Chapter 9

Probably the public was never so forcibly reminded of the defects of our patent system by any other means as it has been by the operation of the Bell Telephone monopoly. The purpose in granting patents is to aid in the establishment of new lines of industrial activity, secure to the inventor the right to reap a reward for his work, and encourage other inventors to persevere in their search for new improvements. All these things are effected by the monopoly which is held by the Bell Telephone Company; but they are effected at a cost to the users of the telephone under which they have grown very restive. Passing by the statement that the patents which the Bell company holds were illegally procured in the first place, through the inventor having had access to the secret records in the Patent Office of other inventions for which a patent had been asked at about the same time as his own, it is an undisputed fact that the Bell company holds the monopoly of communication by electric telephone in this country. They have managed this monopoly with great skill. While the instrument was yet in its introductory stage, and when every smart town felt obliged to start a telephone exchange or fall behind the times, prices were kept low; but when once the telephone became a business necessity and its benefits were well known, rates of rental were advanced to the point where the greatest possible profits would accrue to the Bell company's stockholders. This was excellent generalship. The same principle is applied in many other lines of business; and it was only because the company held a monopoly of a most valuable industry, that it proved so immensely profitable here. But other acts of the company, it is alleged, while within the letter of the law, are yet clearly infringements on the just rights of the public. It is charged that the company has purposely refrained from putting into practical use any of the many improvements which have been made in the telephone during the past few years, but at the same time has quietly secured their control. By skilfully managing "interferences" of one patent against another, and by amending and altering the various specifications, it contrives to delay as long as possible the issue of the patents upon these inventions. By means of these improvements, which it purposes to introduce as its present patents expire, it proposes to continue its monopoly for many years to come. It is very likely that this attempt will succeed.

We have already seen the folly of establishing competing electric light companies, and the attempt to establish rival telephone exchanges is just as sure to result ultimately in a heavy additional tax on the public. Then, too, the monopoly has grown so wealthy and powerful through its enormous profits that it will be very loth to release its hold, even when it is no longer protected by patents. Rival companies which may be established then, it will seek to crush by a fierce competition; and it will be quite likely to succeed. But in so far as it is not protected by patents, it is properly to be considered with other municipal monopolies, in which class we have already referred to it.

The course pursued by the Bell Telephone Company has at least proved that our whole patent system demands a thorough and radical revision. The inventor should certainly be protected, but not to the public hurt.

The second class of monopolies which the government establishes or aids in establishing because it is deemed to be for the public welfare that they exist, are, first, those private industries which receive aid from the government, either directly by subsidies or indirectly by the taxation of the goods of foreign competitors; and second, those branches of industry which are carried on by the government itself.

The question concerning the granting of subsidies is principally a past issue. A century ago many new enterprises in all lines of industry looked to the government for aid. In those days, when capital was scarce and when investors hesitated at risk, it was perhaps wise to grant the help of the public treasury to aid the establishment of young industries; but nowadays, when millions of capital are ready to seize every opportunity for profitable investment, it is recognized that subsidies by the general government are no longer needed. The days of subsidy granting ended none too soon. The people of the United States gave away millions of acres of their fertile lands and other millions of hard-earned dollars to aid in the building of the railroad lines of the West; and a great part of the wealth thus lavished has been gathered into the coffers of a few dozen men. The monopolies created by these subsidies have been largely shorn of their power; but while they reigned supreme, their profits were gathered with no halting hand.

There is only one direction in which we still hear the granting of subsidies by the general government strongly advocated; that is in the direction of establishing steamship lines to foreign ports. It would be apart from the scope of our subject to discuss the wisdom or folly of such a proceeding farther than to note the fact that it establishes a monopoly.

Take, let us say, the case of a steamer line between New York and Buenos Ayres. It is plain in the first place that the government aid will only be granted if there is not business enough to induce private parties to take up the enterprise. But as we suppose that there was not business enough in the first place to support one steamer line unaided, it is certain that none will undertake to establish a rival line to compete with that already sure of profits by reason of the government aid. Hence this line will have a monopoly of the trade; and unless some proper restrictions as to rates accompany the subsidy, the monopoly may lay an extortionate tax on the public who patronize it.

