access to a fresh supply is gained, no one who considers the subject from an unbiased standpoint can doubt. This is notably true in the case of such articles as timber, ores, minerals, and other substances whose supply can not be increased and whose exhaustion is merely a question of the rate at which they are taken from their original sources. That the protective system has been greatly influential in maintaining a too rapid rate of depletion of natural resources in order to satisfy the constantly increasing demands of a rising population is an unmistakable fact. . . . There is another serious condition which must be directly attributed to the tariff, but of which little is usually said. This is the existence of obsolete plants and methods in many lines of industry, old machinery and out-of-date methods being continued in operation for years after they have been practically eliminated elsewhere. . . . The information in the hands of the Ways and Means Committee strongly confirms the belief that there is rarely a highly protected industry in which a considerable percentage of the plants and machinery are not hopelessly behind the times. The demand for high protective duties is necessarily based upon the supposed requirements of these plants, for in nearly every line of business the modern and most efficient establishments are able to hold their own against any foreign competition. These conditions constitute one of the strongest arguments in favor of rectifying the conditions complained of by applying the impetus of moderate competition. . In its tariff-revision work the committee has kept in mind the distinction between the necessaries and the luxuries of life, reducing the tariff burdens on the former to the lowest possible point commensurate with revenue requirements and making the luxuries of life bear their proper portion of the tariff responsibilities. . The committee has had these facts in mind in the preparation of H. R. 3321 and the attempt has been made 1. To eliminate protection of profits and to cut off the duties which enable industrial managers to exact a bonus for which no equivalent is rendered. 2. To introduce in every line of industry a competitive tariff basis providing for a substantial amount of importation, to the end that no concern shall be able to feel that it has a monopoly of the home market gained other than through the fact that it is able to furnish better goods at lower prices than others. It is felt that tariff schedules aiming at these two conditions can damage no legitimate industry and is the least that can be asked by those who desire the consumer to be safeguarded in some measure against exploitation by monopolies that now practically dictate prices in the domestic field. . . III. TRUSTS A. The Tendency to Consolidation, 19011 The movement towards large-scale production had been going on fairly steadily for half a century, but in the eighties a new tendency showed itself the consolidation of hitherto competing establishments into one large concern. This movement was especially rapid after 1898, and to its consideration the Industrial Commission devoted four volumes of its report. The tendency to consolidate competing establishments in various industries has been so pronounced in recent years as to create much apprehension of monopoly. . . . The economic advantages of combination, and the apparent success of most of the new companies, have led many of the ablest business men and economists to the conclusion that the combinations have become an established factor in the industrial life of the nation. Not all of the problems, however, haye been worked out, and it remains to be seen whether or not the new companies are as safe for investment as the old, and whether or not the public interest is in any way endangered by them. . . . Until after the close of the civil war business in the United States was so much localized, on account of the lack of facilities for transportation and the relative smallness of the capital invested, that no large combinations were made. The rapid development of business in the years following the war, together with the artificial stimulus given to certain lines of industry, either by internal-revenue legislation, as in the case of manufacture of spirits, or by the special demand created by the war itself and by the reaction following it, led to several combinations of a wider reach. These pools in various lines of business, including agreements upon output and prices, were found to be in each case only temporarily effective. Whenever prices were remunerative, each competing manufacturer naturally found it desirable to extend his sales, and the agreement was likely to be broken. The application by the courts of the common law regarding restraint of trade also tended to weaken these pools. Under the com 1 Final Report of the Industrial Commission. (Washington, 1902), XIX, 595-600, passim. mon law, both in England and in this country, contracts in restraint of trade have been held invalid. It is true that, when the limitation has covered only certain sections of the country or short times, contracts in partial restraint of trade, if considered reasonable, have been regularly upheld by the courts. For short periods these pools and other forms of price and selling agreements were very common. ... The managers of the Standard Oil Company of Ohio and of other companies associated with it, found that pools and ordinary forms of agreement regarding prices and output did not give sufficient power over the various members, either to control the market or to secure the most efficient methods of production. In consequence this company first devised and put into effect the so-called trust agreement, by which numerous individuals, firms, and corporations, formerly competitors, were brought together in 1882 into the one Standard Oil Trust. This success in harmonizing divergent interests in the oil-refining industry led to smilar arrangements in other industries. The Distillers' and Cattle Feeders' Company (the so-called Whisky Trust), the Sugar Refineries Company (the Sugar Trust), and other similar organizations