Chapter 2

It is but a few months since public attention was directed to the subject of trusts; but, thanks to the widespread educational influence of the political campaign, at the present day the great proportion of the voters of the country have at least heard of the existence of trusts, and have probably some idea of their working and their effect upon the public at large. They have been pointed out as a great and growing evil; and few speakers or writers have ventured to defend them farther than to claim that their evil effects were exaggerated, and predict their early disappearance through natural causes; but while remedy after remedy has been suggested for the evil so generally acknowledged, none seems to have met with widespread and hearty approval, and practically the only effect thus far of the popular agitation has been to warn the trust makers and trust owners that the public is awakening to the results of their work and is likely to call them to account.

The truth is, as we shall see later, that it is a difficult matter to apply an effective remedy of any sort to the trusts by legislation, without running counter to many established precedents of law and custom, and without serious interference with what are generally regarded as inalienable rights. Yet we are making the attempt. Already legislative and congressional committees have made their tours of investigation, and bills have been introduced in the legislatures of many of the States, and in Congress, looking to the restriction or abolition of trust monopolies.

It is the wise surgeon, however, who, before he takes the knife to cut out a troublesome growth, carefully diagnoses its origin and cause, determines whether it is purely local, or whether it springs from the general state of the whole body, and whether it is the herald of an organic disease or merely the result of repressed energies or wrongly-trained organs. So we, in our treatment of the body politic, will do well to examine most carefully the actual nature of the diseases which we seek to cure, and discern, if we can, the causes which have brought them on and tend to perpetuate them. If we can discover these, we shall, perhaps, be able to cure permanently by removing the ultimate cause. At any rate, our remedies will be apt to reach the disease far more effectually than if they were sought out in a haphazard way.

The crudest thinker, at the first attempt to increase his knowledge of the general nature of trusts, discovers that the problem has a close connection with others which have long puzzled workers for the public good. Trusts ally themselves at once in his mind with monopolies, in whichever form he is most familiar with them, and are apt to be classed at once, without further consideration, as simply a new device for the oppression of the laborer by the capitalist. But the man of judicious and candid mind is not content with any such conclusion; he finds at once, indeed, that a trust is a combination to suppress competition among producers of manufactured goods, and he calls to mind the fact that other combinations to suppress competition exist in various other lines of industry. Surely when the governing motives are so similar, the proper remedies, if remedies are needed, cannot be greatly unlike. And though, taking the country as a whole, trusts have occupied more attention lately than any other form of monopoly, the problem of railroad monopoly is still all-absorbing in the West; in every city there is clamor against the burdens of taxation levied by gas, electric-light, street-railway, and kindred monopolies; while strikes in every industry testify to the strength of those who would shut out competition from the labor market. These and similar social and industrial problems are quite as important as the problem of trusts, and their solution is becoming every day more urgent and necessary. If we neglect them too long, or carelessly adopt some unsuitable or unjust remedy, who knows the price we may pay for our folly in blood and treasure?

The problem before us, then, as we see it from our present standpoint, is the problem of monopoly. What is it? Whence comes it? What are its effects? And, most important of all, what ought we to do about it? Surely questions whose correct answer is of such importance to the welfare of each person and to the very existence of society demand the careful consideration of every thinking man.

Let us then take up this problem and give it the fairest and most candid investigation possible. In order to do this, let us remember that _the truth_ is the object of our search, and that it will be necessary, if the conclusions from our investigation are to be of value, that we divest ourselves, so far as possible, of all preconceived opinions founded, perhaps unconsciously, on the statements or evidence of incompetent authorities, and also of all prejudices. Let us, in searching for facts and principles, examine with impartiality the evidence and arguments which each side presents, and judge with candor between them.

