger number of great plants, and in the other parts of the country the industry may exist in a more dispersed form. As illustrating the localization principle may be mentioned the following industries : — ^The chief center for the manufac- ture of agricultural implements is the upper Mississippi Valley, with New York and Pennsylvania. The iron and steel industry is very largely localized in the states of Penn- sylvania, Ohio, Illinois, and Alabama. The meat-packing industry is mainly in the four states of Illinois, Kansas, Nebraska, and Missouri; however, Massachusetts, Iowa, California, Minnesota, and New Jersey are important states. As an illustration of extreme localization, 77.2 per cent of the ammunition of the country is manufactured in Connecti- cut. This is connected by the Census Bureau with the fact that in the manufacture of side arms, rifles, shotguns, and revolvers, Connecticut has a prominent place. The manu- facture of rubber boots and shoes is done in New England to the extent of 90 per cent. Concentration in Representative Industries. — For a number of selected industries the facts as to the increase of concen- tration are tabulated for one or more decades. The numbers other than percentages are taken directly from the census FACTS REGARDING CONCENTRATION 37 reports; the latter have been calculated. For each prod- uct these tables give the number of plants, the value of the products, the capital per establishment, and the value of product per establishment, for a number of decades, in some cases as far back as 1850, in other cases only for one or two decades. Since the reports are from the census of 1905, the last numbers are for a half decade. Brief comments will be made regarding each of the fore- going tables. It will be seen for iron and steel (Table 3), not only that the number of establishments has not increased since 1870, but that it has decreased each decade ; and that the total number of establishments in 1905, 606, is 25 per cent less than in Table 3. Iron and Steel — CoMPAEATrvB Sttmmart with Percent- ages OF Increase 1870-1905, by Periods Tons Yeak ft A z Capital Value of Pbodtjcts Tons op Phoducts Capital PER Each ESTAB-, LISHMENT Value op PEOnuOTS PER Estab- lishment OF Prod- uct PER Estab- lish- ment 1870 . . . 808 121,772,074 207,208,696 3,263,585 150,708 256,446 4,039 1880 . . . 792 209,904,965 296,557,685 6,486,733 265,032 374,442 8,190 % of Increase -3.0 724 43.1 98.8 75.8 46.0 102.8 1890 . . . 719 414,044,844 478,687,519 16,264,478 575,862 665,768 22,621 % of Increase -9.2 97.3 614 150.7 117.3 77.8 176.2 1900 669 590,530,484 804,034,918 29,507,860 882,706 1,201,846 44,107 % of Increase -7.0 42.6 68.0 81.4 53.3 80.5 94.9 1905 606 948,689,840 905,854,152 34,844,933 1,565,495 1,494,809 57,499 % of Increase -9.4 60.7 12.7 18.1 77.3 24.4 30.3 % of Increase 1870-1905 . -26.0 679.0 337.1 967.7 938.8 482.8 1,323.6 1870. This is the situation, notwithstanding the fact that each decade the capital of the business has increased from 42 per cent to 97 per cent, and even for the five years between 1900 and 1905, 60 per cent. Similarly the value of the prod- ucts has increased each decade from 46 per cent to 80 per cent, but the proportional increase was not so great for the five years from 1900 to 1905. In the same way, if we go by tons of product, the increases for the three decades were 103 per cent, 176 per cent, and 95 per cent, an average per 38 CONCENTRATION AND CONTROL decade for the thirty years of more than 100 per cent ; that is to say, the output of each decade between 1890 and 1900 was more than for all previous decades. In 1905 the aver- age capital per plant was more than $1,500,000, and the value of the products annually $1,500,000. The capital per estab- lishment in 1905 was more than ten times as great as in 1870, the value of the product more than five times as much, and the output itself fourteen times as great. Thus the output has increased faster than the price. While the number of iron and steel establishments in 1905 was 606, seven great companies, now reduced to six, owning the great establishments, controlled more than 90 per cent of the output of the country. By inspection of the other tables statements might be made parallel to that which has been made regarding iron and steel, but this hardly seems necessary since a most cursory examination of them renders the facts apparent. Therefore only such general points will be added as are brought forth by the tables. Cohe (Table 4) is an industry which has very rapidly ex- panded and is one in which the number of plants has steadily increased. This is due partly to the great expansion of the Table 4. Coke — Compahative Stjmmabt ■with Percentages op In- CEEASE FROM 1880-1905 BY PbHIODB Yeab No. OF ESTABLISH- Capital Value of Capital PEB Es- Value of Products PER Ee- MENT MENT 1880. . . . 126 4,769,858 5,359,489 37,856 42,536 1890. . . . 218 17,462,729 16,498,345 80,104 75,680 % of Increase . 73.0 266.1 207.8 111.6 77.9 1900. . . . 241 36,502,679 35,585,445 151,463 147,657 % of Increase . 10.6 109.0 115.7 89.1 95.1 1905. . . . 278 90,712,877 51,728,647 326,305 186,074 % of Increase . 15.4 148.5 46.4 115.4 26.0 % of Increase, 1880-1905 120.7 1,801.9 865.2 761.9 337.5 FACTS REGARDING CONCENTRATION 39 iron and steel industry, in which coke is mainly used. Also, the manufacture of coke distributes itself naturally, either adjacent to the coal fields from which it is made, or to the iron furnaces which use the product. Shipbuilding (Table 5) shows from 1850 to 1905 a slight in- crease in number of plants, capital multiplied nearly twenty- Tablb 5. Shipbuilding — Comparative Summabt with Percbntaqes OF Inckbase fbom 1850-1905 by 3?eriod8. Yeab No. OF Establish- ments Capital Valtie op Products Capital PER Es- tablish- ment Value of Products per Es- tablish- ment 1850. . . . 1860 . . . % of Increase . 953 675 -29.2 5,373,139 5,952,665 10.8 16,937,525 13,424,037 -20.7 5,638 8,819 56.4 17,773 19,887 11.9 1870 . % of Increase . 964 42.8 11,463,076 92.6 21,483,967 60.0 11,891 34.8 22,286 12.1 1880 . . . % of Increase . 2,188 127.0 20,979,874 83.0 36,800,327 71.3 9,588 -19.4 16,819 -24.5 1890 . . . % of Increase . 1,006 -54.0 27,262,892 29.9 38,065,410 3.4 27,100 182.6 37,838 125.0 1900 . % of Increase . 1,107 10.0 77,341,001 183.7 74,532,277 95.8 69,865 157.8 67,328 77.9 1905. . . . % of Increase . 1,097 -0.9 121,623,700 57.3 82,769,239 11.1 110,869 58.7 75,451 12.1 % of Increase, 1850-1905 15.1 2,163.6 388.7 1,866.4 324.6 fold, and the value of product fourfold. Probably this striking discrepancy is related to stock manipulation des- cribed, pp. 28-31. Electrical machinery, apparatus, and supplies (Table 6) show a history only from 1880, because these industries have mainly arisen within the past three decades. As would be expected imder these circumstances, the increase of plants has been very great, as has also the capitalization per estab- lishment and the value of the output. While there are in this industry a large number of establishments, 784, two great companies, the General Electric and Westinghouse, pro- 40 CONCENTRATION AND CONTROL duce a large per cent of the value of the output of the country. This illustrates how much farther concentration of manage- Table 6. Electrical Machinery, Apparatus, and Supplies — C°Jt PAHATivE Summary with Percentages of Increase trom 1880-1905 BY Periods. Ybas No. OP Establish- ments Capitai, Value of Pkoducts Capital per Es- tablish- ment Value op Products PEE Es- tablish- ment 1880. . . . 1890. . . . % of Increase . 76 189 148.7 1,508,758 18,997,337 1,158.3 2,655,036 19,114,714 619.9 19,865 100,515 405.9 34,934 101,136 189.6 1900. . . . % of Increase . 581 207.4 83,659,924 340.4 92,434,435 383.6 143,993 43.3 169,095 57.3 1905. . . . % of Increase . 784 34.9 174,066,026 108.1 140,809,369 52.3 222,023 54.2 179,604 12.9 % of Increase, 1880-1905 . 931.7 11,429.4 5,203.5 1,017.7 414.1 ment has gone than increase in the magnitude of establish- ments. For petroleum (Table 7), in 1905 there were 98 refineries, but as is shown in another place one company, the Standard Tablb 7. Petroleum Refining — Comparative Summary with Per- centages OF Increase from 1880-1905 by Periods Yeab No. OP Establish- ments Capital Value of Peoducts Capital PEB Es- tablish- ment Value of Products PER Es- tablish- ment 1880. . . . 1890. . . . % of Increase . 86 94 9.3 27,325,746 77,416,296 183.3 43,705,218 85,001,198 94.5 317,741 823,577 159.2 508,200 904,268 77.9 1900. . . . % of Increase . 67 -28.7 95,327,892 23.1 123,929,384 46.8 1 422,804 72.7 1,849,692 104.5 1905. . . . % of Increase . 98 46.3 136,280,541 43.0 175,005,320 41.2 1 390 618 -2.3 1,785,769 -3.6 % of Increase, 1880-1905 . 13.9 398.7 300.6 337.6 261.3 FACTS REGARDING CONCENTRATION 41 Oil, controlled a sufficient number of these so as to produce more than 95 per cent of the oil of the country. Clay product establishments, (Table 8), from 1850 to 1905 became twice as numerous with a seventeenfold capitaliza- tion, and a sixfold value of product per establishment. The increase in number of clay product estabhshments is explained by the very wide distribution of clay and the weight of the articles manufactured. The manufactory is Table Clat Peodticts — Comparative Summary With Percentages OP Increase from 1850-1905 by Periods Yeah No. OF Establish- ments Capital Value of Products Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850. . . . 1860. . . . % of Increase . 2,121 2,240 5.6 5,217,231 9,707,952 86.1 8,189,359 13,987,828 70.8 2,459 4,333 76.2 3,861 6,244 61.7 1870. . . . % of Increase . 3,959 76.7 26,776,011 175.8 36,368,151 160.0 6,763 56.1 9,186 47.1 1880 . . . % of Increase . 6,383 61.2 35,039,939 30.9 41,810,920 15.0 5,489 -18.8 6,550 -28.7 1890. . . . % of Increase . 6,535 2.4 108,705,670 210.2 89,827,785 114.8 16,634 203.0 13,745 109.9 1900 . . % of Increase . 6,423 -1.7 148,038,323 36.2 95,533,862 6.4 23,048 38.5 14,873 8.2 1905. . . . % of Increase . 5,507 -14.3 230,882,977 56.0 135,352,854 41.7 41,925 81.9 24,578 66.2 % of Increase, 1850-1905 . 159.6 4,326.3 1,552.7 1,604.9 536.6 located near the clay bank so as not to entail heavy freights in reaching the market. Glass (Table 9), like clay products, is one of the industries in which there has been an increase in the number of plants and at the same time a great increase in the value of the capital and the output. Salt (Table 10) is one in which the normal process of concentration is well illustrated. We find a decrease in 42 CONCENTRATION AND CONTROL the number of plants in 1905 to less than one half those in 1850, and multiplication of capital per establishment twenty- twofold, and value of product tenfold. As is seen in another place, salt is derived from a natural resource limited in amount, confined to definite areas, and the product is standardized; therefore it is of a kind in which the Table 9. Glass — Comparative Sxjmmaht with Percentages of Increase prom 1850-1905 by Periods Yeae No. OF Establish- ments Capital Value of Products Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850 . . . 1860 . . % of Increase . 94 112 19.1 3,402,350 6,133,666 80.3 4,641,676 8,775,155 89.1 36,195 54,764 51.3 49,379 78,349 68.7 1870. . . . % of Increase . 201 79.5 14,111,642 130.1 19,235,862 119.2 70,207 28.2 95,700 22.1 1880 . . . % of Increase . 169 -15.9 18,804,599 33.3 21,154,571 10.0 111,269 68.6 125,174 30.8 1890. . . . % of Increase . 294 74.0 40,966,850 117.9 41,051,004 94.1 139,343 26.2 139,629 11.5 1900 . . % of Increase . 355 20.7 61,423,903 49.9 56,539,712 37.7 173,025 24.2 159,210 14.1 1905. . . . % of Increase . 399 12.4 89,389,151 45.5 79,607,998 40.8 224,032 29.6 199,518 26.3 % of Increase, 1850-1905 324.4 252.7 1,615.0 519.0 304.1 manufacture is especially favorable to concentration. Salt manufacture was the first industry in which the tendency toward consolidation in management appeared. At one time the entire output of the country was controlled by a single combination. (See pp. 101-103.) Manufactured ice (Table II) is one of the industries in which the movement has been contrary to the usual rule. The first decade, that from 1870 to 1880, was an experimental one. The permanent tendency of the manufacture is shown by the figures from 1880 to the present time. Using these, it will be seen that the number of plants has increased FACTS REGARDING CONCENTRATION 43 very greatly. This increase is due to the nature of the product. Ice is an article which is heavy in proportion to its cost ; not only so, it is one which must in the warm weather be transported in cold storage, which still further increases the transportation-cost. Hence where ice does not naturally form reasonably close at hand, it is cheaper to manufacture it than to transport natural ice to the locality. Similarly, it is cheaper to manufacture the ice at each important center Table 10. Salt COMPAEATIVE SUMMARY WITH PERCENTAGES OF IN- CREASE FROM 1850-1905 BY Periods Yeas No. OF Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850 . . . 1860 . . . % of Increase . 340 399 17.4 2,640,860 3,692,215 39.8 2,177,945 2,289,504 5.1 7,767 9,253 19.2 6,405 5,738 -10.4 1870 . . % of Increase . 282 -29.3 6,561,615 77.7 4,8^8,229 110.4 23,268 151.4 17,085 197.8 1880 . . % of Increase . 268 -5.0 8,225,740 25.4 4,829,566 0.2 30,693 31.9 18,020 5.5 1890 . . . % of Increase . 200 -25.4 13,437,749 63.4 5,484,618 13.6 67,188 118.9 27,423 52.2 1900 . . . % of Increase . 159 -20.5 27,123,364 101.8 7,966,897 45.3 170,587 153.8 50,106 82.7 1905 . . . % of Increase . 146 -8.2 25,586,282 -5.7 9,437,662 18.5 175,248 2.7 64,641 29.0 % of Increase, 1850-1905 -57.1 868.8 333.4 2,156.3 909.2 than to transport it from one to another. Hence we find 1320 plants in 1905 as compared with 35 in 1880. The capital per establishment has increased about 50 per cent from 1880 to 1905; but the value of the product per estabhshment has not radically changed since the earher date. For lumber and timber (Table 12), the number of estab- lishments from 1850 increased and then later decreased until the total number was not much greater in 1905 than in 1850. 44 CONCENTRATION AND CONTROL Table 11. — MANtrPAOixrEED Ice — Compahativh Summaht with CENTAGES OF INCREASE PROM 1870-1905 ET PERIODS Yeak No. OP Establish- ments Capitai. Value of Pboducts Capital [ FEB Es- tablish- ment Value of Pboducts PEE Es- tablish- ment 1870. . . . 4 434,000 258,250 108,500 64,562 1880. . . . 35 1,251,200 544,763 34,720 15,565 % of Increase . 776.0 188.3 110.9 68.0 -75.9 1890. . . . 222 9,846,468 4,900,983 44,354 22,077 % of Increase . 634.3 687.0 799.7 27.8 41.8 1900. . . . 787 38,204,054 13,874,513 48,544 17,629 % of Increase . 264.6 288.0 183.1 9.4 -20.2 1905. . . . 1,320 66,592,001 23,790,045 50,448 18,022 % of Increase . 67.7 74.3 71.6 3.9 2.2 % of Increase, 1870-1905 . 32,900.0 16,243.8 9,112.0 -63.6 -72.1 Table 12. — Lttmber and Timber Pkoducts — Comparative Summary WITH Percentages of Increase from 1850-1905 by Periods Yeab No. of Establish- ments Capital Value of Products Capital PEB Es- tablish- ment Value of Products PEB Es- tablish- ment 1850. . . . 18,769 41,444,364 60,413,187 2,208 3,218 1860. . . . 20,659 74,530,090 96,715,856 3,607 4,681 % of Increase . 10.1 79.8 60.1 63.3 46.4 1870. . . . 25,832 143,493,232 210,159,327 5,554 8,174 % of Increase . 25.0 92.6 117.3 53.9 74.6 1880. . . . 25,708 181,186,122 233,268,729 7,047 9,073 % of Increase . -0.6 26.3 11.1 26.9 11.0 1890. . . . 22,617 397,861,928 437,957,382 17,591 19,364 % of Increase . -12.0 119.6 87.8 149.6 113.4 1900. . . . 23,053 400,857,337 555,197,271 17,388 24,083 % of Increase . 1.9 0.8 26.8 -1.2 24.3 1905. . . 19,127 517,224,128 580,022,690 27,041 30,324 % of Increase . -17.0 29.0 4.6 66.6 26.9 % of Increase, 1850-1905 1.9 1,147.9 860.1 1,124.6 842.3 FACTS REGARDING CONCENTRATION 45 However, the capital per establishment for 1905 is more than twelve times, and the value of the product per estabhshment more than nme times, those of 1850. The explanation of the maintenance of a large number of establishments for lumber and timber is of course the weight of the material as com- pared with its value. In the manufacture a large part of the wood of the logs is removed, and therefore the product is usually handled near its source. Paper and wood pulp (Table 13) is an industry in which there has been an increase in the number of establishments, Table 13. — Paper and Wood Pulp — Comparative Summary with Percentages of Increase from 1850-1905 bt Periods Yeak No. OF Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value op Products PER Es- tablish- ment 1850. . . . 443 7,260,864 10,187,177 16,390 22,995 1860. . . . 555 14,052,683 21,216,802 25,320 38,228 % of Increase . 25.3 93.5 108.3 54.6 66.2 1870. . . . 677 34,556,014 48,849,285 51,808 73,237 % of Increase . 22.0 145.9 130.2 104.6 91.6 1880. . . . 742 48,139,652 57,366,860 64,878 77,313 % of Increase . 9.6 39.3 17.4 26.2 5.6 1890. . . . 649 89,829,548 78,937,184 138,412 121,628 % of Increase . -12.5 86.6 37.6 113.3 57.3 1900. . . . 763 167,507,713 127,326,162 219,538 166,875 % of Increase . 17.6 86.6 61.3 68.6 37.2 1905. . . . 761 277,444,471 188,715,189 364,578 247,983 % of Increase . -0.3 65.6 48.2 66.1 48.6 % of Increase, 1850-1905 . 71.8 3,721.1 1,752.4 2,124.4 978.5 but a much greater increase in the capital and the value of the output per establishment. The reasons for this situa- tion are the same as those for lumber, the raw material for paper and wood pulp being the forests. Printing and publishing (Table 14) is one of the industries in which there has been increase in number of plants, no 46 CONCENTRATION AND CONTROL great increase in capital, and no great increase in the value of the product per establishment. It gives the best illus- tration of any of the tables of the lack of tendency toward concentration. The explanation undoubtedly is that the great majority of printing and publication establishments publish newspapers. Every community of any size has a newspaper, and the large city has a considerable number, each one of which has its own plant. Local news can only be handled locally. The news of the day is demanded Table 14. Printing and Publishing — Compabativb Summary with Percentages op Increase from 1880-1905 bt Periods. Yeak No. OF Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1880. . . 1890. . . . % of Increase . 1900. . . . % of Increase . 1905. . . . % of Increase . % of Increase, 1880-1905 . . % of Increase, 1890-1905 . 16,566 22,311 34.7 26,422 18.4 59.5 195,387,445 292,516,642 49.7 385,008,604 31.6 97.1 179,988,415 275,452,515 53.0 347,054,430 26.0 496,061,357 42.9 175.6 80.1 11,794 13,110 11.1 14,571 11.1 23.6 16,627 15,555 -6.4 18,774 20.7 12.9 in the evening or the morning. Concentration of the print- ing industry is therefore impossible. In agricuUuralimplemenis (Table 15), concentration has gone very far, the number of plants being not half as great in 1905 as in 1850 ; but the value of the output of each establishment is more than thirty times as great as in 1850. Agricultural implements illustrate the class of product which is very widely used, can be standardized, and hence is favorable to concen- tration in manufacture. These factors are more important than the freight, although agricultural implements are heavy. FACTS REGARDING CONCENTRATION 47 Table 15. Agbictjltukal Implements — Compaeativb Summary with Percentages of Increase from 1850-1905 by Periods. Capital Value of No. OF Valub of PER Es- Products Yeak Establish- Capital Products tablish- PER Es- ments ment tablish- ment 1850. . . . 1,333 3,564,202 6,842,611 2,674 5,133 1860 .... 2,116 13,866,389 20,831,904 6,553 9,845 % of Increase . 58.7 289.0 204.4 146.1 91.8 1870. . . . 2,076 34,834,600 52,066,875 16,779 25,080 % of Increase . -1.9 151.2 149.9 156.0 154.7 1880 . . 1,943 62,109,668 68,640,486 31,966 35,327 % of Increase . -6.4 78.3 31.8 90.5 40.9 1890. . . . 910 145,313,997 81,271,651 159,685 89,309 % of Increase . -53.2 134.0 18.4 399.4 152.8 1900 . . . 715 157,707,951 101,207,428 220,571 141,549 % of Increase . -21.4 8.5 24.5 38.2 58.5 1905 . . . 648 196,740,700 112,007,344 303,612 172,851 % of Increase . -9.4 24.8 10.7 • 37.6 22,1 % of Increase, 1850-1905 . -51.4 5,419.9 1,536.9 11,254.2 3,267.6 Table 16. Butter, Cheese, and Condensed Milk — Comparative Summary with Percentages of Increase from 1880-1905 by Periods. Year No. OF Establish- ments Capital Value of Products Capital PER Es- tablish- ment Value of Products per Es- tablish- ment 1880 . . . 3,932 9,604,803 25,742,510 2,442 6,546 1890 . . . 4,552 16,016,573 60,635,705 3,518 13,320 % of Increase . 1900 . . 16.8 9,242 66.8 36,303,164 135.5 130,783,349 44.1 3,928 103.4 14,151 % of Increase . 1905. . . . 103.0 8,926 126.7 47,255,556 115.7 168,182,789 11.7 5,295 6.2 18,842 % of Increase . -3.4 30.2 28.6 34.8 33.2 % of Increase, 1880-1905 . 127.0 392.0 553.3 116.8 187.8 48 CONCENTRATION AND CONTROL Butter, cheese, and condensed milk (Table 16) represent an industry with an increase in number of establishments, and no rapid increase in the capital per establishment and the value of the output. The explanation is that the raw material, milk, is being produced over a steadily widening territory, and if transported, mustbe transported rapidly. This is expensive ; Table 17. Beet Sugar (1890 data not given) — Comparativb Stjm- MART WITH Percentages of Increase from 1880-1905 bt Periods Ybak No. OF Establish- ments Capital Value of Products Capital PEB Es- tablish- ment Value of Products PER Es- tablish- ment 1880. . . . 1900. . . . % of Increase . 4 30 650.0 365,000 20,141,719 5,418.3 282,572 7,323,857 2,491.8 91,250 671,390 635.7 70,643 244,128 246.6 1905 . . . % of Increase . 51 70.0 55,923,459 177.6 24,393,794 233.1 1,096,538 63.3 478,309 95.9 % of Increase, 1880-1905 1,175.0 15,221.6 8,532.7 1,101.7 677.1 -1 hence it is advantageous to have numerous establishments of fair size distributed throughout the producing area. Beet sugar (Table 17) is another industry which has a short history. In this case, there is a very great increase in the number of establishments, capital per establishment, and value of product per establishment. The former shows dispersion of the industry with the expansion of the beet- growing territory, and the latter increase in the magnitude of the establishments. Beets are heavy as compared with their cost ; they cannot be transported far, and wherever a district undertakes the growing of beets, a manufactory must be located near the source of supply. Starch (Table 18), one of the standardized articles, has had something of a decrease in the number of establishments from 1850 to 1905, but a multiplication of more than eleven- fold in capital, and of sevenfold in the value of the output per establishment. FACTS REGARDING CONCENTRATION 49 Tobacco (Table 19) is an industry in which there has been a great increase in the number of establishments. The number in 1905 was thirteen and one half times as great as in 1860. While there has been a steady and moderate Table 18. Starch — Comparative Summary with Peecentaqes of In- crease FROM 1850-1905 BY Periods Year No. OF Establish- 1850 . . . 1860 . . . % of Increase 1870 . . . % of Increase 1880 . . . % of Increase 1890 . . . % of Increase 1900. . . % of Increase 1905. . . % of Increase % of Increase 1850-1905 : 146 167 14.4 195 16.8 139 -28.7 80 -42.4 124 65.0 131 6.6 -10.3 Capital 692,676 2,051,710 196.2 2,741,675 33.6 5,328,256 94.3 4,929,155 -7.6 11,671,567 136.8 7,007,695 -40.0 911.8 Value op Pboduots 1,261,468 2,823,258 123.8 5,994,422 112.3 7,477,742 24.7 8,934,517 19.6 9,232,984 3.3 8,082,904 -12.6 640.8 Capital PER Es- tablish- ment 4,744 12,286 169.0 14,059 14.4 38,332 172.7 61,614 60.7 94,125 62.8 53,494 -43.2 1,027.6 Value op Products PER Es- tablish- ments 8,640 16,906 96.7 30,741 81.8 63,797 76.0 111,681 107.6 74,459 -33.4 61,701 -17.1 614.1 increase in the capital per establishment and an increase in the value of the product per establishment, these have not been large. Thus tobacco is a case in which, so far as number of establishments is concerned, the industry is much dispersed. But these statistics might lead to quite erroneous conclu- sions; for, as we have seen in another connection, this is one of the industries in which a few of the great manufac- tories are doing a large part of the business, and one in which a single concern reached a position of monopoly. The American Tobacco Company, before its dissolution, con- trolled more than 50 per cent of the business of the country, 50 CONCENTRATION AND CONTROL and controlled from 59 to over 90 per cent of all of the lines of tobacco business with the exception of cigars. This illustration shows how far the statistical tables of the census fail to give an idea of the extent of concentration of manage- ment which has taken place. In the slaughter and meat packing industry (Table 20), the number of establishments has greatly increased from 1850 to 1905, being five times as numerous ; and during the same time the capital per establishment has become thirteen- fold, and the value of the product per establishment fifteenfold. Table 19. Tobacco — Comparative Summary with Percentages of Increase from 1860-1905 by Periods Yeah No. OP Establish- ments Capital Value of Products Capital PER Es- tablish- ment Value op Products PER Es- tablish- ment 1860. . . . 1870. . . . % of Increase . 2,104 6,204 147.3 12,529,960 24,924,330 98.9 30,889,313 71,762,044 132.3 5,955 4,789 -19.6 14,681 13,789 -6.1 1880. . . . % of Increase . 7,622 46.5 38,905,950 66.1 116,772,631 62.7 5,104 6.6 15,320 11.1 1890 . . . % of Increase . 11,351 48.9 90,359,143 132.3 195,536,862 67.6 7,960 55.9 17,226 12.5 1900 . . . % of Increase . 14,959 31.8 111,517,318 23.4 263,713,173 34.9 7,454 -6.4 17,629 2.3 1905 . . . % of Increase . 16,828 12.6 323,983,501 190.5 331,117,681 25.6 19,252 158.2 19,676 11.6 % of Increase, 1860-1905 699.8 2,485.6 971.9 223.2 34.0 The explanation of the numerous plants is the fact that concentration has not gone to the point so that the small community does not have its own slaughterhouse. How- ever, as is shown in another place, more than 50 per cent of the business of the country is done at the great abattoirs of the large cities. So far as management is concerned these are under the control of six great concerns; and these six are charged with cooperating in business. The average FACTS REGARDING CONCENTRATION 51 capital per establishment is large, more than a quarter of a million ; the ratio between capital and output per establish- ment is 1 to 4, a much higher ratio than obtains for most industries. The leather business (Table 21) is one of great concentra- tion. The number of plants in 1905 is less than one sixth as many as in 1850, the capital per establishment more than sixtyseven times as great, and the value of the product thirtyseven times as great. Tanning is a complex, chemical Table 20. Slaughtering and Meat Packing — Comparative Summabt WITH Percentages of Increase from 1850-1905 by Periods Year No. OF Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value op Products PER Es- tablish- ment 1850. . . . 1860 . % of Increase . 185 259 40.0 3,482,500 10,158,362 191.7 11,981,642 29,441,776 145.7 18,824 39,221 108.3 64,765 113,675 75.5 1870. . . . % of Increase . 768 196.5 24,224,692 138.5 75,826,500 157.5 31,542 -19.6 97,430 -14.3 1880 . . % of Increase . 872 13.6 49,419,213 104.0 303,562,413 300.3 56,673 79.7 348,122 267.3 1890 . . . % of Increase . 1,118 28.2 116,887,504 136.5 561,611,668 85.0 104,550 84.4 502,336 44.3 1900. . . . % of Increase . 882 -21.1 188,800,181 61.5 783,779,191 39.6 214,059 104.7 888,627 76.9 1905. . . . % of Increase . 929 5.3 237,714,690 25.9 913,914,624 16.6 255,882 19.6 983,762 10.7 % of Increase, 1850-1905 402.1 6,725.9 7,627.6 1,259.3 1,419. process, requiring a large plant. The raw hides in large number come from the great packing houses and from importations. That portion derived from the dispersed slaughterhouses can readily reach the great tanneries, since hides are not heavy as compared with their value. Another factor localizing the tanneries is the necessity for tanbark. This largely locates the industry in the parts of the country where this material is not at a great distance. 52 CONCENTRATION AND CONTROL Table 21. Leather, Tanned, Curried, Finished — Comparative Sum- mary WITH Percentages of Increase from 1850-1905 by Periods Year No. oj- Establish- ments Capital Valdb of PEODUCTa Capital PER Es- tablish- ment Value op Phoducts PEK Es- tablish- ment 1850. . . . 1860. . . . % of Increase . 6,686 5,188 -22.4 22,774,795 39,025,620 71.4 43,457,898 75,698,747 74.2 3,406 7,522 120.8 6,499 14,591 124.5 1870. . . . % of Increase . 7,569 46.9 61,124,812 56.6 157,237,597 107.7 8,075 7.3 20,773 42.4 1880 . . % of Increase . 5,628 -25.6 73,383,911 20.1 200,264,944 27.4 13,039 61.5 35,583 71.3 1890. . . . % of Increase . 1,787 -68.2 98,088,698 33.7 172,136,092 -14.0 54,890 320.9 96,326 170.7 1900. . . . % of Increase . 1,306 -26.9 173,977,421 77.4 204,038,127 18.5 133,213 142.7 15,623 62.2 1905. . . . % of Increase . 1,049 -19.7 242,584,254 39.4 252,620,986 23.8 231,252 73.6 240,820 64.1 % of Increase, 1850-1905 . -84.4 966.1 481.3 6,689.5 3,605.6 The manufacture of boots and shoes (Table 22), a severely competitive industry, and a business which has been freely entered by competitors, shows a decrease in the number of Table 22. Boots and Shoes — Comparative Summary with Percent- ages OF Increase from 1880-1905 by Periods Year No. OF Establish- ments Capital Value op Peoducts Capital PEE Es- tablish- ment Value op Peoductb PEE Es- tablish- ment 1880. . . . 1890. . . . % of Increase . 1,959 2,082 6.3 42,994,028 95,282,311 121.6 166,050,354 220,649,358 32.9 21,947 45,764 108.5 84,763 105,979 26.0 1900 . . . % of Increase . 1,599 -23.2 99,819,233 4.8 258,969.580 17.4 62,426 36.4 161,957 52.8 1905. . . . % of Increase . 1,316 -17.7 122,526,093 22.7 320,107,458 23.6 93,105 49.1 243,243 50.2 % of Increase, 1880-1905 -32.8 184.9 92.8 324.2 188.1 FACTS REGARDING CONCENTRATION 53 establishments as compared with 1880 of seventeen, and as compared with 1890 of thirty-two. In this industry, as elsewhere, the capital per establishment and the value of the output per establishment have considerably increased, although not so largely as in some others. In 1905 the average capital per establishment was $93,105 and the value of the output per establishment $243,243, a ratio of one to two and a half. This ratio, hke that of the meat industry, is much higher than the average. Leather gloves and mittens (Table 23) illustrate an industry in which the number of manufactories has steadily increased Table 23. Leather Gloves and Mittens — Compabative Summary WITH Percentages of Increase from 1850-1905 by Periods Yeas No. OF Establish- ments Capital Value of PaODUCTS Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850 . . . 1860 . . . % of Increase . 110 126 14.5 181,200 594,825 228.3 708,184 1,176,795 66.2 1,647 4,720 186.6 6,438 9,339 45.1 1870 . . % of Increase . 221 75.4 2,340,550 293.6 3,998,521 239.8 10,590 124.3 18,092 93.7 1880. . . . % of Increase . 300 35.7 3,379,648 44.4 7,379,605 84.6 11,265 6.4 24,598 35.9 1890. . . . % of Increase . 324 8.0 5,977,820 76.9 10,103,821 36.9 18,450 63.8 31,184 26.8 1900. . . . % of Increase . 381 17.6 9,004,427 50.6 16,721,234 66.6 23,633 28.1 43,887 40.7 1905. . . . % of Increase . 339 -11.0 10,705,599 18.9 17,740,385 6.1 31,579 33.6 52,331 19.2 % of Increase, 1850-1905 208.2 5,808.2 2,406.0 1,817.4 712.8 until it was threefold as great in 1905 as in 1850; but the capital per establishment and value of the products per estabhshment increased at a much greater rate. In the respect of increase in number of establishments there is contrast between this industry and the manufacture of boots and shoes. 54 CONCENTRATION AND CONTROL Table 24. Cotton Goods — Comparative Summary -with Pekcentaqes OF Increase from 1850-1905 by Periods Yeab No. OF Establish- ments Capital Value of Prodttcts Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850. . . . 1850 . . . % of Increase . 1,094 1,091 -0.3 74,500,931 98,585,269 32.3 61,869,184 115,681,774 87.0 68,099 90,362 32.7 56,533 106,033 87.5 1870 . . . % of Increase . 956 -12.4 140,706,291 42.7 177,489,739 53.4 147,182 62.8 185,658 75.1 1880. . . . % of Increase . 756 -20.9 208,280,346 48.0 192,090,110 8.2 275,503 87.2 254,087 36.8 1890. . . . % of Increase . 905 19.7 354,020,843 70.0 267,981,724 39.5 391,183 42.0 296,112 16.6 1900. . . . % of Increase . 973 7.5 460,842,772 30.2 332,806,156 24.2 473,631 21.1 342,041 15.6 1905. . . . % of Increase . 1,077 10.7 605,100,164 31.3 442,451,218 32.9 561,838 18.6 410,818 20.1 % of Increase, 1850-1905 . -1.7 712.1 615.1 724.9 626.2 Table 25. Wool Manufactories — Comparative Summary with Percentages op Increase from 1860-1905 by Periods 1860 . . . 1870. . . . % of Increase . 1880 . . . % of Increase . 1890 . . % of Increase . 1900 . % of Increase . 1905 . . % of Increase . % of Increase, 1860-1905 No, OP Establish- ments 1,476 3,208 117.3 2,330 -27.4 1,693 -27.3 1,414 -16.5 1,213 -14.2 -17.8 Capital 38,814,422 121,451,059 212.9 143,512,278 18.2 245,886,743 71.3 310,179,749 26.1 370,861,691 19.6 856.4 Value of Products 73,454,000 199,257,262 171.3 238,085,686 19.5 270,527,511 13.6 296,990,484 9.8 380,934,003 28.3 418.6 Capital PER Es- tablish- ment 26,297 37,858 43.9 61,593 62.7 145,237 136.8 219,363 61.1 305,739 39.4 1,062.6 Value op Products PER Es- tablish- ment 49,765 62,112 24.8 102,183 64.5 159,792 56.4 210,035 31.6 314,043 49.6 531.0 FACTS REGARDING CONCENTRATION 55 The cotton and wool manufactories (Tables 24 and 25) afford cases in which the number of establishments has decreased (for cotton shghtly, and for wool considerably), and in which the concentration has been in the increase of the capital and the output per establishment. Hosiery and knit goods (Table 26) illustrate a product in which the number of establishments has increased very Table 26. Hosiebt and Knit Goods — Comparative Summary with Percentages of Inceease from 1860-1905 by Periods Yeab No. OP ESTABLISH- MENTa Capital Value of Products Capital PER Es- tablish- ment Value op PR0DUCT3 PER Es- tablish- ment 1860. . . . 197 4,035,510 7,280,606 20,485 36,957 1870. . . % of Increase . 248 25.9 10,931,260 170.9 18,411,564 152.9 44,078 115.1 74,240 100.9 1880. . . . % of Increase . 359 44.8 15,579,591 42.5 29,167,227 58.4 43,397 -1.6 81,246 9.4 1890 . . % of Increase . 796 121.7 50,607,738 224.8 67,241,013 130.5 63,578 46.5 84,473 4.0 1900. . . . % of Increase . 921 15.7 81,860,604 61.8 95,482,566 42.0 88,882 39.8 103,672 22.7 1905. . . . % of Increase . 1,079 17.2 106,663,531 30.3 136,558,139 43.0 98,854 11.2 126,559 22.1 % of Increase, 1860-1905 447.7 2,543.1 1,775.6 382.6 242.4 greatly, since in 1905 there were more than five times as many as in I860. The capital per estabhshment is nearly five- fold, and the value of product per estabhshment nearly three and one half fold. Thus we have here concentration so far as size of establishments is concerned, but not concen- tration of establishments. The reason for the contrast in tendency so far as number of establishments is concerned between hosiery and knit goods and cotton and woolen is not clearly apparent. All are industries in which invention and improvement of machinery during the past fifty years has been most marked; but it may be suggested that the 56 CONCENTRATION AND CONTROL size of the machines is not nearly so great in hosiery and knit goods as in cotton and woolen manufacture. In silk manufacture (Table 27), the number of estab- lishments from 1860 to 1905 has multiplied more than four- fold, the capital per establishment more than eightfold, and the output per establishment more than fourfold. This Table 27. Silk Manufactohibs — Comparative Summary with Per- centages OF Increase from 1860-1905 by Periods Yeak No. OF Establish- ments 1860. . . . 139 1870. . . . % of Increase . 86 -38.1 1880. . . . % of Increase . 382 344.2 1890 . . . % of Increase . 472 23.6 1900. . . . % of Increase . 483 2.3 1905. . . . % of Increase . 624 29.2 % of Increase, 1860-1905 348.9 Capital 2,926,980 6,231,130 112.9 19,125,300 206.9 51,007,537 166.7 81,082,201 69.0 109,556,621 35.1 3,643.0 Value of Products 6,607,771 12,210,662 84.8 41,033,045 236.0 87,298,454 112.8 107,256,258 22.9 133,288,072 24.3 1,917.1 Capital PER Es- tablish- ment 21,057 72,455 244.1 50,066 -30.9 108,066 116.8 167,872 66.3 175,571 4.6 733.8 Value of Products PER Es- tablish- ment 47,538 141,984 198.6 107,416 -24.3 184,954 72.2 222,062 20.1 213,603 -3.8 349.3 industry affords a contrast to the manufacture of hosiery and knit goods and wool manufactories in the great increase in the number of establishments. Combined textiles (Table 28) show very well the normal tendency for increase of concentration per establishment. The number of establishments from 1850 to 1905 increased fivefold, the capital per establishment nearly eightfold, and the value of the output per establishment over sixfold. For needles, pins, hooks, and eyes (Table 29), the number of establishments, while greater than in 1860, is less than in 1870. In 1905 as compared with 1860 the capital per establishment is sixfold and the value of the products more FACTS REGARDING CONCENTRATION 57 Table 28. Combined Textiles (Cotton Goods, Cotton Small Wares, Hosiery and Knit Goods, Wool Manufactures, Silk and Silk Goods, Flax, Hemp and Jute Products, Dyeing and Finishing Textiles) — Comparative Summary with Percentages of Increase from 1850-1905 BY Periods Yeab No. of Estab- lish- ments Capital Value of Products Capital PER Es- tablish- ment Value of Products PER Es- tablish- ment 1850 .... 3,025 112,513,947 128,769,971 37,195 42,568 1860 .... % of Increase . 3027 .1 150,080,852 33.3 214,740,614 66.8 49,581 33.3 70,942 66.7 1870. . . . % of Increase . 4,790 58.2 297,694,243 98.3 520,386,764 142.3 62,149 25.3 108,640 53.2 1880 .... % of Increase . 4,018 -16.1 412,721,496 38.7 532,673,488 2.3 102,718 65.3 132,572 22.0 1890 .... % of Increase . 4,276 6.4 767,705,310 86.0 759,262,283 42.6 179,538 74.8 177,564 33.9 1900 .... % of Increase . 4,312 0.8 1,042,997,577 35.8 931,494,566 22.7 241,883 34.7 216,024 21.7 1905 . . % of Increase . 4,563 5.8 1,343,324,605 28.8 1,215,036,792 30.4 294,395 21.7 266,280 23.3 % of Increase, 1850-1905 . 50.8 1094.0 843.6 691.5 525.6 Table 29. Needles, Pins, Hooks, and Eyes — Comparative Summary ■with Percentages of Increase from 1860-1905 by Periods Year No. OP Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value op Products PER Es- tablish- ment 1860. . . . 1870. . . . % of Increase . 25 48 92.0 453,200 801,050 76.8 725,086 1,225,436 69.0 18,128 16,689 -8.0 29,003 25,529 -12.0 1880 . . % of Increase . 45 -6.3 1,564,738 95.3 1,748,101 42.7 34,772 108.3 38,847 52.2 1890 . . % of Increase . 55 22.2 2,269,707 45.1 2,109,469 20.7 41,267 18.7 38,354 -1.3 1900. . . . % of Increase . 52 -5.6 4,617,552 103.4 3,237,982 53.5 88,799 115.1 62,269 62.3 1905 . . % of Increase . 46 -11.5 5,331,939 15.6 4,750,589 46.7 115,911 30.5 103,273 65.8 % of Increase, 1860-1905 84.0 1,076.5 555.1 639.4 256.1 58 CONCENTRATION AND CONTROL than threefold. The materials are light as compared with the value; they may be standardized; and thus they illustrate the natural tendency toward concentration. The table is introduced mainly for the purpose of shoAving that the tendency to concentration may be just as marked with small and relatively unimportant articles as with large and important ones. Pens and -pencils (Table 30) are industries in which the number of establishments has steadily increased, being Table 30. Pens and Pencils — Comparative Summary with Percent- ages OF Inckease prom 1860-1905 by Periods Year No. OF Establish- ments Capital Value op Products Capital PER Es- tablish- ment Value of Phoducts PER Es- tablish- ment I860. . . . 15 39,150 134,000 2,610 8,933 1870. . . . 32 704,400 827,380 22,012 25,855 % of Increase . 113.3 1,699.2 517.4 743.2 189.4 1880. . . . 23 894,247 976,488 38,880 42,456 % of Increase . -28.1 27.0 18.0 76.6 64.2 1890. . . . 41 4,116,247 3,025,664 100,396 73,796 % of Increase . 78.3 360.3 209.9 168.1 73.8 1900. . . . 55 3,671,741 4,222,148 66,768 76,766 % of Increase . 34.1 -10.8 39.6 -33.5 4.0 1905. . . . 62 7,101,366 7,673,777 114,538 123,770 % of Increase . 12.7 93.4 81.8 71.6 61.2 % of Increase, 1860-1905 313.3 18,038.8 5,626.7 4,288.4 1,285.5 sixtytwo in 1905 as compared with fifteen in 1860. The capital per establishment and the value of product per establishment have greatly increased, being respectively fortythree and thirteen times greater than in 1860. While like needles, pins, hooks, and eyes, so far as magnitude of establishments is concerned, the two are unlike in that for pens and pencils the number of establishments has increased. General statements. — The foregoing tables show that FACTS REGARDING CONCENTRATION 59 while concentration has not taken place for every industry, Concentra- in the great majority of the more important ones, it has been tio° general, steady and in some cases amazing, being marked by great decrease in the number of plants and relative increase in the magnitude of the plants and the value of the output. For certain industries, while the business done by the several plants has increased, the actual number of the plants has increased. However, in most cases the increase in nimiber of plants is much smaller than the increase in the value of the product, showing that even in the cases where there is increase in the number of plants, concentration has been taking place. The different industries differ greatly among themselves in the ratio between the capital per establishment and the value of the product per establishment. From this point of view for 1905 I shall classify them into three divisions : those in which the value of the product per establishment is less than the capital per establishment by 20 per cent or Variable more; those in which the value of the product per estab- !i^**'° ' jr i- between lishment does not differ more than 20 per cent from the capital value of the capital per establishment : and those in which ^"'^, , '^ ^ ' product. the value of the product per establishment is greater than the capital per establishment by 20 per cent or more. The industries in which the value of the product per estab- lishment is less than the value per establishment by 20 per cent or more are the following : coke ; ship building ; clay products; salt; manufactured ice; paper and wood pulp, agricultural implements ; beet sugar ; cotton goods ; and of these, in the cases of salt, ice, and beet sugar, the value of the output is less than half the capitalization. Those industries in which the value of the product per establishment does not vary more than 20 per cent from the capital per establishment are the following : iron and steel ; electrical machinery, apparatus, and supplies ; glass ; lumber and timber products; printing and publishing; tobacco; leather; wool manufactories; combined textiles; needles, pins, hooks, and eyes ; and pens and pencUs. Those industries in which the value of the product per es- 60 CONCENTRATION AND CONTROL tablishment is 20 per cent or more than the capitalized value per establishment are the following: petroleum; butter, cheese, and condensed milk ; starch ; slaughtering and meat packing ; boots and shoes ; leather gloves and mittens ; hosiery and knit goods ; silk manufacture ; and of these, in the case of butter, cheese, and condensed milk, and meat, the value of the output per establishment is more than three times as great as the capitalization, and for boots and shoes more than twice as great. If there were available detailed histories of each of these industries so that we might know to what extent the capitals of the different classes are inflated and to what extent they represent substance, the very great differences in ratios might be partly explained. Possibly for the slaughtering industry and boots and shoes, we have industries in which there is not over capitalization; whereas in some of the cases where the value of the output per establishment is not more than half as great as the capitalization there may be inflated capitali- zation.^ Section 6 FORMS OF ORGANIZATIONS The development of the laws concerning combinations in this and other countries will be considered in another place (see Chapter III) ; but it is to be said that the principle of statute law, prohibiting restraint of trade, has had a powerful influence in the forms which concentrations of industry have taken. Combinations during their history have passed from those of the loosest kind to those in which there is com- plete unity of management. The different kinds of associa- tions and combinations may be roughly classified as follows : (1) Informal or Formal Associations Jor the General Protec- tion or Advancement of a Business. — These are illustrated by the various business associations. Almost every industry has such an association, and some of them many. Thus ' The situation regarding concentration of industry in 1900 is fully given in the Reports of the United States Industrial Commission for 1901, Vol. I, p. 1325 ; Vol. XIII, p. 1013 ; Vol. XIX, pp. 595-724. FACTS REGARDING CONCENTRATION 61 there are associations of brewers, butchers, bankers, hard- ware men, lumbermen, cattlemen, fruit growers, wine makers, butter makers, and of practically every producing industry. Similarly there are associations of salesmen, wholesalers, and retailers in each of the various industries, whether they be hardware, drugs, dry goods, or groceries. These sales asso- Multitude ciations may be national, state, or local, or they may be na- °.^ associa- tional with state and local branches. The importance of the local associations depends upon the size of the town. The merchants' or manxifacturers' association in a great city may have large importance, and the retail grocers' association in a small town may be of little consequence. Not only are there associations of tradesmen and salesmen, but there are associations of people engaged in the same service, teachers, dentists, doctors, laborers, etc. The laborers' association may be for the entire country or for a definite industry, as, for instance, the American Federation of Labor, and the Brother- hood of Locomotive Engineers. The purpose of all of these associations is to advance the interests of the group concerned. This is done in the loosest form of association in the public convention at which views are compared, experiences exchanged, papers presented, the purposes of which are to benefit one another merely by the exchange of information, without any implication whatever that any one will feel impelled to abide by any view pre- sented. Thus the members of the retailers associations meet and exchange information to the common advantage. One of Exchange of the items concerning which information is exchanged is as to the manufacturers that sell to the so-called mail order house, the severest competitors of the retailers. The pur- pose of such information is clearly that the members may buy of wholesalers and jobbers that do not deal with the mail order houses ; but now the retailers feel that even such exchange of information with no implication that it will be used as indicated comes under the ban of the Sherman act.^ Another aim in this exchange of information is to secure » Heariug of Senate Interstate Commerce Committee, XIII, p. 937. information. pnces. 62 CONCENTRATION AND CONTROL common prices for standard articles. There need not be, indeed usually is not, a formal agreement in a community Common or association upon this matter. One way to secure a common price is by means of a printed list or catalog.' Even without any formal agreement among the dealers, they all understand that the price list is to be followed. Some- times these lists are prepared by the retailers, in others by the wholesalers or jobbers. In the latter case the catalog gives the retail prices and the retailer has a discount from the printed price. An excellent illustration of this plan of regulating prices is furnished by wire rope. The manu- facturers have a common catalog which they distribute to the retailers and the retailers all sell at the list price. The Southern Wholesalers' Association printed lists of prices for the information of its members imtil enjoined by the court. It might be supposed that a loose arrangement of this kind would not work; but as a matter of practice it is success- ful. A. F. Huston 2 well states the force which holds men to the understanding in the following words : " Let me say that it is a general broad principle that if a certain price is felt to be a fair and right price, each one for himself feels that he ought to maintain that price and not vary from it to the detriment of his fellows without he should let them know, but without any agreement, express or implied, to that effect." However, in some cases the understood prices are departed from. In such a case, if one decides to cut a price, the others may remonstrate ; but if he persist, ex- cept it be as a leading line for a short time, the others may meet the cut, and a new minimum be fixed. Similarly as a result of informal discussion of the conditions of the market, prices are put up or down in unison. The regular and uniform rise and fall of the price of anthra- cite during any year illustrate the situation. In early sum- mer the price is the lowest ; it is increased by regular incre- ments as the autumn comes on. The price is the same in a given commimity from each dealer for purchases at a given 1 Investigation U. S. Steel Corporation, 10, pp. 604-615. 2 Investigation U. S. Steel Corporation, 11, p. 693. FACTS REGARDING CONCENTRATION 63 time under similar circumstances. The result is almost as certain and as uniform as if it came about by formal agree- ment put into legal form. The stage of the association for exchange of information easily passes into the second phase in which regulations are adopted by the association to control the actions of its con- stituents ; as, for instance, methods to be pursued in adver- tising, quotations, and even scale of prices. Actions of this kind are well illustrated by the brewers' association, which decides as to the price to be charged for beer in the retail Regulations trade, issues regulations about rebates to retailers, and even °! associa- goes into such minor details as the treating of drivers, and the extent to which favors are to be given by advertising, etc. When the members of an association are numerous, the extent to which they cooperate in these respects is a matter of public knowledge ; but in case an industry is concentrated Secret in several or at most a few corporations, a secret gentlemen's ^^ree- agreement may be reached which acts powerfully in restraint of trade. Thus it is charged that at the weekly meetings of the Chicago packers, which in the past regularly occurred, a definite understanding was reached as to field of operation, output, prices, and margins, which were to obtain for the following week. Similarly it is charged that at the so-called Gary dinners an informal understanding was reached concerning these points for iron and steel. What happened, according to Mr. E. H. Gary, was that the steel makers met together and ex- informal changed information wdth reference to one another's affairs, jinderstand- their outputs, prices, etc., in order that each might have full binding, knowledge of the transactions of other producers to guide his own judgment. In the case of the Chicago packers there can be little doubt that the understanding was much more definite than in the case of the steel conferees ; but so far as the public was concerned, the results were substantially the same ; output was regulated, prices were maintained. It is charged also that the group of men who control the anthracite industry meet regularly to fix output and prices at the various commercial centers, and that this practice has 64 CONCENTRATION AND CONTROL Anthracite coal prices fixed. Pools. been in vogue for many years. That this charge is true can scarcely be doubted, although it might not be easy to prove. Also, there is no doubt that the railroads in the early stage of their cooperation entered into agreements and understand- ings as to the portion of business to be handled, the prices to be charged, and rebates to be allowed. Similarly it is charged that produce exchanges agree upon and control prices; thus it is stated that the association of butter makers centering in Elgin fix prices on dairy products, and especially butter, for a large part of the country. The character and influence of these associations have become widely known through the prosecutions by the United States Attorney-General under the Sherman anti- trust act. One of these, the Southern Wholesalers' Associa- tion, without going to trial, admitted many of the practices above described and accepted a comprehensive decree enjoin- ing the members from cooperating. A number of other asso- ciations, illustrated by the lumber associations, are under at- tack. These cases bring clearly to light the real significance of a form of organization which pervades the commerce of the country. While associations formal and informal are the least def- inite of the various combinations, they are probably the most important because their scope is coextensive with the country and with its business. (2) Formal Agreements. — In certain lines of business, corporations have made definite agreements about the management of the business of the uniting parties. The arrangements, usually called pools, (1) divided the produc- tion in a definite manner between the different companies; (2) divided the markets ; (3) regulated the sales for the home market, perhaps leaving freedom in the matter of export ; or (4) placed the entire profits in a common fund or pool to be divided according to an agreed plan. With the foregoing features, there sometimes went agreements as to prices ; but this was not essential, since when controlling outputs, dividing markets, regulating sales, and apportioning profits, it is to the interest of all to keep prices at a high level. FACTS REGARDING CONCENTRATION 65 As the railways developed in this country, competition became so severe as frequently to lead to operation at a seri- ous loss. Relief from this situation was found by pools Railway under which the business between two points was definitely ^°°^- divided, and an agreement was made as to rates. Thus it might be agreed that each of the trunk lines between Chicago and New York should handle a definite percentage of the business. The pool so largely used by the railroads was also exten- sively applied to the industries. Under the manufacturers, pools, which began as early as 1860, each manufacturer was industrial usually allotted a certain percentage of the business. A p°°'^' manufacturer who received more than the allotted percentage paid into the pool a sufficient amount to balance the excess ; while the manufacturer who received less than his percentage received from the pool a sum sufficient to make up the defi- ciency. The business was done through a supervisor who acted in the capacity of a clearing house. For violation of the agreements of the pool, penalties were imposed upon its members usually in the way of fines or a percentage charge on business done outside the pool. Pools are very well illustrated by the numerous agreements which were made by the iron companies among themselves be- fore the organization of the United States Steel Corporation.' In the case of the Michigan Salt Association, the organiza- tion developed to a state intermediate between the pool and the trust. This association, formed in 1876, soon controlled 85 per cent of the business of the state. The stockholders The were the salt manufacturers of the state; and each manu- g^ ^^^ factm-er was allowed shares in the association in proportion Association, to his production. The capitalization of the association was nominal. The association fixed the output of salt for each manufacturer and managed the entire selling business, includ- ing the determination of prices. The manufacturer gave up the entire management of his business to the Salt Association, excepting the running of his manufactory.