WHAT ATTITUDE SHOULD THE GOVERNMENT

ASSUME TOWARD THE TRUSTS?

EVERY generation has problems peculiar to itself for settlement. This fact might well be said to be the test of progress. If a people were dormant, no new questions of any moment would arise. It is only when new policies are entered upon, calling for a determination of conduct toward that policy, that the most serious reflection, followed by action, is demanded and commanded. Judging from discussions, both by the press and by legislative assemblies, the trust problem must be conceded as one of those grave questions with which we must cope.

The principle of combination is not a new one, and the main difference between the combination of today and that of a hundred years ago, aside from the mere matter of form, is but a difference of degree. The industrial surroundings, however, in which each existed are quite diverse. A hundred years ago there were no elaborate systems of railroads, no telegraph systems, no telephone lines, but all communications were through primitive methods. As a result of such conditions the effect of any combination, for good or for evil, was necessarily limited to a very small market area. The combination of today-or the modern "trust," as it is popularly called-possesses a more farreaching influence. With the improved means of communication that have been developed in the United States, combinations have been effected uniting plants as far distant as is the Atlantic from the Pacific. For instance, the American Sugar Refining Co. owns plants, that once were independent, in Philadelphia on the east and San Francisco on the west. Under such conditions the effect of a combination in a single industry may extend over the entire area of the United States, and in some cases even beyond the seas.

It is evident that, through a more or less gradual transition, we are confronted with a new problem, which has of recent years been agitated with great vigor, seemingly for the purpose of

ence.

making political capital, though this may be a mistaken inferState and national legislation has been enacted, courts have rendered decisions, further combination has, in some instances, been enjoined; but from all appearances no permanent solution has been adduced.

Much as has been said, both pro and con, upon this question, one need not apologize for attempting something new, or even a repetition of old arguments in a new way; for should no influence be manifested upon others, the author himself will have gained much that may materially aid him in taking action. Realizing the difficulty of intelligently discussing the action that has been taken on the trust problem, and much more in attempting an offer of suggestions for a solution, without understanding the real nature of that problem, I propose to discuss the three following divisions:

I. The true nature of the trust problem, so far as it applies to industrial combinations, exclusive of railroad mergers.

2. The action that has been taken toward the movement by legislatures and courts.

3. The attitude that should be assumed toward the concentration of capital in order to preserve the benefits of that movement, at the same time eliminating, as far as possible, the dangers connected therewith.

Now, as to the first, what is the true nature of the trust problem; that is, is the question, How shall we destroy or prevent combination and concentration? or is it, How shall we utilize and control, if need be, the consolidated units? To give an answer, one must consider the movement itself and determine whether it is the resultant of natural economic forces, or merely an artificial device for reaping great returns by the capitalist at the expense of the public, and endangering the existence of free government.

While it is true that, in the recent craze for combination, the movement has been characterized somewhat by a spirit of speculation, yet the general movement has been the result of economic forces. Everyone recognizes that the change from domestic manufacture to the factory system was an economic one, but some are inclined to doubt as to the more recent consolidation

of these already large units of production. It is not within the scope of this thesis to enter into a detailed process of reasoning to show that even this recent trust movement is economic in its nature. We have, however, ample testimony to that effect from men most qualified to speak. Says John Bates Clark, the dean of American economists, in his Modern Distributive Process:* "Combinations have their root in the nature of social industry, and are normal in their origin, their development, and their practical working." Again in The Control of Trusts2 he says: "American industry has gone through a rapid and startling evolution." Says John A. Hobson, the noted London economist, in The Evolution of Modern Capitalism:3 "The trust is the logical culmination of the operation of economic forces." Judge Peter S. Grosscup, of the United States Circuit Court of Appeals for the seventh circuit, in an address before the University of Nebraska College of Law, last fall, after characterizing the movement as the "instinct of the times," asks: "Can a development so persistent be entirely unnatural? Can we successfully repeal what appears to be the fixed law of economics?" And President Roosevelt, in an address before the Merchants' and Manufacturers' Association of Milwaukee, April 3 last, said: "We recognize them [the big corporations] as being in many cases efficient economic instruments, the result of an inevitable process of economic evolution." As to the speculative nature of the movement, J. W. Jenks, of Cornell University, says in The Trust Problem: "The worst period of speculative organization has, in all probability, passed;" which conclusion is also reached by the United States Industrial Commission in its final report. We may conclude, then, in the words of President Hadley, of Yale: "So far as the present tendency toward industrial combination is a financial movement for the sake of selling securities, it is likely to be short-lived. So far as it is an industrial movement to secure economy of operation and commercial policy, it is likely to be permanent."