The author wishes to make an earnest personal request to the reader who is minded to follow the discussion through the following pages, that he will in good faith attempt to do this thing: that he will lay aside for the present his opinions already formed, as the author himself has conscientiously aimed to do while pursuing this investigation, and give a fair hearing to both sides of the question. A complicated machine can only be understood when it is viewed from different standpoints. So, here, in order to find the truth, we must examine trusts from the standpoint of the trust maker as well as from that of the consumer; and trade unions, from the standpoint of their members as well as from the ground of employers and of the public at large. We shall indeed meet much error by this method of study, but is it not proverbial that there are two sides to every question? It will be our task to study these opposing views and sift from them the truths for which we seek.

In taking up now the problem before us, let us adopt the true scientific method for its solution. We must first find out as fully as possible the actual facts with regard to monopolies of every sort and the competition which monopoly replaces. Next, by discussing and comparing the evidence obtained, we may be able to discover the natural laws by which competition and monopoly are controlled; and finally, with our knowledge of these, we will try to discover both the source of the evils which vex us and the proper methods for ameliorating, curing, or preventing them, whichever may be found possible.

Such is the outline of the investigation before us, which it may as well be said here could easily be extended and amplified to fill many volumes. The author has preferred to prepare the present volume without such amplification, believing that the busy men of affairs, to whom a practical knowledge of the subjects herein treated is most essential, have, as a rule, no leisure for the extended study which the volumes into which the present one might easily be expanded would require. He trusts, however, that brevity will not be found wholly incompatible with thoroughness; and that the fact that much which might have properly been included in the book is omitted, will not be taken as a necessary indication that the conclusions arrived at are without value.

II.

TRUSTS AND MONOPOLIES IN MANUFACTURING INDUSTRIES.

In common use the word "trust" is at present rather loosely used to denote any combination formed for the purpose of restricting or killing competition. Properly speaking, however, a trust is a combination to restrain competition among producers, formed by placing the various producing properties (mills, factories, etc.) in the hands of a board of trustees, who are empowered to direct the operations of production and sale, as if the properties were all under a single ownership and management.

The novel characteristic of the trust is not the fact that it is a monopoly, but that it is a monopoly formed by combining several competitors according to a new plan. The process of placing property in the hands of trustees is familiar to every business man. In the formation of a trust the different firms or companies who have been competing with each other in the production and sale of goods agree to place the management of all their several properties in the hands of a board of trustees. The powers of this board and its relation to the owners of the various properties are ingeniously devised to evade the common law, which declares that contracts in restraint of competition are against public policy, and illegal.

The first of the modern trusts was the Standard Oil Trust, which was a combination formed among several of the refiners of crude petroleum in the States of Pennsylvania and Ohio in the year 1869. The original combination grew out of the control of certain important patents connected with the process of refining. It pursued its course for a number of years without attracting much attention outside of the centre of its operations; but of late years so much has been published in regard to it that the very word "Standard" has come to be almost a synonym for monopoly. It is probable that certain branches of the iron and steel trade were the next to be combined by means of a trust, but as these were arrangements between private firms, not much information as to the time of their origin has reached the public. The second great trust to attract general public attention was the American Cotton Oil Trust, in which some of the same men who have so successfully engineered the Standard Oil combination are heavily interested. These two great trusts, the Cotton Oil and the Standard, have attracted widespread attention, and, to a certain extent, the public has become familiar with their organization and plan of operation; but popular feeling on the subject was not fully aroused until 1887, when the newspapers of the country made generally known the fact that the trust principle of combination was being rapidly adopted by the manufacturers of a large number of important lines of goods. The effect which these monopolies were believed to have upon the public welfare was pointed out by writers and speakers, and Congress and the State Legislatures were besought to investigate these combinations and seek to suppress them. Meanwhile it seems to be true that the popular agitation has had no effect in lessening the number of trusts, or checking their formation and growth; and they continue to increase and to gather their profits, while the public impotently wonders what it is going to do about it. Let us be careful, however, to make no assumption that the trust is injurious to the public at large. That is a matter which is before us for investigation.