^ (See pp. 101-103.) > Investigation U. S. Steel Corporation, 24, pp. 1813-1817. " " Pools and Trusts," Quarterly Review, Vol. 199, p. 185. 66 CONCENTRATION AND CONTROL Very analogous in form of organization and conduct of business to the Michigan Salt Association, long since dead, Fruit are numerous fruit growers' exchanges. Some of these ex- Schanges changes are district in their character, precisely as was the Michigan Salt Association. In others the district exchanges first formed have gotten together into a national exchange. In some instances such an exchange handles as much as 80 per cent of the entire crop. The stockholders of the ex- change for a definite fruit or group of fruits are those engaged in growing the product. The exchange is usually a selling agency, charging commission for its services. While a fruit grower may sell a part of his crops other than through the agency, he pays the same commission that he would if the entire crop were disposed of by the exchange. When the crop of fruit begins to come upon the market, the exchange sets a price for a certain period, which may be raised at the beginning of a second period and again at a later period. For fruits that keep well the usual plan is to start the price sufficiently low so that the fruit will begin to be marketed promptly, and to advance the price rapidly enough so that there will be a supply to the normal termina- tion of the season. For some fruits the prices for early products may be high ; later the prices are reduced ; and still later, when the height of the season is over, they are again advanced. If prices be placed too high, some of the fruit will go to the dump at the end of the season ; if they be placed too low, there will not be a sufficient amount to supply the market during the latter part of the season. To carry out wisely the above plans, careful estimates are made of any crop for the year. Inspectors are employed by the exchange to supervise the harvesting, storing, sort- ing, packing, and shipping of the fruit so as to get definite and uniform grades, and to have the fruit shipped under the most favorable circumstances. The growers retain their own brands. The fruit exchanges do not regulate output ; they do con- Advantagea trol prices ; they aim to get the product as directly as possible of exchange. ^^ ^^^ jobbers and grocers without falling into the hands of FACTS REGARDING CONCENTRATION 67 speculators. The marketing costs are lessened by the ex- change. Prices start at a reasonable level and have graded changes so that the producers are sure of a fair return. The public cannot be disregarded in fixing prices, since one kind of fruit competes with another, and since to a certain extent fruit is an abundant but desirable luxury which will not be disposed of if the prices are excessive. Products are inspected and standardized. It would seem that the credits due the fruit exchanges are considerable; that the public is better off than under the old hit or miss methods of disposal of the crop which have sometimes been character- ized as mob methods; and that exchanges should be en- couraged and retained. These fruit growers' exchanges are illustrated by the Fruit Growers' Association of California.^ For this ex- change the contract between the grower and the local association requires that the grower shall sell only to the association, and that if he fails to pack and deliver his fruit within five days after demand is made upon him the associa- tion may enter the orchard, take possession of the premises, pick, pack, and market the fruit, all at the expense of the owner. The district exchanges of this association are under contract to sell only to the general exchange and as called for by that exchange. It is perfectly clear that the purpose of the citrous fruit growers of California is the control of the market. Other lines of cooperation^ among the farmers are the elevator systems for marketing grain and the warehouse exchanges for marketing cotton. It is said by Mr. E. H. CoUer that there are in the neighborhood of twenty-five hundred or three thousand buying or selling organizations in the United States which are in the interests of better prices.' Mr. T. J. Brooks, representing the Farmers' Educational Cooperation Union, suggests that since these farmers' co- operative associations are so advantageous they should be exempted from the prohibition of the Sherman antitrust law.'* ' Hearings, Interstate Commerce Committee, XXVI, pp. 2336-2353. " Edward G. Dunn, Farm and Fireside, March 16, March 30, April 13, 1912. 2 Hearings, Interstate Commerce Committee, p. 1344. 'Ibid., p. 2337. 68 CONCENTRATION AND CONTROL This is an appropriate suggestion, for it can be asserted without fear of contradiction that fruit exchanges organized as indicated are as clearly in violation of the Sherman anti- trust law as the selling agencies of manufacturers which have been declared to be illegal by the courts. If the farmers' seUing agencies are admitted to be bene- ficial to the farmers and to the public, it may be said that fully as strong a case may be made for other selling agencies, among which is coal. Yet when a number of coal operators whose market was Chicago conceived the idea of establish- ing a selling agency which did not combine more than four per cent of the consumption of that market, they were warned by the federal authorities that such action would be combination in restraint of trade. ^ The pools in the seventies and early eighties occupied an Reign important place in the development of combination; their poois^ chief reign was from 1879 to 1887, about ten years. With the passage from the partnership to the corporation, the principles of the law applicable to individuals and to partner- ships were carried over to corporations. But the pool was in effect a partnership of corporations, or at least, if not a partnership, such cooperation of corporations, as to amount substantially to the same thing. Partnerships of corpora- tions were illegal, and consequently the pool contracts were non-enforcible.^ The non-enforcible agreement gave the pools a fundamental weakness. Any member that became dissatisfied could withdraw at any time. Also, since the courts refused to en- Weakness force the arrangements made under pools, compliance with of pools. tiig regulations depended exclusively upon the honor of those entering them; and, in consequence, there were frequent secret violations of the pool agreements. A railroad or a manufactory would exceed its percentage, or in order to get business would reduce rates. Further the men and corpora- tions entering into the pools were in danger of penalties from the courts. As we have already seen, the selling agency, • Hearings, Interstate Commerce Committee, XXVI, pp. 2320-2321. « " Trusts of To-day," G. H. Montague, pp. 144-145. FACTS REGARDING CONCENTRATION 69 having many of the weaknesses of the pools, still retains an important place in business. (3) Trusts. — Since the pool was a failure, in order to attam the objects striven for by it, the trust was devised. Under the trust, each unit of the combination transferred its stock to trustees. Thus the entire stock of the constituent companies was held by a group of trustees who had com- plete authority over the business of all the companies enter- ing into the trust. An establishment or company retained its own officers and conducted its business, but under the direction of the trustees, as to line of product, amount of output, and price. The trust was able to prevent over- building and overproduction, to prevent competition in price between its units, to apportion business, to consoli- date buying and selling, and thus gave all the advantages of unity of organization, as described, pp. 8-20, due to concentration of industry. Well-known types of this organization were the Standard Oil trust, the sugar trust, the cotton-seed oil trust, the whisky trust. The great period of the trust was from 1888 to 1897. If the pool was a partnership of corporations, it was even more clear that the board of trustees controlling the business of a number of corporations through their trust certificates was such a partnership. In consequence of this, in the late eighties trusts were declared to be illegal, and this led in the early nineties to the next stage of combination. (4) Holding Corporations. — Under the trust each of the constituent companies was an independent legal entity. The stock was simply placed in the hands of the trustee for management. In the holding corporation, the stock is transferred to the holding concern so that this corporation actually owns the stock of the constituent companies. So far as management and operation are concerned, the situation is precisely the same as under the trust and the advantages the same, only the constituent companies are subsidiary companies instead of nominally independent. The subsidiary company maintains its officers, carries on its business, and competes so far as efficiency is concerned with 70 CONCENTRATION AND CONTROL Holding corpora- tions aJso manufac- turing ones. State laws come to the rescue. Holding corpora- tions attacked. the other companies of the combination; but as to nature and quantity of output and price, the policy is completely controlled by the corporation of which it is a constituent member. The era of the holding corporation began in the nineties, and has extended through that decade and the first decade of the twentieth century. Great examples are the Standard Oil Company and the United States Steel Cor- poration. While some of the holding corporations have remained merely managing companies, others of them, and some of the more important, have also become manufacturing companies. In these instances some plants are under the direct manage- ment of the directors of the corporation, while other parts of the busiuess are run by subsidiary companies. This stage of development is intermediate between the strictly holding corporation and the merger, next to be spoken of. Under the common law the stock of one corporation could not be held by another; therefore the holding corporation was declared to be invalid. ^ This situation was met by the enactment of corporation laws under which it was valid for a corporation to hold stock of other corporations. The first of the states thus to reverse the common law principle was New Jersey. She has been followed by several others, notable among which are Delaware, West Virginia, and Maine. The liberal, not to say lax, corporation laws of these states have led to the holding corporations being organized under their laws, and mainly under the laws of New Jersey and Delaware. According to Frederick W. Kelsey, the state of New Jersey profits to the extent of over $3,000,000 per annum because of its pioneer position in passing liberal corporation laws. However, the corporations which are in whole or in part holding companies, organized under the laws of these states, are now being attacked- in the United States Court. In 1911 orders were given for the dissolution of the Standard Oil and the American Tobacco companies, the first of 'People V. Chicago Gas Trust Co., 130 111. 268; also other cases. ' Hearings, Interstate Commerce Committee, XVII, p. 1358. FACTS REGARDING CONCENTRATION 71 which was strictly a holding company and the second of which was both a manufacturing and holding company. (See pp. 181-187.) Many other holding corporations are now attacked by the Attorney-General of the United States and must fight for their existence. The holding corporation began in 1897, but the great consohdations did not begin until in 1899, since which time the holding corporation has been the dominant form of consolidation. (5) Complete Merger. — This is the final stage in concen- tration of management. The stock of the constituent companies of the combination is actually bought in and canceled, the only stock being that of the master company. If, for instance, the different companies of the United States Steel Corporation — the Federal Steel, the Carnegie Steel, and others — cease to exist by their stock being canceled Coming and stock of the Steel Corporation be the only existing issue, '^^^\ ^ we should have the final stage of corporation management merger. for this gigantic company. Since the recent decisions of the United States Supreme Court (see pp. 180-181), which seem to indicate that holding companies will be in a stronger position if they are actually manufacturing companies, it is easy to predict that the great consolidations, now forming, so far as practicable will become imified corporations. The merger began to become impor- tant about 1904, and since that time its growth has steadily continued, although, as already pointed out, the holding company is still the dominant form of concentration. Just as the pool, the trust, and the holding corporation have been successively attacked in the courts, there can be The little doubt that the great merger will also there be attacked. ™gfg^g°° Indeed, for intrastate commerce such attack has already been begun. For instance, the Diamond Match Company which bought outright the properties of competing concerns engaged in the manufacture of matches, was declared to be an illegal monopoly in the state of Michigan.' Similar attack is likely to follow for interstate commerce under the Sherman act. 1 Richardson v. Buhl, 77 Mich. 632. 72 CONCENTRATION AND CONTROL The law8 have ac- celerated consolida- tion. Other accel- erating causes. General Statements. — It is to be noted that the develop- ment from pool to trust, from trust to holding company, from holding company to complete consolidation, has been accelerated by the laws which exist in restraint of trade. The dissolution of pools by the courts led to the trust ; the dissolution of the trust led to the holding corporation ; the dissolution of the holding corporation at the present time is now leading to the consolidated company. The actions which have led to the above development have been partly under common law and partly under statute law. The common law, forbidding unreasonable restraint of trade, may be invoked to prevent any form of pool, trust, holding company, or merger, which goes to the point of producing monopoly. Actions under statute law, to be successful, must of course comply with its terms, somewhat variable in the different states. (See pp. 192-200.) By the above statements it is not meant that the law against restraint of trade is the only cause which has led to the development described. As we have seen, pp. 26-27, fierce and unrestricted competition has led directly to com- bination, or else elimination of the weaker by destruction, imtil the remainders are reduced to a manageable number, usually all strong and at least of the same order of magni- tude, if not exactly the same size, when they combine. Also there are other important factors leading to combination which have been discussed, pp. 8-20. Section 7 the kinds of competition There are different kinds of competition. For present purposes the more important are, competition in quality, competition in price, and competition in service. (1) Competition in Quality. — The better the quality, the easier it is to do business. For certain articles the quality is easily determined and so becomes a very important factor in competition; for other things it is not easy to settle. FACTS REGARDING CONCENTRATION 73 With such articles as tea, tobacco, coffee, the quahty is not an absolute thing, but depends upon the taste of The same the customer. We frequently hear the story of the retail *^g^* dealer who takes a chest of a poor or medium quality of tea, prices, divides the same among three caddies upon which he puts prices of thirty-five cents, sixty-five cents, and one dollar per pound. A person who can afford to pay but thirty- five cents quickly takes that kind ; the person who is able to afford somewhat more takes from the intermediate caddie ; the third, to whom the matter of a dollar is of little consequence, at once takes the tea having the highest price. There is no doubt that this sort of performance has occurred and is occurring at the present time upon an extensive scale in thousands of retail shops. If for such articles as tea, tobacco, and coffee there is no definite standard, this is even more markedly so with the so-called "articles de Paris," or if we use the American term, " Yankee notions." There is no standard by which the Yankee price of a lady's hat can be fixed. The price that is charged °°*i°^s. usually depends more upon the make-up than upon the cost of its materials. Indeed in this class of goods the artistic quality enters, or if not the artistic quality at least the con- ventional quality, which itself has a market value, and this makes impossible any standardization. The price of a hat is very largely fixed with reference to what the traffic will bear. Thus a lady's hat in a town in which the cus- The value tomer is able to pay $50 might have a price one fifth of ^'^t^ ''^'^'''^ that amount in a town in which the customer was able to pay only $10. Toother illustration : The success of the manufacturer of silver articles who wishes to sell his goods in India will depend very largely upon producing forms which please the Indian taste. Thus for many articles, whether or not a sale is made depends not only upon the cost of the material in the article, but upon whether it pleases the customer. Competition in these lines of business is not close because there is no basis upon which to compare prices. From the class of articles in which success in business depends not upon standardization or upon cost, but upon 74 CONCENTRATION AND CONTROL standard- ization and price. Blind faith in competi- tion. adaptability to the customer, we have every stage to those in which the material of the article becomes the chief factor. (2) Competition in Price. — When we come to deal with articles the quality of which may be definitely determined competition immediately enters in price, and becomes more and more important as we approach standard products. Granulated sugar is a standard article, which is the same whether purchased of one dealer or another; the same is true of oil, which has a certain fireproof test ; and to a large extent is true of cement and coal, at least they may be made to meet standard tests. The same is true of the more im- portant forms of steel rails, structural forms, etc., and for many other products. For articles in which quality is standardized, competition enters mainly in the matter of price. These standard articles, as we have seen, are also those which usually have very wide use, and are those which are especially subject to combination. Competition in price is the one in which the public as a whole is most deeply interested. Indeed, this is so dominant in the minds of many, that the securing of a fair price is regarded as the sole purpose of the competitive system. In purchasing, the price that one can afford to pay is the para- mount consideration for all but a minute fraction of the people. This applies alike to the man or woman buying the necessities of life for the family and to the lady in the middle walks of life purchasing clothes or jewels. The number of people who can afford to ignore the question of price is less than one per cent of the population. It is the general belief that competition is the best means of securing a fair price that has held many with unswerving faith to the competitive system.^ ' The best formulation of this faith which I have seen is that of General Roger A. Pryor, as follows : — "1. Competition between buyers of the raw material enhances the price to the producer. "2. Competition between sellers of the manufactured article reduces its price to the consumer. " 3. Reduction of price multipUes the number of consumers. " 4. Increase of consumption stimulates production to supply the in- creased demand. FACTS REGARDING CONCENTRATION 75 (3) Competition in Service. — In addition to competition in quality and in price there is competition in service. This is best illustrated by those cases in which competition does not exist for the first two. Thus in standard articles in a town, such as ice, there is no competition in quality ; there is no competition in price; the only competition is in service. Similarly for railways, now that competition in prices has ceased, competition is reduced to the nature of the service, — the number of trains run, the convenience of the schedules, the excellence of the cars, etc. It is in the matter of competition in service that the personal element largely enters. Where quality is stand- ardized and the price is the same, the decision as to where one shall deal depends upon the agreeable qualities of the firm. Are the employees polite and considerate? Is the service promptly rendered ? These factors are so important The that agents having a pleasant personality and a persuasive element in way of putting things are highly paid by corporations, their competition, sole business being to show that the service rendered will be of the highest quality and the attention of the best. So important is this factor of service that many, indeed a majority, of the people are influenced by it in the selection of the firm with which they will deal ; and with the well-to- do it is frequently the dominating consideration. Even where competition in quality and in price are eliminated there may be the keenest competition in service. " 5. Increase of production implies an increase in the employment ol labor. " 6. Competition between the employers of labor enhances the wages of labor. " 7. Enhancement of the wages of labor involves the material and moral amelioration of the condition of the laboring class. " 8. Competition to sell stimulates to improvements in the quality of the article offered. " 9. Competition to sell urging reduction in the cost of the article, ingenuity is quickened to the invention of expense-saving and labor-saving machinery, and so a stimulus is applied to the progress of the useful arts and sciences. " In short, competition ministers to the welfare of all classes of the com- munity, and augments the resources and power of the state. But the evil of excessive competition is counteracted and arrested by the principle of self- interest and the operation of the law of supply and demand." 76 CONCENTRATION AND CONTROL Section 8 THE BREAK-DOWN OF COMPETITION The failure of compe- tition to prevent fraud. The Faith in Competition. — Competition for the control of prices and quality of goods has been a faith which has been beUeved in by the great majority of people of America ; it has been the fundamental principle of the common and statute law upon which our court decisions controlling trade have been built up. Every proposal to legalize cooperation in trade has been stoutly resisted as interfering with the in- flexible law of competition, the bulwark of our industrial liberty. The producer may do as he pleases with reference to quality; he may ask the price he can get; but he cannot combine with another producer in the regulation of price or do anything which may be interpreted to interfere with complete independence in trade. The theory is that the quality will be kept up and the price kept down by competition, and that the purchaser needs no further pro- tection. The Failure of Competition adequately to regulate Quality. — This faith in the power of competition has gone so far in the past that any manufacturer might call an article by any name he pleased, provided the name did not have a trade mark, regardless of whether or not it had any relation to the prod- uct so labeled. An article could be called pure fruit jelly and have no fruit in it ; it could be called corn whisky and not a grain of corn be used in its manufacture ; it could be named strained honey and a bee never have had anything to do with its making ; it could be called maple sirup and never a drop of maple sap have entered it; it could be called butter and have no relation with milk or cream; it could be called boneless chicken and consist of immature veal. A hundred other illustrations could be given. As already indicated, if the producer could to his own advantage use names that had no relation to the product, he did so. The purchaser was not obliged to buy. If he wished an article FACTS REGARDING CONCENTRATION 77 which had a relation to the name, he was to ascertain this for himseK. These practices have obtained both for intrastate and interstate commerce imtil within a few years; but now a large nmnber of states (see p. 245) have pure food laws. Most of these laws are comprehensive in their char- Pure food acter and they apply to all foods, drugs, and drinks. ''■'^'• To illustrate, it is no longer possible to sell oleomargarine as butter ; indeed, it is not possible in some of the states to color oleomargarine in such a manner as to make it appear hke butter to the user. Finally, after many years of struggle against tremendous opposition, a comprehensive pure food law was passed in 1906 by Congress, under which the same principles which had been applied in some of the states for intrastate commerce were applied to interstate commerce. In addition to the pure food laws, some states have enacted laws prohibiting the importation of weed-infested seed, regulating the importation of nursery stock, especially to prevent the spread of insect pests, and requiring that fer- tilizers shall meet definite standards. Thus for food and drugs it may now be said to have become an accepted principle that competition in the control of quaUty has broken down, and similarly that competition has not furnished sufficient protection in certain other classes of commodities. For protection to the customer in these Competition matters of fundamental importance we now understand that ^^ ^ ^ to secure we must depend upon regulation. This regulation has for quality, its basis law ; but the success of the laws has been dependent upon the creation of special machinery other than the courts for their enforcement, viz., administrative commis- sions, etc. (See pp. 245-247.) While there is a wide range of articles in which competition as a regulator has been abandoned, there are many articles in which competition is left as the guard. Thus a dealer may sell cloth as pure silk which is largely composed of cotton ; he The feeble may sell cotton as linen; he may sell shoddy as woolen, s^^^'dof While these things may be contrary to law, the public, as a 78 CONCENTRATION AND CONTROL Railroada do not compete in price. PubUc utilities do not compete in price. matter of fact, is wholly unprotected ; for the law is not en- forced. Quahty, so far as it is satisfactorily controlled, is se- curable only through law as administered by commissions or other special officers under a broad exercise of the police power. The Failure of Competition adequately to regulate Price. — During the same time that competition has ceased to control quality there has been a break-down of competition in the control of prices. This is now admitted for the so-called public utilities. It was the theory in the early days of railroad building that we must get as many lines as possible and have them compete in charges. The frightful wastes of that method, bankruptcy, receiverships, financial depres- sion, alternately excessively high and low rates, show that for this line of business competition in price is a hopeless failure; and it is now a tacitly accepted doctrine that so far as railroads are concerned, prices for the same manner of service, whether freight or passenger, between two points is to be the same over the different lines. This is done through mutual understanding of the supposed competing lines. That a half-dozen railroads between New York and Chicago could have the same complicated freight schedules for all classes of articles without cooperation is incredible. Every- body knows the rates are agreed upon by the various traffic associations. Yet such cooperation and agreements are just as illegal as they have ever been in the past. The parties to them under the law are subject to criminal and civil prosecution; yet nobody prosecutes; nobody complaios. Why is this so ? Because the public through its commissions is able to secure fair rates. So far as interstate commerce is concerned, the price is fixed by the railroad and controlled by the Interstate Commerce Commission. Within many of the states, the prices are fixed by the corporations, but may be modified by the commissions. In cities the street car lines, gas companies, and electric companies, each have monopoly in a given city, or the two or more agree upon identical rates. Competition has ceased to control prices. Where prices are controlled it is through a public utihties commission. FACTS REGARDING CONCENTRATION 79 Just as there has been a complete collapse in competition in prices for railroad transportation and city utilities, so there has been complete collapse in charges for commimication. The post office is a public monopoly; the rates are fixed. The telegraph business of the country has become consoh- dated into two great corporations the prices of which are identical. The telephone business is now mainly under the control of a single corporation. The foregoing facts show that the only present effect of the theory that competition gives adequate control of prices, so far as the railroads and other public utilities are concerned, is to bring the law into contempt. Closely alhed to the natural monopolies are the great companies which for each industry are controlled by a single organization or by a number of organizations working together under open or secret agreements or understandings and not competing in price. Here are included anthracite, Truste do steel, oil, beef, whisky, sugar, and other great industries. pete^ST" When prices are maintained at the same level for steel rails price. for a decade during times of panic and great expansion alike, it is certain that competition has ceased to control adequately prices for iron products. The same applies to anthracite, oU, and many other commodities. For some articles, the producers, instead of uniting their concerns and informally agreeing on prices, have united in a selling agency and in this way succeed in holding up the prices and maintaining a hke price for each producer. Thus the Michigan Salt Association, as first organized (see pp. 101, 103), was a selling agency. One of the largest of the selliag SeUing agencies is the United Metals Selling Company. It markets agencies. upward of 500,000,000 pounds of copper annually. It is the sales agent for the Amalgamated Copper Company and affiliated corporations. The commission charged the Amal- gamated was Ij per cent before 1906, but now is 1 per cent. The company has been highly successful, having paid divi- dends upon its capital stock of $5,000,000 of from 20 to 30 per cent since 1904, with one extra 50 per cent dividend in 1909. 80 CONCENTRATION AND CONTROL Selling agencies among fanners. Bad and good selling agencies. At one time there was a producers' association for oil, the association selling only through its regularly appointed agencies, and only to the refiners' association and its members.^ In a Uke manner the manufacturers of wall paper organized a selling company to handle their entire output, selling only to such persons as entered into a prescribed agreement ; but this organization got into court, was declared to be illegal, and was therefore dissolved.^ SelUng agencies in the industries have existed in a number of Hues, but there is a tendency at the present time for them to disappear so far as manufacturers are concerned, since it is recognized that they are violations of the laws, national and state. While the selling agency is disappearing among the manu- facturers, cooperative selling agencies are arising among the farmers. These are illustrated by the fruit growers' ex- changes of the West in Washington, Oregon, and California, by the nut growers' associations of the South ; indeed at the present time all over the country there is a strong movement for cooperation of the farmers not only to buy through cooperative associations, but to form selling associations for marketing their products (see pp. 66-68). The selling agencies of the manufacturers which have held up prices have been denounced. The proposals to create sell- ing agencies for the farmers' products have been generally commended. It is difficult to see wherein the principle differs in one case from that in the other. If it is not legal for the copper producers or wall paper manufacturers to have joint selling agencies, it is difficult to see how the fruit pro- ducers can legally have such an agency. To a large extent competition has ceased adequately to control the prices for many articles not in great combinations, and this is true both in the wholesale and retail businesses. The various associations of business men have, as one of their chief purposes, the maintenance of prices. Many articles which are protected by patents or trade marks are ' Tarbell's "History of Standard Oil Company," Vol. I, p. 341. " Continental Wall Paper Company v. Louis Voigt & Sons, 212 U. S. 227. FACTS REGARDING CONCENTRATION 81 sold to the dealers only on condition that the prices fixed by How price the manufacturer shall be maintained. The manufacturer agreements J. , „ . are mam- 01 a demute automobile apportions the country into districts tained. and requires of the dealers in each of the districts that the prices fixed by the manufacturer shall be charged. The same thing is true of hundreds of articles, from sewing ma- chines to talking machines, and so on down to an atomizer. In this class of trade there is competition to a certain extent between the different manufacturers; there is no competi- tion between the tradesmen selling the same articles. Fre- quently the prices for a definite line of goods are held up by agreement or understanding among the different manu- facturers producing the same line of goods, they agreeing among themselves regarding the prices which shall be charged by the retailer; and in many cases the different manufac- turers are in a definite combination. While the courts would not enforce any penalties for a violation of these agreements, the manufacturer or jobber usually has sufficient power through refusal to sell the Penalties article to prevent the agreement from being broken. Thus f?'""ol'^- the saloon keeper who would sell a glass of beer for less than price agree- five cents, or who would use a glass holding more than the ™^^*^- agreed maximum amount, could no longer purchase beer from the brewers. Through this method of control compe- tition in price has broken down completely among retail dealers for many articles. But this does not indicate anything like the extent to which competition in price has disappeared. The retailers Local in a given city or community have an association either ^*^ ^^^^ formal or informal, and there is among the members a definite prices, understanding that prices shall be maintained. It makes no difference from what dealer one buys anthracite, or sugar, or bacon, or flour, or any other standard article, in the majority of the small towns and cities of the country; the price asked by each is the same, with possible slight varia- tions in some cases. It may be that for a time a retailer will cut the price on some standard article in order to increase his trade, in which case there is likely to be a cut by some a 82 CONCENTRATION AND CONTROL Competi tion be- tween different classes of dealers. other retailer on another standard Hne in order to equalize this advantage. But soon they get together and the prices are again the same. For some concerns which have a large part of the business of a town, either through a single retail shop or a number of them, an additional shop may be there established by this firm under another name, apparently in complete independ- ence, in order that there may be an appearance of competi- tion. From time to time if there be danger of outside parties entering the field, the stool pigeon establishment may reduce prices under the direction of the controlling organization. The extent to which there is combination among the retailers has led Professor Laughlin, of the University of Chicago, before the Senate Interstate Commerce Committee, to testify that competition among retailers has completely broken down. Says he: "We do not have competition; it does not exist. To-day there is really no competition between the retail men who sell meat or groceries to different classes of people." ' While the statement is substantially true for most com- munities, it does not fully express the facts for all of them. There still exists competition in prices between the small shops and the great mail order houses. Indeed, this compe- tition is so severe that it is feared by the ordinary retailers, who oppose vigorously a parcels post because they believe that this would make the mail order houses even more formidable competitors. Also there is competition between the small retailers and the great department stores; and since the latter have begun to introduce branch houses in this country as has been done extensively in England, the competition is likely to become more serious. Further, there is competition between the regular retailers and the coopera- tive stores ; but in this country the latter are relatively few in number, although numerous in England. A statement nearer the truth about the retail trade would be that competition in price for standard articles has ceased to exist between shops of the same class in the same 1 Hearings, Senate Interstate Commerce Committee, Part XIV, p. 1005. FACTS REGARDING CONCENTRATION 83 community. The regular retailer's prices for a town are the same ; the prices for the department stores are the same ; the prices of the mail order houses are the same. In short the retail trade is the one in which concentration Declining has not gained dominance ; and we are in a transition stage influence ° ' ° of com- between the old and new order of things. One who has petition in watched the rise of the great department store in this country t^ie "retaU and England and who now sees their expanding branches, one who has seen the rise of the great mail order house within the last score of years, need have little prophetic sense to realize that concentration is to rule in the retail trade, the same as it has in manufacture. The retail trade as pointed out by Macrosty, is the "last stronghold of competition."' But even in that business competition has largely broken down, and presently there, as elsewhere, cooperation will become general. The small retailer can only hold his place to the extent that he best performs a service to the com- munity. General Statements. — As to the extent of combinations and agreements in the industries, Mr. Samuel Untermeyer, who certainly ought to know the facts, said before the Sen- ate Interstate Commerce Committee : "I have known of hundreds of them being dissolved where they were under written agreements. There are safes in New York stuffed with the written evidences of these conspiracies with big Agree- men's signatures to them. Those are gone, but in their ^^^^^"^ places you have associations for the betterment of trade, etc. ; there are any number of dinner and luncheon clubs and reunions and general understandings, winks, and telephone messages, that are far more difficult to get at." ^ If any one doubts the above statement regarding the extent to which there is cooperation in prices in all parts of the United States and in all lines of business, it is suggested that such doubter talk with the business men of the country, from the retailer to the great manufacturer. This the author has done with many, and in no instance has he found 1 "The Trust Movement in British Industry," H. W. Macrosty, p. 244. 2 Hearings, Senate Interstate Commerce Committee, Part V, p. 214. 84 CONCENTRATION AND CONTROL Testimony of business men. Limit to excessive prices. Prices what the market will bear. a man who does not say that in his business cooperation exists everywhere and that competition does not control in prices ; that they are matters of agreement, formal and informal ; that prices are fixed at what seems to the organization as a fair amomit, or to such a level as can be maintained without encouraging additional competition. In making the statement that prices of many articles, from the great natural monopolies to matches, are controlled by some form of combination or agreement, is is not meant to imply that any price can be charged for an article. There is a limit beyond which, if the price be raised, competitors will enter a business. This so-called potential competition makes the combinations careful not to place the prices at so high a level as to lead to additional competition. Although this is the situation, if the combination be a powerful one, it may go far ; for the man thinking of entering the field knows that if he attempts this, the price of the product may be de- pressed by the great organization, and he fears to enter the enterprise. In the earlier stages of combination in this country the danger mark was frequently overshot; and competitors appeared, sometimes to the detriment of the organizations, but more often with disaster to themselves. By practice the great combinations have become skillful in exacting as much as possible without danger to themselves. Beyond the amount which is a fair profit there is a limit to the excess which can be taken year after year without bringing in competitors; but the total excess may be vast in amount. Sufficient evidence of this is furnished by the great corporations which are especially considered. (See pp. 104-154.) The United States Steel Corporation, in addition to paying interest on its bonds and ample dividends on all of the real valuation of the stock, has been able to put back into the business in a decade more than five hundred million dollars. This was accomplished in ten years by this corporation cooperating with the other corporations in the iron business, through holding the prices as high as the domestic trade would bear, but always sufficiently low so that a pro- tective tariff prevented competing iron from coming into this FACTS REGARDING CONCENTRATION 85 country from abroad. At the prices fixed, as large sales were made as possible in the United States and the excess was sold abroad at a lower rate. Precisely the same situation has obtained for the Standard Oil Company. The enormous profits of the past decade, far beyond reasonable amounts (see pp. 108-109), have been accomplished by an excess margin of somewhat more than two cents a gallon. This seems small ; it may be so, — perhaps not more than twenty- five cents each for every man, woman, and child, in the United States, — but even on this basis the excess would be more than twenty million dollars per annum. The same principles apply all along the line down to the local grocers. The advantages of prompt and convenient delivery enable the retail dealers of a town or city to cooperate in maintaining their prices above a normal profit by a defi- nite margin. The limit to this margin is that it caimot be made so large as to make it advantageous for the consumer to purchase in a large city or in a neighboring town ; although it may approach so close to this that some of the more care- ful and astute do make outside purchases. The margin of profits which may be gained beyond a fair price is known as monopoly price. The law of monopoly price has been carefully analyzed by Ely. He says: "The greater the intensity of customary use, the higher the general average of economic well-being, and the more readily wealth is generally expended, the higher the monoply charge which The law of will yield the largest net returns." ' If the price be raised ^°e°^° ^ too high, sales will diminish and therefore returns be lowered. It is the aim to hold the prices sufficiently high to give the largest possible return with the least expansion of business. In this connection it should be understood that the principle of monopoly price applies where monopoly does not fully exist ; that it applies in greater or less degree as long as there is any cooperation of a group engaged in a given trade. As illustrating the principle that if a local combination goes beyond the monopoly price, outside competitors will come in, is the case of ice at Madison, Wisconsin. Madison 1 1'MonopoUea and Trusts," R. T. Ely, p. 103. 86 CONCENTRATION AND CONTROL Entrance of outside competition. Professional men agree in prices. Labor combina- tions and prices. is situated between two lakes upon which ice forms each winter ; ice houses are located along the lakes ; and thus the ice dealers should be able to furnish this product at a low rate. For a moderate sized house until two or three years ago the price of ice furnished for family use was at the rate of $1.50 for five hundred pounds, or $18 per annum. The price was raised to a fiat rate of $2 a month in 1909, which price was so high that the Knickerbocker Ice Company entered the field in 1910. This company fixed the price at $1 for five hundred pounds, and the local companies met the cut. But later, when the business of the new company was established, they and the local companies got together and raised the rate to $1.50 per five hundred pounds. Just as with public utilities, manufacture, and trade, com- petition has broken down as an adequate regulator of price, so in great measure competition has broken down in the price of labor and service. Thus the physicians of a given town usually charge exactly the same rate for the same kind of a service. Not to do so is regarded by the physicians as contrary to good medical ethics. The same practice obtains in other professions. And yet so far as the principle is con- cerned, an understanding by which a common price is charged for a like service is just as unlawful in proportion to the importance of the matter as any other combination in which there are price agreements. Not only do professional men agree about prices, but also those who perform services of an entirely different character. The most fundamental purpose of the trades-union and all combinations of labor is to do combined bargaining, the chief point being the price. A union scale of prices is fixed by which all members of the union must abide. Not only do the regulations of the labor unions prescribe the price which is to be charged by the laborer, but the methods under which he is to work. In many instances in which the price is fixed regard- ing the day's wage, the laborer must not do more than a pre- scribed amount of work. The idea of individual bargaining by the laborers in the industries, and their competition among themselves as proper regulators of prices, has broken down FACTS REGARDING CONCENTRATION 87 absolutely; and necessarily so, because the laborer as an individual was simply helpless against the great concentra- tions of capital. The only way that the laborers can be put on anything like an equal footing with capital in industry is to unite and so give themselves the strength of concentra- tion, and thus do joint bargaining. From time to time the representatives of labor unions for coal, for railways, for the building industries, meet with the employers of labor, and agree with them upon a scale of prices which are to be charged for a given period of time. In this way competition in the price of labor between individuals is destroyed ; not only so, but the fluctuation in price is wholly eliminated for a definite period. The foregoing description of the situation cannot but con- vince any man who will look the facts in the face that the blind faith that prices are adequately controlled by compe- tition in the United States is no longer justified, if indeed it ever was justified. Unrestrained competition does not as a matter of fact exist for many articles, except to a very limited Blind faith degree at the present time. Everywhere there is restraint ^^fJJ^^o't" of trade by agreement or combination, either lawful or un- justified. lawful. So inevitable is this situation that we have seen how the law forbidding restraint of trade has accelerated concentration of industry from the loose agreement to the pool, from the pool to the trust, from the trust to the holding company, and from the holding company to the giant com- pletely consolidated industry. In making the foregoing statements, it is not meant to imply that competition has not been a most useful economic force in the past, nor that it will not continue to be a useful force. Competition has been powerful in stimulating men to effort ; it, under some conditions for some industries, has been potent in improving quality; it has limited margins Usefulness within monopoly prices, and has often been helpful in a wider °^J^^^ sphere; it has been dominant in improving service. From the smallest firm to the greatest corporation there has been an increase rather than a decrease in the power of competi- tion in improvement of service. Even if competition were CONCENTRATION AND CONTROL Competi- tion must be supple- mented by regulation. wholly destroyed as to quality and as to price, competition in service would still remain of the keenest. While therefore agreeing that competition has been a great and highly useful economic force, it has been the purpose of the foregoing pages to show its severe limitations; to show that it is not adequate alone to control quality or price, and that where relied upon for these purposes, it has been a lamentable failure. For these, competition must be supple- mented by regulation in order to give satisfactory results. In another place it is proposed that we shall retain the ad- vantages of competition and also secure the advantages of regulation. (See pp. 249-252.) Section 9 THE WASTES OF COMPETITION On previous pages the economic advantages of concentra- tion have been given. The obverse of these are the wastes of competition. The economic gains through concentra- tion are possible savings, which, if not taken advantage of, are at least losses in the sense that better things could be done even if they are not technically wastes. Therefore, in one sense all of the advantages of concentration should be here listed as gains not securable through competition. The various points discussed (pp. 8-20) will not here be repeated, but a brief statement will be made of some of the evils of competition which can manifestly be called wastes. (1) Expenses of Salesmen. — One of the largest of the wastes is the unnecessary expenditures for salesmen under the com- petitive system. Where there is competition, the sales agents everywhere overlap one another in their work. In a small town or village there may be a half-dozen men selling the same kind of article within a week; whereas, if cooperation existed, many different brands could be exhib- ited by a single salesman and the expense greatly reduced. A number of illustrations of such losses have already been given. (See p. 14.) Many more might be included; but FACTS REGARDING CONCENTRATION 89 one of the best is the enormous loading in the Hfe insurance business, which has resulted from the competitive system due to the expense of salesmen selling life insurance, usually men receiving high pay and high commissions. Indeed, for many companies a large percentage of the conduct of the business and a considerable percentage of the income has gone to compensate salesmen of insurance. (2) The Expense of Advertising. — The money spent for ad- vertising is enormous. This varies from the frantic efforts to push patent medicines, through many specialties, such as automobiles, to staple articles, such as soap, clothing, and foodstuffs. It is a well-known fact that the great daily newspapers would be losing enterprises, as conducted, if it were not for the advertising ; indeed their major profits come from this class of business. The same is true of the weekly and monthly magazines, many of which give more space to advertising than to reading matter. If one looks through the magazines and makes an estimate of the amount of money which is spent in the advertising of such an article as soap for a single month, he will find that this reaches tens of thousands of dollars. The enormous cost of advertising will scarcely be appreciated without knowing the cost per page and the number of pages carried per month for the different magazines. The cost of advertising per page for each issue of some of the standard magazines is as follows : Ladies' Home Journal, $6000; Saturday Evening Post, $4000 ; and such magazines as the Century, American, Har- per's, McClure's, Munsey's, Cosmopolitan, Everybody's, from S2.50 to $600, depending upon the circulation.' Exceptional positions, such as the back covers and the pages next the covers have special rates greater than the above. The average number of pages of advertising for the Ladies' Home Journal is about 35, and the Saturday Evening Post is about 25. This makes the advertising cost for a single issue for these pubhcations $210,000 and $100,000 respectively. (3) Competition and Conservation. — The heaviest of the wastes of competition with reference to the future of the race 1 Mahin Advertising Company Data Book, 1912. 