The relation of the tariff to monopolies is one which deserves the careful attention of every thinking man. Let us, in discussing this question, lay aside all prejudice and preconceived ideas for or against the protective tariff system and consider candidly what are the actual facts of the case. It is evident, in the first place, that the purpose of the tariff tax which the government levies on goods imported from abroad is to _keep out foreign competition from our markets_. The imported goods cost more by the amount of the tariff than they otherwise would; and the American producer, if he makes equally desirable goods and does not raise his selling price above that at which imported goods can be bought, is secure against foreign competition. But we have already learned that monopoly is simply the absence of competition; and inasmuch as the tariff checks or shuts out foreign competition, it has a _tendency_ toward the establishment of monopoly. But this tendency may not result in the establishment of any monopoly. There is a tariff on potatoes, but there is no monopoly in their production. Evidently the tariff cannot create a monopoly; it only makes its establishment more easy by narrowing the field of competition to the producers of this single country. If we turn back over the list of monopolies we have studied, to find those which the tariff has any effect in aiding to establish, we shall find none till we reach the first two chapters. The monopolies in mineral products and manufactured goods, known generally by the name of trusts, it is self-evident are largely dependent upon the tariff. If they raise their price above a certain point, people will buy goods of foreign production instead. This point--the price at which foreign goods can be profitably sold--depends on the rate of the tariff, on the cost of production in foreign countries, and the cost of their carriage here.

Of the various trusts, it is evident that only those would be effected by the removal or reduction of the tariff whose products are now covered by it. Thus the Standard Oil Trust and the Cotton-Seed Oil Trust would not be injured by any reduction in the tariff. As a matter of fact, however, nearly all of the trusts have to do with manufactured goods which are covered by the tariff, and the two exceptions already named are about the only ones.

The trusts in manufactured products, broadly speaking, then, are all dependent on the tariff. Here is a strange condition of affairs. In the early history of this nation, the people of this country, represented by their popular government, were appealed to by the men engaged in manufacturing after this fashion: "We cannot make the things you need as cheaply as the manufacturers in foreign countries. They are wealthy and we are poor. They have their mills already in operation, we have ours to build. The capital we borrow bears a rate of interest double that which the foreign mill-owner has to pay. The labor we must employ is not yet trained as is theirs, and it must receive far higher wages. Therefore we ask that you aid us in establishing our industries by paying us higher prices for our goods than those for which you could purchase the same goods of foreign manufacture. In order that every one shall be obliged to do this, and that all may contribute equally to our support, we ask you to pass laws laying a tax on all imported goods which compete with ours, whereby none shall be able to buy them at a cheaper price than we can afford to sell our own goods."

And the people replied: "While we recognize the fact that we must pay an increased price for your goods compared with that which is asked for goods from foreign mills, and are thus taxing ourselves for your benefit, yet we see how desirable it is that our industries should be diversified and that we should not be dependent on foreign nations for the necessaries and comforts of life. Thus _for a season_ we will grant your petition and tax ourselves to establish you in your business."

Such was the spirit of the movement that inaugurated the protective tariff. One other great argument for its establishment, which was believed by the people and was assented to by the manufacturers, was as follows: "Our natural advantages for engaging in manufacturing are beyond those of any other nation. Our workmen are more skillful, intelligent, and ingenious; our capitalists are more enterprising. At the same time there are many difficulties to be overcome in establishing a manufacturing business in a new country. Some assistance is needed at the outset to tide it past the critical period. Now, if we can give our manufacturers a start and enable them to establish themselves, they will improve all these natural advantages which we possess; and with the abundance of raw material in our mines and farms and forests, with our ingenuity and Yankee enterprise and skill, who can doubt that our manufacturers, once established, can produce goods more cheaply than they could ever be brought across from foreign countries? This protection from foreign competition will be a great incentive to the establishment of manufacturing enterprises. Everywhere mills and factories will spring up; a brisk home competition will be created; and that will finally reduce prices lower than they could ever go if we remained dependent on foreign countries for our manufactured goods."