It is safe to assume that the reader is somewhat familiar with the general charges which have been brought against the trusts; but even if this side of the story has not been heard, it is not unfair to look at them first from the standpoint of the men who make and manage them. In order to do this, suppose we select some particular trust which will serve as a type, and imagine that some frank, candid manufacturer, who is a member of this trust, comes before us to give an account of its formation and operations. This man comes, we suppose, not as an unwilling informant, or as one on trial. He is frank, honest, and plain-spoken. He talks as man to man, and gives us, not the specious argument of an eloquent pleader in defence of trusts, but just that view of his trust and its work that his own conscience impels him to take. Certainly, then, he deserves an impartial hearing.

A number of years ago the principal manufacturers of linseed oil in the United States formed an association. It was started largely for social ends, and was very successful. Business men are generally most interested in their own plans and operations; and those who are familiar with the same topics and have similar interests and purposes are apt to make agreeable companions for each other. We discussed many points connected with the management of our business at the meetings, and by interchanging with each other our views and experiences with different devices, methods of management, etc., we were able to get much valuable information, as well as social pleasure, from meeting one another.

Now within the past few years things have been going from bad to worse with the manufacturers of linseed oil. The long and short of it all was that the margin between the cost of the raw seed and running our mills, and what we could get for the oil cake and the linseed oil in the market, has grown exceedingly narrow. It's hard to tell just what has caused it. They say over-production; but what has caused the over-production? One thing that may have had something to do with it is the new mills they have been putting up in the Northwest. Many of the Eastern mills used to get large quantities of seed from Iowa; but they are building cities out there now, as well as raising flax-seed, and when they were booming some of those cities they would raise heavy bonuses in aid of new enterprises. Among these were some great linseed oil mills, which have loaded up the market pretty heavily of late years; so that not only has the price sagged down, but we have all had to work to get rid of our stocks. The firms which had the best mills and machinery, and were in a position to get their seed reasonably and put their goods on the market with least expense for transportation, etc., have been making a small profit over and above their expenses. But some of the works which had to bring their seed a long way, and which haven't quite as good machinery as can be had now, were in a bad way. There were some of the oldest houses in the trade among them, too, and with fine men at their head. It was too bad to have them go under. They tried to cut down expenses, but strikes and trouble with their men prevented their saving much in that way. Then there was one item of expense which they had to increase instead of cutting down: that was the cost of marketing. Competition was so fierce, that, in order to keep up their trade, they had to spend more on salaries of expensive salesmen, and in advertising and pushing their goods, than they would dream of ordinarily.

It seemed too bad to cut each other's throats in that way, for that was what it amounted to, and when the association met,--or what was left of it, for the business rivalries had grown so bitter that many of the former personal friendships between the members had become strained and one after the other had dropped out,--the situation was discussed by the few members who met together. It was discussed earnestly, too, by men who felt an interest in what they said, because unless some remedy could be devised, they had got to sit still and watch the savings of a lifetime slip through their fingers. One thing was very clear to all. Though competition was as sharp as any one could possibly wish, the public was not getting such a wonderful benefit after all. Prices were not so very much lower for oil, nor higher for seed. It was the selling expense which had run up to a ruinous figure; and on one point all the members were unanimous,--that if all the firms in the trade could only work together in harmony in marketing their goods, they could save enough in salesmen's salaries, etc., to make a great difference in the profit-and-loss account without affecting the selling prices in the market one penny.

Another very important matter, which we had to handle pretty tenderly in our discussions, was that of adulteration. I must confess that a good many firms in the trade, who used to be above any thing of the sort, have been marketing some goods in the past few years which were not exactly the "pure linseed oil" which they were labelled. It's a mean business--adulteration,--but not many of our customers ever test their purchases. The one thing they are apt to look at is price, for they are buying to sell again; and when rivals are selling a cheaper oil that seems just as good until it is laid on as the pure linseed that you are obliged to ask a higher price for, the temptation to meet them at their own game, rather than lose your old customers, is a very strong one. Certainly, when competition took this form, it hurt the public even more than it hurt us. When people wish to buy pure linseed oil they ought to have some prospect of getting it, instead of getting an adulterated mixture of various substances; but at the rate competition was running, there seemed to be small prospect that there would be any really pure linseed oil put on the market in a short time. We have often discussed the possibility of stopping these adulterations, but it was a hard matter to cure by mere mutual agreement. How do I know what my competitor in a city a hundred miles away, does with the vats in his cellar after working hours, even if he has solemnly agreed not to adulterate his goods? For I must confess that there are a few men in our trade who are as tricky as horse jockeys.