90 CONCENTRATION AND CONTROL One third of bitu- minous coal lost. Half of the anthracite left in ground. are those due to the unnecessary destruction of natural re- sources in order to put an article on the market at a competi- tive price. Of the wastes of natural resources through competition probably those of fuels and gas are the worst. Holmes says, regarding coal : — "Those who are less familiar with the mining industry than you are with the metallurgy may not be aware of the fact that for every ton of coal brought to the surface in the bituminous or soft coal mines of this country, not less than one half a ton is left imder the ground, and it will not be possible to bring it to the surface in the future at any reason- able cost, if at all. But more shocking still is the fact that in our anthracite coal fields, which are so limited in extent as to be confined to a territory comprising less than four hundred square miles, even with all modern improvements, not more than 50 per cent of the anthracite coal of the areas mined is being brought to the surface. The remainder of it, now aggregating 80,000,000 tons a year, is being left under- ground in such condition as to make its future recovery difficult, if not impossible. "In the early days of anthracite mining there was brought to the surface an average of between 30 and 40 per cent of the coal, so that from 60 to 70 percent remained under the ground, which was sufficient to give strength to the roof; and to- day mining engineers are bringing to the surface a part of the coal which was left in the mines 30 or 40 years ago. But as the percentage of coal mined has increased, from time to time, the possibility of recovering what is left behind dimin- ishes. It has been estimated that since the beginning of coal mining in the United States, more than 2,000,000,000 tons of anthracite coal and 3,000,000,000 tons of bituminous coal have been left underground in such condition as to make its future recovery doubtful or impossible. "I know of no other American industry which to-day is in so deplorable an economic condition as is the bituminous ' Journal of Industrial and Engineering Chemistry, 3. A. Holmes, pp. 160-162. "Carbon Wastes,'' FACTS REGARDING CONCENTRATION 91 coal industry. The operators, unable under existing laws to Competi- combine and fix prices of coal or any trade agreements, are ^'°°e''™' adopting what appears to be the only alternative — ruinous waste. competition, which encourages or enforces wasteful and dan- gerous mining. It seems essential that federal or joint state legislation be enacted authorizing such reorganization of this great industry as will permit reasonable returns on the money invested and at the same time properly safeguard the public interests. You realize that it is often less expensive per ton for the operator to bring the first half of his coal to the surface than it is for him to bring out the remaining half, because this second half will support the roof while the first half is being removed; but while he removes the second half he must often temporarily support the roof with timbers ; this entails additional expense, to meet which there is generally neither an acciunulated surplus from which to draw, nor a temporary profit from which to meet this extra expense; hence the coal is abandoned. It is only fair to the coal operator that he is not in the mining business for his health, but to make a living by earning a reasonable return on his investment. Therefore, what we may consider a waste may be a necessary waste imder existing economic conditions ; a waste, however, that is preventable and should be prevented by improvements in our economic conditions, and necessary legislative requirements." The above admirable statement by Holmes regarding the inevitable waste of coal under the competitive system may be made more concrete by illustrations. Mr. Walter S. Bogle, speaking for the coal operators of the state of Indiana, says that the proposed formation of a selling agency by a number of small operators was declared by the federal officers to be in restraint of trade, and notice was given that if such selling agency were established, those contemplating its formation would be subject to criminal and civil prosecution.* This is the situation even if the operators contemplating a selhng agency are together able to put no more coal upon the market than a single large 1 Hearings, Interstate Commerce Committee, XXVI, pp. 2320-2327. 92 CONCENTRATION AND CONTROL concern. The Indiana coals are of a Idnd that deteriorate rapidly when taken out of the mine. Several varieties and sizes of coal are produced; to obtain one size other sizes must be made. If an order comes to a mine for a certain size, corresponding orders may not come for the other sizes ; but such orders may come to an adjacent mine. If a group of mines may cooperate so that the orders will equalize themselves among the different varieties and sizes of coal, it is evident the waste will be greatly reduced. Mr. G. W. Traer,^ speaking for the lUinois Coal Operators' Association, says in that state there are about three hundred independent coal producing companies ; that the demand for the Illinois coal is about 50,000,000 tons a year, but that the capacity of the mines is about 75,000,000 tons. It is necessary to have a greater mining capacity than the average demand, since the demand in the winter months greatly exceeds that of the summer months. The Illinois coal, hke the Indiana coal, deteriorates if un- used for several months. Thus if the mines be developed sufficiently to meet the demands for the year, they must lie idle for a portion of the time. As a matter of fact the average running period of the mines per annum is about one hundred seventy days. If the mine operators do not agree among themselves regarding limitation of output during the summer months, it is inevitable that there will be overpro- duction, deterioration, and great waste ; yet it is certain that under existing laws agreements to hmit output are illegal. Mr. J. F. Callbreath ^ states that there are 5000 operators of bituminous coal in the United States which have the ability without opening new mines to produce 200,000,000 tons of coal per annum more than the present markets demand. Under existing laws no group of these operators may cooperate. He states that three fourths of the mem- bers of the American Mining Congress are consumers of coal, not producers, and they urge that there be cooperation among the coal mines in order to secure regularity of out- ' Hearings, Interstate Commerce Committee, XXVI, pp. 2353-2359. » Ibid., XXVI, pp. 2372-2380. FACTS REGARDING CONCENTRATION 93 put and uniform prices. According to him an investigation of the bituminous coal mining industry for 1910 shows the following situation : The average cost of production for 1910 was $1.07 per ton, 95 cents for mine labor and supplies and 12 cents for general expenses. It shows that there was invested in the industry $585,000,000. The average price obtained at the mine during 1910 was $1.11 — 4 cents per ton to cover selling costs, depreciation of machinery, ex- haustion of resources, and interest upon capital invested. " The sworn testimony of the Pittsburg Coal Co., before the Interstate Commerce Committee in November, 1911, shows that in the previous 17 months the company mined 3,522,500 tons of coal at a cost of $1.1148, and the average selling price for that period was $1.0930. It showed further that the product of 20 of its mines, out of a total of 52, produced 5,350,594 tons at a cost of $1.0788, and when the money actually spent in seUing this coal is added to the given cost and the interest on bonds of the company it appears that the cost of this coal was actually in excess of $1.15 per ton run of mine." ' Under such conditions it is certain that the mining will not be carried on economically ; that only the coal will be taken out which can be mined cheaply, and the remainder left in the mine to be crushed by the gradually sinking roof. ' To avert these conditions there are but two possible remedies. One, that the coal shall be sold at a greater average price ; the other, a greater economy in operation by which the same price will yield a profit. Neither of these remedies is possible under the system of cutthroat competi- tion which now exists. It is only by general cooperation that any relief can be obtained except by a process which would eliminate the greater number of those now in the business." ^ Nor will it be possible under these conditions to intro- duce in the mines those devices which are necessary for the preservation of life ; and plainly it will be impossible to 1 Hearings, Interstate Commerce Committee, XXVI, pp. 2372-2373. 2 Ibid., p. 2376. 94 CONCENTRATION AND CONTROL Waste of natural gas Waste in making coke. give the miners wages adequate to introduce good social conditions. In view of the above situation the operator asks that conditions be created covering the following points : — " First. Proper protection to the lives and health of the miners. " Second. Prevention of waste and proper conservation of fuel resources. " Third. A fair profit to the operator. " Fourth. A fair and uniform price to the consumer." ' No one can gainsay the desirability of creating the above conditions, but it is absolutely certain that they can never be established except through cooperation, and cooperation of a kind which is illegal under existing laws. Regarding gas, Professor Holmes says : " Our waste of natu- ral gas is a crime, and thoroughly discreditable to the nation. It is far worse than the waste of coal. The statistics for 1910, according to the Geological Survey, showed that some 480,000,000,000 cubic feet of gas were turned into the at- mosphere and forever lost. In the above as in other cases, the individual operator finds it easier to save a part, than all, of these resources, yes, cheaper for him to waste a large part of these resources than to save all. In the case of natural gas he says : ' I want to get oil, and if I can get the oil cheaper by letting the gas escape, that is the operation I will pursue.' And the state and the nation stand by and watch the opera- tion. "There are many other examples of extensive and serious carbon waste in this country. Thus, in the coking industry the beehive coke ovens have turned into the atmosphere more than 100,000,000,000 cubic feet of valuable gas, which, if properly treated, will yield not only gas but other important carbon by-products." Statements have been made at some length regarding fuel and gas because of their paramount importance; but for some of the metals a similar situation exists and must continue to exist under the severely competitive system. ' Hearings, Interstate Commerce Committee, XXVI, p. 2379. FACTS REGARDING CONCENTRATION 95 This is illustrated by lead and zinc. Putting together all Waste of the losses in mining, concentration, and smelting, they prob- ''?'^^ ^""^ ably amount on an average to at least 40 per cent of the metal of the ore, and in some instances the losses run as high as 60 or 70 per cent. These losses are in large measure due to the extreme competitive system under which excessive royal- ties are charged to the operators.^ Untermeyer^ calls attention to this situation for copper. Waste of Methods of competition involve overproduction for this <=opper. country and exportation of the excess, when the copper ore ia sight is probably not sufficient to last more than fifty years. If the copper producers were allowed to cooperate in the regulation of production, rational action could be secured both as to quantity of copper which is to be mined and as to methods of mining. Small production and competition in all mining enter- prises lead to great and irreparable wastes, the effects of which must be borne by succeeding generations. Another of the numerous wastes is that iu metallurgy. Waste of For instance, sulphur is being burned upon a great scale, ^'^p'^"^- and the products are being passed into the atmosphere to the injury or destruction of surroimding vegetation. With reference to agriculture this loss of sulphur is likely to become irreparable, since sulphur is one of the limiting and crucial elements among plant foods.' A situation obtains for timber similar to that which applies to the metals and coal. With unrestricted competition the timber is cut and only the choicest parts of the logs are Waste in marketed, the remainder being left in the woods. If co- *'™"<"^- operation were possible, it would be practicable to have conservative timber cutting, the additional expense of sav- ing the wasted material slightly adding to the price. Mr. D. E. Skinner * illustrates the situation regarding timber in 1 "Conservation of Natural Resources in the United States," C. R. Van Hise, pp. 80-85. ' Hearings, Senate Interstate Commerce Committee, Part V, p. 184. ' "Sulphur Requirements of farm crops in relation to the Soil and Air Supply," Research Bulletin 14, Agricultural Experiment Station, University of Wis- consin. ' Hearings, Interstate Commerce Committee, XXII, pp. 1909-1911. 96 CONCENTRATION AND CONTROL Conditions in older countries. Respon- sibility to posterity. the western part of the United States. Since under the Sherman act cooperation is not possible the weaker operators are bound to make sales, and they will at such prices as they can get. For the lower parts of the trees the average sale price is $15 per thousand feet board measure, and for the upper part $7 per thousand feet. In California it costs in round numbers $5 a thousand feet for logging and $5 for milling. Under these circumstances it naturally follows that the tops of the trees and the small down timber which will not produce lumber selling at about $10 a thousand, are left to rot in the forest; and this leaves on the ground from twenty to thirty per cent of the material which should have been taken off. The only possible remedy for the above situation is to allow cooperation so that a price may be secured which will permit the utilization of the upper parts of the trees. For our wild orgy of competition in the lumber industry succeeding generations v/ill pay heavily. In making the above statements, it is realized that in a new country, with abundant resources and a relatively sparse population, we cannot expect the same severe economies that are practiced in the older, more densely settled coun- tries. It would be impossible to introduce the extreme economies and labor costs of the intensive agriculture of China into the United States under present conditions. The smaller twigs and limbs of timber cut in lumbering cannot be saved in this country as yet. Where labor is cheap, savings are possible which cannot be practiced in the United States. While this is the situation, upon the other hand, reckless extravagance in the use of natural resources is not warranted. Under present conditions, we can and should introduce all practicable economies in the use of our natural resources along every line. Everywhere the necessity to meet severe competition, combined with the desire to produce large profits, results in extravagant and wasteful use of resources limited in quan- tity. It is our duty to our descendants to conserve our fundamental resources, to use them economically, to prevent their unnecessary waste or destruction; and if by so doing FACTS REGARDING CONCENTRATION 97 a ton of anthracite or iron costs us a few cents more, we should bear this additional expense. Under unrestricted compe- tition there is no hope for economical use of our resources, no hope for conservation. The Consumer pays for the Wastes of Competition. — Ulti- mately all the losses and wastes of competition come back to the consumer and are added to the price which he must pay. If, as a result of overbuilding, concerns fail and factories are dismantled, the cost finally must be borne by the com- munity. The enormous expense of traveling salesmen and advertising is paid by the consumers of the articles sold. The men who carry life insurance support the numerous high-priced agents. Succeeding generations will suffer for our reckless exploitations of natural resources. Says Nettleton : " The waste of wealth due to unrestrained competition would, if saved, go far to enrich the community every year. And this waste finally falls for the most part on the general body of consumers, — the much enduring public." ' Wastes of Competition drive to Combination. — Because of the situation described, not only has restraint of trade existed in a thousand matters in contravention to the Sherman act and the various state antitrust acts ; but it will con- tinue to exist either lawfully or unlawfully, because of the frightful wastes of the competitive system. If where fierce and umestricted competition exists, this goes on until the weaker competitors are driven from the business and the others are on the verge of bankruptcy, in order to prevent the destruction of the group, a combination or cooperation of the remaining companies will be formed either secretly or openly. In consequence of this principle, because of the law against restraint of trade in this country, innumerable secret combinations have been formed. In Germany and England, where combination is free as well combiua- as competition, the organizations of fair size have cooperated ^^°^ p^''- through one of the looser forms of organization, and have thus abroad, avoided the losses of fierce competition ; but in America the loose agreements not being enforcible in the courts, in order ' " Trusts or Competition,'' A. B. Nettleton. H 98 CONCENTRATION AND CONTROL to save themselves from destruction, the competing miits have been obhged to combine formally in a manner which it was supposed the courts would protect. We have seen that many of the whisky distilleries of the country had gone into bankruptcy before the remainder combined. Similarly it was the still fiercer competition between the Federal Steel and the Carnegie Steel and other steel companies that led to the formation of the United States Steel Corporation. When the stage of competition resulting in enormous losses was reached between the great railroads, agreements and pools Railroads were first formed; and finally a way was found to exempt violate laws ^Yie railroads and other public utilities from the laws for- against restraint bidding Combination in restraint of trade by control through of trade. commissions. To this plan the public gives general assent and no prosecutions follow, although the agreements regarding prices are as clearly in violation of the law as were those of the packers or those of the Standard Oil Trust. A Uke situation exists between the Atlantic liners. With modem conditions we have seen the ships grow larger and larger. We have now the Lusitania and the Mauretania of the Cunard line and the Olympic of the White Star line. Occasionally there has been severe competition in price between these lines and the other great lines, such as the North German Lloyd, Hamburg-American, etc. ; but at the present time for definite seasons of the year there are substantially hke prices for similar accommodations, the prices being raised and lowered for the same accommodations at different seasons of the year, being perhaps twice as high in the simimer as in the winter. The illustrations given show that the inevitable conse- quence of unrestricted competition is bigness and finally monopoly. Even Brandeis,i who strongly advocates com- petition, says : " Unrestrained competition will lead neces- sarily to monopoly." Along the same line, Untermeyer^ says : " The logical outcome of imrestrained competition is legaHzed monopoly." Laughlin puts the case that with Combina- tions on the ocean. 1 Hearings, Senate Interstate Commerce Committee, Part XVI, p. 1162. 2 Ibid., Part V, p. 183. FACTS REGARDING CONCENTRATION 99 " free competition you must inevitably expect to have big- ness and also monopoly." ' Ruin or Combination. — In the past, the disastrous com- petition which has led to ruin has been largely confined to the small concerns. When there is severe competition of many small manufacturers or sellers, a number of them with relatively small capital fail. The fact that from 10 to 20 per cent of them go to the wall may not so seriously affect business as to be generally noticed; but its total effect is great, and, so far as the man whose business is destroyed is concerned, it is an individual disaster. As the many drop out, the competitors become fewer and the competition becomes ever keener. Finally a situation arises where this can no longer be endtued. Nimierous illustrative cases could be given in which fierce and imrestrained competition has driven business men to the verge of destruction or to complete ruin. I select one or two recently brought before the United States Interstate Commerce Committee. Vinson^ testified that in West Virginia the small coal producers cannot compete with the large concern because they cannot cooperate through a selling agency. He says that if the small concerns are not allowed to cooperate so as to have the advantage of the large concentration, the only alternative is bankruptcy.* Untermeyer reports that a dozen of the paper manufacturers had failed because they were unable to compete with the big fellows ; and that they had made a temporary trade agreement in order to save themselves from destruction; but that in consequence they were indicted and fined for Aaolation of the antitrust law. Says Untermeyer : * " Requiring the enforcement of un- restricted competition calls upon people either to make criminals of themselves or to ruin themselves in obeying the law." Says Walker:^ "Competition is the life of trade; • Hearings, Senate Interstate Commerce Committee, Part XIV, p; 996. 2 Ibid., Part III, p. 30. ' Ibid., Part V, p. 194. 4 Ibid., Part V, p. 183. ' "Unregulated Competition Self-destructive," Aldace F. Walker, Forum, December, 1881. 100 CONCENTRATION AND CONTROL Coopera- tion in industry imperative. Alternative, lawlessness or failure. competition is the death of trade: one phrase is as true as the other." And again : " Unrestrained competition as an economic principle is too destructive to be permitted to exist." The fierceness of modern competition is the inevitable result of the development of transportation and communi- cation. Until these were in a highly advanced condition it was not possible for an organization to reach a great terri- tory with its products. With highly efficient transportation and communication the strong organizations, even if far apart, meet one another in the wide markets ; and the destructive struggle is inevitable unless they cooperate. A situation similar to that which existed with the railroads before cooperation in charges was actually agreed upon is now reached for the great manufacturing industries. They have found a way by consolidation to prevent the evil effects of unrestricted competition. It is now proposed through the courts to break up these combinations and restore competition. If this be done, it is safe to say that even greater disasters will befall the country for the great industries than those which the country suffered when the same situation existed with the railroads. With the alternative before the business men of coopera- tion or failure, we may be sure that they will cooperate. Since the law is violated by practically every group of men engaged in trade from one end of the country to the other, they do not feel that in combining they are doing a moral wrong. The selection of the individual or corporation for prosecution depends upon tlie arbitrary choice of the Attorney- General, perhaps somewhat influenced by the odium which attaches to some of the violators of the law. They all take their chance, hoping that the blow will fall elsewhere. With general violation and sporadic enforcement of an imprac- ticable law, we cannot hope that our people will gain respect for it. CHAPTER II SOME IMPORTANT ILLUSTRATIONS OF CONCENTRATION Now that a general statement has been made of the economic advantages of concentration, its extent, the wastes of competition, its consequent break-down, etc., it seems advisable as the next step to make the situation more con- crete by giving an outUne statement concerning some of the greatest combinations, including the benefits and evils which have appeared in connection with them. With two exceptions, the illustrative industries selected for description are those upon which reports have been made by the United States Commissioner of Corporations. The earliest of these reports, viz., that upon beef, was made when James R. Garfield was Commissioner. The other reports were issued during the time that Herbert Knox Smith has held that office. The corporations reported upon by the Commissioner are those of the first magnitude, and the facts concerning them are presented with a fullness not available for the corporations not investigated by this bureau.' Section 1 THE MICHIGAN SALT COMPANY ^ Beginning with 1860, there was a rapid development of salt production in Michigan. About 1865 came overpro- duction and unrestricted competition ; the weaker companies were driven to the wall. It was recognized that the solution of the difficulty was combination. By 1866 the manufac- ' The great combinations as they existed twelve years ago are described in the Report of the Industrial Commission, Vols. I and XIII. 2 Summarized from an article by J. W. Jenks, contained in "Trusts, Pools, and Corporations," Ripley, pp. 1-21. 101 102 CONCENTEATION AND CONTROL Changing name. Conditions of the pool. Economic advantages. turers united their interests for selling the product. In 1868 there was formed an association called the Saginaw and Bay Salt Company, which handled four fifths of the salt shipped from the Saginaw Valley. This association continued until 1871, when it was broken up as a result of dissensions ; but declining prices and lack of prosperity led to the formation of the Michigan Salt Association in 1876. The agreement forming this association was for five years, but it was renewed in 1881 under the name of the Salt Association of Michigan, and again in 1886 under the name of the Michigan Salt Association. The associations were essentially pools; they had a very small capital, $200,000, which was distributed among manufacturers of salt in proportion to their capacity. After providing for the expense of the business, there was an annual dividend of only 7 per cent upon the stock. After paying this dividend and the expenses, the remainder of the income was distributed to the manufacturers in proportion to their output. Under the articles of agreement a contract was made every year with each manufacturer to make salt wholly upon the association's account, of the best quality, to be delivered to the association according to the conditions of the contract. If a manufacturer violated his agreement, he paid ten cents upon every barrel of the salt so sold. There was no restriction imposed upon the output of the various concerns. This lack of limitation was due to the fact that the salt manufactories obtained their heat from the by-products in lumber manufacture. The economic advantages accruing to the manufacturers through the association were reductions in the amount of selling costs due to the maintenance of a single selling agency at each of the commercial centers, and reasonable prices, as well as the avoidance of cross freights. After the asso- ciation was formed in 1866 the prices were somewhat in- creased; they reached a maximum in 1868, when the price of salt was $3.25 a barrel at Chicago. From this time on prices continued steadily to fall until in 1881, when the Chicago prices were $1.05 per barrel. In 1871 the salt com- ILLUSTRATIONS OF CONCENTRATION 103 bination was extended to include not only the Michigan salt producers, but those of Ohio and New York. Prices were fixed by the combination at various points. The out- puts of the fields were apportioned in 1871, and reappor- tioned m 1881. The pool broke up in 1882, after which there was a further decline in the price of salt. At Chicago in this year it became as low as 80 cents. Jenks places to the credit of this association the following points : — As a result of the action of the association a system of state inspection was established under which every block of salt placed upon the market was rigidly examined. In consequence, each manufacturer was obliged to produce an article which came up to the standard set by the associa- Credits tion and by the state. The prices were reasonable and ^°°' steadily declined during the life of the association. In consequence of the combination, less capital was required to conduct the business; better rates of transportation were secured; there was no loss by cross freights; the cost of marketing was reduced; there was a reduction in the losses through bad debts. It would seem that the history of the Michigan Salt Association was a creditable one, in that dealing with an essential article, the output was increased, the quality of the product improved, the cost of manufacture reduced, so that there was placed upon the market a superior article at a price much less than when the association was organized. The association very well illustrates the instability of the pool, since not having the sanction of law and the support of the court (see p. 68) any member or group might with- Pools draw at any time, or violate any of the articles of agreement and refuse to pay the penalty; consequently the history of the association, as of other pools, was one of ups and downs and finally inevitable dissolution. unstable. 104 CONCENTRATION AND CONTROL Monopoly swiftly accom- plished. Section 2 THE STANDARD OIL COMPANY i The report of the Bureau of Corporations upon the Stand- ard Oil Company was pubhshed in 1907, and includes an account of the business to and including the year 1906. The facts here stated are to be considered as of that date. The Standard Oil Company, with its various affiliated concerns, handled 84.2 per cent of the crude oil which goes to the refineries in the United States. One refinery, that at Bayonne, New Jersey, consumed more crude oil than all of the independent plants of the country. The Rise of the Company. — The rule of the Standard Oil Company began with the union of several large refining com- panies into a partnership knovm as Rockefeller, Andrews, & Flagler, in 1867. Three years later this partnership was succeeded by the Standard Oil Company of Ohio, with a capitalization of $1,000,000; and with its organization began the campaign for the control of the refining business of the country. When the company was formed, it did not control more than 10 per cent. Within ten years the Standard Oil and associated companies controlled about 90 per cent. Monopoly was accomphshed in a decade. Not only did this company control the refining business, but it controlled every important pipe line in the oil fields. The only serious competitor was the Tide Water Pipe Line Company, which, however, in a few years passed to the Stand- ard. Thus the Standard for many years had no rival in pipe line transmission of oil to the Atlantic coast ; and at no time was there more than one independent pipe line to the sea- board and this much smaller than those of the Standard Oil. In 1882 the Standard Oil interests formed the Standard Oil Trust, under which the entire stock holdings of fourteen com- panies and a majority interest in twentysix additional con- cerns were held by trustees. The capitalization of the trust 1 Report of the Commissioner of Corporations on the Petroleum Industry: Part I, " Position of the Standard Oil Company in the Petroleum Industry" ; Part II, "Prices and Profits." Washington Government Printing Office, 1907. ILLUSTRATIONS OF CONCENTRATION 105 at that time was $70,000,000, and the appraised value of its Capitaliza. property in excess of $55,000,000. Of the $70,000,000 trust f^^°^ *^« certificates nine of the trustees owned more than $46,000,000. The appraised value of the trust by 1892 had accumulated to $126,600,000. As a result of a decision against the Stand- ard Oil Company of Ohio in 1882 (see p. 174) and contempt proceedings, the Standard Oil Company of New Jersey was organized, but not until 1897. Thus, the Standard Oil Company of New Jersey, a holding Trust and concern, was a direct successor to the trust, the only differ- ^<''<^'°e , . J J company ence bemg that the holding company owned all of the stock the same of the subsidiary companies, instead of being a trustee for ™ essence, this stock ; each alike controlled the business of the subsid- iary companies, and received and distributed all dividends. The officers of the constituent companies in one case had their orders from the trustees, in the other from the officers of the corporation composed of substantially the same men. The authorized capital of the Standard Oil Company of New Jersey was $100,000,000, of which $98,338,300 was issued. The Standard Oil Company included in America eleven companies mainly engaged in refining, five lubricating oil companies, three crude oil companies, fourteen pipe line Scope of companies, a tank line company, six marketing companies, operations, and sixteen natural gas companies. Its business abroad was done through sixteen companies. In addition to these com- panies seven pipe lines and refining companies were closely affiliated with or controlled by the Standard Oil Company. The Monopolistic Position of the Company. — While the statistics of production show that the Standard Oil Company was dominant in all departments of the business, it did not hold this position through a direct monopoly of the owner- ship of the wells ; since in 1905, of approximately 135,000,000 standard barrels of crude oil, not over one sixth came from the wells ^JJ^" ^^ owned by the Standard, and in no one district did its own wells produce more than 50 per cent of the output. But while the Standard did not control the wells, it controlled the pipe lines, which are the only means by which oil may be cheaply transported. Thus the Standard was almost the 106 CONCENTRATION AND CONTROL Monopoly of pipe lines. Monopoly in lefining. Efficiency in market- ing. sole purchaser for the oil owned by others. The control of the pipe lines controlled the situation because the refinery at the distant town was not able to pay the railway rates upon crude oil, which are very high as compared with the pipe line transportation. The Appalachian, Lima-Indiana, Illinois, and Mid-Con- tinent are the four great fields which produce the most valu- able oil for illuminating purposes; and in these four fields there was only one pipe line other than the Standard's, that of the Pure Oil Company, a line less than 550 miles in length. The percentage of business of these four fields handled by the Standard varied from 84 to 96 per cent. In the refining industry the plants of the Standard were favorably located and of high efliciency. In 1904 it pro- duced 86.5 per cent of the refined illuminating oil, leaving 13.5 per cent to the independent refineries. Of the export business. Standard Oil handled, in 1904, 13,240,113 barrels; or 87 per cent, of the total for the country. In the marketing business Standard Oil was in an es- pecially strong position because of the wide and wise dis- tribution of its plants, because of its pipe lines, tank cars, and many local storage plants. This system of distribution was so complete that, for the most part, it eliminated the jobber, and dealt directly with the retailer or with the individual consumer. For the United States the known Standard con- cerns marketed 88.7 per cent of the illimiinating oil. The causes which led to the dominating position of the Standard Oil Company were efiiciency of organization, magnitude, integration, utilization of by-products, and uni- fied marketing; in short, all of the advantages which are described (pp. 8-20) as economic causes for concentration. But in securing the position which Standard Oil occupied there is no doubt that very important, if not determin- ing, factors in reaching it were the following special causes : — Railroad discriminations in favor of Standard Oil were continuous from the formation of the Standard Oil Company of Ohio until the railroads under the Interstate Commerce ILLUSTRATIONS OF CONCENTRATION 107 Commission were compelled to discontinue these practices. The rebates secured by Standard Oil from western Penn- sylvania to the seacoast were frequently a considerable part Railroad of the cost of transportation. At one time when the open discnmina^ rate from Pennsylvania to the coast was $1,443/^, 80 cents was the rate for the Standard Oil. Another form of advan- tage was to give lower rates on oil in tank cars than on oil in barrels. At other times the published rates were reduced for short periods after previous notice to the Standard, so that large shipments could be made by that company, after which the rates were again advanced. Another advantage which the Standard Oil had was through its pipe lines. These gave it almost complete mo- nopoly of the cheapest form of transportation. Even after the pipe lines were declared to be common carriers, the Standard Oil Company still refused to transport the oil of Unfair use its competitors ; or if it transported the same, it was with ^^^^ excessive rates, under such conditions as to make competi- tion extremely difficult. Where there was a competing line the Standard would attack it by purchasing the crude oil of the wells in the vicinity of the independent line at excessive prices, sometimes from 15 to 20 cents a barrel more than the current price. In this way, even at a loss, the Standard prevented the competing lines from getting business, re- couping the loss by profits from other parts of its system. If the pipe lines had in fact acted as common carriers, and transported oil at reasonable rates at points as asked, a very important element in the growth of the monopolistic power of the Standard would have been lacking. The Standard Oil Company maintained a monopoly from the establishment of the Standard Oil Trust in 1882 imtil the time it was dissolved by the order of the Supreme Court in Monopoly 1911. Because of this the organization was able to charge p"°^^- excessive prices which gave enormous profits. According to the Commissioner of Corporations, the following points appear regarding prices : — 1. There was a marked increase in the margin between the price of crude oil and its leading finished products, after the 108 CONCENTRATION AND CONTROL formation of the Standard Oil Trust, and even during the past ten years. 2. Standard Oil has sold illuminating and free petroleum products cheaper abroad than at home, the difference being very great in 1902. 3. Standard Oil discriminated greatly in fixing prices in different sections and different towns, charging exorbitant rates when there was no competition, very low rates, and even prices so low as to give a loss, in places where there was competition. 4. The profits of the Standard Oil Company especially in its domestic business were excessive. 5. The real source of the Standard's power was not in superior service but in long-continued use of unfair methods of competition. 6. The Standard by using its influence as a larger shipper secured excessive prices for lubricating oil from the railroads of the country. 1 Margins and Profits. — The margin between crude oil and illuminating oil increased markedly from 1897-98 to 1903- 04. In 1898 it was 5.3 cents; in 1903, 7.1, an increase of Excessive 1.8. Similar increases of margins applied to gasoline and margins. lubricating oil. Even if the profits due to increase in margins be placed at only 1.5 cents per gallon, on 1,400,000,000 gallons produced in 1904, the increased profit would mean $21,000,000. Similar calculations give $25,000,000 for 1903. Correspond- ing with this calculation, the profits of the company in 1896- 97 were in the neighborhood of $34,000,000; whereas, in 1903 they were $81,000,000, an increase of $47,000,000. In 1893-94, when the margins were the lowest, the profits of Standard Oil on the capitalization of the company were be- tween 11 and 12 per cent; in 1896 they had reached 23 per cent ; and since that time to dissolution there were enormous profits, due to the increase of margins. Prices in the United States for two years, taking into account both grade and freight, have been from one to nearly three cents higher than those which obtain in London and Hamburg. » "Petroleum Industry," Part 2, 1907, pp. 1-2. ILLUSTRATIONS OF CONCENTRATION 109 Price Discriminations. — Sectional price discrimination was shown by the very great variation in price among the different cities, being relatively low where competition was keen, and very high where monopoly was complete or nearly so. In 1904 at Los Angeles the price was 6.7 as com- pared with 12.3 at San Francisco. Prices have been as high as 16.61 at Butte at the same time they were as low as 7 in other cities. Illustrating the situation very well, in New York City and vicinity, the very seat of the Standard's greatest refineries, the price was 10.5, while at Worcester it was 7.5, and at Cincinnati and Cleveland 7 or less. Excessive Profits. — The total dividends paid by the Stand- ard Oil Company from 1882 to 1906 were over 1550,000,000, on an average over $22,000,000 a year. This, however, does not represent the total net earnings, since there were large accumulations not declared as dividends. From 1882 to 1896 the profits on the capital stock and trust certificates aver- aged about 19 per cent. In 1903 they had reached 83 per cent and the average from 1903 to 1905 was about 68 per cent, annually. The total profits from 1897 to 1906 are be- lieved to be somewhere from $790,000,000 to $850,000,000 ; and this upon properties the value of which originally aggre- gated not more than $75,000,000. These figures show that after monopoly was obtained and improvements made in transportation and manufacturing, it was possible because of this situation to secure these enormous profits. It is notable that excessive profits came about, not by tak- ing any very large amount from a single gallon of oil, not more than two or three cents, and yet these two or three cents multiplied by the enormous number of gallons used by the people of the United States led to the vast profits above given. The Standard Oil industry very well illustrates the principle that if a commodity is widely needed, even if one family uses a relatively small amount, and the average annual tribute levied upon that family is small, if there be a moderate excess beyond that of a fair price, the total illegitimate profits of the organization may be fabulous ; not only so, but the accumulation of these enormous profits in the hands of no CONCENTRATION AND CONTROL a few men may enable them to invest in other lines of busi- ness which have monopolistic elements, and they thus gain a commanding influence in the industry of the country. It is well known that the excessive profits which have gone to the owners of the Standard Oil Company have enabled them to enter many other great lines of business, so that they, with their railroads, industrial organizations, trust companies, and banks, are one of the two great dominating centers which in large measure control the money of the United States. The disintegration of the Standard Oil Company by the order of the courts is discussed on pp. 181-183. Summary of Evils. — In summary the Standard Oil Com- pany illustrates very clearly a number of evils which have risen in connection with great combinations. This company has engaged in the following practices : — 1. From the railroads it has secured rebates and draw- backs ; has had better service than competing corporations ; has had rates manipulated for its own purposes; has had lower rates on oil in tanks than in barrels ; has secured infor- mation as to business of competing companies. 2. It has owned pipe lines; by its position of ownership it has had great advantages through refusing in good faith to execute the duties of common carriers to competing organiza- tions. 3. Because of its monopoly it has been able to increase its margins beyond reasonable amounts, and thus has secured excessive profits. 4. It has disposed of its products cheaper abroad than at home. 5. It has had greatly varying prices in different sections of the country, the prices being made very low whenever competition appeared, the purpose being to destroy competi- tors, and it has succeeded in many instances. 6. It has pursued methods of espionage upon competing concerns in order more advantageously to compete with and destroy them. 7. It has used secret companies to kill competitors. ILLUSTRATIONS OF CONCENTRATION 111 Section 3 THE UNITED STATES STEEL CORPORATION i Early Consolidations. — Before the organization of the United States Steel Corporation, consolidation of the iron and steel industry had made much progress. Prior to 1898 the steel business was distributed among a large number of relatively small companies, although even at that time a number of steel companies had obtained considerable promi- nence, among which were the Illinois Steel Company and the Carnegie Steel Company. The organizations producing the more finely finished materials were almost altogether separate from those which made pig iron, steel billets, and the rela- tively heavy and simple finished products, such as rails, structural material, and plates. In 1898 there began a series of mergers which resulted in the development of a number of very large companies, each one having as elements a number of organizations before independent. The earliest of these was the Federal Steel Company incorporated in 1898 with a capital of $100,000,000. This included the former Illinois Steel Company, the Minnesota Iron Com- pany, the Lorain Steel Company, and the boats and rail- ways owned by these companies. By this merger the steel business was for the first time integrated from the ore to the coarser of the finished products. The National Steel Company was formed in 1879 with a capital of $59,000,000. The plants acquired were mainly in Ohio. In 1900 the Carnegie interests were organized into the Carnegie Company of New Jersey, with a capitalization of $320,000,000. This new organization united the Carnegie Steel Company, the H. C. Frick Coke Company, and the Oliver Iron Mining Company. The company also had ' Report of the CommisBioner of Corporations on the Steel Industry : Part I, Organization, Investments, Profits, and Position of the United States Steel Corporation ; Part II, Cost of Production. Washington Government Printing Office, 1911. Hearings before Committee on Investigation of United States Steel Corporation, Parts 1 to 63 inclusive, p. 5694. 112 CONCENTRATION AND CONTROL control of a railway from Lake Erie to Pittsburg and owned boats on the lakes. Thus there was even greater integration than in the case of the Federal Steel Company, in that a great coke company was included. The three great companies mentioned were engaged chiefly in the manufacture of crude material or the coarse finished products such as pig iron, steel billets, rails, beams, plates, and bars. During the same period the companies producing the more refined products were also largely consolidated into the American Tin Plate Company in 1898, the American Steel and Wire Company in 1898, the National Tube Company in 1899, the American Steel Hoop Company in 1899, and in 1900 the American Sheet Steel Company, the Americau Bridge Company, and the Shelby Steel Tube Company, Each of these organizations, with the exception of the Shelby Company, which was smaller, had a capitalization varying from 133,000,000 to $90,000,000. In addition to the above consolidations, all of which later entered into the United States Steel Corporation, there were enlargements and consolidations of other important com- panies, operating in the northeastern quarter of the United States, among which are notably the Republic Iron and Steel Company, the Peimsylvania Steel Company, the Cambria Steel Company, the Lackawanna Steel Company, and the Jones and Laughlin Steel Company. These com- panies, at the times of the reorganizations or later, increased their capitaUzations to amounts varjong from $27,250,000 to $47,500,000. In the South the important Tennessee Coal, Iron, and Rail- road Company had continued to expand during the same period, as had also the Colorado Fuel and Iron Company in the West. Causes of Consolidation. — The Commissioner of Corpora- tions gives as the causes which led to the consolidations described the desire to restrict competition among the constituent companies and the desire for integration. Both of these purposes were for the time accomplished. For ILLUSTRATIONS OF CONCENTRATION 113 instance, the constituent companies of the Federal Steel did not compete among themselves. The matter of integration will be considered later. During the period before consolidation the competition had been severe and prices alternately high and low, depend- ing upon the trade conditions and the extent of cooperation. For a time excessive prices would be maintained; but at times of depression sooner or later agreements or pools would break and prices would go down. Thus upon the breaking up of an agreement, prices for steel rails fell from $28 per ton in 1896 to $17 or $18 in 1897 and 1898. After the combination had been reestablished, prices for rails went to $35 per ton in 1899 and 1900, but in the earlier part of 1901 fell to $26. Steel billets went from $16.25 per ton to Unstable $39.50 and back to $16.50 between December, 1898, and P"f' ' ' under com- October, 1900. During the same time wire nails went from $20 petitive to $50 per ton and then back to $30. These figures show how "y"*''™- unequal and unsatisfactory were the conditions as to prices. When the independent mills or the combined companies could get together, and demands were large, prices would become abnormally high; as the demands decreased and the full capacity of the mills was not required, the combination would break and the prices become abnormally low. Organizations of the Corporation. ■ — Before the consolida- tions of the companies producing highly finished products, the constituent companies bought their steel billets from the primary companies. After the consolidation they began to acquire ore and coal lands, to build blast furnaces, and to manufacture their own steel ingots ; and thus they were planning to cease buying crude steel from the primary companies. This led the Carnegie Company to plan to build several plants for making the finished products. Similar plans were made by the Federal Steel Company. This contemplated extension of the two groups to become completely independent was the final factor which led suddenly in 1901 to the formation of the United States Steel Corporation. If the great companies of both groups could be united into a single corporation, the iron mdustry would be 114 CONCENTRATION AND CONTROL Companies consoli- dated. A holding company. completely integrated. The different lines of work could be divided among the subsidiary companies, and there would be great economy. Obviously also the combination would be in a more advantageous position to maintain prices than a number of independent companies. It was plain that the combination could not succeed unless the Carnegie Company could be acquired. Successful negotiations were entered into with Mr. Andrew Carnegie to this end, and thus, in April, 1901, the United States Steel Corporation was formed, consisting of the Carnegie Company of New Jersey, the Federal Steel Company, the American Steel and Wire Company, the National Tube Company, the National Steel Company, the American Tin Plate Company, the American Steel Hoop Company, and the American Sheet Steel Com- pany. Shortly afterward there were acquired the American Bridge Company, the Lake Superior Consolidated Iron Mines, the Bessemer Steamship Company, and the Shelby Steel Tube Company. Each one of the manufacturing organiza- tions included a number of manufacturing plants distributed at various points as well as other properties necessary to integrate the business, such as ore companies, coke com- panies, dock companies, railroad companies, gas companies, water companies, etc. The Steel Corporation as organized was essentially a hold- ing company, having the stock of all of the subsidiary companies. These subsidiary companies held their sub- ordinate properties in two classes, in fee and the stock of the subordinate companies. Thus the Carnegie Company of New Jersey was the holding company of the stock of twenty companies, ranging from the various works of the Carnegie Steel Company of Pennsylvania to the great Frick Coke Company. The United States Steel Corporation, when formed, had steel works with an annual capacity of 9,400,000 tons of crude steel, 1000 miles of railway, 112 lake ore vessels, iron ore deposits estimated to contain from 500,000,000 to 700,000,000 tons of ore, and more than 50,000 acres of high grade coal lands and numerous related properties. The ILLUSTRATIONS OF CONCENTRATION 115 total number of plants under the control of the corporation Capacity exceeded 200. Since its organization it has acquired three ^'''^ „j.„ 1 __ • ■ . 1 ..... , , resources. Steel companies m the same region m which were located the other properties of the corporation, namely, Union Steel, Sharon Steel, and Clairton Steel, these being acquired between 1902 and 1904. Finally, there was added in 1907 the great southern property, the Tennessee Coal, Iron, and Railroad Company. Overcapitalization. — The capitalization of the company in 1901, after acquiring the Shelby Company, was as follows : — Preferred stock $510,205,743 Common stock 508,227,394 Steel Corporation bonds 303,450,000 Underlying bonds 59,091,657 Purchase-money obligations and real-estate mortgages 21,872,023 Total $1,402,846,817 As a result of careful investigation, the Commissioner of Corporations concluded that a fair valuation of the entire physical property of the United States Steel Corporation at the time of its organization was $676,000,000. If the val- uation were made upon a basis of the market value of the properties acquired, it would be approximately $793,000,000, and this figure should include the good will of the going business. Using the higher figure, the capitalization of the United States Steel Corporation exceeded its face value by $609,000,000. This shows conclusively that the common stock at the time it was issued was all water and that other securities were inflated. Indeed, the managers of the corpo- Overcap- ration justified their capitalization only by placing the ore deposits at practically one half of the complete valuation, $700,000,000, a dollar a ton ; which, as any one who was or is familiar with the situation knows, was an excessive valua- tion in 1901, especially as a large part of the ores are not owned in fee, and royalty must be paid to the fee holders. This valuation by the company was later admitted to be italization. 