The control of trusts; an argument in favor of curbing the power of monopoly by a natural method

Preface

The purpose of this little book is a modest one. It does not attempt to duplicate work which has been well done by others. -It contains no history of trusts and no description of the forms that they are now taking. It refers the reader to the works of Professors Jenks, Ely and Von Halle, and to the reports of the Industrial Commission, for facts concerning these consolidations and confines itself to the one object of advocating a certain definite policy in dealing with them. It is the policy that relies wholly on competition as the regulator of prices and wages and as the general protector of the interests of the public. It welcomes centralization, but aims to destroy monopoly, and to do this by keeping the field open to all independent producers who may choose to enter it. By this plan a man who builds a mill and puts on the market goods such as a trust is making must take all the chances that fair competition entails ; but he will be shielded from certain predatory and vi PREFACE

unfair attacks, in which size gives to the consolidation a decisive advantage. It is competition, real or potential, that now partially protects the public and makes the present situation endurable. If prices are raised beyond a certain level, new mills are built; and a wholesome respect for the influence of these mills acts in advance of their existence to hold prices in check. It is possible, as this book maintains, to give greater efficiency to this regulator. If this is thoroughly done, the menacing corporations will become servants of the public; and their great power will serve to secure for America cheap production, increased exportation, and commercial and financial dominance among nations. It will tend to make wages rise, to increase the savings of laborers and to afford an enlarged field for the investment of such accumulations. It will tend also to give steadiness to the movement of business and to diminish the violence of commercial crises. In the view that is here advanced, political democracy depends for success largely on the solution of industrial problems ; and a condition that shall create many small fortunes, besides a few gigantic ones, will produce the personal material of which a democratic state needs to be made. The demos will

PREFACE Vii

then not be an empty-handed and hungry proletariat, but a body of conservative and intelligent citizens.

Even the argumentative part of this book is brief, and aims rather to call attention to the plan that it advocates than to discuss it in any exhaustive way. It is the author's belief that circumstances will, in any case, force us to adopt a line of policy which is either identical with this one or akin to it, and that it is necessary only to win public attention for the plan here suggested, in order that costly experiments and more costly delays may be avoided ; for it is the country which shall early get the benefits and avoid the dangers that trusts bring with them which will attain a place of leadership.

The book is composed mainly of articles which have appeared in the Political Science Quarterly, the Atlantic Monthly and the Independent. These articles are here reprinted, in whole or in part, with only such amplification as is necessary in order to bring them into a connected series. If the logical sequence is not at all points exactly what it would have been if the book had been written de novo, the reader may, perhaps, excuse the fact in view of the origin of the work. The writer desires to express his thanks to the editors of the several viii PREFACE

periodicals for the permission which they have kindly given to use the articles, and to Mr. Arthur M. Day, Instructor in Political Economy in Columbia University, for very valuable aid rendered in connection with the revising of the proof.

Columbia University, New York.

CHAPTER I The People and the Problem PAGE

How views concerning trusts have changed. The necessity for distinguishing between capital as such, centralization, and monopoly. The possibility of securing centralization without monopoly, and the outlook that this possibility presents. The power of potential competition, the hindrances that interfere with the perfect working of it, and the possibility of removing such hindrances .... i

CHAPTER II Early Experlments and Present Facts

The destruction of trusts undertaken in ignorance of their nature and working ; the expectation that they will continue. Their menacing actions. Internal weaknesses and the effect of removing them. The investor as a party needing protection. Consumers and laborers as partially protected by potential competition. Three unfair weapons used by the trusts against its rivals and the possibility of taking away these weapons . . 17

Chapter III

Possible measures to be tested by a rule of exclusion. The total abolition of many protective duties. The dread of this measure. Reductions of duties which are

CONTENTS called for without reference to the problem of trusts. The reason for taking independent producers into consideration. The trust as a possible ally in the effort to reduce duties. The limit of wise reductions and the necessity for controlling monopolies as a means of securing them. The condition in which manufacturing companies will favor reciprocity treaties. The limiting of the capital of trusts, the forcible division of such corporations, and the regulating of prices by law all impracticable and undesirable 36

Chapter IV

Investors first to be protected, then consumers, laborers, and farmers. Independent producers the protectors of the three latter classes. The need of regulating the charges of railroads. Three predatory actions of trusts and the difficulty of suppressing them by statutes. The greater efficiency of the common law. The true test of a monopoly and the aid which statutes may afford in the applying of it. Competition now repressed by monopolistic power ; the necessity of precluding this action of the monopoly by means of the common law aided by statutes $6