Quite a number of improvements have been patented in linseed oil machinery in the past twenty years. Nothing wonderful, but things that effect little economies in the manufacture. We could have done without them; but when a few firms took them up, of course the rest had to follow suit, or fall behind in the race of competition. We have had to pay a heavy royalty on some of these machines, and it has been rather galling to count out our hard-earned dollars to the company which has bought up most of the patents, and is making 100 per cent. a year on what it paid for them, with no risk, and without doing a stroke of work. Now if we manufacturers could work in harmony, we could make this company come down from their high horse, and they would have to ask a reasonable price for their machines. But we could do more than this. It stands to reason that a good many improvements will be made in our machinery in the future. We don't object to paying a fair price to any inventor who will work out these new ideas for us; but it does seem unjust for him to go and sell them to some outside company for a song, and have that company bleed the users of the improvement for every ounce they will stand. Now, by working together, we can refuse to pay royalties on any thing new which comes up; but require, instead, that any new patent in our line be submitted to a committee, who will examine and test it; and if they find it to be of value, will purchase it for the use of all members of the association.

Some of the members thought this was as far as we ought to go. They were opposed to "trusts" on principle. But the great majority saw so clearly where we could continue to better ourselves that they became enthusiastic over it.

Some speculators, in years of short crops, have occasionally tried to "corner" flax-seed in a small way. We could refuse to buy except directly from the growers, and that branch of speculation would be a thing of the past. We have sent out some pretty sharp men as buyers, and sometimes they have bought flax-seed in some of the backwoods districts at very low rates. At other times, two buyers from rival firms have run counter to each other, and paid prices larger than their employers could really afford. But with our combination, we cannot only fix uniform prices for seed, but we can send out only enough buyers to cover the territory; and the work of buying is reduced to simply inspecting and weighing the seed.

Now another thing: Of course, not every manufacturer in the business owns his mills. It is a fact that since the close times of the past few years the majority of the firms are carrying mortgages on their mills; and some of them in the West are paying as high as eight or ten per cent. interest. But with the combined capital of all the firms in the trade at our back, we can change all that. Either by a guaranty, or by assuming the obligations, we can bring the interest charges on every mill in the association down to four or five per cent. at most.

We have been paying enormous rates to fire insurance companies. They are not as familiar with our business as we are ourselves, and they don't know just how much risk there really is; so they charge us a rate which they make sure is high enough. We can combine together and insure ourselves on the mutual plan; and by stipulating that each firm shall establish and keep up such precautions against fire as an expert may direct, we can not only reduce the cost of our insurance to that of our actual losses, but we can make these a very small amount.

It may be said that we might have done all these things without forming any trust to control prices. But the practical fact was that we could not. There was so much "bad blood" between some of the different firms in the business, from the rivalry and the sharp competition for trade, that as long as that was kept up it was impossible to get them to have any thing to do with each other in a business way. It was no small task to get these old feuds patched up; but some of the best and squarest men in the business went right into the work, and at meetings of the association, and privately, exerted all their influence to forward this coming together for mutual aid and protection. They did it conscientiously, too, I think, believing that it was necessary to save many of us from financial ruin; and that we were not bound, under any circumstances, to sacrifice ourselves for the sake of the public. The trust has been formed, as every one knows, and many of the things we planned to do have been already accomplished. We have stopped adulterations on all goods made by members of the trust; and the improvement in the quality of linseed oil which has been effected is an important benefit to the public. We are managing all the works in the trust as if it were all a single property, controlled by different managers; and the saving in expense, over the old plan of cut-throat competition, when everybody was striving to save himself and sink his rivals, is an enormous one.