116 CONCENTRATION AND CONTROL excessive, since in 1907 tlie value placed upon the ore by the company was about fifty cents a ton, which if correct would indicate that the value in 1901 was still lower. The Bureau's estimate of the value of the ore at the time of the organization is about $100,000,000. The comparisons be- tween the estimated value of the properties by the corpora- tion and by the Bureau is shown by the following table : — Table 31. Value of Tangible Assets Acqtiihed bt Steel Corpora- tion IN 1901, AS Computed by Bubeau, Compared with Estimate OF Corporation Submitted in the Hodge Suit in June, 1902 Bttreah's Esti- Corporation's Es- Class of Peopeett mate OF Tangible timate OF Tangi- Difference * Values in 1901 ble Values in 1902 Ore property . . 1100,000,000 $700,000,000 1600,000,000 Manufacturing plants, including blast furnaces . 250,000,000 348,000,000 98,000,000 Railroad, steam- ship, and dock property . . . 91,500,000 120,340,000 2 28,840,000 Coal and coke property . . . 80,000,000 100,000,000 20,000,000 Natural gas prop- erty .... 20,000,000 20,000,000 Limestone prop- erties .... 4,000,000 4,000,000 Cash and cash as- sets .... 136,000,000 164,660,000 ^ 28,160,000 Total .1682,000,000 $1,457,000,000 $775,000,000 1 A part of the differences between the two estimates is accounted for through additions made to property during the interval from April 1,1901, to July 1, 1902, such additions, of course, being included in the corporation's figures. 2 This figure includes 340,340,000 of indebtedness which was not included in the estimate of the corporation, this addition being made in order to render the estimates comparable. ' In arriving at this figure purchase money obligations and real estate mortgages of $16,369,000, which were deducted by the corporation, were re- stored by the Bureau to make the amounts comparable. ILLUSTRATIONS OF CONCENTRATION 117 As an incident to the organization of the company, of the stock issued by the corporation in 1901, $150,000,000, in- cluding $40,000,000 preferred, was for promoting and under- writing services. The cash received from this stock was probably in the neighborhood of $100,000,000. Since the corporation was organized in 1901, its earnings have been sufficiently large so that aside from paying interests on bonds, full dividends of 7 per cent on the preferred stock, and from 2 to 4 per cent on the common stock, sufficient money has been saved so that the net additions to the investments, December 31, 1910, amounted to $504,928,653 ; Water made thus, if the market value of the consolidating companies gt^nce " is taken as a basis, the excessive capitalization had at that time been reduced to about $105,000,000. Using a more conservative valuation of the property made by the Commissioner of Corporations, the amount of water at the end of December, 1910, would be $215,000,000. If the iron ore be now appraised on the basis of assessed valuation, and this seems reasonable, the ores controlled by the corporation are worth not less than $380,000,000 (see pp. 129-132). But a considerable portion of these ores are subject to a royalty to the feeholders. If one fourth be de- ducted to compensate for this, the value of the ore to the corporation would be $285,000,000. Using this figure, rather than $100,000,000, for the present value of the ores, the appraisal of the properties of the corporation exceeds its capitalization by $70,000,000. Apparently the mighty flood of water put upon the market when the United States Steel Corporation was organized has largely or wholly been transformed into substance. Earnings. — The net earnings of the Steel Corporation by years from 1901 to 1910 are shown by Table 32. 118 CONCENTRATION AND CONTROL I o a pq IH S o o Eh ■< M O a o O 9 012 O g « H .J CO p t>. I>. Oi ■' H ro '^ lO lO CO o lr~ en i> 9S s O (M__ co_ cn^ ro GO !>■_ °o "^^ "^^ o 00 35 ^ cvT co^ ■-4~ o" co" cd" co" t-" CO o «/& T|l O lO CO CO C!5 r-H 03 O tH in r~ lO T-i ^^ co_ co_^ Tfl i> oo (M_ CO r-" i-T ^^ (m" of co" in Th o !>■" l> (M Oi CO T-H Tf to 00 (M (M o o ,— I T-H rH T-H T-H tH T-H H rH o o o o o o o o o O O o o o o o o p p p o p 1^ o (^i i-i ira 00 00 (m' CO o 00 t>^ o i:^ lo CD 00 00 t^ ^ CO -* in O (M_^ C» r-^ o CO »0 lO '^ C0__ CO S^ lO" (M" TtH" ^■" o" co" CD oo ^ T-H in" CD CO lO CO 00 ,-H T-H oo 00 00 00 t^ o CO CD "# C lo oq lO p o CO oi CO CJ CO lO I^ co" 0. ^I CO 00 o en 00 05 o CO CO^ "-^ Tt< CD OS CO co_ CO_ ^ m CO « f ^ Q 5 n h-4 ■*" i>r oT ■*" co" t>r T-H of lO o CO ^ (M T-H in CO (M CO t^_ !>■_ ^ CO^ i>^ CO^ Sz ^ co" (M" Oi c^ (nT co" o 6 I (M ij 1 ;ST ON Bonds, GAGES, AND aASE-MONET GATIONS OF DiABT Com- panies O ^ CO 'dH CO o N 00 00 CO tH p CO p O Tli i-H O 00 CD CD T|H 00 T)< ^ ^ lo id 00 CO CO 00 ^ ^ t- en o t^ in O lO 00 .-H_ (M_^ -*_ rH (M T-H ^ CO ^ O co" co" co" o" T-H im" rn" l>r co- co" O <-H >0 t^ .-H CO 03 O 00 co in a o g n M lo T-i k:. lO t> lO -* -# 00 C-J p_ ■* CD CD CD CD CD CO t^ 1> t^ co" CO Ttl CO -* 00 03 iM en 00 tH en "a 00 CO CO t^ I—* lO lO p CO (N fe S "» CO o 00 CO r-^ id '^ in 0 oo 05 c; od 5^g CO t- 00 C5 Oi CO (M 05 03 in CO (N_ CO_^ !>.__ r-H_ lO 02 05 in o T-H 00 ^ -_^ p_ ll lO 00 CO t^ CO lO co '*" t>r co" ^^ l> O 00 lO 05 (M CO t^ o T-H 00 T— 1 T-H T-H rH T-H en K !^ (M CO -^l lO "co" t^ 00 05 2 3 -< o o o o o o o o H c ■H T-H ,— i en C3 7-^ rH en Oi Oi Oi T-H T-H rH Oi i-H o s S. ^■o'- ILLUSTRATIONS OF CONCENTRATION 119 According to the Commissioner of Corporations the net earnings on the actual investment of the Steel Corporation from 1901 to 1910, ten years, was 12 per cent. It thus ap- pears, according to the Bureau, that the earnings of the corporation for ten years have been $1,100,000,000, or $110,000,000 a year. According to Mr. F. J. MacRae, for the nine years from January 1, 1902, to December 1, 1910, the adjusted net earnings amounted to $1,029,685,389, or approximately $13 per ton. He concludes that the percentage of net earnings for sales to outside consumers for this period amounted approximately to 29 per cent ; and that 29 per cent of the selhng price is equivalent to 40 per cent of the cost.^ Proportion of Business. — The proportion of the iron and steel business of the country done by the organization is shown by the following table : — Table 33. Pkopobtion op Output of Principal Ieon and Steel Products for United States Steel Corporation and for Inde- pendent Companies, Respectivelt, in 1901 and 1910 Peoducts Hg iron, spiegel, and ferro . . . Steel ingots and castings. . . . Rails Structural shapes Plates and sheets of all kinds ^ . . Black plate produced in tin mill s . Coated tin-mill products . . . Black and coated sheets produced in sheet mills Wire rods Wire nails Wrought pipe and tubes ' . . . Seamless tubes ' Steel Corpora- Independent Com- tion's Percent- panies' J'ercbnt- ages AGES 1901 1910 1901 1910 43.2 43.4 56.8 56.6 65.7 54.3 34.3 45.7 59.8 68.9 40.2 41.1 62.2 47.0^ 37.8 53.0^ 64.6 49.7^ 35.4 50.3* 79.8 52.9 20.2 47.1 73.1 61.1 26.9 38.9 67.3 38.9 32.7 61.1 77.7 67.3 22.3 32.7 68.1 55.5 31.9 44.5 57.2 38.2 42.8 61.8 82.8 55.3 17.2 44.7 > Investigation U.S. Steel Corporation, 53, Part I, pp. 3613-3614. ' Includes sheets for tinning, galvanizing, and other coatings. ' These percentages are based on capacity and not production. The capac- ity of independent companies is, moreover, partly estimated. < For 1909; figures for 1910 not available. 120 CONCENTRATION AND CONTROL The total production of the iron and steel of the country by the Steel Corporation fell from 60.6 per cent in 1901 to Reduce 51.6 per cent in 1909, and of steel ingots and castings the IZ^of^ total fell from 65.7 in 1901 to 54.3 in 1910. While there has output. been a decrease in the percentage of the domestic production, the total business of the corporation has vastly increased. The crude ingots produced increased from 9,743,918 tons in 1902 to 14,179,369 in 1910, or 45.5 per cent. The foreign business has been greatly extended, and of this line the Steel Corporation controls about 95 per cent. In 1911 there were exported by the corporation 1,719,272 tons of steel and other finished products. Such products are sold considerably cheaper abroad than at home, the differences per gross ton for 1910 being as follows : Steel rails, $3.84 ; plates, $3.93 ; standard shapes, $4.50.^ The foreign business is done through the United States Steel Products Export Company.^ This company now con- trols ninety per cent of the total steel export trade of the United States. Until 1904 the company was allowed a three per cent commission on its business; but in 1904 it was reduced to two per cent. Any surplus over the actual requirements of the export company are to be rebated to the different companies, the products of which are sold. As a matter of fact the commission is fixed so that it meets the operating expenses of the company. The advantage to the Steel Corporation of the selling company is that the foreign business is handled as a unit and this is a matter of funda- mental importance in the export trade. See pp. 222-224. Cost of Production. — In Part II of the Report of the Com- missioner of Corporations, the cost of production of steel is considered. Since this is the most elaborate available inves- tigation of cost of production of a great fundamental article, and especially since it contains comparisons of the cost of the large and small companies engaged in the business, the sum- mary of results is reproduced. "Certain salient points are brought out by this investiga- ' Investigation U.S. Steel Corporation, No. 57, p. 5135. 2 Ibid., 53, Part I, pp. 3691-1695. ILLUSTRATIONS OF CONCENTRATION 121 tion of costs. These points will be discussed in detail, but for convenience are here stated in summary form, as follows : — 1. That cost statements for iron and steel products vary greatly on account of differences in scope of operations and in legal organization and accounting methods of different com- panies. Therefore, the statement and use of such cost data require the most careful discrimination. "2. That the 'book costs' of highly integrated concerns (that is, those companies which link up imder one control successive stages of production of materials and finished com- modities) are not net costs, because they include large items of intermediate profit. These profits occur as the materials pass from one stage of production to another, because these materials are transferred from one department or subsidiary to another at market prices or at arbitrary 'transfer' prices, instead of at cost. "3. That the average costs differed greatly, according as such intermediate profits were included or excluded, is shown by Table 34. Tablh 34. Costs or Vaeious Products, inoludinq Intekmediatb Profits PBODirOT3 Cost Including ALL Intermediate Profits Cost Excluding Intermediate TsANBPER Profits on Materials * Lake ore Bessemer pig iron Large Bessemer biUets . . . Bessemer standard rails . . . $2.64 13.89 20.11 21.27 2 $12.10 17.90 18.80 " The above are average costs for companies having a very large proportion of the total production in the United States for the five years 1902 to 1906. " 4. That if all these companies are divided into two groups, large highly integrated companies, and small companies ■ This cost does not exclude, however, transportation profits, which are considerable in amount for the Steel Corporation, as explained later. 2 No difference except for a trifling amount of intercompany royalty. 122 CONCENTRATION AND CONTROL which generally were not well integrated, the average costs of the two groups differed decidedly. These differences were more marked when intermediate profits were excluded. The facts are shown by Table 35. Table 35. CoMPARiTivB Costs of Several PKODtroTS in Large and Small Companies PBODtrCTS Costs Including All Intermediate Profits Costs Excluding Intermediate Transfer Profit ON Materials 1 Large com- panies SDiall com- panies Large com- panies Small com- panies Lake ore $2.67 $2.49 14.27 22.54 2 $11.93 17.56 18.80 2 Bessemer pig iron Large Bessemer billets .... Bessemer standard rails .... 13.86 19.89 21.27 $14.21 21.69 " These differences between the two groups are, of course, largely due to the fact that the more steps in production con- trolled by one concern the more intermediate profits go to that concern, instead of being paid to outsiders. Accordingly, when intermediate profits are excluded, the net cost for an in- tegrated concern is less than for one not so highly integrated. It should be observed that the above figures show costs ex- clusive of transfer profits on materials, and not exclusive of transportation profits. Such transportation profits are earned by certaui large companies, and above all by the Steel Cor- poration " 5. That while highly integrated concerns have a lower net cost than non-integrated concerns, and therefore a higher margm (not rate) of profit between costs and prices; yet, on the other hand, being so integrated, they have a larger in- vestment to be covered by this margin of profit over net cost. " 6. That the costs for this period (1902 to 1906, inclusive) are substantially representative of present conditions. This ' This cost does not exclude, however, transportation profits, which are considerable in amount for the Steel Corporation, as explained later. ' No difference except for a trifling amount of intercompany royalty. ILLUSTRATIONS OF CONCENTRATION 123 is shown by a comparison of costs for a number of important selected plants for several products from 1902 to 1906, inclusive, and for 1910. ' 7. That the United States Steel Corporation has a special advantage in cost of production on account of its complete integration, particularly in producing all the ore and coke it uses, and in having railroads for ore transpor- tation, which branches of its business yield great profits. The costs of the Steel Corporation are especially reduced if these intermediate profits are excluded, as is shown by Table 36. Table 36. Comparison between Book and Integrated Costs of Several Products for the United States Steel Corporation Products Book Cost Integrated Cost Excluding Inter- company Profits ON Materials and Transportation T/a,ke ore Bessemer pig iron .... Bessemer standard rails . . $2.88 14.39 21.53 $2.40 10.21 16.67 In considering these integration costs of the Steel Corpora- tion, the much more extensive and diversified investment of that company should also be taken account of. " 8. That the indicated investment per ton of product for Bessemer steel rails for the period 1902 to 1906, taking conditions of business then prevailing, ranged from $80 to $55 per ton of rails. On the basis of a price of $28 per ton for rails the profit for all companies whose costs (excluding transfer profits only) would be from 11 to 17 per cent on the investment. " 9. That the prices of lake ore have been kept for many years at an unreasonably high level compared with the cost of production and the cost of the investment in the produc- ing ore properties. Consequently, integrated concerns, transferring such ore to the pig-iron producing departments of the business at those high prices, necessarily show an 124 CONCENTRATION AND CONTROL unduly high book cost for pig iron and for various steel products made from pig iron. " 10. That this pohcy in regard to ore prices has two important results. For companies selling ore it tends to make renumerative the investment in vast ore reserves which are not at present utilized, and to unduly enhance the value of such properties. It also tends to make the cost of iron ore excessively high to companies which must purchase it in the open market, and thus prevents them from becoming effective competitors in pig iron or in steel products made therefrom." In the above statements and what is to follow the large companies are interpreted to include the following : — 1. The United States Steel Corporation, total capitaliza- tion, $1,402,846,817. 2. The Lackawanna Steel Company, common stock $60,000,000, preferred stock $10,000,000, bonds $75,412,000, total capitalization $145,412,000. 3. Jones and Laughlin Steel Company, stock $30,000,000, bonds $24,487,000, total capitahzation $54,487,000. Table 37. Avbbagb Book Cost peb Gboss Ton of Lake Obe at LowEB Lake Poets, Excluding Intebcompant Royalty and Dis- tinguishing Laege and Small Companies, 1902-1906 Items of Cost All Companies (106,268,728 tons) Large Companies (84,920,942 tons) Small Companies (21,347,786 tons) Labor .... Other operating . Royalty .... $0.45 .37 .23 $0.44 .38 .23 $0.50 .34 .21 Mine cost . . Rail freight . . Lake freight . . $1.05 .67 .74 $1.05 .69 .74 $1.05 .58 .74 Lower Lake cost General expense, depreciation, and taxes . . . $2.46 .16 $2.48 .16 $2.37 .12 Total cost at lower Lake ports. . . . $2.62 $2.64 $2.49 ILLUSTRATIONS OF CONCENTRATION 125 Eh O S a K fcD II H H C3 0) OT . N H O <-^ rtOO 00 «D 1 1 111 rH Oi-I CD(^j 00 1-H r-i .-H r-!-^ -rf CO ■* CD l> Ph £S^ I— 1 T-H I— t i-H T— 1 ^H T-H ^M o O s# -s H a ■* -*!> t^lO lO Oi OS K q lO-H CD-* o CO t^ 00 oi ^-] o 1-H 1— 1 i-H r-t.-H 1-H l-H T-l 03 » X Is„ r^ "^ 5 -* ■-* CO -* OS Oi -; d a o o ^H^H,-!^^,— Ii-H I cooq a;>o oq 15 12£ rH 1-1,-H ^ -^ lO -^ LOCD I^t^ 00 2 s o O r^ T-H -H fH ^ i-H i-H T-H l-H r-( ^ i-H a CO COffl 03t)< ■^'^ rtfi-i rtOO 00 a ^ CO(M^ tvCD (N lO i-hO i-fOl N c» ooi i-i o -H tHi-( -Ht-H fH^ T-Hi-H C^ rt 54 Fed. 994 ; 208 U. S. 274. 2 Hearings, Interstate Commerce Committee, XX, pp. 1729-1730. For full presentation of the two sides of the Sherman act as applied to laborers see Hearings, Senate Interstate Commerce Committee, XX, pp. 1727—1778; XXni, XXIV, pp. 1979-3102. ' 120 Fed. 72. THE LAWS REGARDING COOPERATION 181 tions of the Sherman act are apparently interpreted together. It seems to be the argument that the first section, prohibiting all combinations and contracts in restraint of trade, is meant to cover the same ground as the second section, which pro- hibits monopoly or attempt to monopolize ; and thus the interpretation seems to be that restraint of trade which monopolizes or attempts to monopolize is interdicted by the law. This is the restraint of trade which is undue, and being undue is umeasonable ; that is, undue and unreason- able are made synonymous terms. ^ The court gives the opinion that it was the intention of Congress that "the standard of reason, which had been applied Return to at the common law and in this country in dealing with sub- common law •' '^ pnnciple. jects of the character embraced by the statute, was intended to be the measure used for the purpose of determining whether in a given case a particular act had or had not brought about the wrong against which the statute provided." The court says, "The fact must not be overlooked that injury to the public by the prevention of an undue restraint on, or the monop- olization of trade or commerce is the foundation upon which the prohibitions of the statute rest, and, moreover, that one of the fundamental purposes of the statute is to protect, not to destroy, rights of property." Apparently the decision of the court goes as far as practi- cable towards reintroducing the common law regarding com- binations and contracts in restraint of trade. Combinations and contracts may take place provided they are reasonable ; but the sweeping decrees regarding the disintegration of the Standard Oil and American Tobacco and other companies make it appear that it was not the intent of the court to go as far toward freedom as was permitted by the common law. Thus we are left in doubt as to how far the court will in the future permit combinations and contracts in restraint of trade. The effects of the Standard Oil and American Tobacco decisions upon those organizations were as follows : — The Standard Oil Company. —The Circuit Court of the 1 The Supreme Court of the United States, No. 398, October term, 1910 ; Ibid., Nos. 118 and 119. 182 CONCENTRATION AND CONTROL Standard Oil Com- pany a monopoly. Disintegra- tion of Standard Oil Com- pany. United States for the Eastern district of Missouri on November 20, 1909, declared the Standard Oil Company to be an illegal combination; that the officers of the Standard Oil Company and thirty-seven constituent com- panies have combined and conspired to monopolize and have monopolized a substantial part of the commerce in oil among the states and in the territories and with foreign nations. The officers of the Standard Company were prohibited from voting the stock of the subsidiary com- panies, and the officers of the subsidiary companies were enjoined and prohibited from pajdng any dividends to the Standard Oil Company, although they were not prohibited from distributing rateably to the shareholders of the com- pany the shares of the subsidiary companies. The subsidiary companies were enjoined from acquiring stock interests in potentially competitive companies, or from placing the con- trol of any of the corporations under a trustee and making any agreement, implied or expressed, as to the management of other corporations, or to regulate prices, sales, rates of transportation, or outputs. On May 15, 1911, this decree of the Circuit Court was af- firmed by the United States Supreme Court,' except in the minor modifications of time for executing the decree and for continuance of business during the time necessary to carry out the decree. The time for the dissolution of the cor- poration was extended to six months from the 21st of June, 1911, and pending the dissolution the Standard Oil Company continued business in the United States. As a result of these decisions and orders the Standard Oil Company has now been broken into thirtyeight com- panies. These companies are not to have common officers or directors. The stock of the Standard was not widely dis- tributed and the new companies have common owners. The officers of seven of the more important new companies remain in the same quarters which the Standard Oil Company be- fore occupied, 26 Broadway. 1 The Standard Oil Company of New Jersey el al. v. The Um'ted States, Appeal from the Circuit Court of the United States for the Eastern District of Missouri, May 15, 1911. U. S. Reports, Vol. CCXXI, p. 1. THE LAWS REGARDING COOPERATION 183 Ex-President Taft announced that the plan of the admin- istration in prosecuting trusts was to secure "a degree of dis- integration by which competition between its parts shall be restored and preserved." i Will this result be reached in the case of the Standard Oil Company ? Will the officers of the seven large companies in different rooms at 26 Broadway really compete in prices? That this will occur has been widely doubted by the public from the outset ; and on Feb- ruary 29, 1912, it was aimounced that the Waters-Pierce is coSpera- Company of Texas had alleged that the disintegrated com- *'°°^ ^^y panies are combining, and this company had instituted an investigation in order to show the facts. Antecedent to the dissolution, during the years 1909 and 1910, the stocks of the Standard Oil Company ranged from Effect of about 600 to 700. When the case was in court a low level dissolution ... on pnce of of 585 was reached. At the time the decision was rendered stocks. the price was about 670. For a few months the prices ranged somewhat lower; but, beginning with 1912, Standard Oil stock began to rise and by August the price had gone above 1000. Since that time the prices have never been lower; in 1914 they ranged from 1260 to 1400. In other words, the Standard Oil stocks are worth on the market about double what they were worth before the company was attacked. It is clear that experience has shown that the decision of the court has not resulted ; nor is it hkely to result, in a reduction of the great profits which the Standard Oil Company and the other companies, originally forming this organization, have enjoyed. The American Tobacco Company. — On May 29, 1911, the Supreme Court of the United States declared the American Tobacco Company to come within the prohibition of the first Comprehen- and second sections of the Sherman antitrust act.^ The com- ^7deSn. bination of itself as well as the elements composing it, both corporate and individual, were collectively and separately declared to be in restraint of trade and were found to be 1 Speech at Detroit, September 18, 1911. ' American Tobacco Company v. The United States, Appeal from the Cir- cuit Court of the United States for the Southern District of New York, May 29, 1911. U. S. Reports, Vol. CCXXI, p. 106. 184 CONCENTRATION AND CONTROL Dissolution and price of stocks. attempting to monopolize and monopolizing the tobacco busi- ness. In order to carry out the effect of this decision the lower court was ordered to ascertain some plan of dissolving the combination, or recreating out of the elements a new condi- tion which should be in harmony with the law. To accom- plish this a period of six months was allowed. If at the end of that time some plan had not been devised in harmony with the law for disintegrating the company, it was to be restrained from engaging in interstate business. In the meantime, the company was restrained from enlarging its powers or extend- ing its business. In accordance with this decree and order the Circuit Court of the United States for the Southern District of New York, on November 6, 1911, approved a plan for disintegrating the American Tobacco Company, which, as we have seen, repre- sented a consolidation of some two hundred and fifty corpora- tions, into fourteen companies. The fourteen companies are enjoined from cooperating in business in any way ; they must not occupy the same offices ; they cannot hold the stock of one another, or even stock in companies in which other companies hold stock. Each com- pany must do business in its own house, and the products of each must bear the firm name. For five years they are en- joined from having common offices or directors or the same sales agents. The stock of the American Tobacco Company was, in a manner like that of Standard Oil, distributed proportionally to his holdings to each stockholder of the fourteen com- panies. There were twenty-nine men who held a dominat- ing position in the old corporation, and they in like manner hold a dominating position in the three new companies into which the chief assets of the old company have been divided. As a matter of fact we now have fourteen tobacco com- binations which have the sanction of the courts instead of one that did not. It is notable that after the order was given by the Supreme Court to dissolve the corporation, the stock of the American Tobacco Company fell to 390 per share ; but that after the THE LAWS REGARDING COOPERATION 185 decision of the Circuit Court as to the kind of disintegration which was to take place, the common stock rose to as high a price as ever before in the history of the company, with the exception of a single day, $529 per share.^ This was the result of more than four years' litigation which cost the independent companies and the American company vast sums of money, and the government as large or larger sums ; all of which will ultimately be paid by the public. There remains to be mentioned the most notable feature of the tobacco decision. The Supreme Court said : "While in many substantial respects our conclusion is in accord with that reached by the court below, and while also the relief which we think should be awarded in some respects is coin- cident with that which the court granted, in order to prevent any compUcation and to clearly define the situation we think instead of affirming and modifying, our decree, in view of the broad nature of our conclusions, should be one of reversal and remanding with directions to the court below to enter a decree in conformity with this opinion and to take such further steps as may be necessary to fully carry out the directions which we have given." The radical feature of the decision is contained in this last clause, "to take such further steps as may be necessary to fully carry out the directions which we have given." As The court we have already seen, the lower court in complying with undertaking this request approved a plan for the disintegration of the tivework. tobacco trust which had been proposed by the tobacco combination and had been approved by the Attorney- General. Thus this court took on the function of giving an order to the lower court to do administrative work, of a kind which has usually been done by a commission (see pp. 233-244), and for which a commission is much better adapted. When the order was executed as directed, the members of the disintegrated trust had the advantage of having the sanction of law. The administrative work of the court in disintegrating the American Tobacco Company, already severely criticized and generally beheved to be futile, is ' Hearings, Senate Interstate Commerce Committee, Part XVIII, p. 1368. 186 CONCENTRATION AND CONTROL Form of combination immaterial. Integration of industry lawful. one of the best evidences of the lack of adaptation of the courts to the handling of the complex administrative prob- lems of great concentrations in industry. The Du Pont Powder Company. — In the case of the E. I. Du Pont de Nemours Powder Company/ known as the powder trust, the company was dissolved and the broad prin- ciple was laid down by the Supreme Court, "that a combina- tion cannot escape the condenmation of the antitrust act merely by the form it assumes or by the dress it wears. It matters not whether the combination be 'in the form of a trust or otherwise,' whether it be in the form of a trade associ- ation or a corporation, if it arbitrarily uses its power to force weaker competitors out of business or to coerce them into a sale to or union with the combination, it puts a restraint upon interstate commerce and monopolizes or attempts to monop- olize a part of that commerce in a sense that violates the antitrust act." The Shoe Machinery Case. — In the Shoe Machinery case a further important step has been made in the interpretation of the Sherman act. The combination attacked was one formed by the union of several companies, each of which manufactured machines for different purposes. In regard to this case the Court says : ^ "But taking it as true, we can see no greater objection to one corporation manufacturing 70 per cent, of three non- competing groups of patented machines collectively used for making a single product than to three corporations making the same proportion of one group each. The disintegration aimed at by the statute does not extend to reducing all manufacture to isolated units of the lowest degree. It is as lawful for one corporation to make every part of a steam engine and to put the machine together as it would be for one to make the boilers and another to make the wheels." This decision seems to make it clear that combination which results in integrating an industry, the different parts ' Annual Report of the Attorney-General of the United States, 1911, p. 8. ' The United States v. Sidney W. Winalow et al.. Supreme Court of the United States, No. 620, October Term, 1912. THE LAWS REGARDING COOPERATION 187 of which may be operated as independent enterprises, is not violation of the law. Thus, for instance, union of ore com- panies, manufacturing companies, and coal companies might take place, if for no one element of the integrated industry there is monopoly. The Union Pacific and Southern Pacific Merger. — It is The Sher- evident that the Sherman act is to be pushed, also, against ™'^°(.he* the public utilities as well as against manufactories and cor- public porations. Already a final decree has been rendered which '^tii'*^'^^- compelled the Union Pacific Railroad Company and the Oregon Short Line Railroad Company to dispose of shares of the Southern Pacific Company held by them.^ These shares were disposed of to the Pennsylvania Railroad Com- pany in exchange for shares of the Baltimore and Ohio Railroad Company. The result of the exchange was to give the Union Pacific Company and the Peimsylvania Com- pany a large number of shares in lines which are not im- mediate competitors in the same territory in place of shares in a system belonging in the same territory. Dissolution by Mutual Agreement. — In addition to dissolu- tion of corporations by the court, after full trial and con- viction, there is another class of cases in which, as a result of complaint, the company without trial has agreed with the gov- ernment as to the violation of the Sherman act ; and decrees have been issued in accordance therewith with the consent of the company against which complaint was made. The most important illustration of a public utility corpora- The Bell tion which under pressure from the Attorney-General has Telephone . . ,,. . , Company. agreed to discontinue its alliance with another corporation is that of the American Telephone and Telegraph Company (Bell Telephone System) and the Western Union Telegraph Company. The Bell Company agreed to dispose of its entire holdings of stock in the Western Union Telegraph Company in such a manner that the control of the latter 1 The United States of America ». The United Pacific Railroad Company, the Oregon Short Line Railroad Company et al.. District Court of the United States. District Court of the United States for the District of Utah. Final Decree, 188 CONCENTRATION AND CONTROL' Unfair methods of competition. Sweeping decree. will be entirely independent of the Bell system. The con- sent to do this by the officers of the Bell system led to a commendatory letter from President Wilson in which he stated : "It is very gratifying that the company should thus volunteer to adjust its business to the conditions of com- petition." A notable case of dissolution by mutual agreement was that of the General Electric Company. This company was charged with having a monopoly in the manufacture of incandescent electric lamps. This monopoly was secured through secret companies, and by having the exclusive rights in this country to use tantalum and tungsten filaments. This right through exclusive agreement was used to require that any firm bujing lamps of these kinds should also buy all their carbon filament lamps from the General Electric Company. Through unfair methods, such as fixing prices, exclusive agreements, rebates, etc., monopoly was secured, the company having obtained 97 per cent, of the incandescent lamp business of the country. In consequence, excessive charges for lamps were made, being seventeen cents apiece in this country, while the same lamps are sold abroad at ten cents. A most comprehensive decree was issued restraining the General Electric Company from the various unlawful acts set forth in the petition, and particularly the following were ordered : That all subsidiary companies of the General Elec- tric Company should be known as such and should con- duct their business in the name of that company ; exclusive contracts of all kinds were forbidden, such as requiring an- other company to sell goods exclusively to the General Elec- tric Company, combining with other companies to fix prices, requiring that those who purchase tantalum and tungsten lamps should also purchase from the General Electric Com- pany their carbon lamps. The company was enjoined from making a discount depending upon quantity of lamps pur- chased when the result is to combine or aggregate the dis- count on an impatented and a patented lamp ; it was further enjoined from making prices or terms of sale for the purpose THE LAWS REGARDING COOPERATION 189 of driving out of business any rival manufacturer ; " pro- vided that no defendant is enjoined or restrained from mak- ing any prices for incandescent electric lamps to meet, or to compete with, prices previously made by any other defend- ant, or by any rival manufacturer ; and provided further that nothing in this decree shall be taken in any respect to enjoin or restrain fair, free, and open competition." * Another interesting case is that of a business association. In October, 1911, a most sweeping decree was given by agree- ment of both the United States and Southern Wholesale Grocers' Grocers' Association. The members of this association were apeements illegal. perpetually enjoined from restraining trade by having a list of dealers to whom special privileges were granted, in- cluding selling only to members of such association. They were enjoined from making any agreement regarding prices, or even preparing a list of prices for the information of one another, from giving rebates or bonuses from any dealer be- cause he is a member of the association, from boycotting any manufacturer who is not a member of the association or does not maintain limited selling prices. In short, the decree in most comprehensive terms enjoins the association from re- straining trade in any way by fixing prices, making exclusive agreements, or granting exclusive privileges to members of the association. Under the decree it is difficult to see how there can be any combination of the members in restraint of trade either reasonable or unreasonable.^ Another case of dissolution by mutual agreement is that Sweeping of the New Departure Manufacturing Company,^ engaged ^^^^° in the manufacture of bicycle and motorcycle coaster brakes. The independent members of this combination were forbidden from fixing sale and resale prices, from holding any meetings 1 United States of America v. General Electric Company et at, In Equity, Circuit Court of the United States for the Northern District of Ohio, Eastern Division. Petition and Final Decree. 2 The United States of America v. The Southern Wholesale Grocers' Association et al., Circuit Court of the United States for the Northern District of Alabama. Decree of Injunction. 3 The United States v. The New Departure Manufacturing Company et al., District Court of the United States for the Western District of New York. 190 CONCENTRATION AND CONTROL Abuses in dissolution by mutual agreement. All classes of business attacked. the purpose of which is to arrange concerted action, from having any joint arbitrator, referee, or commissioner, from giving preference to any manufacturers or dealers, and from fixing by any mutual agreement or understanding discounts, trade rebates, or terms of credit. Other decrees by mutual agreement have had similar sweeping provisions. It is apparent that more rigid terms have been imposed by the Attorney-General, where there has been dissolution by mutual agreement, than has been applied in those cases which have gone before the United States Supreme Court. In short, it appears that a serious abuse has grown up, in connection with dissolution by mutual agreement. Corporations mider the threat of attack from the Attorney-General consent to conditions more drastic than those it is probable the court would have imposed. This they do under the threat of prosecution. Rather than go to the great expense and prolonged delay of litigation, agree- ments are entered into not to engage in various things, many of which are probably lawful. Other Corporations under Attack. — In addition to the cases which have been terminated by trial or by agreement, there are a very large number of organizations now under attack. The cases are in different stages of procedure, from those in which the petition for dissolution has just been filed by the Attorney-General, to those which have been argued before the United States Supreme Court and are awaiting decision, and to those in which decisions have been rendered regarding the principles which apply but details of the application of the principles have not been worked out by the Attorney-General and the parties concerned. The largest number of these cases concern corporations engaged in manufacture alone, or in manufacture and commerce. Another set of cases concern commerce alone. Others apply to boards of trade and similar associations. Some of these boards are dealers only in agricultural products. Illustra- tions of the last are the Elgin Board of Trade dealing in butter and butter fat, and the Board of Trade of Chicago dealing in grain. Other cases have special features in that THE LAWS REGARDING COOPERATION 191 the companies attacked deal in natural resources, such as timber and coal. Still another class of cases relate to com- binations of labor. Others concern the public utilities, including railroads, telephones, and steamship-companies en- gaged in the coasting and in foreign trade. It is therefore plain that the law is being invoked in almost every line of trade and industry. Perhaps the most important industrial cases are those of the United States Steel Corporation and the International Har- vester Company ; and the most important public utilities case that of the New York, New Haven, and Hartford Railway. General Statements. — In recent years whenever cases have been in the court under the Sherman act, pools, combina- tions, or agreements, producing restraint of trade, have been declared to be illegal. From the tenor of the decisions the conclusion might be reached that the law had been fairly effective in producing the results which were sought when the act was passed, at least for later years ; but an examination of the situation shows the contrary to be true. All of the railways connecting any two points in the United States charge exactly the same prices for the same service, be it freight or passenger. As already pointed out, it RaUways is a matter of common information that competition in price <=°op«''»te. between the railroads does not exist ; and this fact is tacitly accepted by the public and by the Attorney-General of the United States, although every person having common sense knows that the situation is only possible by agreements through informal understandings, traffic associations, etc. For twenty years the major effect of the decisions has been Law drives to change the forms of combination, from the informal agree- f°^'one'°" ment or pool to the trust, from the trust to the holding com- entrench- pany, and finally there is the beginning of the transformation ™™^e° from the holding corporation to the complete merger. At the same time this evolution has been going on for the great industries, hundreds of informal associations of exactly the same kind as those which have been declared to be illegal have arisen, such as the various retailers' and wholesalers' associa- tions, the fruit growers' associations, the butter makers' 192 CONCENTRATION AND CONTROL Relative independ- ence in Germany. Defects of Sher- man act. The public not bene- fited by dissolution. associations, etc. Indeed, a comparison of the situation in the United States with other countries, such as England and Germany, in which combination is open, shows that at the present moment combinations exist to a greater extent in the United States than in either of those countries, in which trade agreements are enforced by the courts. In other countries where cooperation of corporations is permitted, if not such as to be contrary to public policy, there has been no such rapid concentration of industry as in this country. A man who builds up a business is reluctant to surrender his autonomy. He has a pride in the house. If the situation becomes such that it is necessary or advan- tageous to cooperate with his neighbors, this he will do ; but he will not surrender his independence. In consequence of this principle, the great combinations called cartels in Ger- many are much looser aggregations than the holding cor- porations of this country. They consist of a large number of cooperating organizations each largely independent, rather than a great organization such as the United States Steel Corporation. Could there be more positive evidence than this of the failure of the law to destroy combination and cooperation? The impotency of the Sherman act to accomplish the results for which it was made has been admitted by all, alike by those who would have it amended so as to give greater free- dom in combination and by those who would have it amended so as to give a very strict construction, with the vain hope that it might thereby destroy cooperation. Much satisfaction has been expressed by many at the clisriolution of the Standard Oil Company, the American Tobacco Company, the American Telephone and Telegraph Company, the Union Pacific-Southern Pacific merger, and other organizations. But what advantage has the public derived from the disintegration of these corporations ? The chief interest of the pubUc in whether an article is manufactured by one company or by ten companies is the price paid for the product. Is the retail price of kerosene, tobacco, beef, or paper lower because there have been dis- THE LAWS REGARDING COOPERATION 192 a solutions of great organizations engaged in the manufacture of these articles ? While the evidence is not altogether conclusive, so Prices in- far as it goes, it indicates that the effect of the dissolution "''f^f'^ ^y . . , . . disintegra- of industrial corporations has been to increase rather than tion. to diminish prices. One of the strongest indications of this is the greatly enhanced price of the stocks of the Standard Oil and American Tobacco companies since their dissolution. (See pp. 183-185.) In those cases where public utilities organizations have No advan- been separated, it has not been made clear what if any ad- ^f'^^ *° vantage the public has gained or will gain in the future from by dissoiu- their disintegration. *'°°. °^ ^ utilities. Wherein will the public be benefited by the dissolution of the Union Pacific and the Southern Pacific Railways? Are rates lower for passengers or freight than they were before the separation ? And are they likely to become so ? The only effect one can foresee so far as the public is con- cerned in the separation of these railroad companies is that there will be fewer through trains, greater expense in ac- counting, and less close cooperation between the separated systems in handling the freight and passenger business of the public. Wherein will the public be benefited by the voluntary sep- aration, under the pressure of the Attorney-General, of the Bell Telephone Company and the Western Union Telegraph The Beii Company? The business of the two is closely analogous. Telephone — the carrying of messages partly by one and partly by the other is of advantage to millions of people. From the point of view of economy in doing the work of the two, the closer the cooperation, the better. At numerous places in the United States, one small room would furnish adequate quarters for the service of both the telephone and telegraph ; indeed this is the situation m a number of European coun- tries. In very small exchanges a single person on duty at one time could handle the necessary work of telephone attend- ant and an operator for the telegraph. But more important than these is the use of the same set of wires and poles for 192 b CONCENTRATION AND CONTROL Govern- ment monopoly recom- mended. Gains to public through cooperation. telephone and telegraph, — by far the most expensive part of the installations for both lines of business. At the same time wires are being used to telephone, they are also avail- able to telegraph. For the trunk telephone lines, two wires may be used simultaneously for a telephone circuit and for four telegraph circuits. Thus a very large part of the tele- graph business of the country could be done over the tele- phone wires. The advantages of the joint use of poles are obvious. Why then should the public be compelled to pay rates which will give fair returns on large sums of unnecessary capital required for the independent installation of telegraph systems, when by proper cooperation it would be possible within a few years to handle the larger part of the telegraph business of the country over the telephone system of wires. The economies of joint operation of telephone and tele- graph are so evident that if both were administered by the government in this coimtry, as is the situation in various other countries, no one would for a moment think that they should be independent. In that case, it would be agreed by all that there should be as close interlocking as possible in the use of the necessary facilities and of the force. Indeed, the Postmaster General of the United States, in February, 1914, transmitted to Congress the report of a departmental committee, consisting of the First Assistant Postmaster General, the Chief Clerk of the department, and the Superintendent of the Division of Salaries and Allow- ances upon the proposal to make the telephone and the tele- graph business a public monopoly. That committee recom- mended that the government acquire the telephone and tele- graph business of the country in order that they might be operated as a imit in connection with the mails. This com- mittee thus recognizes the numerous economies obtainable by the joint operation of the telephone and telegraph. Why then should the Bell Telephone Company and the Western Union Telegraph Company cease to cooperate and thus become less efBcient? Wherein will the public be benefited by the separation of the two companies? Have the rates been lowered by the telephone and telegraph com- other than disaolution. THE LAWS REGARDING COOPERATION 192 d panies, in consequence of the separation? Are they Hkely to be lowered in the future because of this separation ? It is to be remembered in this connection that it was after the alliance of the two companies that the lower rates involved in the night and day letters were introduced under the joint management. Also the telephone and telegraph companies are public utilities and under the control of the interstate and state commerce commissions ; therefore, if the increased economy which in the future would result from their coopera- Remedy tion, permits excessive earnings at existing rates, the com- missions on behalf of the public should reduce the rates to reasonable amounts. Further, if the rates charged at the present time by the telephone and telegraph companies are unreasonable, this matter should be investigated by the Interstate Commerce Commission and the companies ordered to put in force reasonable rates precisely as has been done with the express companies. This, clearly not separation, is the direction of progress for the operation of the telephone and telegraph, if the committee of the Post Office Department is somid in its recom m endations that all telephone and telegraph companies of the country be acquired by the government. In the above statements concerning the dissolution of Bigness public utilities, it is not meant to imply that all consolidated g°l^f^^^' companies have been well managed. This assertion could be no more made than that the separate parts of the consolidated companies before their union were always well managed. But upon the whole there can scarcely be a doubt that the great railroad systems, illustrated by the Pennsylvania, New York Central, the Baltimore and Ohio, the Northwestern, the Burlington, etc., every one of which has been built up by the consolidation of many independent and competing com- panies, have been far more efficiently managed and to the greater satisfaction of the country than were the several small independent elements which composed each of them. When glee is expressed at the disintegration of a great corporation, which is not a monopoly, we should have a satisfactory answer to the question, "Where does the pub- ^p^bliT lie come in?" before we join in the mirth. If the public come in? 192 d CONtJENTRATION AND CONTROL has gained nothing in price reduction for standard articles or for service by the destruction of the great corporations, would it not have been wiser to take steps to see that their profits were made reasonable, to see that the great advan- tages which come from their magnitude, efficiency, and coop- eration should be shared in large measure by the public ? Since the Sherman act was passed a child born has at- tained his majority. While there has been gain in the elimination of unfair practices, there has been no gain in preventing combinations in restraint of trade, the f undamen- Time tal purpose of the law. It would seem that the time had ^^^al^""^ now come for a rational consideration of the principles which solution. should apply to the situation in order to secure reasonable results both for combinations and for the public without interfering with great economic tendencies. Any attempt further to amend the law so as to make it more rigid as against cooperation cannot but be futile. The problem of combination in restraint of trade is one too large, too com- plex, and too irresistible to be handled by the courts. This situation has been clearly seen by Knox, by Wickersham, and by others who have attempted to secure the results aimed at by the Sherman law ; they have found themselves baffled. The constructive side of the case is presented on pp. 238-266. Section 4 STATE LEGISLATION AGAINST TRUSTS Many of the states have constitutional provisions or stat- utes which embody the same principles as the Sherman act. Among the states which have constitutional provi- sions against combination in restraint of trade or monopoly are: Alabama, 1901; Arkansas, 1836; Idaho, 1889; Ken- tucky, 1891 ; Maryland, 1867 ; Mississippi, 1890 ; Montana, 1889 ; North Carolina, 1875 ; North Dakota, 1889 ; South Carolina, 1895; South Dakota, 1896; Tennessee, 1870; Texas, 1875; Utah, 1895; Virginia, 1902; Washington, 1889 ; Wyoming, 1889. The Statute Laws. — The names of some of the states THE LAWS REGARDING COOPERATION 193 and the date of the statutes against restraint of trade and monopoly are as follows : Alabama, 1907 ; Arkansas, 1897, 1899, 1905, and 1907; California, 1907; Florida, 1897; Georgia, 1896; Illinois, 1891, and 1893; Indiana, 1897, 1899, 1908 ; Iowa, 1897 ; Kansas, 1889, 1897, and 1899 ; Kentucky, 1903; Louisiana, 1890, 1892, and 1894; Maine, 1899 and 1903; Massachusetts, 1908; Michigan, 1889 and 1903; Minnesota, 1891, 1899, 1905, and 1907; Mississippi, 1890, 1906, and 1908; Missouri, 1891, 1899, and 1907; Nebraska, 1897 ; New Mexico, 1891, 1897, and 1907 ; New York, 1892, 1897, and 1899; North Carolina, 1899 and 1905; North Dakota, 1890, 1897, and 1907 ; Ohio, 1898, 1905, and 1906 ; Oklahoma, 1890 and 1908 ; South Carolina, 1897, 1899, and 1902 ; South Dakota, 1890, 1897, and 1899 ; Tennessee, 1889 1891, 1897, and 1903; Texas, 1895, 1899, 1903, and 1907; Utah, 1898 and 1907 ; Wisconsin, 1893 and 1897. It is notable that only two of the states had antitrust acts prior to 1890, the year the Sherman act was passed. The State antitrust acts were the natural response to the public demands within the states for prohibition of restraint of trade The con- in intrastate business, similar to that which had been enacted J"*?"",?' ' legislation. regarding interstate business. As would be expected, under the circumstances, while the phraseology varies, the prohi- bitions of the state laws are substantially like those of the Sherman act, except that they, of course, contain no refer- ence to trade between the states and territories or with for- eign countries. In a number of instances, trusts, pools, and holding companies which have the purposes of regulating output, dividing the market, or controlling prices are specifi- cally prohibited. In a few states there are special features which should be noted, as giving additional insight into the situation. In Georgia is a provision that the general assembly of that state shall have no power to authorize any corporation to buy shares of stock in any other corporation in that state or else- where, or to make any contract or agreement whatever, with any such corporation, which may have the effect to defeat or lessen competition in their respective businesses, or to encour- 194 CONCENTRATION AND CONTROL age monopoly; and all such contracts and agreements are declared to be illegal and void. This is the only instance in which the law specifically forbids the interholdings of stocks, a remedy which is advocated by many for interstate commerce. In the Illinois and Louisiana laws there is a clause which states " that the provisions of the act shall not apply to agri- cultural products or hve stock while in the hands of the pro- ducer or raiser" ; and in the Louisiana law is the additional clause that the law shall not be construed to affect an}'^ com- bination or confederation of laborers for the purpose of increase of their wages or redress of grievances. The legis- latures of Louisiana and Illinois in passing an antitrust law apparently fully appreciated the fact, practically unnoticed in the public discussions, that the selling agencies of the farmers for marketing their produce may be as clearly a combination in restraint of trade as are similar selling agencies of manufac- turers. The exempting clause for agricultural products was declared to be void by the United States Circuit Court of Illinois as being class and special legislation. In Massachusetts it is a criminal offense to impose "the condition in a sale of goods that the purchaser shall not sell or deal in the goods of any person other than the seller." ' This law has been held to be constitutional. In Michigan is a provision of the law declaring illegal con- tracts "not to engage in any avocation, employment, pursuit, trade, profession, or business, whether reasonable or unrea- sonable, partial or general, limited or unlimited." This state law specifically goes beyond the common law principle of reasonable restraint. This law accords with the decisions of the Supreme Court of the United States which had been made up to that time. It was not until 1911 that the courts introduced, by interpretation into the Sherman act, the word "reasonable." In Oklahoma the antitrust law prohibits several unfair practices. Thus it is prohibited to discriminate by sale at a lower rate in one section than in another, "or at the same rate or price at a point away from that of production or manu- 1 191 Mass. 545. THE LAWS REGARDING COOPERATION 195 facture as at the place of production, etc., if the effect or intent is to hinder competition or restrain trade." Also, the Oklahoma law is very specific regarding trusts, hold- ing corporations, limiting output, and marketing. It is de- clared unlawful to issue or own trust certificates, or to enter into any combination, etc., for the purpose of placing the man- agement or control of such combination, or the conduct or operation of the same, or the output or produce thereof, or the marketing of the same in the hands of any trust or trus- tees, holding corporations, etc., with the intent to limit or fix prices, lessen the production or sale of any article, or the use and consumption of the same, or to prevent or restrict, the manufacture or output of any such article. Further, in this state the following very significant provision is inserted in the law: "Whenever any business, by reason of its nature, extent, or the existence of a virtual monopoly therein, is such that the public must use the same in such a manner as to make it of public consequence, or to affect the community at large Industries as to supply, demand, or price thereof, or said business is ^^^^ * conducted in violation of section 1 (6679), said business is a interest, public business and subject to be controlled by the state, by the corporation commission, or by an action in any district court of the state, as to all of its practices, prices, rates, and charges." This paragraph clearly looks toward the point of view that the great concentrations of industry become public utilities; indeed, whenever the element of monopoly or re- straint of trade to the extent of affecting the community enters as a whole it makes them so. When this situation is reached for any business, it comes under the same princi- ples of control as the common carriers. In South Dakota the law especially protects the farmers, as follows : Any combination to prevent competition by raising the price beyond the reasonable cost of production or that tends to advance the price to the user of farm machin- ery, implements, tools, supplies, lumber, wood, and coal, imported into this state from any other state, territory, or county, beyond the reasonable cost of production and sale of same or which tends to and does induce a sale of wheat, 196 CONCENTRATION AND CONTROL corn, oats, barley, flax, cattle, sheep, hogs, or other farm or agricultural products for less than they are worth at time of sale, or for what they would sell at in open market, if such contract did not exist, is declared to be unlawful. In Utah it is seen that when professional men agree on prices the principle is the same as in other combinations, and the law says, " Any combination having for its object the control- ling of the prices of any professional services, any products of the soil, any article of manufacture or commerce, or the cost of exchange or transportation is prohibited and declared unlawful." The Nebraska antitrust law of 1897 was most sweeping in its character. It very definitely makes all combinations in restraint of trade to whatever extent a trust and declares the same to be illegal. Also it prohibits in comprehensive terms all classes of cooperation. It, however, excludes from its provisions all assemblages and associations of working- men and provides that "there is thereby reserved for them all the rights and privileges now accorded them by law." ' This act was declared to be unconstitutional by the fed- eral courts as depriving persons of their liberty in violation of the federal Constitution and also as exempting labor organizations from its provisions, thus denying equal pro- tection of the laws to persons not members of such organ- izations. In Texas, refusing to buy or sell to another any article of merchandise is declared to be conspiracy in restraint of trade. Also, agreements to boycott or threaten to refuse to buy are made illegal. The state statute prohibits all com- binations in restriction of competition or trade, but exempted agricultural products and live stock while in the hands of the producers or raisers.