It was a wise and well-founded plan, and only as to its final result did it fail. The protective tariff did make manufacturing more profitable than any other business, and mills and factories of every sort have sprung up in all parts of the country. But the expected extreme competition which was to reduce manufacturers' profits and the price of manufactured goods to a basis in accordance with the profits in agricultural and other branches of industry has been long delayed. The wonderful development of the country has kept up prices and profits, and has furnished a market for our manufacturers which has long kept in advance of their capacity to supply it. At last, however, the result which was expected by the founders of the protective tariff has come to pass. Our domestic mills and factories have a capacity beyond the present demand for their products. The home competition which was predicted has come; and if it had operated to reduce prices as was expected, there would now be employment for all our mills, for it is an axiom that every reduction in price increases the demand.

But the manufacturers who had been making enormous profits of ten, twenty, and thirty per cent. on their capital for these many years, were far from willing to accept calmly the situation and reduce their profits to a reasonable figure. They have tried combinations of many sorts to keep up prices, and at last have found in the trust a strong and effective means of killing home competition and keeping up their profits, if they choose, to the highest point which the tariff permits.

It is not to be argued that the manufacturers were especially worse than the general run of men in taking this action. It is the most natural thing in the world that a man who has all his life been used to making enormous profits in his business should come to think that he had an inalienable right to make them; and that when competition became so sharp that he had to lower his prices, it was due to an unnatural condition of affairs glibly designated as "over-production," for which the trust was an appropriate and wise remedy.

It is thus plain how, in a secondary way, the tariff is a cause of the trusts. The fat profits which the former gave have made men covetous enough to engage in the latter.

We are, perhaps, not yet prepared to discuss the question of the proper remedies for trusts; but it is too obvious to call for comment that an easy and most effective remedy is to cut away the protection from foreign competition, under which they flourish, and let them sink or swim as they best can. At the least it will be wise to reduce their protection to a point where any attempt to tax the nation of consumers and reap exorbitant profits by putting up prices so that profits of twenty-five per cent. or more can be reaped, will be counteracted by foreign competition.

It is only fair to point out at the same time that this remedy is far from being a panacea against all trusts and monopolies. The monopolies in the peculiar products of this country will be unaffected by it, and the combinations which embrace the whole globe in their plan of operations are quite beyond its power. The copper syndicate and the salt trust, and according to Mr. Carnegie a steel rail trust, are the only actual examples of international combinations which have ever been attempted, and it will probably be many years yet before the constant movement towards Tennyson's "Federation of the World" permits the general formation of effective industrial combinations which shall embrace all commercial nations.

We have finally to consider the monopolies carried on directly by the government. The carriage of the mails is the most important monopoly carried on by the government, and we may find some facts of interest by enquiring the reasons why it is for the public welfare that it should be so conducted rather than by private enterprise. In the first place, if it were left to private enterprise to furnish us with postal facilities, the postal service would be much more limited than now; many places of small importance being left without postal facilities or charged a much higher rate for service than now. On the other hand--and this is an important point--there would, perhaps, be in and between the large cities competition between different companies; in which case there would be duplicate sets of postal facilities, including buildings, mail-boxes, furniture, and employees of every grade. It is plain that all this would be a waste. One set of facilities is better for the public than two or three or more, and is ample to carry all the mails. To put another set of men at the work that others are already able to do, is to waste just so much of the working force of the world, as well as the capital necessary to furnish tools and buildings for its use. The matter of rates, too, would vary with the competition. One could never be sure what his postage bill for the coming year was to be. The receipts of the companies would be uncertain, and they would be obliged to pay a high rate of interest on the capital invested in their plant, thus making it necessary for them to charge high rates for their service. The intense competition between rival companies would lead to the bankruptcy of the weaker, and the final result would be the establishment of a single corporation in the control of the whole system. Rates would then be put up to the point where the greatest profit would accrue to the corporation.

Under the existing system, then, we save in cost of service over competing systems under private direction, in that the existing facilities are all made use of. There is no waste by setting two men to do the work of one, or by renting two offices to do the business which one could accommodate, neither is any energy wasted in soliciting business. The capital invested by the government in its plant for carrying on the postal service would bear interest, if the money were borrowed, of not more than two or three per cent. But if a private company borrowed money to carry a similar business, they would have to pay five to seven per cent., which they would have to make up for by charging a higher rate of postage.