116

Edition 1888, p. 11. 2 Edition 1901, p. I.

3 Edition 1899, p. 126.

4 Edition 1903, p. 95.

5 Vol. XIX, p. 600.

"Education of American Citizen, p. 50.

Not only is the movement toward combination the work of natural economic forces, but it possesses certain positive advantages for society, which may be said to be either actual or potential. Without attempting to discriminate between these two classes of benefits, suffice it to say that, if they are actual, then we are already enjoying them, and if they are potential, there must be some way to secure them for the use of society. Some of these advantages are: (1) the opening of new markets; (2) the production of new inventions, resulting in better machinery; (3) the employment of minor processes in connection with the main process; (4) increased efficiency in management; (5) the utilization of waste product; (6) capacity to try new experiments; (7) the reduction in the cost of selling, especially when the reputation of any commodity depends upon the establishment of popular brands through advertising; (8) the saving of cross-freight rates; (9) the steadying of prices and the regulation of production to meet demand, which reduces the likelihood of panics; and (10) the bettering of the conditions of labor, by improved sanitary environment, shorter hours, higher wages, continuous employment, and by the facilitation of labor organizations.'

Great as these advantages may seem, there are manifest evils apparently connected with the movement. For instance, the large combinations, mainly through the enjoyment of freightrate discriminations, are able to crush out competition by local rate-cutting, and abnormally raise prices in other localities; they corrupt our courts and legislatures; they float their securities upon the market, thereby causing great speculation; they overcapitalize their earning power, and thus rob the investor of his legitimate dividends.2

However, the greatest evil charged against the combinations

'HOBSON, Evolution of Modern Capitalism, p. 117; ELY, Monopolies and Trusts, p. 195; Report of Industrial Commission, Vol. XIX, pp. 608, 610-12, 614; BURTON, Crises and Depressions, p. 301; Le Rossignol, Monopolies, Past and Present, p. 233; GUNTON, Banker's Magazine, February, 1903; Census Report, Vol. VII, p. lxxxi.

2 Report of Industrial Commission, Vol. XIX, pp. 615, 616, 621; F. A. VANDERLIP, Banker's Magazine, November, 1902; J. R. COMMONS, Independent, May 1, 1902; JENKS, The Trust Problem, pp. 93, 106.

is their monopolistic power, enabling them arbitrarily to raise the prices of the finished product, or depress prices of the raw material, in either case exacting or obtaining an increased margin of profit. What is the cause of this monopolistic power? Does mere mass of capital produce it? What do the authorities say? Professor J. B. Clark, in The Control of Trusts,' says: "Great corporations would never be monopolies if competition were not abnormally fettered." Professor R. T. Ely, in Monopolies and Trusts, says: "No one has yet adduced an instance of an important monopoly based upon mere mass of capital, or upon mere combination without external aid." And again,3 he says one must "fail to discover any approximation whatever toward a proportion between mass of capital and the extent to which monopoly obtains, or the progress made in the direction of monopoly." The committee appointed to revise the Massachusetts corporation laws, reporting in January, 1903, of which F. J. Stimson, the legal adviser to the Industrial Comission was a member, says in its report:

Moreover, it is apprehended that the question of monopoly, or rather the abuse of large corporations, does not result necessarily from the size of the corporations engaged in business throughout the United States. . . . . In the opinion of the committee, the question of capitalization is not a contributing factor in the fight for monopoly.

Why is it, then, that the possession of vast aggregations of capital cannot give true monopoly power? So long as wealth exists throughout the community, just so long can capital be amassed to compete with other units of amassed capital. This possibility of creating competing units of capital is known as "potential" competition, and its effect, when not abnormally fettered, in restraining monopoly, is of no small value. But it is said that the combinations do "abnormally fetter" competition. The only way any combination can unduly fetter competition is by practicing what is known as "local rate-cutting;" that is, whenever a competitor springs into existence, the combination will sell in that community below cost and drive him to the wall. But this practice can be successfully carried on