^ This law was declared by the federal courts to be a violation of the amendment to the Constitution of the United States, which declares that no state shall deny any person within its jurisdiction equal pro- tection under the laws. The Illinois, Nebraska, and Texas decisions seem clearly to 1 110 Fed. 816, 1901. 2 79 pgd. 627, 1897. THE LAWS REGARDING COOPERATION 197 show that the antitrust laws in those states which contain exemptions in favor of any class will be held to be unconsti- tutional by the Supreme Court of the United States. Decisions under the Statutes. — In this brief book there is not space to discuss in detail the decisions which have been rendered under the statute laws. In general, the statutes Restrictive regarding combinations and contracts in restraint of trade g^It^ia^ have gone much farther than the common law in imposing restrictions upon commerce. The author knows of no in- stance in which state statutes have moved in the direction of the English Parliamentary act in enlarging the scope of combination. The effort of the statute law has been to reach restraints of trade which would have escaped the ban of the common law. Pools, trusts, combinations, and monopolies have been declared not to be legal. For the most part re- straint of trade taking the form of contracts regarding division or restriction of territory, or regulation of output or prices, have been declared unlawful. Such decisions have been rendered in many states,^ although, under the common law, many of the forbidden agreements would have been allowed. It is not necessary to give the details of decisions covering these points, and only those having some special feature will be summarized. Agreements regarding the fixing of price for insurance have been held to be illegal. In Iowa this has been applied to a group of local insurance agents who agreed upon the price for each class of risk.^ In Minnesota a combination by which twenty-eight independent companies agreed to place the con- trol of their business with one company to the extent of fixing the rate was held to be in restraint of trade and a violation of the code.^ In Missouri, an agreement of insurance companies regarding rates was declared illegal.^ A local agreement to raise the price of beer in Kentucky 1147 Cal. 115, 1905; 107 Pac. 712, 1910; 65 lU. App. 502, 1896; 182 HI. 551, 1889; 171 lU. 391, 1898; 65 Kas. 240, 1902; 112 Ky. 925, 1902; 119 Mich. 255, 1899; 134 Mich. 103, 1903; 140 Mich. 538, 1905; 187 Mo. 244, 1905; 116 N. W. 302, 1908; 177 N. Y. 473, 1904; 139 N. Y. 251 1893 ■ 72 Ohio State, 210, 1905 ; 61 Ohio State, 520, 1900 ; 106 Pac. 969, 1910 ; 128 S. W. 599, 1910. ^ io2 la. 602, 1897. 3 75 Minn. 28, 1897. * 152 Mo. 1, 1899. 198 CONCENTRATION AND CONTROL $1 a barrel was declared to be illegal, although it had for its purpose the raising of the price of an intoxicant, the increased use of which the law does not favor.^ It is not necessary that a combination shall secure a practi- cal monopoly of the product in order to be in restraint of trade under some of the state statutes.^ Transactions creat- ing a local monopoly for a limited period (ten years) have been declared to be illegal.' In Oklahoma this principle has been carried so far as to hold that a combination by three companies manufacturing ten per cent of a product is in restraint of trade. ^ Contracts for exclusive dealing have been declared to be un- lawful in a number of states. In Kansas exclusive contracts of agents to handle International Harvester machinery were declared to be in restraint of trade.^ In Michigan agreements to sell all the salt manufactured to a single concern and to stop the manufacture of salt upon the payment of a certain rental was held to be illegal.^ In Texas an agreement to buy oil and beer from a single firm, to sell at a fixed price, and not to sell to competing dealers, was declared to be in violation of the laws in restraint of trade.'' In general, agreements made by associations by which their members would have the advantages of exclusive dealing or which discriminate against non-members regarding prices and other matters, have been held to be unlawful.^ Thus produce exchanges which discriminate in prices be- tween members and non-members have been declared to be in restraint of trade. ^ In Michigan it has been held that a con- tract to sell lambs where the buyer agrees not to purchase any other Iambs to a fixed time is held to be void, since under the statutes all contracts designed in any manner to prevent or restrain price competition is unlawful. i" In Oklahoma an agreement not to enter business within one 1 112 Ky. 925, 1902. = 214 111. 421, 1905. ' 128 S. W. 599, 1910. * 59 S. W. 709, 1900. <■ 81 Kas. 610, Feb., 1906. • 134 Mich. 103, 1903. ' 19 Texas Civ. App. 1, 1898; 90 Texas 277, 1896. See also 119 Mieh. 255, 1899, and 97 Miss. App. 280, 1902. »211 Mo. 181, 1908; 75 Neb. 637, 1906; 103 Tenn. 99, 1899. 9 82 Minn. 173, 1901. i" 119 Mich. 255, 1899. THE LAWS REGARDING COOPERATION 199 hundred miles of Oklahoma City was declared to be in conflict with the statute which provides for disposal of good will on an exclusive basis only to the extent of a specified county.^ In Minnesota it has been held to be a violation of the statute to sell kerosene, as has been done by the Standard Oil Company, at different prices at various localities, with the in- tent to destroy business of competitors and create monopoly.^ Selling agencies are under the ban of the law in some states. In New York City there was created an agency for the buying and selling of milk at wholesale and retail. The majority of the stockholders in this agency were milk dealers in the city of New York. The board of directors fixed the price at which milk should be purchased by the stockholders. This price so fixed, controlled the markets and the combination was de- clared to be unlawful.' Similarly the producers of bluestone combined in an association to regulate the price and appor- tion their output under which separate companies made the sales for each participant. This arrangement was declared to be unlawful.* The above sufficiently illustrates the dominant trend of the decisions against restraint of trade. Some of the states have Restraint allowed contracts in restraint of trade to a very limited ex- i^^^^ *° tent. In California, when a merchant purchased a certain extent, quantity of olive oil, agreeing not to sell the same below a certain price per gallon, this agreement was held not to be in violation of the code restraining monopolies.* In New York in one case it has been held that an agreement under which wholesale dealers, manufacturing certain proprietary articles, sell their goods at a uniform jobbing price only to such dealers as would conform to the manufacturers' price list is legal.* Along the same line it has been held lawful for manufacturers to give jobbers rebates who would agree not to sell for less than the list price prescribed by the manufacturers.' In New York an agreement between a builders' association and a bricklayers' union, under which the association gave • Wilson's " Review and Annals," St. Okl., 1903, sections 819-820. ' 126 N. W. 527, 1910. ^ 145 N. Y. 267, 1895. ' 164 N. Y. 401, 1900. 5 156 Cal. 611, 1909. » 175 N. Y. 1, 1903. ' 40 N. Y. App. Div. 513, 1899. 200 CONCENTRATION AND CONTROL preference to the members of the union, and no member of the bricklayers' union could work for any one not complying with the regulations, was declared not to constitute a monopoly within the New York statute.' An agreement of the Duluth board of trade providing that all members of the board shall charge uniform rates of commission for selling grain to non- members was declared not to be a violation of the Minnesota antitrust act.^ Contracts for limited exclusive agencies, and to refrain from business for a limited time and place, have been held to be legal. In Mississippi a contract for an exclusive agency for a definite territory to sell a certain article manufactured by a single company was held not to be in restraint of trade.' In Arkansas an agreement to refrain from soliciting insurance in Jefferson County for five years was held to be lawful.* It has been held to be reasonable for shopkeepers to agree as to the hour of closing their shops. ^ General Statements. — The foregoing discussion of the situa- tion within the states shows that the statute laws have been very strictly construed regarding restraint of trade. The great majority of the decisions under the laws have been against combinations and contracts in restraint of trade, and against regulation of output, division of territory, and agree- ments in prices. However, the last set of cases cited show that contracts restraining trade to a very limited degree have been allowed. The statute laws are as strongly against combination or re- straint of intrastate trade as is the Sherman antitrust act for interstate commerce. Upon the whole the situation within the states with regard to restraint of trade under the laws and decisions is practically the same as with interstate commerce under the Sherman act. The legislation against the trusts among the states along the same fines as that of Congress shows the influence of contagion, and the willingness of legislatures to act upon a generaUy accepted faith such as that which prevails 1 169 Fed. 256, 1909. ' 101 Minn. 506, 1909. ' 77 Miss. 476, 1899. 4 121 S. W. 293, 1909. ^ 54 g -^y ggg^ 1900. THE LAWS REGARDING COOPERATION 201 concerning the power of competition adequately to regulate commerce. As already pointed out, combinations in prices, formal or informal, exist everywhere, from the two or three grocers at the country crossroads to the great business concerns. Just as the effect of the Sherman law has been steadily to increase the concentration of industry, so the legislation in the states regarding restraint of trade has been an influence in the same direction. The foregoing makes it clear that where a sound and power- ful economic tendency appears which appeals to the common sense of the commimity as necessary for the general welfare, a law, however drastic, cannot stand in its way. Burke said in his address upon Conciliation with America, " I do not know the method of drawing up an indictment against an whole people." If at the present time the laws against combination in this country are to be strictly enforced, it will be necessary to draw an indictment against the larger part of the business men of the country. The great combinations which have been selected for indict- ment have been those against which popular clamor has been directed. The selection of them has been largely due to this cause combined with their magnitude. Is it not a most unfor- tunate situation when tens of thousands are guilty, that here and there one is picked out for prosecution ? One of the most serious evils in connection with the situa- tion arises from this fact. The business men, knowing that cooperation is not possible under the law, are driven to secret understandings and gentlemen's agreements. In the dark, serious abuses appear in connection with cooperation which would not arise if the cooperation were legal and therefore there was no reason to hide the facts from the public. In this respect the business men of England and Germany are in an advantageous position as compared with those of the United States. In those countries they may cooperate ; in the United States they may not. It would indeed have been fortunate had we allowed the common law to stand, and instead of enacting statutes to 202 CONCENTRATION AND CONTROL prohibit cooperation, iiad undertaken its control through some administrative instrumentality. While it is believed that the present campaign, by the Attorney-General, to destroy cooperation and return to competition will not be successful, yet if it should be successful, trade, manufacture, and commerce will again be in the position that they were when England and America were under the old restrictions of common and statute law. If it should turn out that busi- ness is forced to this situation, we shall again be obliged to go through the same stage of development that both coun- tries have once undergone, — amelioration of the law until reasonable cooperation is again permissible. In that case we shall, by our unwise attempt through statute law to stem the tide of great economic forces, make America go through two cycles of evolution to reach, permanently, rea- sonable trade conditions, whereas one cycle has been suffi- cient for all other civilized countries. CHAPTER IV THE SITUATION IN OTHER COUNTRIES i To describe adequately the situation regarding concentra- tion in industry for other countries would involve for each a book as large or larger than this ; therefore there can be in- serted but the briefest summary of the principles which have controlled combinations and restraint of trade in several of the more important countries. Section 1 ENGLAND The situation in England is fully described by Macrosty,* and from his book this statement is mainly taken. As already pointed out, the law of England originally pre- vented combination in restraint of trade. This principle was abandoned many years ago, and the doctrine was ac- cepted that freedom in trade gave freedom to combine as well as freedom to compete, provided the combination did not result in monopoly. Under these circumstances there Federations have grown up extensive combination and cooperation in almost every line of industry in Great Britain ; but, not be- ing driven from one position to another by prohibition of combination, the movement toward giant holding companies or mergers has not been so far-reaching as in this country. To a considerable extent the combinations are through coop- erations and federations rather than mergers, although in a number of cases consolidation has gone far ; and there are ' The situation regarding industrial combinations in Europe to the year 1900 is fully described by J. W. Jenks, Report of the Industrial Commission, Vol. XVIII, pp. 343. 2 "The Trust Movement in British Industry." 203 rather than mergers. 204 CONCENTRATION AND CONTROL Large unita in the iron trade. Textile com- binations. Tobacco combina- tion. a few industries in which a single combination controls more than half of the business. In the iron and steel industry amalgamation is far ad- vanced, so that at the present time the larger part of the business is controlled by a few large combinations. The greater consolidated companies are united into an associa- tion under which there are agreements or understandings re- garding prices, markets, and allotments. Says Macrosty : ^ "Summing up the situation in the iron and steel industries, the conclusion forced on us seems to be that the tendency is towards the evolution of a comparatively few large units in each branch, and then that these units should combine into a loose organization for the regulation of their trade." The combinations in iron and steel include both horizontal com- bination, that is, union of plants of the same kind, and ver- tical combination, or union of the industry from its raw material to the finished product. In coal mining and cement making, consolidation and cooperation have taken place, but the process has not gone so far as in iron and steel. In the textile industries concentration has extended very far. This combination, unlike that of steel, is mainly of the horizontal kind. The first great success in amalgamation in this business was the J. & P. Coats consolidation. This business has expanded so as to become an international com- pany. The success of this combination led to similar ones for various textiles, although large combinations as yet have not extended to all lines of the business, nor for all have they been successful. In the chemical industries, combinations have extended very far. Concentration has been rapid in the grain-milling indus- try. In tobacco there is one great consolidation, the Imperial Tobacco Company, which occupies a position in Great Britain analogous to that of the former American Tobacco Company in this country. Even in the retail business, which Macrosty points out is the last stronghold of competition, combina- tion and cooperation exist upon an extensive scale. ' ''Ttie Trust Movement in British Industry," p. 82. THE SITUATION IN OTHER COUNTRIES 205 While in the various consolidations of Great Britain over- capitalization and promoters manipulations have been fre- quent, these have not gone so far, nor been so widespread, as in this country, where consolidation has been stimulated by adverse laws, and where combination has had the protection Combina- of a tariff. Macrosty says: ^ "The weakness of every form f^^g^ of combination in the United Kingdom is due to the free admission of foreign competition." He states that if that condition can be removed, the combinations will be enor- mously strengthened. The combination which confines its operations strictly to Great Britain is at a disadvantage as compared with combinations in countries which have a pro- tective tariff, for the reason that the excess products of the British com- foreign countries can enter Great Britain without payment bmations of duties ; whereas the reverse is not the case. This situation to United has resulted in international combinations for a number of kingdom. the more successful of those which center in or do business in Great Britain. Such international combinations are illus- trated by the Imperial Tobacco Company with a capitali- zation of £17,500,000, the United Alkali Company with a capital of £8,200,000, the W. Cory & Sons Coal Company with a capital of £2,800,000, the J. & P. Coats Thread Com- pany (this combination includes England, America, and Belgium), the Nobel Dynamite Trust Company with a capi- tal of £3,000,000, and the international steel rail combination. Macrosty summarized the situation as follows : — " The position of the British combinations in regard to the interests of the community may be summed up as not at present dangerous but containing, like every new develop- ment, great and unknown possibilities alike for good and for Cannot go evil. Over prices their powers are not great but are growing. ^^^^^ ^°^_ So far they have shown no increased power over their em- ditions. ployees, and with a strong trade union they need not have." . . . " Nothing could be more fatal than in a panic to try to turn back a great industrial movement. So far as can be seen the great amalgamations are the best instruments of ' " The Trust Movement in British Industry," p. 342. 206 CONCENTRATION AND CONTROL production yet devised, and to break them up into their original components would be foolish if it were not in most cases impossible. Crude methods of suppression are always wrong, nor does it seem sensible to search among legal principles relevant to a different stage of industry for weapons to hamper and obstruct." . . . "Repressive legislation could only affect the outer form of combination. Amalgamation cannot be prohibited without forbidding the union of even two firms, while to make mo- Futility of nopoly illegal would be fruitless where no formal monopoly leSSation exists, and there is no way of determining the greater ef- fectiveness for evil of a merger including eighty per cent of the trade over one containing only fifty. No law can suppress the Gentlemen's Agreement, where there are no rules, no con- stitution, no contract, but common action is effected verbally and informally, and yet some of the most oppressive combi- nations have been of that form. Neither combination nor agitation should be driven underground, and it is significant that to-day complaints are generally raised in the United Kingdom, not against the legally recognized amalgamations hut against associations which have no existence in the eyes of the law and work in secret. To strike at the methods adopted by combinations is not easy without at the same time repressing measures blamelessly adopted by the individual trader. Boy- cotting, dumping, selling at a loss to crush competition, main- taining prices at the highest level which the market permits — these are no monopoly of combinations, but are weapons in everyday use by manufacturers, merchants, and shop- keepers. It would be indeed an extraordinary thing to strike at competition in the name of competition." ' Section 2 GERMANY In Germany, combination has gone farther than in Eng- land. In 1897 Liefmaim gave a list of 345 combinations in ' "The Trust Movement in British Industry," pp. 343-34S. THE SITUATION IN OTHER COUNTRIES 207 that country. Usually the combinations, called cartels, are contracts among independent establishments which limit output, divide markets, and control prices. Oftentimes Extent of these are accomplished through central agencies. It is clear ['nGerm^n ° that these cartels for each of the lines of business, concerning which they exist, act powerfully in restraint of trade. Many of them comprise substantially the feature of the typical trusts of the past in America which have been dissolved by the courts. But in Germany, violations of these contracts are held to be immoral. In other words, the principle is broadly accepted and enforced by the courts, that freedom in commerce involves freedom to combine as well as freedom to compete. As illustrations of these cartels, the Steel and Potash com- bines will be briefly described. The German Steel Combine. — Combinations in Germany have extended farthest in the iron industry. One of the larg- est and most successful of these combinations is that of the steel producers. This combination is especially important steel Com- because of its analogy to the United States Steel Corporation, in'oennany the fundamental difference being that the German steel com- bination is within the pale of the law, while the United States Steel Corporation is attacked by the United States Attorney-General as being interdicted by the law. The state- ment given below is by Professor T. K. Urdahl : — " The German Steel Combine is the largest private in- dustrial undertaking in the world outside of the United States. The aggregate capital of the combined firms amounts to over 1,250,000,000 marks, and the average annual value of its Magnitude products exceeds this sum. The contracts and articles of °o^bine. incorporation upon which this giant combination is based were signed on the 29th of February, 1904. Its duration was originally limited to three years, but in 1907 it was renewed, and to-day it stands as one of the strongest organi- zations in the industrial world, controlling, as it does, 95 per cent of the steel output of Germany. " The scheme was not devised at a given moment by the 208 CONCENTRATION AND CONTROL brain of a genius, but, like the modern political state, was preceded by a long series of experiments. " Each of the organizations representing the stages in the Origins. evolution of the steel combine was more complex and more perfectly adjusted to its environment than were its prede- cessors. " Instead of swallowing up and assimilating the many competing elements, as have the American trusts, the Ger- man Steel Combine represents a confederation in which the individual members retain much of their independence and autonomy. In one sense, it is a syndicate of syndicates, since it grew out of and took over the functions of six large cartels, each controlling one large line of steel products. " There were : (a) Half-manufactured Products Combine, Diisseldorf. (6) Steel Beam Combine of Lower Rheinish-Westphalian District, Diisseldorf. (c) German Steel Rail Association, Diisseldorf. (d) German Steel Tie Association, Diisseldorf. (e) South German Steel Beam Association, St. Johann a. d. Saar. (/) German Steel Beam Association, Wiesbaden. " Table 50. Showing Relations of Gebman Steel Cartels Che PiQ Ihon Iron and Steel Finished Steel Products Asso. for sale Armor of half- plate manufac- tured prod- ucts, Diis- seldorf Steel Beam Asso., Lower Steel Com- bine Sheet iron Tin Sheet steel Pig Iron Syn- dicate Rhine, Diis- seldorf THE SITUATION IN OTHER COUNTRIES 209 Oee Asso. for sale of Sieger- land iron Pig Iron Dusseldorf Pig Iron (Thomas iron) Sales Bureau, Dusseldorf Asso. for sale of Sieger- land pig iron, Sie- gerland Upper Sili- cian Pig Iron Syn- dicate, Zabrze Ikon and Steel Finished Steel Pboducts German Steel rail Asso., Dussel- dorf South Ger- man Steel Beam Asso., St. Johann German Beam Association, Weisbaden German Ry. Tie Asso- ciation, Diissel- dorf Upper Sili- cian Steel Combine Steel Com- bine Wire nails Wire rope Woven wire Steel tubes Tin cans Enameled ware Gas pipe Steel Beam Dealers' Association Hardware Manu- facturers' Associa^ tion Steel Spring Manu- facturers' Associa- tion 210 CONCENTRATION AND CONTROL " Each of these was organized to handle and sell its special products in its own field, and had developed a successful organization to carry out special purposes. " In organizing the steel combine it was necessary to de- vise a scheme to do the work of the above named cartels and in addition to perform similar duties for a large variety of firms and associations, altogether thirty-six, out of which the combine was formed. Among these there were some relatively simple manufacturing plants known as 'pure roller mills,' steel mills without smelters of their own, en- gaged in transforming pig iron and steel ingots into roller mill products. There were other firms that not only com- bined smelters with roller mills, but owned and operated coal and ore mines and conducted wire nail and steel rail mills as well. " In order to carry on the marketing of this great va- riety of material the steel combine established three main A products, divisions or bureaus for handling A products : 1. half- manufactured products (ingots, pig iron, steel blocks, etc.) ; 2. heavy railroad material ; light railroad material (ties and rails). 3. structural iron; (I and U beams, etc.). Each division has separate bureaus for taking care of domestic trade and of exports. " In handling all A products the steel combine has com- plete control of the purchase and sale, and becomes the owner of the product during the brief space of time intervening be- tween the purchase from the smelter and sale to the manu- facturer. This system is an improvement upon the scheme that prevailed in the earlier syndicates whereby the syndicate acted merely as an agent for the individual members. Fur- thermore, the combine exercises the power to determine what the maximum output shall be, and apportions among the different firms their quota of the total output of all the mills. " In handling B products, which include all other roller mill goods, the syndicate pursues an entirely different policy. B products. Here all orders are received, either directly from the con- sumer or through the members, and are distributed by the central bureau among different works according to certain THE SITUATION IN OTHER COUNTRIES 211 rules. These are : First, each member shall receive orders until its output, when compared with its allotment, is rela- tively as large as that of the other members of the combine. Second, cheapness of freight charges and avoidance of cross freight shall be considered. Third, so far as possible orders shall be so distributed as to stimulate territorial division of labor. Whenever an order is sent to a steel firm it must at once be forwarded to the central bureau, which then places the order with the firm entitled to it under the above rules. The wishes of the person placing the order are not considered imless his desires conform with what is deemed desirable from the standpoint of the combine. All producers of B products are divided into groups. Every group has allotted to it a certain quota of output. Terms of which quota is always established by a resolution of the en- ^^®' tire steel combine. The combine may increase or decrease the quota of any group at pleasure, but, thus far, no radical reduc- tion has been attempted. Instead, a gradual increase, amounting in ten years to nearly 33 per cent has been authorized. All goods bought from the syndicate must be paid for on the fifteenth of the following month, and the syndicate itself settles with the individual members on the twentieth of the following month. " The price paid to the producers is fixed by the syndicate, and is generally called the table price (Tabellen-preise), Price at which is supposed to cover roughly the cost of producing. ^°'^'^- Prices to the consmner are generally quoted free on board for railroad material at the works, — for structural iron at Diedenhof en ; and for half -manufactured products at cer- tain centers for groups of producers, five of which are specified in the syndicate agreement. Freight to the center is paid by the works, and freight from the center is paid by the consumer. Should the consumer be located nearer to the works than to the center, he is still compelled to pay freight from the center. This saving in freight is given to the works enjoying the advantage. All general sales prices are fixed quarterly and apply usually for the next two quar- ters. These prices are known as standard prices, and only 212 CONCENTRATION AND CONTROL in an exceptional case is any one allowed a rebate or a lower price. For extra quality or exceptional forms of steel goods the combine establishes exceptional prices. The difference between the table price and the selling price is noted for each group of products. Careful accounts are also kept of losses and administrative expenses connected with each group of production. After these losses and expenses have been deducted from the surplus, the remainder is dis- tributed pro rata among the members of the group in quarterly payments. " Since 1902 there has been in existence, in Dtisseldorf, a bureau maintained and originally organized by the four syndicates producing half-manufactured goods, but at pres- ent jointly maintained by the coal syndicate, the raw iron syndicate, and the steel combine. When the syndicate exports to foreign countries, it pays the producers the regular table prices, and the loss involved, if any, is charged against profit and is thus shared by all members of the group Rules of producing the exported products. In order to promote ex- export, ports a system of export premiums has been established. These premiums amounted in 1907 to the following sums : " Marks 1.50 per ton for coal used up in the production of steel exported. " Marks 2.50 per ton for iron ore used in the production of steel exported. " Marks 15 per ton for partly manufactured steel (inclu- sive of the coal and iron ore premium) . " Marks 20 per ton for steel rails of all kinds (inclusive of the premiums on coal and raw iron). " In addition to these premiums others are added by spe- cial cartels, such as the wire nail syndicate, the wire syndicate, etc. Premiums are ordinarily paid to works in proportion to the amount of raw material, coal, etc., used in the pro- duction of its exports ; but a firm which owns its coal and iron mines is not always entitled to the maximum amount authorized by the bureau. Only firms that use coal and iron included in the output authorized by the syndicate are allowed this privilege. The premiums granted are also THE SITUATION IN OTHER COUNTRIES 213 established by the syndicate and may change from time to time as the conditions warrant. The manufacturing industries claim, and apparently Effect of with good grounds, that the export policy of the steel com- "'^p™' bine will in the long run prove disastrous to the exports of the German machine industries. Whenever the home market is unable to absorb the amount of steel that the producers place at the syndicate's disposal, it is generally forced to re- duce its price to foreign buyers in order to get rid of the out- put. In this way, the foreign manufacturer of machines, by obtaining his raw material from the German combine, is placed in an unduly advantageous position in competing with the German producer. In 1904, for example, pig iron was sold abroad at from 69 to 71 marks, whereas the domes- tic buyer was forced to pay from 82| to 924 marks. The steel combine admits this charge, but claims that its impor- tance has been greatly exaggerated by critics of the syndicate. " The combine is bound by contract to receive and pay for all the product of each individual member, provided the same does not exceed the quota allotted to the firm in ques- Fines and tion. The steel thus purchased is sold by the combine to penalties, industrial and other concerns at a uniform price known as standard price. Only in very exceptional cases is any steel disposed of to a domestic concern at any other price. The standard price is established by the directors of the combine at the beginning of each quarter. The quota assigned to each relates exclusively to products offered for sale. Any member of the combine may use as much steel and iron as it pleases in its own factories. " If any member violates the contract of the syndicate by selling directly A products to consumers, he is compelled to pay a fine of one hundred marks per ton for each ton of goods sold. Every other violation of the contract is pun- ished by a fine of 1000 marks for each offense. A restricting penalty of twenty marks per ton is imposed upon the firms for each ton they produce in excess of the amount of B prod- ucts allotted to their plants. If any firm produces A prod- ucts in excess of its quota, it is required to pay a fine of 214 CONCENTRATION AND CONTROL Increase in prices. Increase in profits. five marks per ton. In the same way, firms producing less than their quota are entitled to five marks per ton premium from the sjoidicate. No member of the combine is allowed to sell or rent his plant to an outsider without the consent of the syndicate. He is also forbidden to establish new plants or to own shares in any company outside the com- bine. All differences of opinion between members of the combine are to be settled by a Board of Arbitration, and under no circmnstances are to be carried into the courts. The syndicate exercises no control whatever over the method of securing iron ore or other raw material by the individual members. It also refrains from interfering with labor strug- gles, strikes, or other disputes. " The combine has secured sufficient orders to enable all its members to increase their output about 33/4 per cent and at the same time has secured gradually increasing prices. Increased output in large scale production necessarily results in cheapening the cost per unit of production to the limit of maximmn efficiency. "As a result of the combine, the profitableness of steel works and the value of steel stocks has increased materially since the syndicate came into existence. Apparently, there- fore, the syndicate has been decidedly beneficial to the plant owner. Still it must not be forgotten that the period in which it has been in existence has been one of favorable in- dustrial conditions. The gross profits of fourteen of the largest works increased, in the year 1904-1905, 31.8 per cent, whereas the capital invested in the works in question was in- creased only 8.6 per cent. Averages, however, do not indicate fully the influence of the steel trust upon each individual member. Generally the larger and more powerful members have benefited more than the weaker ones through its activ- ity, and in some cases the condition of the weaker members has deteriorated rather than improved. While some com- panies have undoubtedly been able to remain in existence as a result of the syndicate's activity, that would under the competitive system have been forced to the wall, others that might have developed under the competitive system have THE SITUATION IN OTHER COUNTRIES 215 apparently been held back by the cartel's policy of com- bination. If the combine had not been created, the smaller works would probably have been swallowed up, one after another, until the steel industry of Germany developed into a trust- like consolidation resembling the United States Steel Corpo- ration. This tendency has been restrained rather than eliminated, since numerous consolidations have been made within the combine during the period in which the steel syndicate has existed. " The most important advantage which the steel syndi- cate has secured for its members is a diminution in the costs of handling and sale of steel. The average per ton Lowered cost has amounted to only 25 pfennig, whereas it is claimed ''"^ ^' that the cost for the same service in the American steel combination is $2 per ton. The comparison is not correct, however, since the $2 per ton in the latter includes a large number of overhead charges, which in the German works are borne by the individual firms. " Costs of production have also been cheapened by the steel combine as a result of the increased division of labor made possible by its creation. Under the cartel contract it has been possible for one mill to exchange orders for cer- tain kinds of goods for which its equipment was inadequate with another mill whose facilities for making this class of goods were more up-to-date. In this way it has been possible for some mills to produce on a large scale relatively few kinds of steel products, such as steel rails, beams, etc. " Another advantage obtained by the members from the existence of the cartel is in dealing with strikes and labor Advantages difficulties. Whenever a strike threatens, the concern can "i strikes, transfer its quota to some other mill where there are no labor difficulties. Furthermore, the syndicate contract contains a provision releasing the mill from obligation to dehver goods whenever a strike is on. Such an arrange- ment would have been impossible under the competitive system, and losses growing out of strikes would undoubtedly have been much greater if the syndicate had not existed. 216 CONCENTRATION AND CONTROL Quality of steel. Stability. Harsh sale conditions. " In general it is feared that the organization of the steel industry in the form of the steel combine will result in a gradual deterioration in the quality of steel products and that the chief object of the combine will become quantity rather than quality. On the other hand, it is also clear that the steel works will be able to specialize much more successfully under the cartel regime than has been possible under the competitive system. The steel producers are now able to devote themselves solely to the problem of production, since the cartel takes over the entire distri- bution of the products. In addition to this tendency, the owners of smelters are not forced to devote so much time to the problem of the purchase of raw materials, since this side of the business has also been systematized so that purchases are made on a large scale by joint agreements between iron ore owners and steel producers. "It is also asserted that the steel combine has secured much greater stability in the iron and steel market than was possible before it came into existence. This stability has made it practicable for manufacturers to avoid losses which formerly were almost inevitable. It has been pos- sible for the cartel to shift the burden more and more upon the less organized manufacturers who use steel products as raw material. Consequently the last and unorganized stages of steel product manufacture, e.g. machine making, etc., have been forced to bear the greater proportion of the burdens caused by a gradual increase in prices. These manufacturers will undoubtedly be able to shift a part of the burden upon the final consumer. As yet, this process has not been entirely completed in a great many lines. " In times of business prosperity the steel combine fulfills its contracts only partially and this also constitutes ground for complaint on the part of purchasers of steel goods. " Many complaints are also directed against the strict conditions of sale imposed by the combine. It is main- tained that the wishes of customers are not given due con- sideration, that they are compelled to take the quality of steel which the combine sees fit to give them, regardless THE SITUATION IN OTHER COUNTRIES 217 of the special needs of their business. Furthermore, it is asserted that the combine delivers steel to certain firms, from different plants, which makes it difficult for the manufacturer to secure as uniform a grade of goods as he had been able to obtain when he bought all his steel from the same firm. The steel syndicate claims that most of these complaints are based upon prejudice and imaginary- differences in quality. A comparison of the total output of steel in Germany with the total steel output of the United States during the last ten years demonstrates the fact that for some reason Effect on or other the steel production has been much more stable steel output, in Germany than in America. The crises of 1903 and of 1907 resulted in a violent slump in the production of Amer- ica. These crises had relatively little effect upon the work of the steel mills. Whether the absence of fluctuation in Germany can be traced back to the steel cartels, or whether it is due to the fact that German industrial conditions are more stable than they are in America, is a question which cannot be easily answered. It is probable, however, that the German cartels have solved the problem of adjusting the supply to probable demands about as successfully, if not more successfully, than the American steel combine." For the great German steel combine, thus described by Professor Urdahl, controlling ninety-five per cent of the industry of the country, it is clear that cooperation is allowed Surplus to proceed to the extent of monopoly, and that without ^tig^ any administrative control by the government or attempt prices, to prevent the combination from fixing prices which the markets will stand. It is notable that the combination sells steel abroad lower than at home; in some cases as much as twenty per cent cheaper, in this respect following the same policy as the United States Steel Corporation. This is possible because Germany, like the United States, has a protective tariff ; and therefore the foreign producer can- not enter the domestic trade of these countries. This is reserved for the home corporations. If it were not for the fact of Germany's tariff, it is plain that it would not be 218 CONCENTRATION AND CONTROL possible to keep the level of prices for iron and steel higher at home than they are in the world's markets. The same is of course true for the United States. The Potash Industry} — One of the most interesting of the combinations in Germany is that of the potash industry. In the Stassfurt district are the greatest potash mines of the world. A comprehensive law concerning potash was passed in 1910 creating a board of apportioimient. This board fixes the amount which is to be sold during any year; it determines the proportion that each producer — and they are some fifty in number — shall be allowed to mine. Any producer may exceed his allotment by ten per cent ; but if he does, the excess is deducted from his next year's allow- ance. If a company exceeds this maximum it must pay a Allotments greatly increased tax upon the excess. The companies and pnces g^j.g forbidden to lower grades. The maximmn price is fixed for each grade of the product ; and not only this, but freight rates are adjusted, so that the prices are equahzed at different commercial centers, just as the anthracite combination fixes the price of that article at Boston and Buffalo. The law also provides that the price of potash in Germany shall not be greater than it is abroad. The taxes on the potash companies are reserved for the adminis- tration of the governmental machinery necessary to con- trol the industry. Each company must give a full report of all its transactions. The books are open to the board of apportionment. There is an appeal from the board of apportionment to a commission, just as in the proposed plan allowing cooperation in America there is appeal from the commission to the courts. (See pp. 242-243.) Before the above law was passed there was a syndicate which controlled the potash industry. When this syndi- cate agreement terminated, two companies broke away and made contracts for large sales of potash in America. This situation led to the above law, which embodies many of the regulations previously contained in the syndicate ' The full text of the potash law is given Hearings, Senate Interstate Com« merce Committee, Part IX, pp. 489-497. THE SITUATION IN OTHER COUNTRIES 219 agreements. The law was therefore a direct outgrowth of previous experience under the pressure of an emergency. Combina- One reason which was strongly urged for its passage was o^jevef^* that it would result in the conservation of the potash re- meut. sources in Germany. Before combination, the potash industry had all the difficulties of many competing con- cerns with regard to a natural resource limited in extent. Prices were too high or too low. The plan of controlling the potash industry in Germany promises to work to the satisfaction of the producer, and to the satisfaction of the government, which is a part owner in the potash mines. It is notable that for the potash industry, in which com- plete monopoly is allowed, restrictions are introduced which are not regularly applied to the cartel in Germany. The Complete board of apportionment has authority to control prices ; flowed ^ not only so, but to prohibit the selling of material abroad cheaper than in Germany. In both of these respects the policy of the government is an advance over that which applies to the steel combination. That combination, while not a complete monopoly, controls 95 per cent of the out- put of the country; and there is no government regulation of prices either at home or abroad. In consequence of this, as we have seen, prices are kept up at home and re- duced abroad sufficiently to sell the surplus product. While in Germany cooperation is permitted to an almost unlimited extent, the laws are there very severe against unfair competition. The types of unfair competition are closely defined, and a party who is injured through their violation may recover damages. Section 3 AUSTRIA In Austria the laws make illegal all agreements to raise prices and other contracts to the detriment of the public. There are exceptions to the extent that agreements which maintain prices in times of crises, reduce prices, and secure 220 CONCENTRATION AND CONTROL more favorable conditions of production, such as lowering of freight rates, large scale purchases, etc., are lawful. Law against While, upon the whole, the law of Austria is against cartels, cartels. ^j^g industrial situation is similar to, but not identical with, that of Germany. Combinations extensively exist. Some of the more successful ones are those in iron, sugar, and petroleimi. Ordinarily these combinations control outputs and prices. This may be accomplished through selling bureaus and by division of markets. The courts, acting under the laws stated, have been less favorable to the combinations in their decisions than the courts of Germany. While, in some cases, contracts for the division of the market, fixing of prices, etc., have been Combina- declared illegal, these decisions have not been any more suc- *'°°. cessful in checking the tendency toward combination than continues. ° •' have similar decisions in this country; indeed, they have somewhat accelerated mergers in Austria as they have greatly in this country. According to Jenks '■ the tendency to com- bination has been retarded to some extent by the regulation requiring publicity in business, and because of the fact that taxes are heavier on corporations than on private firms. Looking toward the future in Austria, a government commission has recommended the recognition of combina- tions by law and their supervision and regulation by gov- ernment authority. Section 4 FRANCE In France the laws provide heavy penalties against price agreements for food products. The courts have held that Law against Combinations which do not have the purpose of raising tions'™'^ prices, but to prevent prices from falling and to regulate their fall, are lawful. Also combinations which do not strive to raise prices but only to secure a market so as to put them in a position to compete with their rivals have been held to be lawful. i"Ency. Brit.," 37,338. THE SITUATION IN OTHER COUNTRIES 221 One of the effects of the laws against combinations and agreements in France has been to drive them to secrecy, the same as in this comitry. It is therefore difficult to ascertain the extent to which combinations exist, but it is certain that they are widespread. Selling bureaus have been established which receive Cooperation orders and fix prices for the establishments concerned. ^°^^ °"' This form of organization has not been successfully attacked in the courts. These agreements and selling agencies affect many industries, including sugar, petroleum, and porcelain.' Section 5 GENERAL STATEMENTS Belgium has many cartels which are very similar to those of Germany, and often the cartels in the two coun- tries are closely related. Some other countries having cartels for various products are : Bulgaria, Egypt, Italy, Portugal, Roimiania, Spain, Scandinavia, Switzerland, and Russia. From the foregoing summary regarding the situation in foreign countries it appears that the premises with which Great Britain and Germany start concerning combination The faith of in restraint of trade is just the reverse of our own. Our ^"^^'"j^y"^ faith is in competition ; their faith is in cooperation. Clearly cooperation, the theory of the United States or that of Great Britain and Germany is wrong. In this country there exists a popular distrust and fear of combination and the desire to strike it wherever it appears; in Germany and Great Britain combination is accepted as a necessary step in com- mercial progress. The expanding trade of Great Britain and Germany gives strong evidence of the merit of their point of view. Those who have watched the develop- ment of Germany since the Franco-Prussian war have been amazed at the rise of that country to a position in com- merce at home and abroad second to no country in the world. In many lines of manufacture, for instance, steel, 1 " Ency. Brit.," 37, 338-389. 