Conclusion

Summary of the policy advocated. The results to be hoped for : predominance in international commerce, collective prosperity, harmony among classes, and industrial progress. The effect on progress a decisive test of an economic policy. Gains from consolidation not perverted into monopoly, contrasted with the effects of (i) partial monopoly and (2) state socialism . .81

Chapter I

American industry has recently gone through a rapid and startHng evolution. Consolidations of capital, which look like monopolies, have come, apparently to stay. Just as we were beginning to understand an economic system in which competition ruled, the system transformed itself into one which is seemingly based on the repression of the competitive process.

The feeling of the people concerning this change has gone through two distinct phases. There was an early period of alarm, as the seeming monopolies developed. This was followed by a period of reassurance, as the fact appeared that some influence was holding these monopolies in check and that they could not do their worst. Perceiving that they neither raised prices nor depressed wages as they would have done if their mastery of the situation had been secure the people assumed toward them a more tolerant attitude. Since then views have become divergent and different classes of the people have developed unlike opinions. The so-called trusts have a few pronounced friends and many pronounced enemies, while in the background, and constituting the jury before which the case is to be tried, is the undecided majority of the people. By their acts the trusts are furnishing evidence and are revealing their real nature; and they must accept, in the end, the verdict which the public will pronounce. The nation will have its way when it knows what it wants.

In September, 1899, there was held in Chicago a conference on the subject of trusts. The members of it represented many sections and many interests, and the addresses that were delivered may be taken as revealing the position of the American people on the question of monopolies. In advance of the fuller expression of the popular feeling that will ultimately be given, this conference, perhaps, affords the best means of perceiving at a glance how the people of this country think and feel, and how they will probably act, in relation to those vast corporations which are acquiring a certain monopolistic power.

The most encouraging fact that has come to light is the existence of a limitless amount of moral earnestness — a feeling of antagonism to real monopoly — that is uniting people, particularly in the South and West, in a crusade which has a remote resemblance to the anti-slavery movement. People of this way of thinking and feeling do not usually make a deep analysis of the situation. As they do not fully understand the commercial evolution that is going on in the world, they are likely, in their opposition to the monopolistic action of trusts, to undervalue their productive power. The statutes which the people will favor, and will perhaps continue to enact, will be sweeping prohibitions, with plentiful penalties attached to them. They will be laws that cannot be enforced, and that would do harm if they were enforced. And yet, in a way, what this section of the people has to contribute toward the solution of the trust problem is worth more than is anything which other sections can contribute. A zeal that is not according to knowledge now will be pretty certain to be according to it before the struggle is over. It will, at least, begin to do something ; and if what it does proves to be not the right thing, it will do something else. In the end it will solve the problem ; while, on the other hand, a knowledge that is not backed by zeal will do nothing either at the outset or afterward.

Fortunately, not all of the zeal is confined to the South and the West. Agriculture develops the most powerful opposition to trusts ; but all through the country capital that is not massed in colossal holdings is opposed to them. The country as a whole has little use for real monopoly, or for political parties that entangle themselves with monopolies. Success in elections is to be had only under the old banner of economic freedom.

There are two small classes of people who are predisposed to favor trusts, even though they shall prove to be real monopolies. These are, first, the revolutionary classes — socialists, anarchists, communists and the Hke ; and, secondly, the workmen in a few highly organized trades, who have some inclination to favor those trusts which will exact high prices from the purchasing public and share with their workmen the gains thus realized. Experience seems to show that a trust which has real monopolistic power may form an alliance with its workmen, or with important classes of its workmen, against the public. In that case the laborers who benefit by the high prices thus secured are attached to the trust, though it is by a conditional and precarious interest.

What is the attitude of the great body of the people .i' Has it not taken any decided attitude .f* Does it not know what it thinks and wishes } In so far as the details of law making are concerned, it certainly does not. It is in the inquirer's position ; and the question that it is hoping to have answered is whether it should try to frame statutes that will crush the trusts or should content itself with trying to regulate them, or even with letting them alone. On the more fundamental issue, as I venture to afhrm, the mind of the people is made up. There is one thing that it wants and will have ; and there is another thing that it fears, hates and will repress. What it wants is productive efficiency. The people will have capital so organized that it can compete successfully with any capital in the world. What they will not have is capital so endowed with special and abnormal powers that it can do a plundering work, as well as a productive one.