with large capital and influence, were soon established. Hostile decisions of the courts, together with this new legislation, forced the trusts to change their form. The Standard Oil Trust was dissolved in 1892. . . ... In these three instances, and in others, the trust organization thus became a combination of a different type. In the case of the Standard Oil Company a mere harmony of interests united separate corporations. In the case of the others named, a new corporation had acquired all the properties. This latter form of organization, after the declared illegality of the trusts, became the most common whenever it seemed advisable to organize the chief competitors in any industry under a single management. The tendency of business toward consolidation, with the fact that the corporation form seemed to be the one recognized by the courts as alone feasible, influenced some States, desirous of attracting capital, to make corporation laws favorable to combinations desiring to do business in different sections of the country. New Jersey particularly, but also Delaware, West Virginia, and others, enacted such laws. These laws were especially liberal in permitting corporations to carry on their business, to hold directors' meetings, and in some cases even stockholders' meetings, outside of the boundaries of the incorporating State. Very little inspection was provided for or exercised. The chartered tax and annual franchise tax were made light. These laws, so favorable to corporations, together with the pressure of competition and with the advantages of combination, led to a very rapid increase in such industrial combinations. The movement toward combination began among the railroads earlier than in industrial lines, and has continued to the present time. . . The rapid growth of capital, with the advantages for its use which were shown to follow combination, has accelerated consolidation in recent years. When goods were in general demand over wide sections of the country, when these goods were of a certain standard uniform quality, and when the goods were bulky, so that the freight charges formed an essential part of the cost, it was found that a combination in the production of such goods might readily secure so great an advantage over its smaller rivals that the tendency toward monopoly became strong. Combinations in the oil, sugar, salt, and similar industries were organized early, and they became powerful. When large establishments were necessary in order to produce at the lowest cost, a combination had a decided advantage over an individual competitor of small financial strength. Experience further showed then when expensive advertising was necessary to popularize special brands or trade-marks, combinations had an advantage over smaller concerns. These three influences a standard product, very large capital, and popular trade-marks - seem to have been particularly powerful in bringing about the most successful combinations. On the other hand, whenever it it necessary for the producer to cater to the taste of the individual consumer, it is much more difficult to form efficient combinations. It is true that in some cases the combination may buy up individual talent or genius, and in that way secure some control; these, however, are exceptional, and the combination can never expect to secure entire control of special talent. There is reason to believe that the movement toward concentration of industry will go steadily on, but there is no reason for thinking that within measurable time the combinations will cover the entire field of industry. There will still be left abundant opportunity for individual ownership and management. B. The Causes of Consolidation, 1901 1 The causes that led to the formation of the steel trust are here briefly given. These are probably typical of the forces that led to the movement in other fields. In 1890 there were scarcely any consolidations of the modern type in the steel industry. With only a few exceptions there were no concerns with a capitalization exceeding or even approaching $20,000,000. During the middle nineties there was a gradual change toward larger units, both by expansion and by combination; but the depressed conditions of that period were unfavorable to the organization of great corporations, and as late as 1898 the steel industry was characterized by the competition of a large number of independent concerns. The year 1898, however, witnessed a marked advance toward consolidation. This movement progressed with great rapidity in the next few years, until by the middle of 1901 substantially threefifths of the steel industry of the country was concentrated under a single organization the United States Steel Corporation — with an issued capitalization, including bonded indebtedness, of over $1,400, - While the failure of the various pools in the iron and steel trade to establish permanently effective control over the production and prices of iron and steel products was undoubtedly an important cause of outright consolidation as a surer method of restricting or eliminating competition, consolidation was not, however, resorted to for this purpose alone. The underlying causes of consolidation in the steel industry, which were substantially the same as those operating in other great industries, may be defined as follows: 1. The restriction of competition. 2. Integration; that is, the linking-up of productive processes through the acquisition, under one control, of raw materials and. manufacturing plants (and in some cases transportation facilities), and through extensions and coordination of manufacturing processes. 3. The creation of a great amount of inflated securities. The first of these causes, namely, the restriction or elimination of competition, was undoubtedly the most potent. Indeed, the organizers of some of these great consolidations have admitted that a desire to control or eliminate competition was the chief reason for their formation. This was undoubtedly true of many consolidations in the steel industry.... 1 Report of the Commissioner of Corporations on the Steel Industry. (Washington, 1911), I, 63, 82-4. |