222 CONCENTRATION AND CONTROL the foreign trade of Germany and Great Britain vastly exceeds our own; not only so, but it is more rapidly ex- panding. It, of course, caimot be held that the astonishing advance of Germany in commerce and the increase in for- eign trade of Germany and Great Britain are due exclusively to freedom to cooperate in business as well as freedom to compete; but it may be safely asserted that this was one of the essential conditions to their great success. Section 6 INTERNATIONAL COMBINATIONS Combinations not only exist in the European countries and in the United States, but for many industries inter- national cooperation has begun between the great com- panies in different countries. Macrosty ^ says that " rails, Wide extent tubes, nails, screws, sewing thread, bleaching powder, national borax, nitrates, and tobacco are to a greater or less degree combina- brought imder international control, while, at least till ^°°' lately, dynamite was so controlled, and repeated efforts have been made similarly to syndicate the whole steel trade." The forces which have produced such interna- tional combinations are the same as those which have resulted in those confined to one country, the maintenance of prices, division of territories, and limitation of production. Perhaps the most important of these combinations is the International Rail Syndicate, which was formed in 1883 between Great Britain, Germany, and Belgium. Under this agreement England was awarded 66 per cent of the business, afterwards reduced to 633^ per cent; Germany, 27, afterwards 29 per cent ; and Belgium 7, afterwards l}/2 per cent. Later this pool was broken up with a fall of prices, but in 1904 it got together again on a different basis, that of division of territory. In 1905 the United The steel States was taken into the arrangement. Also, there have cate^'^ ' ^^^^ international combinations for a number of other iron and steel products. • "The Truat Movement in British Industry," pp. 63-64, 342. THE SITUATION IN OTHER COUNTRIES 223 One of the most important of the international combina- tions is that of the marine interests. In 1902 the Inter- national Mercantile Marine Company was organized under the laws of New Jersey, with a capital of $120,000,000, Themarme one half common and one half preferred stock. The com- sy°<^'<=^*^- bination included the following lines : Leyland (49 vessels, 295,000 tons) ; White Star (29 vessels, 181,000 tons) ; Atlan- tic transports (23 vessels, 183,000 tons) ; American and Red Star (24 vessels, 181,000 tons) ; Dominion (14 vessels, 110,000 tons). Without being a member of the International Mercantile Marine Company, the Hamburg American and North Ger- man Lloyd Companies, with 190 vessels and 1,093,000 tons, have entered into a working agreement with it by which a committee composed of four representatives, two of which are named by the International Mercantile Marine Company and two by the German company, are authorized to fix rates, dis- tribute steerage passengers, etc. Table 51. Showing Constitxttion of Shipping Combine a. International Mercantile Marine Company North German Lloyd Hamburg-American Company b. Belgian Red Star Line. c. HoUand-American Line. d. Compagnie Trans-Atlantique. e. Cunard Line. . Combina- tion • Cartel Cartel, known as Shipping Combine Another shipping combine is said to control the freight business between New York and the Far East. Both of these marine companies are under attack for violation of the Sherman antitrust law.' ' United States v. Hamburg-Amerikaniache Packetfahrt-Actien-GeseU- schaft, and others, U. S. Circuit Court, Southern District N.Y. 2d Dist ; United States v. American-Asiatic Steamship Company, and others. District Court of the United States for Southern District of N. Y. 224 CONCENTRATION AND CONTROL At Jena there is a central bureau. Each member of the cartel sends a statement to the bureau, giving the freight and passenger business of the company. If a member of the combination has carried more than his share, he pays the surplus into the treasury or pool, which in turn reim- burses the companies whose businesses have been curtailed. Oil is one of the businesses in which the international combination and cooperation have gone far, in some places there being union, in others division of territory. As we have already seen the American Tobacco Com- pany made an agreement with the Imperial Tobacco Com- pany imder which each was to respect the home territory of the other, and a combination company was created, the British-American Tobacco Company, through which the two handled their foreign business. The nitrate combination regulates prices and output. Some businesses have become international by one of the great companies buying other companies in the same busi- ness, or establishing branches in foreign countries. The latter applies to a number of the greater companies of the United States, illustrated by the Westinghouse Company. It is not the intention to give a detailed description of Combina- international combinations, since this would unduly ex- pand this book. That international combination has gone so far shows the world-wide extent of the tendency for co5peration in business. The United States caimot successfully compete in the world's markets without large industrial units. When com- bination and cooperation are permitted not only in foreign countries but as between foreign countries, if the manufac- turers of the United States are excluded from uniting and from taking part in international cooperations, they will not be important factors in the world's markets. No nation can walk by itself in the world's trade. If the Sherman act is rigidly enforced in its present form, and the administration apparently regards this duty as resting upon it, American manufacturers must look mainly to their home markets. tion world- wide. CHAPTER V REMEDIES Section 1 SPECIFICATIONS TO BE MET Before presenting a constructive plan to meet the existing situation in trade, it will be well to give specifications regard- ing the things that are to be accomplished and the things that are to be avoided, the same being based upon the statement of facts contained in the previous chapters. In making these specifications, the aim will be to present a consensus of opinion, not personal views. 1. While the existence of a non-competitive field, that of the public utilities, is admitted, and in many cases for such monopoly must exist, outside of public utilities there is still a large field for competition. Competitive conditions should^ be retained in the industries. Certainly there should re- Competi- main competition for business ; there should remain competi- tion for quality; there should remain competition in prices so far as this is consistent with other specifications. A con- dition should not be allowed to arise such as to render com- petition in prices, quality, or service impossible. In order to retain freedom of competition it will be necessary to pre- vent monopoly. In those industries in which freedom of competition does not now exist, the facts regarding individ- ual industries (given pp. 104-150) show that this condition has arisen and has been maintained very largely through unfair practices or by monopoly. 2. Unfair practices must be prohibited and unfair advan- tages must not be permitted. Only so will it be possible to a ; 225 tion to be retained. 226 CONCENTRATION AND CONTROL Unfair retain competition.' Some of the more important regula- praotices. tions should be as follows : — (a) All corporations should be placed upon the same basis with reference to conunon carriers. Discrimination, rebates, drawbacks, and exceptional services should not be allowed. (6) Business should not be allowed to be carried on by se- cret companies or combinations. The complete organiza- tion of any corporation should be open. No company should appear to be independent which is not so. (c) The grosser forms of unfair competition, such as es- pionage of business competitors, bribing of men in the em- ploy of competitors, etc., should be prohibited. (d) No agreement should be allowed requiring exclusive dealing ; nor should any rebate or advantage be gained from exclusive dealing. (e) Local selling at or below cost to kill competition should be prohibited. 3. Reasonable cooperation between corporations should be permitted. It is believed that in business under modern conditions, cooperation not competition should be the con- Cooperation trolling word. Sufficient cooperation should be allowed to mitted^'^' prevent fierce and unrestrained competition which goes to the extent of reducing prices below a reasonable amount. Only by cooperation can the enormous wastes of competi- tion be avoided. In this connection the form of the solution which may be adopted to secure cooperation may depend very largely upon the definition of reasonable and unreason- able. If all restraints of trade are reasonable which do not produce monopoly, then we may accept the common law principle that unreasonable restraint of trade is not to be al- lowed, and under this principle secure cooperation. But if unreasonable restraint is to be narrowly construed, so as to interdict all combinations which divide territories, regulate outputs and make price agreements, then unreasonable re- straint of trade must be redefined by statute in order to secure the benefits of cooperation. Much of the confusion in ' Details as to the icinds of unfair practices which have arisen in business may be found by reference to Chapter II. REMEDIES 227 the thinking and discussion concerning concentration is at this point, some persons having in their minds that all re- straints of trade are reasonable which do not go to the ex- tent of monopoly, and others holding that almost any form of cooperation in business is unreasonable restraint of trade. Just as cooperation of capital should be allowed, so i cooperation of laborers should be permitted. The laborers find themselves prevented from cooperation by the Sherman law precisely as have the industrial combinations.^ It is clear that unless laborers may unite in trade unions, in joint bargaining, and in all legitimate matters which concern them, they will be helpless. Not only should coopera- tion between capitaUsts and cooperation of laborers be al- lowed, but cooperation of the two groups should be per- mitted. In short, it is advocated that the principle of cooperation should control in commerce, including both laborer and capitahst. 4. Corporations should be allowed to be of sufficient mag- nitude to give the highest economic efficiency in order that (a) they may be able to supply the needs of our own people at the lowest practicable rate, and (6) to secure an increased proportion of foreign trade. As to magnitude which may be Sufficient allowed without the presumption that in consequence of this ™f gg*" ^ there is unreasonable restraint of trade, it may be suggested cienoy as a working basis that no one corporation, including all its subsidiary companies, should be permitted to control more than 50 per cent of any line of business of the country. There is no sanctity in the number 50, and this may be re- duced to 40 per cent or increased to 60 per cent if either be more acceptable to the public. This rule is not only to apply to a corporation as a whole but to each of the different lines of business which may be covered by it. If this principle be accepted, it is natural to say that any corporation which has more than 50 per cent of the business of the country is a monopoly, and that monopoly is unreasonable restraint of trade. > Hearings, Part XX, pp. 1727-1778. 228 CONCENTRATION AND CONTROL 5. It must be possible to secure the freedom of competition defined under 1 and the prohibition of the unfair practices under 2 practically without cost to the complainant. It is the Justice theory that all are equal before the law, but everybody knows to com*laiQ- *^^® theory is imsound. Under modern conditions, in which ant. there are giant corporations with substantially unlimited funds, the man who has a small business is not equal to such organizations before the law because of his inability to bear f the expense of the contest. If concentrations of industry be ' allowed to exist, some machinery must be devised under which the weak man may be sure of fair practices and an open field. 6. For all businesses in which there is any restraint of trade, reasonable or unreasonable, through cooperation, there Full pub- should be full publicity. As soon as cooperation is permitted, "^^ ^' the business as a matter of fact is invested with a public in- terest ; and even if not declared to be a public utility, if any privileges are given for cooperation, or for magnitude, which involves restraint of trade to the extent of controlling the market, all the operations of the company, including the profits, should be matters of public knowledge. 7. Corporations should be required so to conduct their businesses as to conserve the natural resources. This will involve the restraint of competition so as to prohibit waste. With reference to the future, this specification is one of Conserve paramount importance. The difficulties regarding produc- reaouroea. ^j^^^ ^^^ distribution of wealth we are sure to solve. In the meantime there may be loss and waste and unjust distribu- tion. There is not of necessity permanent loss. If, how- ever, natural resources of great value are allowed to be wasted or destroyed, this is a perpetual loss to the race. Thus, as has already been pointed out (pp. 89-94), if a large per- centage of coal be wasted imder severely competitive condi- tions of mining, if there be waste in the mining of our metals so that a considerable part of the deposits are left in the ground in such a condition that they cannot in the future be recovered, — this is an irreparable loss which permanently impoverishes our people. REMEDIES 229 8. Cooperating corporations should give just rewards to Just re- labor. The wages paid should be fair ; and fair wages for a ^^"^ *° man means wages such that he can support a family under decent conditions so that his children may have open before them the avenues of opportunity. 9. The business of the great corporations should be con- ducted under good social conditions. It has been charged that some of the great corporations require too long hours of labor, and that the work is carried on imder very unfavorable conditions. On the contrary, with regard to other great cor- Good social porations, it is claimed that in these respects the larger or- <'°'''^*'°''8- ganizations are in a better position than the smaller ones. Both of these statements appear to be true. So far as large businesses are allowed to exist, because of their magni- tude, these social factors become of special importance ; and the great concentrations which have exceptional strength or magnitude should not be allowed to take advantage of labor in hours, service, sanitation, or other social factors. 10. Fair prices should be obtainable by individuals or groups selling to the great corporations. Corporations should Fair prices, no more be allowed unduly to depress prices for materials necessary for their manufactories than they should be allowed unduly to depress prices of labor. 11. Corporations should not be allowed to charge excessive prices to the consumer. So far as the public in general is concerned, the greatest complaint with respect to the concen- trations of industry has been the excessive prices; that is, the stockholders of the great corporations rather than the public have gained the major part of the advantages of their exceptional efficiency. If great organizations are allowed to The public exist and to cooperate, it is clear that they cannot remain ^^^^p^^g^^ without restraint in fixing prices. Some way must be found to prevent excessive charges and thus guard the interests of the public. In order that fair prices may be secured, it is necessary that certain other things be prohibited; among which are the following : — (a) If great concentrations of industry be permitted to exist, there must be some method of guarding the capitali- 230 CONCENTRATION AND CONTROL 3vercapi- ;alization. Promoters' charges. Speculative manage- ment. zation of the mergers and consolidations in order to protect the public against the ill-advised purchase of watered stock, and against the payment of dividends upon watered stock. It is fully appreciated that this matter of overcapitalization is one of extraordinary difficulty concerning which it is not easy to formulate definite rules. This will be appreciated if the report of the Railroad Securities Commission of 1911, on public utilities, be examined. In some cases it is fair to a certain extent to capitalize good will, trade marks, and pat- ents. Also in passing from the competitive system to the cooperative system, it may be necessary to take into an or- ganization some plants which cannot be utilized but which must be paid for. In such cases there is loss in either method, by operating under the competitive system or by capitalizing imder the cooperative method. This is well illustrated by the whisky combination. When this consolidation was formed, it was found economical not to utilize a considerable number of plants taken into the combination. So far as such plants could not be used for some other purpose than that of dis- tilling they became a complete loss. Thus, while some capi- talization of unproductive property and good will is allow- able, this should be on a conservative basis. Capitalization of hoped for earning power may not be legitimate. (6) Excessive costs of organization and manipulation by promoters should not be allowed. It is clear that while fair charges for promotion, including underwriting, are permis- sible and should be included in the capitalization, one of the great evils of the recent era of consolidations has been exces- sive charges in these particulars. (c) Speculative management should be guarded against and payment of unearned dividends prevented. While these evils are not peculiar to the great corporations, as an organi- zation increases in size it becomes of increasing public in- terest, and therefore should be considered in an exceptional way in proportion to the magnitude of the enterprise. 12. Finally the scope of the powers of the United States and the several states should be clearly defined in the control of conamerce. Mr. Bryan said at the White House in 1908 : REMEDIES 231 "There is no twilight zone between the nation and the state, The twilight in which exploiting interests can take refuge from both." i ^°°®- If this phrase were changed from "there is" to "there should be" it would precisely express the situation. Nothing is plainer than that there is a twilight zone between the nation and the states where the great corporations have taken ref- uge from both. This has clearly appeared in the prosecu- tions carried on by the Attorney-General of the United States in attempting to enforce the Sherman act. Minimum Specifications. — It cajmot be expected that at once a scheme wall be enacted into legislation to meet all of the above specifications. It may be doubt- ful, indeed, if it be advisable to present a complete plan to meet them, since any such plan would be sure to be profoundly modified in all but its essential features before the time was reached for the enactment of the more remote parts of it. It will be the work of many years to se- cure a system of legislation, state and national, which will meet the specifications made in regard to which there seems to be a consensus of opinion. It must be remembered that the temper of our people is such that in handling any complex Conserva- situation by legislation, advance is made step by step, each ^^^ ^mper one being very short. This is very well illustrated by the people, legislation for handling public utilities to be subsequently spoken of. It is therefore essential, if possible, that we select the fim- damental points among the specifications upon which a con- sensus of opinion can be reached, and propose a program which deals definitely only with those points, leaving the other specifications to be handled by later amendments. Of the specifications given it appears to me that two are fimdamental and paramount to the others. The first is that the weak and the strong shall alike have full opportunity to secure justice from the great corporations. That this is the situation at the present time no one would claim. There have been a few recoveries of damages by important companies or combinations against greater com- 1 Conference of the Governors of the United States, Washington, 1908, p. 201. 232 CONCENTRATION AND CONTROL The weak and strong to be equal. Reasonable cooperation. binations which have been in restraint of trade ; but so far as the general pubhc is concerned, the individual who has been overcharged, the small company that has been weakened or destroyed by unfair practices, has had substantially no redress. The law may have been such that if the individual or the small company had unlimited money, and the courts proceeded with ten times the expedition that they now do, an approximation to justice might be reached ; but these are not the facts ; they never will be the facts. No sane man can deny that the existing laws or any other possible ones, how- ever severe they might be made against the great concen- trations of industry, would be of no avail to the workman who is overcharged for an article of daily consumption, or to the small producer. If we are to retain the essentials of a democ- racy, and are not to become a plutocracy, some plan must be devised under which the weak as well as the strong has redress for wrongs, has his rights respected. If the most ar- dent advocate of court method of procedure against corpora- tions in restraint of trade through amendments of existing laws to be enforced by the courts believes that there is any possibihty of redressing the wrongs of the individual and securing the rights of the weak, he must indeed be blind to the experience of the past fifty years of development and be content with faith without works. Second if the arguments in the earlier chapters of this book are approximately sound, we must now accept for this coun- try the principle of cooperation in business. Even the most ardent defender of the competitive system says that com- petition must be regulated ; and he says that the alternative is between regulated competition and regulated monopoly.^ The writer holds that there is no such alternative. We should not accept competition as the controlling principle on one side, nor monopoly as the controlling principle on the other side. We should accept the broad principle that reasonable cooperation should be allowed in business as it is allowed everjnvhere else in our social structure. ' Brandeis says: "The real issue is regulate competition or regulate mo- nopoly." Hearings, Part XVI, p. 1162. REMEDIES 233 We have seen that the laws against great concentration of industry have been without avail to give justice to the individual. Similarly, they have been without avail in pre- venting cooperation. The Sherman law and some of the state antitrust laws are now over a score years old. At the time the Sherman law was enacted it was supposed that the courts would be competent to regulate the trusts so as to produce reasonable rather than unreasonable cooperation. That this would not be the case Professor Richard T. Ely ' clearly FaUure of foresaw a dozen years ago. He says: "If there is any <'°'^^- serious student of our economic life who believes that any- thing substantial has been gained by all the laws passed against trusts, by all the newspaper editorials which have thus far been penned, by all the sermons which have been preached against them, this authority has yet to be heard from. Forms and names have been changed in many in- stances, but the dreaded work of vast aggregation of capital has gone on practically as heretofore. The writer does not hesitate to affirm it as his opinion that efforts along lines which have been followed in the past will be equally fruitless in the future." As has been clearly developed in the earlier parts of this book, the views which Professor Ely held at that time have been fully justified. The laws against trusts and the actions of the courts in their enforcement not only have not pre- vented the existence of concentrations and the enlargement of the trusts, but have greatly accelerated their develop- ment. Section 2 COMMISSION CONTROL OF PUBLIC UTILITIES In marked contrast with the situation for industry during the past score of years, there has been sound development in control of one great line of concentration, that to which the term public utility applies. For many years it was an accepted faith that the wrongs to individuals perpetrated 1 "MonopoUea and Trusts," p. 243 (1899). 234 CONCENTRATION AND CONTROL Wrongs un- redressed. "The public be damned.", by the great public utilities corporations were to be redressed through the courts of law and that competition was to regu- late prices. Under this faith, millions of wrongs went unre- dressed; and competition led to unnecessary duplication, great loss to the public, destruction to the weak, and finally, complete dominance of the great public utilities and especially the railroads. The well-recognized maxim upon which the traffic managers worked under the old regime was to impose all the traffic would bear, to make the kind of service rest exclusively upon the returns. In short, the theory originally enunciated, it is alleged, by WiUiam H. Vanderbilt, " The public be damned," if not always announced openly, was the real feeling which was dominant in many of these corporations. They were regarded as private properties to be run for those who owned the stocks and bonds and not for the advantage of the public. All the laws made against the public utilities corporations and their enforcement through the courts by action for dam- ages or by state's attorneys to protect the public rights ac- complished practically nothing. But the fact that these organizations were public utilities in law and therefore did have an exceptional relation to the public led step by step to another method of control, — that by commission. Early Commission. — As early as 1869, the state of Mas- sachusetts created a railroad commission, upon which was im- posed the duty of supervising all the railroads of the state, "whether operated by steam, horse, or other motive power." It rested upon the commission to ascertain whether the rail- road company complied with the laws of the state and to con- sider the complaints of citizens. However, the commission had only the right of suggestion. It might inform the rail- road company that the rates charged were too high ; it had no authority to enforce a lower rate. California, in 1876, established a railroad commission called Commissioners of Transportation, the powers of which went far beyond those of the Massachusetts commission. They included the establishment of stations, the prohibition of discrimination, and the power of examination of books. REMEDIES 235 New York established a state railroad commission in 1882. This commission had power to investigate accidents result- ing in injury or loss of life, had the power of examining the books, had imposed upon it the duty of calling to the attention of the company any violation of the law, unfair practices, excessive rates, inadequate facilities, etc., with recommendations. If these recommendations were not com- plied with by the railroads, the commission could present the facts to the attorney-general, who was to secure redress through the law. These cases illustrate the beginnings of commission con- trol of public utilities in this country. In this brief state- ment, it is not possible to give a history of the application of commissions to public utilities, for adequate consideration of the commission laws would involve a book much larger than the present one. In general, however, it may be said that these early commissions had the power to investigate and make suggestions and recommendations to the railroads. If these recommendations were not complied with, they might be presented to the Attorney-General for prosecution in the Power courts. While the early commissions accomplished some- limbed to .... recommen- thmg, there was no fundamental change m the situation, dation. The railroad company need do no more than it desired to do in any of the matters recommended, except as compelled by action of a court of law ; and, as we have already seen, this method of procedure has been a failure for the control of concentration of industry from the outset. From these beginnings, the commission idea of control of railroads extended to many other states; and there was a gradual expansion of their power until finally in some states rate-making authority was given. The first state to pass a comprehensive law including this power was Iowa. In 1897 a law was passed in that state which gave to a commission of three members general super- vision over all the common carriers of the state. The in- lowa fixed hibitions of the act and the powers of the commission were ''^*<'^- substantially the same as those contained in the interstate commerce act of 1887 (see pp. 238-239), and the latter law 236 CONCENTRATION AND CONTROL undoubtedly served as the model for Iowa. If the railroad companies failed to obey the order of the commission, the com- mission could petition the district court to enforce the order. The Iowa law went farther than the interstate commerce law in that it gave the commission the power to prescribe maximum rates. After hearing the evidence in a case "the board shall prescribe a reasonable maximum rate. Such find- ing of the board shall in a judicial proceeding against the rail- road company be considered as -prima facie evidence of the unreasonableness of a rate higher than that prescribed by the board." The Wisconsin Commission. — It was in Wisconsin, when U. S. Senator R. M. La FoUette was governor, that the full solution was first reached. In that state, in 1905, W. H. Hatton was chairman of the committee on transportation in the state senate. He laid down the principle "that it was as much the duty of the state to furnish transportation facilities as it ever had been to make roads or build bridges, and that if the function was delegated to any one, it was the duty of the state to regulate it so that the agent should be required to furnish adequate service, reasonable rates, and practice no discrimination." ' Senator Hatton further said regarding the proposed bill to accomplish the above : "I want this procedure so simple that a man can write his complaint on the back of a postal card, and if it is a just one, the state will take it up for him." ^ We have here enunciated the two principles now generally recognized as applying to public utilities, regulation so as to get reasonable rates and no discrimination, and machinery so simple as to give justice to all. The act passed by the Wisconsin legislation gave the com- mission the power of regulation regarding rates, service, and discrimination, for railroads and correlated organizations, such as refrigerator lines, sleeping car, and dispatch com- panies. In the regulation of service the power of various state commissions had been gradually extended, and the Wisconsin bill merely carried this phase of the matter to its ' "The Wisconsin Idea," Charles McCarthy, p. 39. ^Ibid., 41. REMEDIES 237 logical conclusion. The first fundamental new point of the Power to law was that while the onus of fixing the rates rested upon '^'^J"^* '^'''®^- the railroads, the commission could investigate by its own initiative or by complaint any rate or charge; and if the same was found to be unreasonable, the commission could order a new rate, which new rate must be substituted for the old one. Thus, the commission was given a possible task. It was not assigned the task of at once fixing all rates, but the task of readjusting unreasonable rates. The second fundamental principle of the law was that the alterations of service and rates were accomplished by the commission without cost to the complainant ; and thus justice was as certainly obtainable by the man who had imposed The power upon him an excessive charge for shipping a single article as °v°.'^ <'°™" by a great corporation. There was no escape from the secures decision of the commission by the railroad except by an J"^*^°®- appeal to the court ; and the appeal was against the commis- sion, not against the individual who inade the complaint. As a matter of course both complainant and defendant had full opportunity to present their cases in public hearing be- fore the commission in advance of action. The third important principle introduced into the law was that, in case of appeal, the burden of proof that the order of the commission was unreasonable was upon the ap- pealing railroad. Still further, if evidence was introduced into court which did not come before the commission, the Newevi- court was obliged to stay its proceedings and remand the case °®°''^- to the commission for a rehearing, thus preventing the hold- ing back of evidence by the corporations to discredit the commission. All the provisions of the bill were such as to make the powers given the commission lie within those which may be delegated by a legislature. The legislature is to make the law ; is to lay down the rules which control ; the commission Regulation does nothing but administer the law; the commission can- o^ia^"^ not legislate, but it can make regulations under the rules of law formulated by the legislature. In this Wisconsin bill we have fully fledged the administrative commission. Its 238 CONCENTRATION AND CONTROL regulations are sometimes called administrative law as op- posed to legislative law. Following from the powers and duties of the commission, there have come many corollaries. In order to determine just rates, it has been necessary to make a physical valua- tion of the public utilities. In the valuation of the prop- erties, both physical and good will, it has been necessary to use trained experts, both in engineering and in economics. The powers of the railroad commission of Wisconsin were by three laws in 1907 extended to apply to all public utilities within the state. In the same year a comprehensive public utilities law along somewhat different lines was passed in New York, that state being divided into two districts, one includ- ing New York City and the other the remainder of the state. This principle of control of public utilities through com- missions, first put into full force in Wisconsin and New York, has been accepted by a number of other states. The Interstate Commerce Commission. — Just as the states have undertaken the control of public utilities for intra- state business, the United States, by the interstate com- merce act of 1887, has instituted a system of control for interstate commerce. This act creates a commission of five members, later increased to seven, appointed by the Pres- ident, who hold office for six years. The original act applies to railways and to boats engaged in the transportation of passengers or property when the same is interstate. Viola- tions of the act are made a misdemeanor punishable by a heavy fine for each offense. Unreasonable charges, unjust Charges to discrimination, and unjust or imdue preference to some Bhir^^™" particular person are all illegal. Railroads must afford all reasonable and proper facilities for the interchange of traffic, and discrimination in the rates through such connection is prohibited. The law provides for the posting of schedules and requires advances of the same to be preceded by ten days' notice. No variation from published rates are to be permitted. All schedules are to be filled with the commission. The commission has power to inquire into the manage- able. REMEDIES 239 ment of the business of common carriers and to obtain full information concerning them. Any person sustaining dam- age may make complaint to the commission or bring a suit in his own behalf in the District Court or Circuit Court of the United States ; but he cannot do both. If complaint is made to the commission, this organization will investigate ; and if the complaint is well founded the commission will recommend that reparation be made. The chief defect of the law of 1887 was that the commis- sion was a purely advisory body. Further, the commission was not given sufficient appropriations to make investiga- tions upon which to determine whether charges were reason- able. Not-withstanding these limitations, the rebate evil was reduced, and a great number of cases were satisfactorily adjusted without going into court. In 1906 and 1910 the interstate commerce law was amended. It now applies to all common carriers engaged in interstate commerce and also to companies engaged in communication, such as telephone, telegraph, and cable. In AH public 1906 was given the power to fix maximum rates, and in 1910 to suspend increase of rates pending investigation. The charges both in transportation and communication are to be just and reasonable; imjust and unreasonable charges are declared to be illegal. A charge for a short haul shall not exceed the charge for a longer distance over the same road, provided that the Interstate Commerce Commission may grant relief in special cases. Whenever the charges are found unjust or unreasonable the commission is authorized and empowered to determine and prescribe what will be a just and reasonable rate. In- Power to creases in rates must first be passed upon by the commission, ^^f^_^*® and the burden of proof is upon the carrier to show the rea- sonableness of the advanced rate. If the carrier fails to comply with an order of the commission, the complainant may sue the carrier in the Circuit Court, where the finding of the commission shall be Tprima facie evidence against the carrier. Also the Interstate Commerce Commission may ap- peal to the Commerce Court for the enforcement of its order. utilities included. 240 CONCENTRATION AND CONTROL Effective- nesa of law. Commerce Court. The amendments adopted gave the commission the neces- sary authority to make the interstate commerce law effec- tive ; and many decisions have been rendered declaring rates to be imreasonable, and reasonable rates have been fixed. In many cases railways have been found guilty of discrimina- tion, orders have been given for such discriminations to cease, and proper damages have been awarded. In numerous cases where the joint rates exceeded a combination of the different local rates, the joint rates have been reduced so as not to exceed the combined local rates. Special rates have been declared to be unlawful; and unfair regulations, the effect of which is to favor some shipper (in one case the Standard Oil Company), have been abated. At the same time the last amendment was passed giving the Interstate Commerce Commission power to regulate rates, a Commerce Court was created. This court has exclusive jurisdiction of all cases arising under the interstate commerce act "otherwise than by adjudication and collection of a forfeiture or penalty or by infliction of criminal punish- ment, or any order of the Interstate Commerce Commis- sion than the payment of money." The pendency of a suit in the Commerce Court does not in itself stay or suspend the operation of an order of the Interstate Commerce Commission ; but the Commerce Court may at its discretion suspend such order pending final hearing or determination of the suit. There may be appeal from the Commerce Court to the Su- preme Court of the United States, and such cases are to have priority except over criminal cases. Complainants in- terested in a case before the Commerce Court have the right to appear and may be made parties thereto. Of the cases of appeal from the Interstate Commerce Com- mission to the Commerce Court, there have been many affirmations and also many in which the orders of the Inter- state Commerce Commission have been temporarily sus- pended or reversed. In some instances, charges which the commission declared to be imreasonable have been declared to be reasonable by the court. In other instances where charges have been de- REMEDIES 241 clared to be unreasonable by the commission, the court has declared that the order was based upon insufficient evidence. In one case a through railway rate had been lowered until it met a combined rail and water rate. This resulted in the railway getting the major part of the business, so that the water competition was eliminated. The higher rate was then resumed. In this case the commission condemned the advance in the rates as unjust and unreasonable; but the Commerce Court held that there was not sufficient evidence to sustain this finding. This decision is of great consequence. Decision since the method that the railway pursued is that which ''.'f^'y *f . eliminate has been frequently followed to drive out water competi- water com- tion, — viz., lowering rates until water competition is de- p®*i*'o°- stroyed, then raising the rates and taking increased profits. In another case the Commerce Court held that the commis- sion exceeded its authority when it laid down a hard and fast rule to apply to a large part of the United States in regard to the long and short haul clause. Finally, the Com- merce Court has held that its jurisdiction extends to those cases in which orders are for the payment of money only. In one class of cases the court has gone farther than the commis- sion. It was held by the commission that the complainant could not recover the excess charges exacted by unreason- able rates previous to his complaint to the commission; whereas the court held that the complainant could recover from the time the imreasonable rate was inaugurated. Some of the chief differences between the commission and Right of the court are as follows : The commission holds that the court '^®"^^- has no right to review the orders of the commission concern- ing charges, except such orders as are confiscatory ; whereas the court holds that it may review the action of the commis- sion as to the reasonableness or unreasonableness of charges. The Commerce Court held that the commission has no right to require information concerning intrastate business, since the same is not interstate commerce. Probably this is Commiesion the decision of the court that has most hampered the commis- ^^veie . sion in that it made it impossible for the commission to ob- tain information concerning intrastate business. Without 242 CONCENTRATION AND CONTROL this knowledge the commission found it very difficult to de- termine the reasonableness or unreasonableness of interstate rates, since the reasonableness of a charge for a given class of business is dependent as one factor upon the entire business done by the road. Fortunately this decision of the Commerce Court has been reversed by the United States Supreme Court. Also decisions of the Supreme Coint rendered in July, 1914 have fully sustained the authority of the Commission to regulate interstate commerce. General Statements. — From the early public utilities commission of the sixties almost every proposal to create a commission or to extend its powers has been de- nounced as wildly radical, as socialistic. It has been said that if the laws proposed were passed, we might as well at once go to the socialistic doctrine and have business carried on by the government. The officers of the Resistance public Service corporations clearly foresaw that the commis- to reguia- gions meant sooner or later the destruction of the principles tion. . . . of imposing rates that the traffic would bear and the attitude, "the public be damned." Also with this appreciation by them there was undoubtedly an honest fear on the part of many that their properties would be unjustly raided; but the old situation was intolerable. The public service cor- porations and the people were at war ; and under conditions of war there was rancor and distrust on both sides, an ob- stinate determination on the part of the railroad companies to resist every encroachment in the matter of control and determination on the part of many of the people to find a weapon by which they might smash the corporations. In a half dozen years this state of mind both on the part of the owners of the public utilities and upon the part of the people has largely disappeared. Where before we had war, we now have peace. Those who have studied the orders of the commissions to the public utility corporations know that commission rule, upon the whole, results in reasonable requirements regarding service and rates. If an unreasonable rate be imposed, there REMEDIES 243 is appeal to the courts ; and if the corporation can show that Protection the rate imposed is confiscatory under the 14th amendment of rLhte^*^"^*^ the United States Constitution, the order of the commission will be reversed by the courts. To bring a suit in court im- poses no especial hardship upon the railroads, since these great corporations have the money to carry their cases to the highest courts of the land. In consequence of the adequate, indeed unique, protection which property possesses in this country under the 14th amendment, as compared with any other country, some orders of the commissions have been reversed and property has been completely protected. The commissions, as a matter of pride, desire to avoid hav- ing their orders found unreasonable, desire not to have them found to be of a kind which confiscate property ; and thus the commissions upon the whole have been conservative in their actions in the lowering of rates. If there be any advantage upon either side through com- mission rule, it is with the corporations. Notwithstanding this, the people know that the weakest one of them is no longer subject to unjust discrimination which would ruin his business ; he is certain that his stronger competitors are not directly receiving rebates and drawbacks ; he is certain that his rates are not exorbitant ; he accepts the situation even if he thinks the rates are somewhat high. In making the above statement it is not meant to say that everything is all that could be desired. This state of affairs never will be reached in a progressive, industrial democracy. So long as the conditions are dynamic rather than static, no one will ever be completely satisfied. Many of the more important railroad men, in private, make complaint of some Complete of the orders of the commissions, both state and interstate, u^attain-"" because of what they regard as their too theoretical character able. due to lack of knowledge of practical difficulties involved in executing the orders. There are complaints as to divisions of cost between freight and passenger traffic; there are com- plaints of orders regarding stations, frequency of service, etc. Upon the other hand some of the people complain that, be- cause of the protection of property under the 14th amendment, 244 CONCENTRATION AND CONTROL the commissions have been too conservative and that the rates have not been sufficiently reduced ; that adequate ser- vice has not been secured. That each side should unduly stress its own point of view and not see with perfect fair- ness the point of view of the other side is natural, indeed inevitable. But neither side would go back to the old condi- tion of affairs. The wiser railroad men would far prefer to be under commissions than to be under blackmail through holdup bills at every session of many state legislatures. The pressure of these holdup bills was so great that many a railroad man in high position and of unquestioned business standing has felt it necessary in the past to bribe legislatures. No longer does this extremely distasteful, disgraceful, and un- lawful performance generally exist. On the other hand, while the people may not be completely satisfied, they realize that they are far better off than when rebates and drawbacks existed, when there was discrimination between men and discrimination between different localities. Perfect contentment we shall never have ; but the results achieved in the control of public utilities by the administrative commissions are so great that we may be sure that from this time on the steps will be forward rather than backward in commission control of public utilities. The fundamental principle of regulation of the public utilities by commissions is Movement substantially sound. It remains only to extend the principle forward. worked out to the remaining states of the country and develop details necessary for the perfection of the method of control. So satisfactory upon the whole is the situation that, as already pointed out, the people accept with equanimity the principle of cooperation among the public utilities. Every- Cooperation where the latter cooperate in fixing rates so as to prevent de- accepted, structive competition. No officer of any state or of the United States thinks of bringing suit against the public utility cor- porations for violation of the antitrust acts, although they are as flagrant violators of these laws as any in the United States. In short, the administrative commission has secured for the public utilities reasonable justice to all and by common con- sent has permitted cooperation. REMEDIES 245 Section 3 PURE FOOD AND DRUGS LAWS At the same time that one class of commissions has arisen to control charges and service of public utilities, an- other class of administrative body has arisen to control the quality of commodities. As we have seen (pp. 74-78), the dogma of competition is that it is to control quality and price. For the industries, we have further seen that in con- Failure of trolling quality competition has been an unqualified failure ; «p™P«ti- mdeed, so disastrous was the failure and so menacing to cure public welfare, especially with reference to health, that the <3"^*y- great majority of states have passed pure food laws, under which it is necessary for the label to tell the truth concern- ing an article. These laws prevent the introduction into food of preservatives inimical to health and prevent the adulteration of foods, drinks, and drugs. The states and possessions having pure food laws include the following : Alabama, 1907 ; Alaska, 1906 ; Arizona, 1906; Arkansas, 1907; California, 1907; Colorado, 1907; Connecticut, 1907; Delaware, 1907; Florida, 1907; Geor- gia, 1906 ; Hawaii, 1903 ; Idaho, 1905 ; Illinois, 1907 ; In- diana, 1907; Iowa, 1906; Kansas, 1907; Kentucky, 1908; Louisiana, 1906 ; Maine, 1907 ; Maryland, 1910 ; Massachu- setts, 1882 ; Michigan, 1881 ; Minnesota, 1905 ; Mississippi, 1910; Missouri, 1907; Montana, 1907; Nebraska, 1907; Nevada, 1909; New Hampshire, 1907; New Jersey, 1907; Ohio, 1904; Oklahoma, 1909; Oregon, 1907; Rhode Island, 1908 ; Philippines, 1906 ; New Mexico, 1906 ; New York, 1909 ; North Carolina, 1907 ; North Dakota, 1907 ; Pennsyl- vania, 1907; Porto Rico, 1906; South Carolina, 1907; South Dakota, 1907 ; Tennessee, 1907 ; Texas, 1907 ; Utah, 1903 ; Vermont, 1907 ; Virginia, 1908 ; Washington, 1901 ; West Virginia, 1907 ; Wisconsin, 1903 ; Wyoming, 1907. It is noticeable that with two exceptions these laws were formulated from 1903 to 1910. The salient point in connec- tion with the present discussion is that for each state having 246 CONCENTRATION AND CONTROL The admin- istrative commission. United States pure food law. Regulation under rule of law. pure food laws, special administrative officers are assigned the duty of their enforcement. These officers may constitute a commission or a board. The duty may rest upon a single designated individual, in a number of instances called com- missioner. The same principles which were first applied within the states in the control of quality through commission was recog- nized by the United States when the pure food law was passed for interstate commerce in 1906. This law makes it a misdemeanor to manufacture adulter- ated foods or drugs or to misbrand same or to sell adulterated or misbranded foods or drugs ; it provides for examination of products upon the market by the Bureau of Chemistry; it provides that the secretaries of agriculture, of the treasury, and of commerce and labor shall issue rules and regulations for the enforcement of the act ; the violation of these rules is to be punished by fine or imprsonment or both. Mis- branded or adulterated foods or drugs are to be condemned. A meat inspection amendment was added to the pure food laws providing for the inspection of all slaughtered car- casses. This amendment applies both to commerce between the states and between the states and foreign countries. Be- fore passing any carcass it is to be found in a healthy and sound condition. This work is to be done by the Depart- ment of Agriculture. In general, the pure food laws, both state and national, lay down the general principles to be obeyed ; the commissions or other administrative officers formulate definite detailed regulations under the general rules of law. These pure food officials have created laboratories for analyses of foods and drugs; they send their investigators to the various parts of the country to ascertain whether the laws are being com- plied with. They issue necessary orders in connection with their duties. In short, they are administrative bodies hav- ing imposed upon them the duty of seeing that the laws for the protection of the public regarding quality are complied with. Finally, the pure food officials may prosecute in the courts for failure to comply with the regulations issued. REMEDIES 247 Under the theory that competition would regulate, the public would have remained without protection. Had it not been for the creation of the administrative officials to enforce the quality laws, the only redress of the injured individual would have been to take his case to the courts. In the ma- jority of cases the damage was small and an injured individual Redress could not afford to do this. Just as with the public utilities, ^'*h°'i* ®?