There are certain distinctions which the people almost never make with sufficient clearness; and these they must at some time make, if their moral earnestness is, in a practical way, to be good for much. There are three things, not at all identical, which the people, in their thought and speech, jumble together, and even attack without any discrimination. They are, first, capital as such ; secondly, centralization ; and, thirdly, monopoly. When a general attack is pending, the word that is used to cover them all, in blanket fashion, is " monopoly." Whenever the anti-monopoly movement takes the shape of an assault on all bondholders or stockholders, it is clear that the first discrimination has not been made ; for thus capital, as such, is confounded with capital endowed with pernicious powers.

This, fortunately, was not the attitude of those representatives of the people who were recently gathered at the Chicago conference, and it is not the attitude of the people in general. There are persons who have a quarrel with bondholders and stockholders, as such, because they are opposed to the men who have something. They are, however, in a very small minority. It is only in the heat of a contest that an attack of monopoly becomes, to any important extent, an actual attack on capital.

An attack on monopoly easily becomes an attack on centralization. In this connection clear discrimination is rare. To many people the massing of capital seems necessarily to make it monopolistic. If it does this, then there is no distinction in fact between highly centralized capital and monopoly. We cannot have capital in very big masses without being " in the grip of an octopus " or " enslaved," as some of our friends from the West and South think that we already are.

There is one great question of fact pending :

Does centralization carried to great lengths necessarily involve monopoly ? If so, those people are perfectly right who jumble the two together and attack them both with all the energy of which they are capable. Monopoly is unendurable. If we cannot exterminate it or reduce it to harmless dimensions, we shall begin even to listen to the seductions of the socialists. We shall think better than we ever thought before of the plan of letting the trusts do their utmost, to the end that, as soon as a vast network of them shall have full possession of the industrial field, we shall seize their entire capital and use it for the benefit of the people.

Is this the only alternative ? It is so if centralization and monopoly are practically the same thing, and if the centralizing tendency cannot be stopped. If they are not the same, then we may have centralization without having monopoly. We may get the good that there is in the trust and cast away the evil. We may save all the productive energy that vast capitals ensure, and make ourselves victorious competitors in the struggle for the traffic of the world. We may enable ourselves to undersell eveiy one else, not because our workmen will take low wages, but because, thanks to our big shops and our automatic machines, they produce more than any other workmen. If America is, as it seems to be, the natural home of the trust, and if we can draw the fangs of the monster and tame him to good uses, we can get all that it is possible to get out of material civilization. We can be commercially dominant and the leaders in economic progress. We can win the prizes that leadership brings — and there is no measuring the value of those prizes ; for wealth honestly gained and honestly dispersed among the people means a high level of life, intellectual and moral, as well as physical. Momentous beyond the power of language to measure is the question whether centralization may be allowed to go to the utmost lengths without fastening on the people the intolerable burden of monopoly. Answer this question in one way, and you will probably be a socialist; and certainly you ought to be one. Answer it in another way, and you will be an " individualist," though that is an inexact term for indicating the development for which you hope. In the latter case, you will believe in freedom of individual action, in competition, in the right of contract— in short, in the things that have made our civilization what it is. In either case, you will keep your optimism ; for you will be sure that, in the end, we shall get out of our troubles and dangers. But if you think that the only thing that can save us is the seizing of all capital by the state, then the economic millennium, the vision of which will cheer you in the dark days before it can be realized, will be a time of fraternal sharing of everything, of the keeping of a common purse for humanity and of a forced equality that will leave little chance for liberty. If, on the other hand, you think that competition and private initiative can save us, if only they have a fair trial, what you will see before you is an endless era of progress insured by old and familiar forces. You will see the wealth-creating power of the social organism always growing, wages always rising, wealth often massed, indeed, in great corporate capitals, but also divided, in its ownership, into a myriad of holdings scattered widely among the people. You will see workers acquiring capital,

THE PEOPLE AND THE PROBLEM II

while still earning wages in the mill ; and, as an outcome not so remote as a Philistine view would make it, you may see production moving so steadily that the bonds of great corporations, and even the stocks, may become common and safe forms of investment of workmen's savings. You will see them used so freely for this purpose that the old and sharp line of demarcation between the capitalist class and the laboring class will be blurred and at many points obliterated. The men who work will have a proprietary interest in the tools of labor and a share in what the tools produce. The socialist is not the only man who can have beatific visions, for the picture of a manly development for the laborer — of a perpetual rise in wages and increase in savings, in home owning, in personal independence, and in culture — is presented to every one who sees what competition is capable of doing. Not, indeed, without very intelligent action on the part of the government, and not without experimenting and waiting, will all this come. But it will come ultimately, provided only that, in spite of consolidations, competition shall continue to work.