Other monopolies which have been carried on by the government are the business of transportation, and the provision of roads, bridges, and canals therefor; monopolies in mining; and in the case of municipal governments, as already noted, the supply of water, gas, and electric service, and street railway transportation.

VIII.

MONOPOLIES IN THE LABOR MARKET.

It should be said at the outset of this chapter that, in a very true sense, practically all men are laborers. That into which a man puts his energy and by which he earns his living, is his labor, whether it be work of the hand or the head. But the labor we are to consider in this chapter is that of the men who work for wages; and we will also make the arbitrary distinction that it is that of the men who work for wages in some branch of manufacturing, mining, trade, or transportation, the great divisions of modern industry which we have thus far considered.

Almost all these monopolies employ large amounts of capital in carrying on their business; and in the popular speech, "monopolist" and "capitalist" are often used interchangeably. It is a very common belief that monopolies are confined to the capitalized industries of production, transportation, and trade, which we have already considered; but we are now confronted by the fact that the wage-workers in the various trades of the country are engaged in exactly the same monopolistic schemes, in which they have exactly the same ends in view as have the monopolists who combine millions of dollars' worth of capital to effect their purposes. On the one hand we have the Standard Oil Trust and the Railroad pools and the hundreds of other capitalistic combinations striving to benefit the producer at the expense of the consumer; while among those whose only capital is their strength and skill, we find the workers in all the various trades, and even some of the lower grades of laborers firmly banded together with the avowed purpose of raising their wages above those which they would receive if competition alone determined the rate. And they are successful, too. Notwithstanding the fact that they deal with tens of thousands of producing units where the combiner of capitalized interests deals with tens, the success achieved by the combinations of labor is quite comparable with that reached by combinations of capital. It speaks volumes for the intelligence and ability of the wage-workers of the present day--yes, and for the growth of the spirit of fraternity; that in the advancement of what they deem a just and righteous cause, they should voluntarily put themselves under discipline and endure patiently the untold hardships of uncounted strikes, often brought on in the unselfish work of aiding their brother laborers against what they deem a common enemy.

The modes in which the combinations of skilled laborers attain their desired ends are akin to those which obtain in a well organized manufacturers' trust. The former allow only a certain number of apprentices to learn their trade. The latter permit the establishment of only such additional mills as shall not unduly increase the market supply. The former fix a standard scale of wages below which no member of the union shall work; the latter fix a minimum price for the goods sold in the market. If there are more laborers in the union than can be employed at the advanced rate of wages, some must be idle. If there are more mills in the trust than the lessened demand for the goods will keep busy, some must be shut down. The trade-union boycotts competing workmen outside its ranks, and stigmatizes them as "scabs." The trusts endeavor to punish every outside manufacturer, sometimes by forcing upon him such a competition as shall cause his ruin; sometimes by means as illegal and criminal as are the riotous acts of a mob of hungry workmen, and far less defensible. But let us not yet bring up the question of relative blame. The main point which must impress every candid observer is that the means employed for the monopolies of capital and the monopolies of labor are identical in principle and motive. Nor are we confined to manufacturers' trusts to show that the spirit of rule or ruin characterizes capital as well as labor. Railroad monopolies, in the words of the president of one of the greatest corporations of the country, "strive eagerly to protect themselves while entirely indifferent as to what shall befall their rivals." How many weak corporations have been deliberately ruined by the cut rates of stronger competitors? If the laborer has "scab" in his vocabulary, has not the railroad manager his "scalper" and "guerilla"?

The close relationship, viewed in many different aspects, of the monopolies of labor and the monopolies in production generally has hardly received the notice its importance deserves. Still, it is an evidence that people are thinking of and discussing the matter when such a writer as W. D. Howells, who is popularly supposed to cater to the tastes of those who have very little in common with the laboring classes, puts into the mouth of one of his characters a defence of workingmen for executing a boycott on a non-union workingman, on the ground that they "did only once just what the big manufacturing trusts do every day."