- ^ ' pense to the redress should be obtainable without expense to the individual, individual. The situation was saved by the recognition of legislatures and Congress at the time they made the pure food laws, that they must create administrative officers to enforce them. Just as there was resistance by the railroads and other public utility corporations to commission form of control and the principle was established only as a result of many years of severe contest, so there was prolonged and determined. Resistance indeed fierce, opposition by many of the manufacturers f°^"^ °° to the pure food laws. There was great commercial gain by exploiting the public through deceit, and this advantage they were determined not to lose. Resistance was so powerful that it was only when there was an aroused public sentiment in favor of the passage of the laws that the states and finally Congress enacted the same. A case of most determined resistance was that of meat. False brands were used ; the conditions in some of the abat- toirs were imsanitary ; diseased meat was sold. The packers opposed bitterly the necessary inspection to secure wholesome meat. The public was of no consequence as compared with The public increased gain. Meat inspection was so strongly resisted f^ gain"^ that the law as finally enacted by Congress was only gotten through by the government taking upon itself the cost of the inspection. Even to the present time there is determined resistance by some manufacturers to the execution of the laws, and pressure is brought to bear upon the Department of Agriculture to sus- pend or modify its rulings. Other wiser and more public- spirited manufacturers are cheerfully conforming, indeed assisting, in the enforcement of the pure food laws. In general the revolution has taken place and a new situation exists. This 248 CONCENTRATION AND CONTROL being so, it seems almost unthinkable that the nation was allowed to be exploited for so long a time by the unscrupulous manufacturers who wished to gain through deceit at the expense of the public. Control by trade com- missioDs. Courts not adapted to control. Section 4 THE CREATION OF TRADE COMMISSIONS Following the inductive method, and taking steps in ad- vance with the greatest care only as justified by the expe- rience of the past, is not the conclusion inevitable from the evidence presented in the previous section that the ma- chinery which has been applied so successfully to the control of public service corporations and to the control of quality so far as essential articles are concerned, should be applied to the great industrial corporations ? The failure of the competitive system for the adequate control of the price and service for pub- lic utilities and quality for manufactures cannot be gainsaid. The thesis is presented that commissions should be created to control industrial corporations affected with a public interest just as they now control the public service corpora- tions, as they control quality in industry. That some method of administrative control for the com- binations must be created is shown by the case of the American Tobacco Company, in which the inferior court in cooperation with the Attorney-General undertook extraordi- nary administrative work of a new kind and to which the court is not adapted. (See pp. 183-187.) Regarding the dis- solution of the American Tobacco Company, the Attorney- General said the problems involved were economic rather than legal. ^ He adds: " But neither the courts nor the department of justice is properly equipped to work out such problems save in exceptional cases." He points out that in the par- ticular instance in which a complex economic duty was im- posed upon the court, it so happened that the Bureau of Corporations had made an elaborate investigation and had the facts in its possession necessary to base a plan for carrying out the decree. The bureau was called upon by the Attor- REMEDIES 249 ney-General for the extra-official duty of advising him regard- ing the manner of disintegration. The Attorney-General suggested that the duty of the bu- reau might be enlarged so as to include investigations and reports upon plans for disintegration of monopolistic com- binations, which either voluntarily or by pursuance of decree are adjudged to be in violation of the antitrust act. He further suggested that the bureau might be availed of as the nucleus for "an administrative board under whose super- vision consolidations or mergers for lawful purposes might be formed." This proposal is a first step in the direction Administra- of that which is herein made that administrative commissions ^'T® P°^' mission. should be created upon which should rest the duty of super- vision of combinations which exist in restraint of trade. To combine the duties of the commissions with the courts, as suggested by the Attorney-General, would be most xxn- fortunate ; since of necessity the courts must remain the body to which appeals may be made from the commissions. The duties of administrative commissions and the courts should be kept wholly distinct. Section 5 PROPOSED MINIMUM AMENDMENTS TO ANTITRUST LAWS To accomplish control of combinations through admin- istrative commissions, it will be necessary to make the follow- ing amendments to the antitrust laws : — (1) Business of a Public Interest. — The law should declare that those industrial organizations, which of themselves are so large as to be affected with a public interest, or which by cooperation control the market, are subject to regulation under the same principles as the public utilities. No one can doubt that the greater corporations are just as much affected by pubhc interest as are the railroads. The United States Steel Great cor- Corporation, Standard Oil Companies, and the American Sugar public utiii- Refciing Company, each of which produce commodities ties in fact. required by the larger portion of the population, have rela- tions to the public as a whole. This principle has already been recognized by some common law decisions ; and, in conse- quence, one class of business which earlier was regarded as purely 250 CONCENTRATION AND CONTROL Great busi- ness afiects community at large. Big busi- ness of public interest. private has become a public utility. Elevating grain, as a result of a long contest, was declared to be affected with a public interest, and therefore to be under the same obli- gations as other public utilities.^ In the case of Munn v. Illinois, Chief Justice White, speaking for the court, said : "Property becomes clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large." Judge Vinje, of Wisconsin, in dis- cussing this matter, summarizes the conclusions of the United States Supreme Court in the following words : "We find that private property or business becomes affected with a public interest when used or carried on in a maimer to make it of public consequence, and affect the community at large, and when thus affected such property or business becomes subject to legislative control in all respects necessary to protect the public against dangers, injustice, and oppression." ^ Therefore we have but to apply the principle of law already recognized by the United States Supreme Court to busi- nesses which exist in restraint of trade. Indeed, in the case of Oklahoma, this principle has already been embodied into statute law in most comprehensive terms. In that state, when- ever any business by reason of its extent or by virtue of monopoly is such as to make it of public consequence or to affect the community at large in reference to supply and de- mand or price, such business is declared to be a public busi- ness and to be under control of the state through the Corpora- tion Commission or by an action in any district court of the state (see p. 195). Thus existing common law and statute law for one state are in accord with the principle here advo- cated. It remains only to embody the principles emmciated into statute law for the several states and for the nation. (2) Cooperation Reasonable. — The law should define rea- sonable restraint of trade in such a manner as to permit coop- eration. Regarding the extent to which cooperation should be permitted, there will doubtless be difference of opinion; I Munn V. niinois, 94 U. S. 113; Budd v. N. Y., 143 U. S. 517. ^ "The Legal Aspects of Industrial Consolidations," Reports of Wisconsin State Bar Association, Vol. VI, pp. 159-181. REMEDIES 251 but, as already indicated, the most logical place at which to stop is the point fixed by the common law principle, and declare restraint of trade unreasonable that gets to monopoly. To make the law exact it should declare any corporation which, with its subsidiary companies, controls a definite percentage Reasonable of the business a monopoly (see p. 227). This is in ac- eosperation cordance with the proposal recently made by Mr. W. J. permit Bryan, who mentions 50 per cent in this connection. The monopoly- difference between the view of Mr. Bryan and the position taken here is that he apparently regards this regulation alone as sufficient to insure competition, and he believes in the adequacy of the control of business by competition. If the meaning of the court in the decisions regarding Standard Oil and Tobacco are that undue restraint of trade means restraint of trade which extends to monopoly (see pp. 181-187), then the only additional point embodied in the above proposal beyond existing law is that monopoly be definitely defined. However, amendments to the law must extend beyond the proportion of business if cooperation be permitted in prices, outputs, etc. ; for, as shown by the decisions of the federal and state courts, cooperation, except to a very limited degree as to time and space, is under the ban of the law as it now exists. In this connection it should be mentioned that it has been proposed as a solution of the problem of combination that the amount of business which one company may control shall be Futility of reduced to a relatively small fraction. Some have said that pOTatSmsTo no one corporation should be allowed to produce more than ten small frac- per cent of a product. Others would limit the capitalization ^'°°jjj°4a of a business ; and this is another way to accomphsh the same purpose.^ Even if the limitation were severe regarding portion or capitalization, it would still be possible for the corporations to cooperate, secretly or openly, and thus act substantially as a unit. Indeed, at the present time we know that there are many more than ten companies engaged in the same business cooperating in various ways in its control. Therefore the limitation of amount of business alone or of capitalization is wholly futile. If cooperation be permitted, ^ Hearings, Senate Interstate Commerce Committee, Part XX, p. 1593. 252 CONCENTRATION AND CONTROL and that it should be seems to me to have been established, the cooperating units must be under the supervision of some authority in order that the public may secure fair treatment. (3) Competition to Remain Free. — The law should declare any restraint of trade unreasonable which does not permit free competition. While reasonable cooperation should be possible, no cooperation should be permitted which in any way prohibits another person or corporation from freely entering a business. Similarly cooperation of labor should be under the same supervisory authority as cooperating capital. '^ (4) Unfair Practices should he Prohibited. — In the enumer- ation of unfair practices to be prohibited, there doubtless would be difference of opinion. One enumeration is given, pp. 225-226. General Statements. — But how are these proposed rules of law, state and national, to be enforced ? Clearly, if the argument to this point be sustained, — by the creation of trade commissions, both national and state, an interstate trade commission to control interstate industrial commerce and state commissions to control intrastate commerce. Court procedure would be as futile to secure the enforcement of the above rules of law as it has been with the existing laws ; but commissions granted the broad powers to enforce these rules of law, being administrative bodies, able to take action without complaint, and acting on complaint without expense to the complainant, may be reasonably expected success- fully to enforce the proposed laws. It is not necessary again to give in detail the powers which these trade commissions should have, since in general they should be the same for the industries as those already exist- ing for public utilities. (See pp. 233-244.) These powers should be ample to enforce all the above pro- visions. Penalties should be provided for violation of the prin- ciples enunciated. The findings of a commission should be accepted as prima facie evidence of their correctness and 1 Hearings, Senate Interstate Commerce Committee, Part XIX, 8. P. Bush, pp. 1642-1644. REMEDIES 253 should go into effect at once. In case of appeal to the courts no new facts should be introduced, provided same could have been presented to the commission. If material facts are brought forth, which for any reason could not have been presented to the commission the case should be remanded to the commission for a rehearing. In this way it will be pos- sible to prevent withholding evidence when a case is before the commission in order to get the same into the court. There is no question that the creation of trade commis- sions to administer the general principles enacted by Congress and state legislatures would be legal and constitu- tional. It is to be noted that the principles of law sug- gested are stated in broad and simple terms, the idea being to leave the formulation of detailed regulations to the com- missions. Thus the law should forbid unfair practices, but the specific unfair practices should not be enumerated; this would leave it to the commission to stipulate those practices which are unfair. By this procedure the list of unfflir practices and their definitions could be modified from time to time as the exigencies demand ; whereas if the unfair practices were enumerated in detail in the statutes, there would be sure to arise situations which are not ade- quately covered. Similarly, regarding cooperation, the law should merely prescribe that reasonable cooperation is allowable, and the commission should work out details as to what is per- missible under the rule. Again, under the rule of law laid down by the courts prohibiting monopoly, the matter of deciding whether a given corporation falls under that rule should rest with the commission. Not only so, but if a corporation be found to be a monopoly and therefore to be unreasonably in restraint of trade, the commission should give the orders as to the modifications of the business which are necessary so that the corporation shall cease to be a monopoly. Such orders might go to the extent of disintegration of the existing or- ganization, if the monopoly be such that the pubHc interests cannot be adequately protected without such action. 254 CONCENTRATION AND CONTROL The above provisions present an irreducible minimum to which the antitrust laws, state and national, must be amended in order to secure freedom of competition, free- dom of cooperation, destruction of monopoly, and justice to all. If such a program be adopted, the first conserva- tive fundamental step will have been taken to stop the present perfectly futile attempts to regulate concentration of wealth by destructive litigation, adequately to protect any corporation entering a business, and at the same time, to give protection to the individual and to the public. It should be noted that the plan to this point permits cooperation to no greater extent than is allowed in England and Germany. Indeed, cooperation in Germany, as is shown by the steel combination, is allowed to go to the ex- tent of monopoly, and in this has the protection of the courts ; although if the prices were made so excessive as to excite general complaint, it would be possible for the courts to order a modification of the combination as being con- trary to public policy. No disastrous consequences have come in those countries because of the ability of their busi- ness men and manufacturers to cooperate. Indeed, there is general agreement in these nations that the gains from cooperation are far greater than the disadvantages of the unrestrained competitive system. The proposal made does not permit cooperation to go to the extent of monopoly, as is allowed in Germany. Further- more the cooperation which is allowed to exist in restraint of trade is under the supervision and regulation of an ad- ministrative commission, and therefore the proposal made is a much more conservative one regarding recognition of concentration of industry than exists in England and Ger- many. Section 6 FURTHER EXTENSION OF POWER OF COMMISSIONS While the above is a minimum program, adequate grounds can be adduced for further extending the authority of the commissions. If this be done, it will be necessary to enact REMEDIES 255 additional principles into law, which have been mentioned in the specifications, given pp. 225-231, as desirable. The additional points will be enumerated in the order in which they are hkely to be acceptable to the public, not in the order of their importance. (1) Publicity Required. — All corporations which exist in restraint of trade should be subject to full publicity. For any one of them the public should know the amount of out- standing stocks and bonds of each class ; it should know the physical valuation of the property; it should have full in- formation concerning the conduct of the business, including the amount of the profits which goes for improvements, depreciation, sinking fund, and dividends. In short, for each corporation allowed to cooperate with others, the public should have full knowledge of all of the facts neces- sary to pass a judgment upon the nature, extent, and effects of its business. If this principle be agreed to, the requisite amendment to the antitrust laws should include another clause stating in broad terms that the commission has full power of in- vestigations, including access to the books of the company, with authority to make public any facts concerning the business which are regarded by the commission as having a public interest. (2) Regulation of Prices. — While the above provisions will make a great advance over the present situation, it is by no means certain that they are sufficient to protect the public in the matter of fair prices. Turning again to the commissions regulating public utilities : they were first given various powers regarding service, publicity, etc. ; but the pubhc was never adequately protected until they had authority to regulate prices, not the responsibility of fixing prices, but the authority to order modification of prices upon complaint or by their own initiative. I am aware that at this point there will be great difference of opinion; therefore I have carefully refrained from including it as an essential part of the proposed remedial plan. But it is in- evitable that sooner or later the logic of events will demand 256 CONCENTRATION AND CONTROL Reasonable prices must be main- tained. Fixing of price in early times. that the rule of law be made that all cooperating corpora- tions which control the market shall charge reasonable prices. Under this simple rule of law the commission will be directed to see that such reasonable prices be maintained. If this principle can be agreed to, the situation is adequately cov- ered ; for if an unreasonable price be charged, the commis- sion will have authority to fix maximum and minimum prices as is required to make the price reasonable. In justification of this principle it may be said all that it is necessary to do is to apply the practice of the past con- cerning monopoly prices to the present situation and to place the enforcement of this rule of law with the commis- sion rather than the court. In early historical times, indeed until the nineteenth century, transportation was so poorly developed, that it was possible to have monopoly in a rela- tively small area. Even in a township or county, the diffi- culties in transportation were sometimes such that it was not easy to carry needed articles from one place to another, and an individual, or two or three individuals, might have monopoly for some product essential to the community. Under these circumstances, it was wholly natural that the control of monopoly should have been a function of the state — it was so under Roman law and under the common law of England. Control went so far as to regulate prices. This was very common in Rome. In England, prices were fixed by law at different times for many commodities ; among these were books, beer barrels, coal, wheat, rye, bread, and labor. In Massachusetts the revised laws of 1649 limited the prices of wages, freight, ferryage, mill tolls, wharfage. In both Massachusetts and New York the scale of wages was fixed for farm laborers, mechanics, and teamsters. Many other illustrations of fixing prices could be given. These laws show with perfect clearness that the public has a right to a fair price ; that in this matter as in others "the welfare of the people is a supreme law." Whenever it becomes advisable for the welfare of the people that the state authority be invoked to regulate prices, this may be done. The question of so doing is merely one of expediency. REMEDIES 257 The right of state regulation of prices is beyond question.^ It has merely been suspended for a time because inexpedient to exercise it. With the modern development of transportation, it became more difficult to maintain monopoly; the com- petitive factor became more important; and it was less necessary for prices to be controlled by regulation. By the beginning of the nineteenth century, with minor excep- tions, this country had gone over to the theory of the regu- lation of prices by competition. As we have seen, during the nineteenth century we had a period in which the system Regulation of letting everybody alone, of freedom of competition, was °* P"oes by our faith. If we could only get free competition, we be- tion. lieved, we should have the remedy for our ills, so far as prices were concerned. But as we have seen with the great development of transportation and concurrent concentration of industry during the latter half of the nineteenth century and especially during the last twenty-five years, conditions have recurred for large sections of the country similar to those which obtained in the smaller community during the early history of the nation. The factors which have led to such con- centration have been discussed, pp. 8-31. Concentration has gone far for all industries; and at the present time for many important commodities has gone to the extent of monopoly, either through a single corporation or by the cooperation of a number of corporations. Staples in which the monopolistic factor clearly enters are steel, sugar, oil, anthracite, beef, tobacco, matches, shoe ma- chinery, electrical appliances, and many others. For some of these commodities a single corporation controls from fifty per cent to as much as ninety per cent of the product. As has been fully shown (pp. 77-78), not only where mo- nopoly exists, but where there is cooperation far short of 1 " Government Regulation of Prices," Eugene A. Gilmore, Green Bag, 1905. Address before the Illinois State Bar Association, Charles Carroll Bonney, American Law Review, Vol. 25. B 258 CONCENTRATION AND CONTROL Excessive there is monopoly. monopoly so far as any one organization is concerned, prices may be maintained by mutual understanding, with- out regard to whether such prices are reasonable or un- therTir'*^'^^ reasonable; simply with reference to the dividends which may be secured by the corporations. It is believed by many, if corporations are made subject to publicity, that they will not dare to charge um-easonable prices; but the public should place no confidence in this conclusion, and therefore should place the power with the commissions to make orders regarding prices in such cases as in fact they are found to be um-easonable. It is safe to say that under court enforcement 'of laws against trusts and combinations, the prices charged by single companies or companies working in cooperation have been such as to give unreasonably large profits. This has been shown to be true for some of the corporations, facts con- cerning which are given (pp. 104-150). In order to reinstate the matter in the mind it may be recalled that the Commis- sioner of Corporations says that in the United States Steel Corporation, upon the actual investment, from April 1, 1901, to December 31, 1910, the profits have been twelve per cent per annum. Since the bonds bear five per cent, this gives a much higher rate of profit than twelve per cent upon that part of the stock which represented substance and not water. The Commissioner says that the earnings have been so great that the company has been able to put back into extensions and improvements, into the sinking fund, and into the treasury together, from the net earnings, the collossal sum of $435,000,000. This is in addition to the dividends which have been declared on the stock, including both substance and water, and the interest on the bonds.' Again, the profits of the American Tobacco Company, according to the Commissioner of Corporations, have in- creased with amazing rapidity, and in 1908 were $40,000,000 upon an investment of $240,000,000, or nearly seventeen per cent. In addition to the net profits declared, enormous Excessive profits. 1 Summary of Report of Commissioner of Corporations on the Steel Industry, Part I, p. 49. REMEDIES 259 returns have been derived from the inflation of securities.' Further, it has been seen, when the element of monopoly entered in the American Sugar Refining Company and the Standard Oil Company, the margins for manufacture were in- creased so as to give enormous profits. The Commissioner of Corporations says that the dividends of Standard Oil, from 1882 to 1906, averaged above twenty-four per cent, and the profits due to the increased margins were more than $200,000,000. The total profits for three years were about $790,000,000 upon an investment of not more than $75,000,000. Thus in fifteen years the profits have been more than ten times the capital originally invested.^ In view of these and similar facts regarding other cor- porations, it seems unsafe to believe, if cooperation be per- mitted, that the corporations will have so great a change With co- of heart as to treat the public fairly. If cooperation be °P^''ft'°" must go permitted, with this must go control, else the public will control, be without protection. It is perfectly clear under modern conditions that the determination of prices by legislation is an impossible task. However, as already indicated, under the clear legislative right to control prices. Congress and state legislatures may enact the rule that prices shall be reasonable, and authorize administrative commissions to regulate prices under this rule. The reserve power to require modification of unreasonable prices should be placed with the commissions. In this connection it is notable, for the potash industry in Germany, where complete monopoly is allowed, that this industry is placed under control of a commission with authority to regulate prices. Therefore, at the present time in Germany the plan of regulating prices by commis- sion is in operation for one industry. It may be said that the burden of controlling prices will be so great that it cannot be performed by commissions. Precisely the same statements were made regarding rail- 1 Report of the Commissioner of Corporations on the Tobacco Industry, Part II, pp. 310-313 2 Report of the Commissioner of Corporations on the Petroleum Indus- try, Part II, p. iv. 260 CONCENTRATION AND CONTROL Control of prices a practical problem. Maximum and naini- mum prices. roads when it was proposed to control prices of public utilities by commission. It may be asserted, without fear of successful contradiction, that there is no problem of adjustment of prices more difficult than that of freight rates. Different rates apply to different classes of com- modities; rates are variable under different conditions of shipment, such as quantity, distance, etc. Furthermore in fixing the price on freight it must be made reasonable ; and this can only be determined by finding the valuation of the enormously complex and variable class of railroad properties, taking into account the extremely complicated business operations. Notwithstanding these difficulties, which by the railroad men were declared to be absolutely insuperable and impossible to perform except by the ex- perienced railroad man, the commissions have been, if not wholly successful, at least reasonably so. Therefore, the arguments regarding the impracticability of regulating prices by commission falls to the ground. It is not to be presumed that every price would be regulated all of the time; quite the contrary; only exceptionally would prices be regulated by the commissions. Whenever a complaint is made that the market is controlled and a price is unjust, then a com- mission would investigate and make an appropriate order; or if a commission reached the conclusion that a case needed investigation, it could do this on its own initiative. It should be emphasized that it is not proposed that the commission shall have the power to regulate all prices, but only this power where there is monopoly or the market is controfied through cooperation. Also a commission need go no farther in a given case than to fix a maximum price or a minimum price, or both, as may be required by the situa- tion, leaving competition to regulate further within the pre- scribed hmits. As at present, competition would remain the sole regulative of prices in the vast number of instances where the market is not controlled. These quaUfications enormously simplify the task of the commissions. The very fact that the commissions have authority to regulate prices, when they become unreasonably high or REMEDIES 261 unreasonably low, would act as an important restraining force upon those controlling the market and tend to keep prices reasonable, and thus reduce the number of cases in which it would be necessary for the commissions to act. This power of the commissions, we know, has been a re- straining influence with the railroads; it will be a restrain- ing influence in preventing unreasonable prices if extended to the industries. Thus, so far as we can foresee, the task of the commis- sions, which to some men seems dreadful, will in all prob- ability turn out, as a matter of fact, just as with the railroad commissions, practicable. The misconceptions which arise in connection with controlling prices may be illustrated by statements made by Mr. TYiHiam B. Hornblower.^ He says it means "the right to control the prices of the neces- saries of life to the ultimate consumer. What the average American and his wife and children shall eat and drink and wherewithal they shall be clothed depend upon the prices to be paid for such necessaries of life." Apparently Mr. Hornblower is appalled by the dread of the catastrophe ; but who fixes the prices of these necessities now ? The Control of gigantic corporations certainly in large measure. It seems c^pOTi^ion plain that the public would be safer if some organization, or commiB- having responsibility to it, had a part in the process. The situation will, as a matter of fact, be substantially as it is at present, in the initial fixing of prices. The most that is proposed is that, whenever the market is controlled for any commodity, a commission fix maximum and minimum prices from time to time when prices are found not in accordance with the rule of reason. We may return to a state of subdivision of industry in which the economics of concentration are not available, and depend upon competition to control prices. If it were possible to secure "tolerant" competition, to use a phrase which has been proposed, under these conditions it is prob- able that the prices would be higher than they are with concentration, even with cooperation and without control. 1 "Antitrust Legislation and Litigation," pp. 35 and 36. sion. 262 CONCENTRATION AND CONTROL Regulation the only way. Regulation not socialism. That we can return to such a condition contrary to the world-wide tendency is extremely improbable, almost un- thinkable. The other alternative is to have large units; if we have large units, cooperation becomes inevitable; and with concentration and cooperation the prices unreg- ulated will become unduly high. The only protection for the public is regulation in some way; and such regulation is best accomplished through a commission which has authority to place maximum and minimum prices at reason- able levels. This situation has been very clearly seen by Attorney-General Wickersham. He says : " If we permit the existence of organizations or combinations of producers under such conditions that they can fix prices, there is no means of securing justice to the consumer except through the government's asserting its right to step in and dictate prices, or at least to require that they shall not be raised above reasonable limits." ' It has been repeatedly asserted that the proposal to give commissions authority to order prices to be changed, when found unreasonable, is socialism. Precisely the same statements were made when it was proposed to give the rail- road commissions similar powers a few years ago. Socialism to the extreme conservative means anything with which he does not agree; but the meaning of socialism is the taking over and management of property by the state. The plan presented does not involve taking over property or its management. Indeed, it does not involve anything whatever except securing to the public a reasonable price in the same manner that reasonable prices have been secured from the public utilities, the only way in which it has been found practicable to do this. It is probably the only satis- factory way in which fair prices can be secured from the great industrial corporations. Under the plan proposed the industrial concentrations remain private property in charge of those who own them just as at present. Being granted the privilege of cooperation in restraint of trade, they are for- bidden to take advantage of the public by charging unrea- > Century Magazine, Vol. LXXXIII, No. 4, p. 619. REMEDIES 263 sonable prices ; and if forbidden so to charge, there must be some organism which will enforce the prohibition. The pro- hibition probably could be enforced by lawsuit under com- mon law ; and therefore the proposal made simply gives to an efficient administrative body authority to do what the courts probably have power to do under the cormnon law, but which they could not efficiently perform. Those who hold up the bogy of socialism because of the modest proposal to allow commissions to regulate prices, if they reflect, must conclude that they have only a bogy. (3) Conservation Enforced. — It should be made unlawful for any person, firm, or corporation unreasonably to waste or maliciously to injure, destroy, or impair any natural re- source. This rule has been made a statute in Wisconsin.' Upon the commissions should be imposed the duty of re- quiring the enforcement of this rule for all corporations which exist in restraint of trade. Under this simple regulation the major portion of the great wastes of the natural resources under the competitive system (described pp. 89-97), so dis- astrous to the future of the race, could be prevented. The imnecessary and unreasonable wastes never will be prevented under the competitive system; indeed, they are compelled under that system. Regulation of the kind proposed is likely to be of little avail if enforced only by the courts. But, if any case of urmecessary waste of a natural resource by any corporation can be brought to the knowledge of a com- mission by an individual, and the commission is thereby compelled to investigate the same and give appropriate, reasonable orders, we may expect that progress will be made in the protection of our natural resources. Preventing urmecessary waste of a natural resource may somewhat raise the price of certain articles because of the increased cost of so conducting the business as to give this result. Indeed, it is certain in coal mining and in various other industries, that if as large economies as practicable be secured, there will be slight increases in prices. In such cases, if it be necessary for the future welfare of the race, 1 Ch. 143, Laws of 1911. Unneces- sary wastes prevented. 264 CONCENTRATION AND CONTROL this generation should be willing to bear the small additional expense. (4) Good Social Conditions Securable. — The rule of law may be laid down that corporations which exist in restraint of trade shall conduct their business in accordance with good social conditions. Under this rule the administrative com- missions would have power to formulate reasonable regula- tions in these respects and to enforce them. From the point of view of many, the possibility of introducing reasonable social conditions for the labor force of great corporations will be one of the greatest arguments in favor of com- mission supervision. To others this will seem to be going very far; but it is certain under the competitive system that the social conditions for labor are very unsatisfactory. The mining industry is extremely hazardous. Many of the great manufacturers press their labor to the limit, and this under dangerous conditions.^ To introduce safe and sani- tary conditions will involve greater expense in production. Under commission regulations the necessary additional ex- pense may be compelled, and the additional price warranted may be allowed by the commissions. Like other regulations which have been suggested, that regarding social conditions stands upon its own merits ; is not a necessary part of the plan to remedy the most pressing evils of the competitive and court system of control of industry. (5) Fair Wages Realizable. — If desirable, the rule of law may be laid down that corporations doing business in re- straint of trade shall pay fair wages. If this rule be adopted, again it would rest upon the commissions in cases of complaint to determine what are fair wages under the conditions which exist in a given instance. Like other suggestions under con- sideration, this is not an essential part of the plan of control, but it is believed to be one of the advantages which may in the future accrue from it. When the author wrote the preceding it seemed some- what radical even to him ; but since that time in England, ' Hearings, Senate Interstate Commerce Committee, Part XXVI, p. 2322 ; Investigation U. S. Steel Corporation, pp. 2835-3152 ; 3255-3454. REMEDIES 265 a country commonly spoken of in America as conserva- tive, Parliament has enacted a law establishing the principle of a minimum wage for coal miners, under which local boards each fix such wages for its district. This is a definite recogni- tion by statute that wages must be paid which are adequate to furnish at least a livelihood, even if upon a somewhat low scale. Probably there will be a wide difference between the minimum wage of England and a fair wage in this country, but the principle involved in each is the same. (6) Control of Capitalization. — If advisable, the law may lay down rules controlling the issue of stocks and bonds in order to prevent overcapitalization and stock manipulation. This subject, however, is one of such com- plexity that the author does not venture to formulate a rule of law to cover it. An appreciation of the difficulty of so doing may be gained by referring to the report of the Railroad Securities Commission upon stocks and bonds of railroads.^ The same principles which apply to the rail- roads apply to a large extent, if not altogether, to the great industrial corporations. (7) Delimitation of Powers of State and Nation. — A clear rule of law should be formulated regarding the limits of interstate commerce. The early decisions under the Sher- man act inclined toward narrowly construing the power of Congress. The later decisions of the court have gone much farther, and it now looks as if the United States Supreme Court would sustain the position that Congress has the right to control all businesses in which any part is interstate in character. This seems the only logical place at which to stop. If this position be accepted, the neces- sary federal commissions would have imder their regulation corporations having any interstate business. The state commissions would have the authority to deal with those businesses which are strictly within the states. This would include a vast field, for instance, practically all of the retail business of the country; not only so, but the vast numbers of small manufactories in various lines, and ia • Report Railroad Securities CommiBsion, Washington, D.C., 1911. 266 CONCENTRATION AND CONTROL many cases the cooperation of laborers and professional men.i General Statements. — We have now covered the specifica- tions given on pp. 225-231 relating to what is desirable to ac- complish by amending the antitrust legislation. A bill must first be passed covering the essential points mentioned, (1) to (4), pp. 249-252. If this can be accomplished, the existing futile and exasperating situation will cease to exist. Justice will be equally obtainable by all. The frightful wastes of the competitive system will, in a measure at least, cease. The business men may cooperate, and thus be able to carry on their business without becoming criminals under the law. Monopoly will not be permitted. Competition will remain open. With these essentials accomplished the advantages of the additional proposed rules of law, (l) to (6), pp. 255-265, may be introduced as fast as practicable. Regarding some of them, possibly a consensus of opinion of the lawmakers may soon be reached ; but if this does not prove to be true, they may be added from time to time, as justified by experience and demanded by public opinion. Section 7 OTHER PLANS FOR AMENDMENT TO SHERMAN ANTI- TRUST LAW The plan above proposed for handling the existing situa- tion in this country concerning concentration of industry is not necessarily contradictory to, but may be regarded as supplementary of, a number of other plans which have been proposed. Federal registration or license, federal incorporation, and federal tax have all been suggested. Senator Newlands ^ would permit all corporations that comply with definite regu- lations, including publicity, engaged in interstate commerce, ' See Senator Newlands, Hearings, Senate Interstate Commerce Com- mittee, Part XIX, p. 1598. ' Hearings, Senate Interstate Commerce Committee, Part I, pp. 1-4. REMEDIES 267 doing a gross business of more than $1,000,000 per annum, to have federal registration, which registration would grant certain privileges. Low ' would require a federal license for all corporations having $2,000,000 of assets or paid up capital. Mr. Elbert H. Gary and Mr. George W. Perkins '"■ also favor a license system for corporations doing an interstate or inter- national business. Untermeyer' would require every corpora- tion engaged in interstate cormnerce, having gross assets of $1,000,000 or more, to secure federal incorporation. Low^ and Wickersham ^ would permit, but would not require, federal incorporation. The industrial commission proposed a franchise tax upon corporations in proportion to the actual value of stocks and bonded debts less the local assessment on the real estate, and in addition a graded tax upon the incomes of the cor- porations.^ An allied proposal is that of an increasing tax upon the capital of corporations. Thus W. S. Dwinnell,^ of Minneapolis, suggests "a graded aimual tax upon the capital of every corporation engaged in interstate commerce, whose capital exceeds a certain amount." Senator Newlands makes a similar suggestion.^ Another class of proposals is in the direction of limitation of corporate powers. Some men would altogether prohibit holding corporations from engaging in interstate commerce. Among these is Mr. Seth Low.' He thinks the evils of holding companies are such that this class of corporation should no longer exist. According to his idea, each company should be independent. This would require the disintegra- tion of a great many companies or their complete merger. Others have argued that one corporation should not hold any stock in any other corporation in any way whatsoever. A number of men have taken this position before the In- terstate Commerce Committee. Some men would not go ' Hearings, Senate Interstate Commerce Committee, Part XVI, p. 520. 2 lUd., XXVI, pp. 2407-2412 ; XV, p. 1091. = Ihid., Part XVI, pp. 487, 488. ' Ibid., Part V, p. 19. s The Century Magazine, Vol. LXXXIII, pp. 619-620. ' U. S. Industrial Commission, Vol. XIX, pp. 1067-1068. ' Hearings, Senate Interstate Commerce Committee, Part III, p. 90. » Ibid., Part VIII, p. 482. " Ibid., Part IX, p. 488. 268 CONCENTRATION AND CONTROL so far as to prohibit holding companies, but would require that the voting power of stocks owned by holding compa- nies should be eliminated. Here is included Mr. Frederick W. Kelsey.' Still others would place a limitation upon community of directors so as to make sure that companies, apparently independent, are really so. Among these are Mr. Louis Brandeis.^ None of these proposals will be argued. Each must stand upon its own merits and justify itself if it is to be adopted by Congress and the state legislatures. None of these proposals interfere with the plan which has been suggested. If it seems advisable to do any of these things either by inde- pendent act or as additional amendments to the antitrust laws, this may be done without interfering in any way with any of the proposals made by the author on previous pages. However, it is notable, that a number of those who have suggested the above measures desire to place their execution as well as the execution of the Sherman antitrust act with an administrative commission. Among these -are Newlands,' Untermeyer,^ Low,* and Perkins.^ Further, in some cases the proposals have gone so far as to include the regulation of prices; for instance, Untermeyer would lay down the rule that the maximum price which may be chargeable "does not allow an undue profit." Section 8 PATENT MONOPOLY^ There is another important problem in connection with combinations in restraint of trade which has not been con- sidered. This is patent monopoly. Many of the businesses in restraint of trade are so in large measure because they ' Hearings, Senate Interstate Commerce Committee, Part XVII, p. 1364. 2 Ihid., Part XVI, p. 1179. s Ibid., Part I, pp. 1, 2. ' Ibid., Part IX, pp. 487, 488. ^ Ibid., Part IX, p. 520. ^Ibid., Part XV, p. 1102. ' For full information regarding the patent situation, see Hearings before the Committee on Judiciary, House of Representatives, 1912, Patent Legis- lation, Series No. 1. REMEDIES 269 own patents. The very idea of a patent is monopoly. Under the new conditions of consolidation the patent monopoly has taken an entirely new aspect. The great manufac- turing corporations, such as the General Electric Company, the United States Shoe Machinery Company, and the National Cash Register Company, have acquired a large part of the patents which affect their businesses. Some of these they have used ; others they have simply acquired to prevent use by others. A combination of patents under one ownership, as compared with a single patent, has produced a situation regarding patents somewhat analagous to that which arose when partnerships of corporations were formed from corporations, by means of the device of trusts. The danger The vast importance of this question of patent monopoly °Q™™^eut has become even more clear through a recent decision of the Supreme Court of the United States.^ Previous decisions have made it clear that the patentee may restrict the time, place, or maimer in which a patented machine may be used. The recent decision of the court, however, goes farther than this in that it is held that restrictions may be made regard- ing other things necessary for the use of the patented article, even if such things are not patented. Chief Justice White and Justices Hughes and Lamar strongly dissent from this opinion. They hold this principle to be dangerous and give as illustrations of these dangers the following. The quotations are from the Chief Justice : — "Take a patentee selling a patented engine. We will now have the right by contract to bring under the patent laws all contracts for coal or electrical energy used to afford power to work the machine or even the lubricants employed in its operation. Take a patented carpenter's plane. The power now exists in the patentee by contract to validly confine a carpenter purchasing one of the planes to the use of lumber sawed from trees grown on the land of a particular person or sawed by a particular mill. Take a patented cooking utensil. The power is now recognized in the patentee to bind by con- 1 Henry et al. v. A. B. Dick Company, U. S. Supreme Court, 20, October Term, 1911. 270 CONCENTRATION AND CONTROL tract one who buys the utensil to use in connection with it no other food supply but that sold or made by the patentee. Take the invention of a patented window frame. It is now the law that the seller of a frame may stipulate that no other material shall be used in a house in which the window frames are placed except such as may be bought from the patentee and seller of the frame. Take an illustration which goes home to every one — a patented sewing-machine. It is now es- tablished that by putting on the machine, in addition to the notice of patent required by law, a notice called a license re- striction, the right is acquired, as against the whole world, to control the purchase by users of the machine of thread, needles, and oil lubricants or other materials convenient or necessary for operation of the machine. "My mind cannot shake off the dread of the vast extension of such practices which must come from the decision of the court now rendered. Who, I submit, can put a limit upon the extent of monopoly and wrongful restriction which will arise, especially if by such a power a contract which other- wise would be void as against public policy may be success- fully maintained ? " It is clear that the situation is such that the patent laws under the new conditions will require amendments to protect the public. However, this matter lies outside of the scope of this book. It is mentioned because so closely related to that under consideration; indeed, for many concentrations of industry, patents have been the basis upon which monopoly has been secured. Section 9 POSSIBLE OBJECTIONS TO PLAN OF REGULATION PRO- POSED In order that the remedial plan proposed may be fairly be- fore the readers of this book, the writer will now consider some objections which may possibly be raised regarding it. (l) It may be said that the commission form of regulation is new and untried; that the great corporations desirous REMEDIES 271 of controlling the commissions will be too powerful for them ; and that the public will not be protected. In the minds of many, this will be a serious objection to the proposals made; and the danger is one which must be es- pecially guarded against. One of these guards should be that all of the business of a commission should be open. The complaint made, the conduct of a case, the facts brought out, the reasoning relating to the facts, and the conclusion Public must reached should all be made public. In short, in order that •^oi'^.'