The practical thing to be decided, therefore, is what a state can do to open the rift between centralization and monopoly — to enable the mills to produce and to sell as cheaply as the biggest establishments can, but to stop the extortion that trusts practise and ward off the greater extortion that they threaten to practice.

What is the kind of legislation that a government needs to enact, if it will pluck the flower of commercial success from a very thorny and dangerous bush ? The key to the solution of this problem is afforded by the natural forces that are already curbing the great corporations. We have only to act according to nature. We must do what a skilful physician does when he wishes his patient to get well : we must remove the obstructions that prevent nature from doing its healing work. Great corporations would never be monopolies if competition were not abnormally fettered — if individual action had a fair field and no favor.

Certain fundamental facts are now well known, and we encounter them everywhere in the discussion of the problem of trusts. When prices are unduly high, owing to the grasping policy of some trust, what happens? New competition usually appears in the field. Capital is seeking outlets, but it has become hard to find them. Readily, and sometimes almost recklessly, does it build new mills and begins to compete with trusts, when these consolidated companies do not know enough to proceed on a conservative plan. Let any combination of producers raise the prices beyond a certain limit, and it will encounter this difficulty. The new mills that will spring into existence will break down prices ; and the fear of these new mills, without their actual coming, is often enough to keep prices from rising to an extortionate height. The mill that has never been built is already a power in the market; for if it surely will be built under certain conditions, the effect of this certainty is to keep prices down.

The real and serious difficulty is the fact that the curbing influence of this latent competition cannot always be depended on to prevent a real and considerable extortion.

There is often a considerable range within which trusts can raise prices without calling potential competition into positive activity. The possible competitor does not, by any means, become a real one as promptly as he should. The trouble is, that he has not a fair chance for his life when he actually appears on the scene. He is in very great danger of being crushed by the trust, by virtue of certain abnormal things that the trust is now allowed to do. If the great company could not do these abnormal things, the new competitor would be safe, and he would appear promptly whenever profits should become high enough to call for him. The possibility of his coming would hold prices at a natural level. The trust would benefit the people by its economies and would not trouble them by its exactions.

Potential competition is certainly a real force. Experience has proved this a hundred times, in the short period within which modern trusts have existed. It is, however, a force that can be easily obstructed. Capital is proverbially timid; yet here is a case where it has to be bold, if it is to do what the public needs to have it do. Our system of laws now permits overgrown capitals to bully small ones. The big company has a right to beat the little one in an honest race for cheapness in making and selling goods ; but it has no right to foul its competitor and disable it by an underhanded blow — and this is exactly what great trusts are doing. Where a state needs to secure delicate action by a highly sensitive agent, its clumsy laws and clumsier policing allow that agent to receive rough handling when it comes into the field or to be so terrorized in advance that it often does not come at all.

The fact is that a trust is allowed to do things which are out of harmony with the spirit of the law — things which it could not do if the law were accomplishing even the single task that a narrow Spencerian policy demands of it, namely, the protection of property. There are actions that have in them the essence of robbery, though they lie altogether outside of the scope of statutes heretofore enacted. It is not so clear that they are outside of the scope l6 THE CONTROL OF TRUSTS

of common law; but they are not actually suppressed by it. We shall see what these actions are and what policy they call for. We shall see how, by preventing such acts, we can make the trust legitimate and safely avail ourselves of its vast productive power. We can use insight and perceive how nature is already working. We can try the right experiment, and try it early. We can liberate the competitive forces that, even now, trammelled as they are, make our state a tolerable one, and enable them to develop their full influence. The monsters that alarm us are tied by a half visible leash that we did not consciously put on them ; but it is one that we can strengthen to the point at which it will hold and tame them, making them serve us. Success in the fierce rivalries into which nations are now entering will come to those which utilize, for all that it is worth, the power which massed capital gives, without surrendering their economic freedom.