^om- nussion ac- the people shall be protected, there should be the same pub- countable, licity in the actions of a commission as is now demanded regarding the actions of a corporation. In time, methods of public bookkeeping will be developed and rules formulated to guide the commissions in their work and thus enable them to perform their duties, notwithstanding the great pressure which may be brought to bear upon them. If it be desirable, a further precaution may be inserted simi- lar to that which exists concerning commissions in Europe. Upon the request of a certain number of senators or repre- sentatives of Congress or of state legislators a commission may be summoned before the creating legislative body and be required to give answers to written interrogatories and be interrogated regarding any matter which is before the com- mission. Further, if the above are not sufficient to guard the public interest, provision may be made that any member of a commission may be removed for cause by the President or governor, or by Congress or legislature upon the passage of a joint resolution. By these various methods the public may be amply protected against any failure of a commission to perform its duty. While there is the possible danger on one side that the pow- erful interests will control, on the other side there will be the fear by the corporations that the commissions will go too far and raid property. But on this side there is adequate pro- tection under the Constitution, since from the commission there is appeal to the courts ; and the courts under the 14th amendment are obliged to prevent the confiscation of property. If on both sides there be fear of the power of 272 CONCENTRATION AND CONTROL trade commissions, it may be regarded as probable that a judicial balance will be maintained. While the early experience in this country with commissions for control of railroads was not especially encouraging, the experience we have had with the railroad commissions later appointed, especially illustrated by that of Wisconsin, and by the Interstate Commerce Commission, since it has been given adequate authority, is very hopeful. Doubtless difficulties will appear in connection with the administrative work of the commissions; but these do not seem likely to be nearly so serious as those which confront us if the Sherman act is invoked to destroy great concentra- tions in industry to the extent that will be necessary in order to return to adequate control of prices through com- petition. (2) It may be said that the greater corporations will destroy the smaller corporations in the same business. The experi- ence of other countries where coSperation is permitted gives no just ground for this conclusion. We have seen in this country under the competitive system and under severe laws against combination, that many small corporations have been destroyed. Upon the other hand, in England and in Germany, where the various corporations have been allowed to cooperate, while there has also been a strong tendency to consolidation, the concentration has not gone nearly so far as in America. Also the smaller com- petitors in most cases have been made a useful part of the cooperative or consolidated system rather than destroyed. (3) If the amendments include the regulation of prices, it may be said that it will be especially difficult to control prices in those industries where the corporations do not manage the business from the source to the final product. As we have seen, the United States Steel Corporation handles its materials from the ore, hmestone, and coal to the finished product. In such a case the problem of controlling prices is easier than the control of the prices of freight. But in cases illustrated by tobacco, beef, sugar, and oil, the combi- nation is a buyer as well as a seller. In such an instance if REMEDIES 273 the corporation too greatly depresses the price of its supply, the Cannot un- product will not be furnished. In the long run, if the farmers '^'^^ depress ° ' prices. do not get a fair price, they will not produce beef cattle nor tobacco ; they will raise something else. This is illustrated by the beet sugar industry. For any district the purchase of beets by the sugar factory corporation is a practical monopoly, because transportation is so expen- sive for the heavy product, beets, that they cannot go to dis- tant factories. This being the situation, the farmer will not plant beets unless he knows in advance the price he will receive. The sugar corporations are obliged to offer a price for beets which will induce the farmers to raise a sufficient supply for the adjacent factory. If the price offered is not sufficient, the factory will lack material for its run. As we have seen, pp. 148-149, there is little complaint that the American Sugar Refining Company has unduly depressed the price of raw sugar. It has been charged that the packers at different times have unduly depressed the price of beef cattle ; but if this practice existed, it has largely ceased, for it is now realized by the combination that it must maintain a rea- sonable price for beef, cattle, hogs, sheep, etc., in order to se- cure a sufficient amount of raw material through the years. The farmers will only permanently raise material for this industry when it is not as profitable to them as other products. Precisely the same principle applies to tobacco. While undoubtedly there have been causes for complaint against the American Tobacco Company, if this organization had been al- lowed to continue permanently, it is certain that it would have been obliged to be fair and reasonable in prices paid for the raw material ; otherwise, the combination would not be able to secure a sufficient amount to meet the demands. For many years the great monopolistic company. Standard Oil, bought by far the larger portion of the crude oil for its refineries from hundred of sellers. In the early days of Standard Oil there was complaint regarding depression of prices ; but for many years the prices paid by the Standard have been sufficient to induce drillers to search for and obtain 274 CONCENTRATION AND CONTROL sufficient oil to supply the market. Indeed, there has been upon the whole an oversupply, which, from the point of view of conservation, is a detriment to the nation. So long as the prices paid for a natural resource produced from the interior of the earth are sufficient to supply the market not only in this country, but for a large part of the world, this is evidence that the price of the raw material has not been un- duly depressed. The principle which applies to the above commodities applies to all commodities in which the corporations are buy- ers as well as sellers. While there may have been occasion for complaint from time to time, probably the producers of raw products for the great corporations have had as equitable prices as are ordinarily secured for those commodities con- cerning which unrestrained competition completely controls. In further answer to the statement that there will be cause for complaint regarding prices paid for materials by the great corporations, it may be said that if prices at which the products of the combinations are sold, are subject to control of commissions and profits cannot be excessive, there will be no strong motive to depress unduly the purchase prices of the ma- terials which must be bought. Indeed, it is a probable advan- tage of the plan proposed that fair and reasonably uniform prices will be secured for the products needed by the combi- nations. (4) It may be said under the plan in which prices are held at a reasonable level that the income on the bonds and stocks of a corporation, so far as they are substance, not water, will be guaranteed ; and, therefore, an organization will rest on its laurels, and progress will be stayed. The answer to this objection is that the proposal made eliminates only competition in prices; it does not interfere with competi- tion in service (see p. 75). If a ton of freight be shipped from New York to Chicago, it makes no difference what road is used ; the rate is the same. But has competition ceased be- tween the railways running between New York and Chicago ? On the contrary, it is of the keenest. The agents of these roads are everywhere soliciting business, explaining advan- REMEDIES 275 tages, promising to put through freight promptly. Simi- larly, for passenger service ; the speeds have been increased ; new steel cars have been introduced; more trains are run. In many ways the service is becoming safer, more reliable, convenient, and satisfactory. Why is this true when prices are the same ? Because the road which makes most progress and is most efficient will do more business, and be able to pay a larger profit than its competitors. Those who know the facts appreciate how keen is the competition between the New York Central and Pennsylvania systems ; each has done its best to increase and extend its facilities in order to get the largest possible proportion of business. At this point we see a fatal defect of another proposal which has been made regarding combinations, viz., that prices be controlled through limiting profits or dividends.^ This pro- posal would stifle competition in business, and hence progress ; because, if an organization be sufliciently efficient so that it gives just the returns allowed, five or six per cent on its bonds, and seven per cent on the stock, why do anjrthing more? Hence the proposal to control the trusts by limiting in- comes and dividends is economically fallacious. The corpora- tion which is efficiently managed should pay a higher dividend Controlling than the poorly managed concern. Indeed, in Boston the jj^deu'ds gas company is allowed to pay higher dividends in proportion unsound as it lowers the price of gas. The commissions may find g^y°™" it advantageous to use this principle and thus give strong inducements for high efficiency. Therefore, it is insisted that the plan advocated does not do away with competition in service. It does not interfere with technical improvements, as held by Clark ;^ it does not interfere with the installation of cost accounting, nor any of the advantages of the competitive system, except competition in prices ; and, as already seen, competition in prices is far from an unqualified gain. (5) It may be objected to the proposal to allow concentra- ' Professor J. Laurence Laughlin, Hearinga, United States Senate Interstate Commerce Committee, Part XIV, p. 1000. '/bid.. Part XIV, p. 972. 276 CONCENTRATION AND CONTROL Sanldng eform. •Jumeroua lommiasiona aay be lecessary. tion and industrial cooperation that this will result in putting the major portion of the money for the great lines of business in a few centers ; in short that it will promote the so-called money- trust. Indeed, this objection has been made regarding large concentrations of industry by Mr. Braiideis.' The reform of our banking system is a question to be handled by separate legislation. We already have a report by the Aldrich Monetary Commission upon improvements of the banking system of this country, which admittedly is far behind that of other great industrial nations. Many other plans have been proposed. Our banking system is now being investigated by Congress and is the subject of special study by the National Citizens' League for the Promotion of a Sound Banking System. As to what should be done to improve the situation in banking, the author will venture no opinion ; but he insists that this problem is one which of necessity must be solved by special laws and indepen- dently of the general plans for conducting industry. (6) It may be said that the plan for regulating all concen- trations and cooperations in industry which go to the point of controlling the market will create a great series of com- missions, national and state. This is undoubtedly the fact. It may well be in the future that in addition to an interstate trade commission, which has the position in industry of a supreme commission, there may be subordinate to it another class of commissions to which must first go certain questions exactly as law cases commonly first go to district and circuit courts. In the states, it is probable that a single commis- sion with its scientific staff of experts will be sufiicient to handle the business that will come before it ; but if neces- sary, there may be created in the states two classes of com- missions precisely as there is more than one class of courts. Certainly whatever cost is necessary in order to relieve the present chaotic condition of affairs and to secure justice and development, that cost is justified. (7) It may be said that the plan proposed provides no method of punishment for those who have violated the • Hearings, Senate Interstate Commerce Committee, Part XVI, p. 1189. REMEDIES 277 national and state laws against restraint of trade. The answer is that there is nothing in the proposals made which relieves any individual or corporation from the sins of the Shall the past. Some men believe that those who have violated s^*^ ^ escape ! the trust laws, and especially those who have engaged in the grosser unfair practices, should not escape punishment. Upon this point the author has merely to say that he is far more interested in the future than in the past. The proposals which have been made are for the future. They leave the question of punishment of individuals for violation of exist- ing laws to be settled by the good sense of the community. It may be that there will be advantage in punishing some of those who have indulged in the more outrageous forms of xmfair practices. When in the future we have rational laws with administrative commissions to enforce them, we shall have a situation for industrial corporations like that we now have for the railroads. There will be comparatively few who will violate the laws, and it will be possible to punish those who do violate them. Section 10 CONCLUSION In conclusion there is presented as the solution of the difHculties of the present industrial situation, concentration, cooperation, and control. Through concentration we may have the economic advantages coming from magnitude of opera- tions. Through cooperation we may limit the wastes of the competitive system. Through control by commission we may secure freedom for fair competition, elimination of unfair practices, conservation of our natural resources, fair wages, good social conditions, and reasonable prices. Concentration and cooperation in industry in order to secure efficiency are a world-wide movement. The United States cannot resist it. If we isolate ourselves and insist upon the subdivision of industry below the highest economic efficiency and do not allow cooperation, we shall be defeated in the world's markets. We cannot adopt an economic sys- tem less efficient than our great competitors, Germany, Eng- 278 CONCENTRATION AND CONTROL land, France, and Austria. Either we must modify our pres- ent obsolete laws regarding concentration and cooperation so as to conform with the world movement, or else fall behind in the race for the world's markets. Concentration and coop- eration are conditions imperatively essential for industrial advance; but if we allow concentration and cooperation, there must be control in order to protect the people, and ade- quate control is only possible through the administrative com- mission. Hence, concentration, cooperation, and control are the key words for a scientific solution of the mighty indus- trial problem which now confronts this nation. APPENDIX THE SHERMAN ANTITRUST LAW [Act of July 2, 1890 (26 Stat., 209)] An Act to protect trade and commerce against mJawful restraints and monopolies. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or con- spiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said pimishments, in the discretion of the court. Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or 279 280 APPENDIX Territories and any State or States or the District of Colum- bia, or with foreign nations, or between the District of Co- lumbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be pimished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act ; and it shall be the duty of the several district attorneys of the United States, in their respective districts, imder the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties com- plained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. Sec. 5. Whenever it shall appear to the court before whic^i any proceeding imder section four of this act may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the marshal thereof. Sec. 6. Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section one of this act, and being in the course of transportation from one State to another, or to a foreign country, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, APPENDIX 281 seizure, and condemnation of property imported into the United States contrary to law. Sec. 7. Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be imlawful by this act, may sue therefor in any circuit court of the United States in the district in which the defendant resides or is found, with- out respect to the amoimt in controversy, and shall recover threefold the damages by him sustained, and the costs of suit, including a reasonable attorney's fee. Sec. 8. That the word "person," or "persons," wherever used in this act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, or the laws of any of the Territories, the laws of any State, or the laws of any foreign country. APPENDIX II THE CONGRESSIONAL SITUATION AN INTERSTATE TRADE COMMISSION Growth of public Bentiment. Views of President Wilson. Since this book was written public sentiment has devel- oped very rapidly ia regard to the trust question. The con- trol of corporations through trade commissions therein advocated was at the time of its first imprint favored by few ; but the idea has rapidly gained ground. It was placed in the platform of the Progressive Republican party at their convention held in Chicago in June, 1912. During the following campaign the proposal was vigorously opposed by both the Democratic and Republican parties. However, the constructive features of the plan steadily gained in the favor of the country. When President Wilson, on January 20, 1914, sent a message to Congress on the control of the trusts, he had accepted the idea and strongly advocated it. He said : — "And the business men of the country desire something more than that the menace of legal process in these matters be made explicit and intelligible. They desire the advice, the definite guidance and information which can be supplied by an administrative body, an interstate trade commission. "The opinion of the country would instantly approve of suchTa commission. It would not wish to see it empowered to make terms with monopoly or Ln any sort to assume control of business, as if the Government made itself respon- sible. It demands such a commission only as an indispen- sable instrmnent of information and publicity, as a clearing house for the facts by which both the public mind and the managers of great business undertakings should be guided, and as an instrumentality for doing justice to business where the processes of the courts or the natural forces of correction outside the courts are inadequate to adjust the remedy to 282 APPENDIX II 283 the wrong in a way that will meet all the equities and cir- cumstances of the case. "Producing industries, for example, which have passed the point up to which combination may be consistent with the public interest and the freedom of trade, cannot always be dissected into their component units as readily as railroad companies or similar organizations can be. Their dissolu- tion by ordinary legal process may oftentimes involve finan- cial consequences likely to overwhelm the security market and bring upon it breakdown and confusion. There ought to be an administrative commission capable of directing and shaping such corrective processes, not only in aid of the courts but also by independent suggestion, if necessary." More than eighty bills relating to the trusts have been introduced into the 63rd Congress. Many of these provide for an interstate trade commission. Among these were administrative measures introduced into both the House and the Senate. An interstate trade commission bill, the so-called Covington bill (H. R. 15613), passed the House. The Interstate Commerce Committee of the Senate, to The ad- which this bill was sent, reported a substitute. This sub- ^°i«t'-ation stitute is supposed to represent the final or semi-final ideas of the administration. The first part of the substitute provides for the creation of a federal trade commission composed of five members. This commission is to take over the duties of the Bureau of Corporations. The more important powers of the proposed commission are contained in Sections 3 to 6, inclusive. These sections read as follows : — "Sec. 3. The commission shall have power among others: "(a) To investigate from time to time, and as often as Broad the commission may deem advisable, the organization, ^°^^g^^^. business, financial condition, conduct, practices, and man- tion. agement, of any corporation engaged in commerce, and its relation to other corporations and to individuals, associations, and partnerships. " (b) To require any corporation subject to the provisions of this Act which the commission may designate to furnish 284 CONCENTRATION AND CONTROL Corpora- to the Commission from time to time information, statements, quSed to ^^^ records concerning its organization, business, financial furnish Condition, conduct, practices, management, and relation to ormation. Q^j^gj. corporations, or to individuals, associations, or partner- ships, and to require the production for examination of all books, documents, correspondence, contracts, memoranda, or other papers relating to or in any way affecting the com- merce in which such corporation under inquiry is engaged or concerning its relations to any individual, association, or partnership, and to make copies of the same. Uniform " (c) To prescribe as near as may be a uniform system of reports annual reports from such corporations or classes of corpora- tions subject to the provisions of this Act, as the commission may designate, and to fix the time for the filing of such re- ports, and to require such reports, or any special report, to be made under oath, or otherwise in the discretion of the commission. Commiasion " (d) To make public, in the discretion of the commission, reports'' ^^^ information obtained by it in the exercise of the powers, authority, and duties conferred upon it by this Act, except so far as may be necessary to protect trade processes, names of customers, and such other matters as the commission may deem not to be of public importance, and to make aimual and special reports to the Congress and to submit therewith recommendations for additional legislation. " (e) In any suit in equity brought by or imder the direc- tion of the Attorney-General as provided in the antitrust Acts if the court fuids for the complainant it may, upon its owQ motion or the motion of any party to such suit, refer the matter of the form of the decree to be entered to the Commission commission as a master in chancery; whereupon the com- SastCT in^^ mission shall proceed in that capacity upon such notice to chancery. the parties and upon such hearing as the court may prescribe, and shall as speedily as practicable make report with its findings to the court, which report and findings having been made and filed shall be subject to the judicial procedure established for the consideration and disposition of a master's report and findings in equity cases. APPENDIX II 285 " (/) Wherever a restraining order or an interlocutory or final decree has heretofore been entered or shall hereafter be entered against any defendant or defendants in any suit brought by the United States to prevent and restrain any violation of the antitrust Acts, the commission shall have power, and it shall be its duty, upon the application of the Commission Attorney-General, to make investigation of the manner in ™^^^°^'^*" which the order or decree has been or is being carried out, carrying and as to whether the same has been or is being violated and j"*^"* what, if any, further order, decree or relief is advisable. It shall transmit to the Attorney-General a report embodying its findings as a result of any such investigation with such recommendations for further action as it may deem advisable and the .eport shall be made public in the discretion of the commission. " (g) If the commission believes from its inquiries and in- Report vestigations, instituted upon its own initiative or at the j^t^Q^^g*" suggestion of the President, the Attorney-General, or either General. House of Congress that any corporation, individual, associa- tion, or partnership has violated any law of the United States regulating commerce, it shall report its findings and the evidence in relation thereto to the Attorney-General with its recommendations." "For the purpose of prosecuting any investigation or Books proceedmg authorized by this section the commission, or "^^J^sion. its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documents or writings of any cor- poration being investigated or proceeded against. "(h) The commission is hereby directed to investigate. Foreign as expeditiously as may be, trade conditions in foreign coun- ^'J'^'^^^j^^ tries where associations, combinations, or practices of buyers, dealers, or traders may injuriously affect the export trade of the United States, and also to investigate whether Ameri- can exporters have combined with each other or with foreign producers or dealers to control prices abroad, and to report to Congress thereon from time to time. "Sec. 4. The powers and jurisdiction herein conferred 286 CONCENTRATION AND CONTROL Power over all cor- porations except utilities. Unfair competition prohibited. Commission may issue orders re- garding un- fair com- petition. Commission may take case to court. Penalties. upon the commission shall extend over all trade associations, corporate combinations, and corporations as hereinbefore defined engaged in or affecting commerce, except banks and common carriers. "Sec. 5. That unfair competition in commerce is hereby declared unlawful. "The commission is hereby empowered and directed to prevent corporations from using unfair methods of compe- tition in commerce. "Whenever the conamission shall have reason to believe that any corporation has been or is using any unfair method of competition in commerce, it shall issue and serve upon such corporation a written order, at least thirty days in ad- vance of the time set therein for hearing, directing it to appear before the commission and show cause why an order shall not be issued by the commission restraining and pro- hibiting it from using such method of competition, and if upon such hearing the commission shall find that the method of competition in question is prohibited by this Act it shall thereupon issue an order restraining and prohibiting the use of the same. The commission may at any time modify or set aside, in whole or in part, any order issued by it under this Act. "Whenever the commission, after the issuance of such order, shall find that such corporation has not complied therewith, the commission may petition the district court of the United States, within any district where the method in question was used or where such corporation is located or carries on business, praying the court to issue an injunction to enforce such order of the commission ; and the court is hereby authorized to issue such injunction. "Sec. 6. That if any corporation subject to this Act shall fail to file any annual or special report, as provided in subdivision (b) of section three hereof, within the time fixed by the commission for filing the same, and such failure shall continue for thirty days after notice of such default, the corporation shall forfeit to the United States the sum of $100 for each and every day of the continuance of such of biU. APPENDIX II 287 failure, which forfeiture shall be payable into the Treasury of the United States, and shall be recoverable in a civil suit in the name of the United States brought in the district where the corporation has its principal office or in any dis- trict in which it shall do business. It shall be the duty of the various district attorneys, under the direction of the Attorney-General of the United States, to prosecute for the recovery of forfeitures. The costs and expenses of such pros- ecution shall be paid out of the appropriation for the ex- penses of the courts of the United States." Paragraphs (a), (6), (c), and (d) relate to the ascertaining of facts regarding corporations. These powers are those which have already been exercised by the Bureau of Corpora- tions. But beginning with (e), there is new substantive law. One of the great difficulties in the enforcement of the anti- Significance trust act through the Attorney-General has been the dissolu- tion of corporations fomid to have violated the law. The Interstate Trade Commission, under (e), may be appointed a master of chancery to make a report to the court regarding the form of the dissolution or the nature of the orders which should be given regarding the offending corporations. More- over, under (/) the Commission may, at the request of the Attorney-General, investigate the manner in which the final decree is carried out. But even more important than these provisions is that contained in section 5, making unfair competition unlawful and empowering the Commission to give orders to corpora- tions to discontinue practices which are found by the Com- mission to involve unfair competition. Another excellent feature of the bill is that contamed under (h) , which requires investigation of trade conditions in foreign countries in relation to the antitrust laws. Section 4 extends the jurisdiction of the Commission over all organizations engaged in or affecting interstate commerce, except banks and common carriers ; and in this respect the bill follows a sound principle. The above siunmary of the principal provisions of this bill is made in order that its essential effects may be clearly 288 CONCENTRATION AND CONTROL Incomplete- ness of measure. Proposed additional power of Commis- sion. appreciated apart from the details relating to their enforce- ment. Undoubtedly this bill, if enacted into law, will be an admirable iustriunent in assisting the Attorney-General in prosecuting corporations suspected of violating the Sher- man act and in the dissolution of corporations foimd guilty by the courts of contracts or combinations in restraint of trade. Moreover, the provision of the bill, which gives the Commission authority of itself to give orders in regard to unfair competition, is a great constructive advance, in that it empowers the Commission to deal directly with the cor- porations rather than having that body auxiliary to the court. However, the bill seems to fall short of meeting the full situation, in that it does not authorize corporations of them- selves to ask the advice of the Commission, as suggested by the President, in regard to whether existing or proposed practices are in accordance with the law. The Interstate Trade Commission should have the power to pass upon the legality of both existing and proposed practices and coopera- tion as advocated in the earlier part of this book and as also favored by the President in his statement to Congress. The author has suggested that there be added to the interstate trade commission law the following clause : — "Any person, association, or corporation, subject to the jurisdiction of the Commission, may present to the Commis- sion for its approval any existing or proposed practice or plan of cooperation. If such existing or proposed practice or co- operation is found by the Commission to be in accordance with law, the Commission shall issue an order authorizing said practice or cooperation, either for a specified time or imtil further order is given. If the existing or proposed practice or plan of cooperation is found by the Commission not to be in accordance with law, the Commission shall issue an order forbidding said practice or cooperation either for a specified time or until further order is given. Orders of the Commission shall be prima facie evidence of their lawful- ness to such time as changed by the Commission or reversed by the comts through action of the Attorney-General." APPENDIX II 289 In favor of granting the proposed Interstate Trade Com- mission the powers proposed by this clause are, among others, the following reasons : — While the Sherman act has been a law for more than Theun- twenty years, the business man does not know and cannot l^^^^ °' find out where the courts will place the boundary line be- tween legitimate cooperation and unreasonable restraint of trade. It is only fair that business men should have some machinery by which they can ascertain whether or not any existing or proposed co5peration is in accordance with law without going through the enormous expense and great de- lay of litigation extending from the District Court to the Su- preme Court, which ordinarily involves an expenditure of many thousands of dollars and from three to five years of time. In dealing with complex business questions involving economic principles, the administrative commissions in this country, with their simple, direct; methods of procedure, have shown themselves to be immeasurably superior to the complex methods of the courts. Various objections have been urged against granting the proposed power to the Commission, but they are identical with those which were urged against the State and Interstate Commerce Commissions for the control of the public utilities. They are founded upon hypothetical fears which have been shown, in the case of the public utilities, to be without foundation. The Clayton Bill Several other important administrative measures relating to the trusts are embodied in a complex bill, the so-called Clay- ton bill (H. R. 15657). This bill has passed the House, and has been reported from committee to the Senate with amend- ments. This bill amends and supplements the Sherman act in various particulars. Among its provisions are those regarding price discrimination, the control of resale prices, exemption of laborers' and farmers' organizations from the Sherman act, the holding by any corporation of the stock of other corporations, interlocking directors, injunctive relief, etc. V 290 CONCENTRATION AND CONTROL A make- shift biU. Exemption of laborers and farmers. Objections to exemp- tions. In large part this bill is indefensible in that it deals with classes and special cases rather than in accordance with a principle. The features are not here discussed in detail, since it is uncertain whether or not the Senate will accept the bill in its present form. Of the various unwise features of the bill, only the most objectionable is here quoted, that relating to farmers and laborers. This section reads as follows : — "That nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof ; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws." There can be no possible defense for having one law for merchants and manufacturers and another law for farmers and laborers. The interpretation which the court will place upon the above clause is of course unknown and un- knowable. Already there exists the widest divergence of view in regard to the intention of the clause. However, it is clear that certain farmers' and laborers' organizations are to have special consideration. This section, and indeed several of the other special sections, are but lame and imperfect attempts to amend the Sherman act by consideration of particular cases rather than by a broad general principle; and, in this respect, they are in marked contrast to the remarkably comprehensive language of the Sherman law itself. The Sherman act, as shown by Appendix I, lays down the broad principle that every contract and combination in restraint of trade is illegal; also that monopoly is illegal. As has been shown in this volume, the courts have found it necessary to modify the literal meaning of these words by inserting the qualifying word "reasonable," thus prohibiting, APPENDIX II 291 as interpreted by the court, only unreasonable combinations and contracts. What is now needed is a principle which shall define what Proposed is reasonable and what is xmreasonable restraint of trade ''™'lifdment ,,.,,, ,. to bnerman rather than a complex bill dealing with special classes or act. particular practices. Such a principle is easily formulated. A simple addition to Section 1 of the Sherman act as follows will meet all cases: "The restraint of trade or commerce meant by the Sherman act is that restraint of trade which is detrimental to the public welfare ; and the presumption is that any restraint of trade is thus detrimental." In the Australian antitrust law this principle is the fun- The damental qualification which affects all of the prohibitions. ^"^*''''ii^° The law of that coimtry states that it will be a defense against any of the things prohibited "that the matter or thing al- leged to have been done in restraint of or with intent to restrain trade or commerce was not to the detriment of the public." ^ If the amendment to the Sherman act, above proposed, inimical were adopted, it would be possible for all corporations, or- cooperation ganizations, and associations of whatever kind to enter into hibited. any cooperation which was not detrimental to the public welfare ; and it would rest upon a corporation to prove that the practiced or proposed cooperation is not detrimental. Does any one seriously hold that practices or cooperation not detrimental to the public welfare, should be prohibited ? If not, the law should be specific upon this point, and thus make clear to laborers, to farmers, to manufacturers, the principle under which they may rightfully cooperate. If the proposed amendment were adopted, the public would Legitimate be perfectly protected, because the presumption is against T°^5^^"'" any restraint of trade. Any organization wishing to engage permitted. in restraint of trade, to any degree, must show that such restraint is not detrimental to the public welfare, before the Court, or Commission, preferably the latter, because of the simple and effective procedure of a commission as compared with a court. 1 Laws of Trusts and Monopolies, Domestic and Foreign, Revised Edition, Washington, Government Printing Office, 1914, pp. 364, 366. 292 CONCENTRATION AND CONTROL If the Interstate Trade Commission were given the power to advise above advocated, and the proposed amendment to the Sherman act were adopted, there would be no necessity of special legislation, such as the proposed exemption of laborers and farmers. The labor organizations would be free to cooperate in all legitimate ways ; and this is all that they should ask. The farmers could go forward with their cooperative movement along all desirable lines. Finally, the merchants and manufacturers would be restrained, where restraint is needed, but could cooperate where such coopera- tion is fair to the public. In short, there would be one law for all, in accordance with principle rather than class legisla- tion, as proposed by the Clayton bill. Class legislation would be sure to lead to bitterness, occasioned by injustice ; and thus tend toward industrial warfare ; whereas, one law for all, because just, would tend to promote industrial peace, statesman- If the present Congress rise to the statesmanlike view of ^'^^d d handling the great composite trade situation by principle rather than by piecemeal carpentry, we shall have a final solution of the most extraordinarily complex problem of concentration of industry, the most difficult economic problem, which has yet confronted this nation. Madison, Wis., August 1, 1914. INDEX Administrative commissions, 249, 268. Advertising, expense, 89 ; saved in large scale production, 14. Agreements, 64, 81, 83, 133, 201. Agricultural implements, statistics, 46, 47. Alabama, laws against combination, 192d, 193. Aldrich Monetary Commission, 275. American Mining Congress, 92. American Steel Hoop and Wire Com- pany, 14, 15. American Sugar Refining Company, 13 ; decisions relating to, 177 ; excessive profits, 149 ; organiza- tion, 147. American Telephone and Telegraph Company, 187, 192a-192c. American Tobacco Company, 140- 147 ; amount of business controlled by, 49; dissolution, 70, 192; excessive profits, 145 ; organiza- tion, 140 ; overcapitalization, 28, 29, 142 ; unfair practices, 24. Anthracite coal, 33 ; output and price fixed, 63; price, 62; waste, 90; see Coal. Antitrust laws, necessary amend- ments, 249, 251. Arbuckle Brothers Company, 148. Arkansas, laws against combination, 192d, 193. Armour Company, 152. Associations, informal and formal, 60 ; regulations, 63. Austria, concentration in, 219. Baltimore and Ohio Railroad Com- pany, 187, 192c. Banking reform, 275. Beet sugar, statistics, 48. Belgium, cartels, 221. Bell Telephone Company, 187, 192a- 192o. "Big Six," 150-154; indictment against, 154. Bogle, Walter S., referred to, 91. Boots and shoes, statistics, 62. Boycotts, illegal, 179. Brandeis, Louis D., referred to, 11, 13, 19, 98, 232, 267, 275. Brooks, T. J., referred to, 67. Bryan, W. J., referred to, 230, 251. Burlington Railway, 192c. Butter, cheese, and condensed milk, statistics, 47, 48. By-products, saving of, 11. California, laws against combination, 193 ; railroad commission, 234 ; water powers, 162, 165. Callbreath, J., referred to, 92. Cambria Steel Company, 126. Capital and product, ratio between, 59. Capitalization, control of, 265. Carnegie Company, 18. Cartels, 207, 212, 220, 221, 223. Chicago board of trade, 190. Cities, growth due to concentration, 19. CivU War, effect on industrial de- velopment, 1 ; concentration, 4. Clay products, statistics, 41. Clayton Bill, 289-291. Coal, saving by use of water power, 164 ; see Anthracite coal. Coats, J. & P., Thread Company, 204, 205. Coke, statistics, 38 ; waste in making, 94. CoUer, E. H., referred to, 67. Colorado, water powers, 162, 165. Combined textiles, statistics, 56, 57. Commerce court, 240. Commercial travelers, number re- duced by large scale production, 14. Commission administration, pure food laws, 245. Commission control, 248-266, 282- 289, 292; California, 234; Iowa, 235 ; Massachusetts, 234 ; New York, 235; Wisconsin, 236; United States, 238 ; industrial cor- 293 294 INDEX porations, 248, 252 ; prices, 261 ; public utilities, 233. Commonwealth Power, Railway, and Light Company, 163. Communication, development, 4 ; effect on freight, 6. Competition, among steel companies, 139 ; between different classes of dealers, 82 ; breakdown, 76 ; de- cline in retail trade, 83 ; effect on combination, 99 ; effect on con- servation, 89 ; effect on public utilities, 32 ; effect of railway development, 65 ; elimination, a cause of concentration, 26 ; en- trance of outside, 86 ; failure to regulate price, 78 ; failure to regu- late quality, 76, 245 ; faith in, 74, 76, 87 ; freedom in, 172 ; illegiti- mate, 143 ; in England, 169 ; in price, 73 ; in quality, 72 ; in serv- ice, 75 ; kinds, 72 ; necessary to retain, 225, 252 ; of United States in world's markets, 224 ; personal element in, 75 ; position of Ger- many and Great Britain, 221 ; po- tential, 84 ; unfair, German laws, 219 ; unrestrained, 98 ; useful- ness, 87; wastes, 88, 97. Conservation, effect of competition on, 89 ; on prices, 263 ; enforce- ment of laws, 263 ; Wisconsin law, 263. Copper, waste, 95. Corporation laws of New Jersey, 70. Cost of production, 20. Cotton and wool manufactories, statistics, 54, 55. Cotton Oil Company, 13. Covington Bill, 283. Dairy products, prices fixed, 64. Danbury hatters, 180. Diamond Match Company, 33, 71. Division of business and territory, a cause of concentration, 26. Drawbacks, 22, 24. Du Pont Powder Company, 186. DwineU, W. S., referred to, 267. Electrical machinery, statistics, 39. Elgin Board of Trade, 190. Ely, R. T., referred to, 85, 233. England, concentration, 203 ; iron and steel, 204 ; laws regarding cooperation, 167. Engrossing, 167. Enhancing, 167. Farmers' Educational Cooperation Union, 67. Farmers' selling agencies, 80. Florida, laws against combination, 192d. Foreign trade, advantage of concen- tration in, 15 ; effect of organiza- tion of U. S. Steel Corporation on, 19. Forestalling, 167. France, concentration in, 220. Freights, cooperation in reference to rates, 78; cross, 11 ; effect of tele- graph and telephone upon, 6. Fruit Growers' Association of Cali- fornia, 67. Fruit growers' exchanges,' 66. Gary, E. H., referred to, 63, 139, 266. General corporation act of New York, 21. General Electric Company, control of patents, 24 ; dissolution by mutual agreement, 188 ; produc- tion, 39 ; water power controlled by, 163. Georgia, laws against combination, 193 ; water powers, 163. German Steel Combine, 207. Germany, concentration in, 206 ; iron and steel in, 207. Gilmore, E. A., referred to, 257. Glass, statistics, 41, 42. Good will, capitalization of, 28. Gould interests, water power con- troUed by, 163. Hatton, W. H., referred to, 236. Holding corporations , 69. Holmes, J. A., referred to, 90, 91, 94. Hornblower, W. B., referred to, 261. Hosiery and knit goods, statistics, 55. Huston, A. F., referred to, 62. Ice, manufactured, statistics, 42, 44 ; situation at Madison, 86. Idaho, laws against combination, 192d; water powers, 165. Illinois, laws against combination, 193 ; water powers, 165. Imperial Tobacco Company, capital- ization, 205 ; formation, 143 ; position in Great Britain, 204. INDEX 295 Indiana, laws against combination, 193. International Combinations, 143, 222-224. International Harvester Company, 14, 191. International Mercantile Marine Company, 223. Intexnational Rail Syndicate, 222. Interstate commerce, limits of, 265. Interstate Commerce Commission, 238. Interstate Trade Commission, 248- 266, 282-289, 292. Investigating departments, 13, 135. Iowa, commission control, 235 ; laws against concentration, 193. Iron and steel, international com- binations, 223 ; situation in Eng- land, 204 ; situation in Ger- many, 107 ; statistics, 37. Iron ore, holdings of United States Steel Corporation, 129 ; value, 129. Joint Traffic case, 178. Jones and Laughlin Steel Company, 124. Kansas City Live Stock Exchange, 177. Kansas, laws against combination, 193. Kelsey, F. W., referred to, 70, 267. Kentucky, laws against combination, 192d, 193. Knickerbocker Ice Company, 86. Knox, referred to, 192d. Labor, combinations, illegal under Sherman act, 179 ; conditions, effect of concentration upon, 17 ; subdivision, 9. Lackawanna Steel Company, 124. La FoUette, E,. M., referred to, 236. Large and small steel companies, comparison of, 136, 139. Laughlin, J. L., referred to, 82, 98. Laws, concentration accelerated by, 71 ; effect of, on combination, 191 ; of states, against combination, 192d, 193 ; effect of, on forms of organ- ization, 60. Lead and zinc, waste in, 95. Leather, statistics, 51, 52, 53. Levy, Felix H., referred to, 11. Limited liability corporation, 21. Low, Seth, referred to, 266, 267, 268. Lumber and timber, statistics, 43, 44; industry, 154-160. MacRae, F. J., referred to, 119, 139. Madison, situation in reference to ice, 86. Maine, laws against combination, 193. Manufactured ice, statistics, 42, 44. Marine combinations, 223. Maryland, laws against combination, 192d. Massachusetts, fixing of prices, 256 ; laws against combination, 193 ; railroad commission, 234. Meat, output and price fixed, 63 ; packing industry, 150-154 ; capi- talization, 152 ; profits, 152 ; sta- tistics, 50, 51. Merger, 71. Michigan, laws against combination, 193 ; water powers, 163. Michigan Salt Association, 65, 101- 103. Minnesota, laws against combina- tion, 193. Mississippi, laws against combina- tion, 192d, 193. Missouri, laws against combination, 193. Montana, laws against combination, 192d; water powers, 162. National Citizens' League for the Promotion of a Sound Banking System, 276. National Packing Company, 151. Natural gas, waste of, 94. Natural resources, conservation of, 262 ; wastes of through competi- tion, 90. Nebraska, laws against combination, 193. Needles, pins, hooks, and eyes, sta- tistics, 66, 57. Nettleton, A. B., referred to, 97. New Departure Manufacturing Com- pany, 189. New Jersey, corporation laws, 70. Newlands, F. G., referred to, 266, 267, 268. New Mexico, laws against combina- tion, 193. New York Central Railway, 192c. 296 INDEX New York, fixing of prices, 256 ; general corporation act, 21 ; laws against combination, 193. New York, New Haven, and Hartford Railway, 191. Niagara Falls, water power develop- ment, 163. Nobel Dynamite Trust Company, 205. North Carolina, laws against com- bination, 192d, 193 ; water powers, 163. North Dakota, laws against combina- tion, 192d, 193 ; water powers, 165. Northern Pacific Railway Company, 157. Northern Securities Company, 180. Northwestern Railway Company, 192c. Ohio, laws against combination, 193. Oil producers' association, 80. Oklahoma, laws against combina- tion, 193. Oregon Short Line, 187. Oregon, water powers, 165. Organization, forms of, 60 ; influence of statute law upon, 60. Overbuilding, a result of competi- tion, 17. Overcapitalization, 28 ; American Sugar Refining Company, 149; American Tobacco Company, 142 ; evils of, 30 ; United States Steel Corporation, 28, 29, 115; United States Shipbuilding Company, 29. Overproduction, a result of compe- tition, 26. Pacific Gas and Electric Company, 163. Paper and wood pulp, statistics, 45. Patent control of, a factor favoring concentration, 24 ; monopoly, 268 ; protected products, 34. Pennsylvania Railroad Company, referred to, 187, 192c. Pens and pencils, statistics, 58. Perkins, George W., referred to, 266, 268. Petroleum, statistics, 40. Pittsburg Coal Company, 93. Pools, 68, 103. Potash industry, in Germany, 218. Preferred industrials, statistics, 30. Prices, agreements, 81 ; ironandsteel, 133 ; labor, 86 ; professional men, 86; commission control of, 78, 260, 261 ; discriminations. Stand- ard Oil Company, 109 ; effect of conservation on, 263 ; effect of formation of United States Steel Corporation on, 134 ; effect of watered stock on, 30, 31 ; excessive, limit to, 84 ; failure of competition to regulate, 78 ; fall of, a result of competition, 26 ; fixed by corpora- tions, 78 ; fixing of, in Massachu- setts and New York, 256 ; main- tenance of, 62 ; irregularity in, a result of competition, 27 ; monop- oly, law of, 85 ; monopoly, Stand- ard Oil Company, 107 ; public utilities do not compete in, 78 ; regulation of, 255 ; regulation of, in potash industry in Germany, 218 ; timber, 159 ; trusts do not compete in, 79 ; water powers, 164. Printing and publishing, statistics, 46, 46. Promoters, profits of, 27. Protective tariff, a cause of concen- tration, 21, 25. Pryor, Roger A., referred to, 74, 75. Public utilities, 32 ; and monopoly, 32 ; commission control, 233 ; controlled by water power inter- ests, 164 ; do not compete in price, 78 ; effect of competition on, 32 ; great producing corporations de- clared to be, 249. Pure food laws, 77, 244 ; administered by commission, 245 ; effect of, on quality, 77. Pure Oil Company, 106. Quality, competition in, 72 ; effect of pure food laws on, 77 ; failure of competition to regulate, 76. Railroad Commission, 234, 235, 236. Railroad Securities Commission Re- port, 230, 265. Railways, beginning of, in United States, 5 ; discriminations, 106 ; effect of development upon compe- tition, 65 ; extension of, 5 ; pools, 65 ; violation of laws, 98. Rebates, 22, 24 ; a cause of concen- tration, 24, 25 ; American Sugar Refining Company, 150 ; Standard Oa Company, 107. Regrating, 167. INDEX 297 Regulation, and socialism, 242, 262 ; objeotions to, 270 ; of output, a cause of concentration, 26 ; of output in Germany, 218 ; of prices, 255; of prices in Germany, 218; of production, an advantage of concentration, 15 ; only protection for the public, 261 ; resistance to, 242. Republic Iron and Steel Company, 126. Retail trade, decline of competition in, 83 ; situation in England, 204. Salesmen, expense of, 88 ; number reduced by large scale production, 14. Salt, statistics, 41, 43. Selling agencies, 67, 79, 80, 91 ; ille- gal under Sherman Law, 179 ; in France, 221. Sherman antitrust law, 174-192d ; amendments, 266 ; exchange of information under ban, 61 ; fruit growers' associations in violation, 67 ; holding corporations now be- ing attacked under, 70 ; prosecu- tion of lumber associations under, 64 ; prosecution of produce ex- changes under, 64 ; text, 279. Shipbuilding, statistics, 39. Silk manufacture, statistics, 56. Skinner, D. E., referred to, 95. Slaughter and meat packing, statis- tics, 60, 51 ; see Meat. Smith, S. Morgan, Company, 163. South Carolina, laws against com- bination, 192d, 193 ; water powers, 163. South Dakota, laws against combina- tion, 192d, 193. Southern Pacific Company, 157, 187. Southern Power Company, 163. Southern Wholesale Grocers' Asso- ciation, 64, 189. Specialization, 10, 135. Spreckles Company, 148. Standardisation of articles, 33, 74. Standard Oil Company, 104-110; capitalization, 105 ; common stock, 29 ; control of pipe lines, 106, 107 ; discriminations of railways in favor, 106; dissolution, 70, 182, 192; evils, 110 ; example of holding cor- poration, 70; foreign trade, 15; investigating departments, 13 ; or- ganization, 104 ; prices at home and abroad, 22; profits, 85, 109; scope of operations, 105 ; unfair practices, 23, 110. Standard Oil Trust of Ohio, 174. Starch, statistics, 48, 49. Steamship lines, agreements, 98 ; combinations, 223. Stock manipulation, 31 ; American Tobacco Company, 142 ; Standard Oil Company, 105 ; United States Steel Corporation, 117. Stone & Webster Company, 163. Sulphiu', waste of, 95. Tariff, effect on combination in England, 205 ; in Germany, 217 ; in United States, 21. TelJuride Power Company, 163. Tennessee, laws against combina- tion, 192d, 163. Texas, laws against combination, 192d, 193. Timber, supply, 154 ; waste, 95 ; see Lumber. Tobacco, situation in England, 204 ; statistics, 49, 50. Trade commissions, 248-266, 282- 289, 292. Traders' Live Stock Exchange, 177. Traer, G. W., referred to, 92. Trans-Missouri case, 178. Transportation, control by Standard Oil Company, 106, 107 ; control by United States Steel Corporation, 134 ; development, 4 ; effect on concentration, 7. Trusts, 68, 69 ; do not compete in price, 79 ; early group, 33 ; num- ber, 35. Unfair practices, American Sugar Refining Company, 149 ; American Tobacco Company, 143-147 ; Gen- eral Electric Company, 188 ; ille- gal under Sherman law, 179 ; pro- hibition of, 225, 252; Standard Oil Company, 110; United Shoe Machinery Company, 186. Union Pacific Merger, 187. United Alkali Company, 205. United Metals Selling Company, 79. United Shoe Machinery Company, attacked under Sherman law, 189 ; control of patents by, 24; unfair practices of, 189. 298 INDEX United States Shipbuilding Company, 29. United States Steel Corporation, 10, 12, 111-140; attacked under Sherman law, 191 ; capacity and resources, 115; companies consoli- dated to form, 1 14 ; control of establishments by, 35 ; earnings, 117 ; effect of on foreign trade, 19 ; efficiency of capital, 16 ; elimination of competition, 26 ; evils, 140 ; example of holding corporation, 70 ; foreign trade, 15 ; organization, 111 ; overcapitaliza- tion, 28, 29, 115; practices, 132; prices at home and abroad, 22 ; profits put back into business, 84 ; watering of stock, 117. United States Steel Export Com- pany, 120. Untermeyer, Samuel, referred to, 83, 95, 98, 99, 268. Urdahl, T. K., referred to, 207. Utah, laws against combination, 192d, 193. Vinje, A. J., refeired to, 250. Vinson, Taylor, referred to, 99. Von Halle, referred to, 18. Walker, A. F., referred to, 99, 100. Washington, laws against combina- tion, 192d ; water powers, 162, 163. Water powers, 160-166 ; distribu- tion and amount, 160 ; in United States, 164 ; public control of, 164 ; traffic, 6 ; elimination of, 241. Waters-Pierce Company, 183. Western Union Telegraph Company, 187, 192a-192c. Westinghouse Company, 24, 39. Weyerhaeuser Timber Company, 157. Whisky, combination, reduction of salesmen, 14 ; decisions under Sherman law, 176 ; overbuilding, 17, 27. Wickersham, G. W., referred to, 192d, 248, 249, 262, 267. Wilson, President Woodrow, referred to, 188, 282-283. Wisconsin, commission control in, 236 ; laws in reference to conser- vation, 263 ; laws in reference to combination, 193 ; railroad com- mission, 236; water powers of, 165. Wyoming, laws against combination, 192d; water powers of, 165. Printed in the United States of America. »