Chapter II

This country is the especial home of trusts in their highly developed form, — that, namely, of the great corporation which has absorbed many smaller ones ; and here, therefore, has been experienced, in the largest degree, the revolutionary changes which their presence is making. If the carboniferous age were to return and the earth were to repeople itself with dinosaurs, the change that would be made in animal life would scarcely seem greater than that which has been made in business life by these monster-like corporations. Their size is, however, one of the few things about them of which we can be absolutely sure. Whether in the long run they will prove to be benevolent or malevolent we cannot know more positively than we can know whether the extinct saurians were gentle or fierce. In both cases the looks imply a degree of fierceness. But c 17 l8 THE CONTROL OF TRUSTS

we do not know definitely whether the trusts will permanently raise prices or lower them, or whether they will permanently lower wages or raise them. We do not know whether they will in the end impair investments or make them more secure. It is a singular fact that, in the face of all of these uncertainties about the character of trusts, there is one type of law which the people of many states have been able to agree upon, and that is the kind of law that aims to crush them. We propose to exterminate the monsters on uncertainties. The Montana verdict, that a man deserved hanging for shooting another by accident, inasmuch as " in such matters a man should know his own mind," seems to be applicable here; for a country should know its own mind before destroying an institution.

More general than the opinion that the trusts ought to be crushed is the conviction that they will not down. They are here to stay, and we know it. An explanation of the light-hearted way in which we put upon the statute books laws that aim to crush them is found in the fact that such laws do their principal work before they are enacted, when they are nothing but planks in political platforms. In the present temper of the public mind severe measures are at least good for the party that promises them ; and, if by an experiment or two it is shown that they are not workable, there is the less danger in continuing to enact them into laws. In general, political platforms have of late required prohibitive statutes, with pains and penalties attached to them ; and, though such statutes have frequently been enacted, so far as large results are concerned, that has been the end of it.

Unless we can "fool all of the people all the time," we shall be forced sooner or later to , change this policy ; for the people will have laws that not only sound well, but work well. In order to obtain them, the first step is to get a more thorough knowledge of the facts concerning trusts and their operations. We certainly need to know more than that in its outward appearance, a trust resembles an octopus.

Not baseless, certainly, are the accusations that are universally brought against the trusts for their conduct toward their competitors. Often enough is - their policy predatory. They do not literally kill men, but to a large extent they do kill competition. They often make property in the shape of rival plants very insecure. Indeed, one of the pressing questions is, whether the independent producers who have been crowded out of the field are unfortunate sufferers from natural progress, or whether they are the victims of a wrong against which society should protect them. Mere centralization means a crushing out of competitors by a process that, however hard it is for them, is in a way legitimate; for it is an incident of the process of the survival of the fittest. The large and economical establishment survives, and society gets a benefit from the fact. But centralization that goes to the length of quasi-monopoly takes a different color, for it may exterminate competitors in ways that do not benefit society. The employers who are forced out of the field are not then vicariously sacrificed for the good of the public as a whole. On the contrary, the sacrifice of them works exceedingly ill for the public; and it must be stopped, if society is to avoid graver evils than have recently come upon it from any economic cause. How much power does great size give to one of these corporations ? Can it, if it will, have the market practically to itself? Can it charge what it will for its goods ? Can it shut up as many of its own mills and discharge as many of its own laborers as it pleases ? Is there anything to prevent it from acting as a genuine monopoly ? If there is not, the situation will soon be intolerable, so that no treatment to which the state may be forced to resort, in order to rid itself of the trust, will be unjustifiable.

I

There are two important facts to be noted before we can conclude that the trusts actually have, in a dangerous degree, the power of monopoly. The first is a weakness in the organization of the trusts themselves, and the second is the existence of a powerful restraining force in their environment. Both of these serve to curtail their monopolistic power. It might seem that, if this is so, the internal weakness of the trust ought to be fostered by the public for its own protection. May we not say that whatever weakens our enemy strengthens us ? Should not a policy that would make the trust a more perfect thing, in its internal arrangements, be the last one to be adopted ? Curiously enough, this is not the case. We can even help to protect the public by insuring to the trust a sounder organization. Although, as competitors, trusts are now somewhat handicapped by internal weakness, there is a method of removing that weakness which will not imperil the interests of the public, but will contribute in a certain positive way toward protecting them.