THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA RIVERSIDE MACMILLAN'S STANDARD LIBRARY Monopolies and Trusts TD^TbSS Monopolies and Trusts BY !/ RICHARD T^ELY, Ph.D., LL.D. PROFESSOR OF POLITICAL ECONOMY AND DIRECTOR OF THE SCHOOL OF ECONOMICS, POLITICAL SCIENCE, AND HISTORY IN THE UNIVERSITY OF WISCONSIN NEW YORK GROSSET & DUNLAP PUBLISHERS HVZ73L Copyright, 1900, By THE MACMILLAN COMPANY. Set up and electrotyped February, 190a Reprinted June, 1900 ; March, 190a ; April, 1906. Nortoooo #M J. 8. Cnthing ft Co. Berwick ft Norwood Mm U.S.A. PREFACE It will be helpful to specialists in economics, and perhaps to others, to know that the present volume is a small part of a large work, The Distribution of Wealth, and to be told what position it occupies in the general plan so far as at present elaborated. The Distribution of Wealth, then, is divided into five main divisions, which may be termed Books, as follows : Book I. The Fundamentals in the Ex- isting Socio- Economic Order as Viewed from the Stand-point of Distribution; Book II. The Sepa- rate Factors in Distribution ; Book III. Individual Fortunes ; Book IV. Actual and Contemplated Modifications of the Distribution of Wealth ; Book V. Social Progress and Wealth Distribution. Book I. consists of nine "Parts," as follows: Part I. Public and Private Property; Part II. Contract and its Conditions; Part III. Vested Interests; Part IV. Personal Conditions ; Part V. Custom ; Part VI. Competition; Part VII. Monopoly; Part VIII. Public Authority ; Part IX. Benevolence. It will thus be seen that the discussion of Mo- nopolies and Trusts is closely connected with other PREFACE portions of an extensive treatise, and this fact must be borne in mind by those who would understand its scientific character. The History of the Theory of Monopoly, as well as the " Part " of Book I. deal- ing with "Competition" and those portions of Book II. dealing with "Differential Gains" and " Surplus Value," have an especially close connec- tion with this volume. It is the purpose of many of the foot-notes to bring out the relations of various other portions of this large work to the treatment of " Monopolies and Trusts," and thus to explain what otherwise might be regarded as omissions. Undoubtedly this explanation suggests certain disadvantages in the publication of one small part of a large work, when all the parts are closely related, but it is the only practicable method for so extensive a treatise as the author's work, The Distribution of Wealth ; and it has its obvious ad- vantages as well as its drawbacks. It will be readily apparent to the reader that this volume has not been hastily gotten together to meet a popular demand for a work on Trusts. The author has been engaged on The Distribution of Wealth a considerable portion of his time for the past seven years, but he began to give special at- tention to the theory of monopoly twelve or thir- teen years ago, and in 1888 he published his Prob- lems of To-day, which is quite largely devoted to questions of monopoly. That work, while popular in its nature and purpose, contained suggestions of an original character which have been fruitful in the vi PREFACE development of theory, and have also produced a large amount of discussion of a directly practical kind, as hundreds of letters written to the author from all parts of the United States testify. The author continued the scientific discussion of mo- nopoly in his Introduction to Political Economy, pub- lished in 1 889 ; in his Outlines of Economics, which appeared in 1 893 ; and in his Socialism and Social Reform, which appeared one year later. He fur- ther developed his theory in articles written for the magazine Progress, the organ of the Univer- sity Association of Chicago, during 1898 and 1899. The purpose of these observations, as well as of foot-notes giving references to earlier works, is to establish the author's just claims to priority for his original contributions to economic theory, so far as these relate to the subject of monopoly; for he shares the conviction expressed by many, that the interests of science, as well as a proper self-regard, demand that investigators should mark off and claim what they believe to be their own, recognizing, of course, that ultimately it must rest with others to give the final verdict upon the justice of these claims. It is in this spirit, then, with a desire to claim his own, but with an equally sincere desire to attribute to fellow-economists what belongs to them and no one can justly accuse him of shortcomings in this respect that the author has made these remarks, and has in this volume referred to various earlier works. While dates in this work show that parts of it go vii PREFACE back to 1892, and while, as already stated, the theo- retical development which it contains was begun by the author much earlier, illustrations have been added from an event so recent as the Trust Con- ference held in Chicago, September 13-16 of the current year ; and thus a connection is established with the present discussion of trusts. Nothing could be further from the author's mind than to claim that this volume contains all the truth on the subjects which it discusses. He would like it rather to be regarded as an essay in the sense in which that word was used by early English writ- ers. The development of industrial society has in the past brought many surprises, and doubtless the future will present quite as many and quite as startling ones. The author, then, simply ventures to hope that he has presented an original contribu- tion to economic theory which will be further de- veloped in the future by others and by himself. So far as the immediately practical side of this discus- sion is concerned, it is to be said that the aim has been to go below surface phenomena to underlying causes, and thus to indicate in a general way the lines of progress. Richard T. Ely. Madison, Wis., October, 1899. viii EDITOR'S PREFACE CITIZEN'S LIBRARY OF ECONOMICS, POLITICS, AND SOCIOLOGY The present volume is the first in a Library- having the above title. It is hoped eventually to cover the three fields of knowledge indicated by the title in such way that the various series in- cluded in the Library will afford such complete information concerning the theory and facts of these sciences that the volumes will have some of the advantages of an encyclopedic work com- bined with those of separate and distinct treatises. To aid in the accomplishment of this purpose, it is planned to issue from time to time an index volume or supplement, binding together a series on closely related subjects. This Library thus includes new and valuable features, for it will give to the public a set of works affording information on topics of ix EDITOR'S PREFACE importance to every citizen which must now be sought in a great multiplicity of sources, and often sought in vain. The character of the writers and the manage- ment of the Library will be such as to inspire confidence. The utmost pains will be taken to secure the greatest possible accuracy in all statis- tical tables and statements of fact and theory, and no partisan bias will disturb the conclusions. It is the conviction of the Editor that scientific work in the field of the humanities may generally be made interesting to intelligent citizens through cul- tivation of clearness in statement and literary style. There are masterpieces even in Economics, for ex- ample, which rank as literature, as Adam Smith's Wealth of Nations and John Stuart Mill's Political Economy bear witness. It is desired to lay empha- sis on the fact that while the sciences of Economics, Politics, and Sociology are of concern to the citi- zen, and make appropriate the title " Citizen's Library," in no case will the interests of science be sacrificed to popularity. The aim will be to bring every volume in the Library up to the pres- ent standard of science, and it is hoped that the Library will in more than one instance push for- ward the boundaries of knowledge. In conclusion, it only remains to add that the various authors assume responsibility for expres- EDITOR'S PREFACE sions of opinion, and that publication in the Library does not necessarily mean an endorse- ment either by publishers or Editor of views found in the several volumes. The Editor. CONTENTS CHAP. PAGE I. The Idea of Monopoly i II. The Classification and Causes of Monopolies . 39 III. The Law of Monopoly Price 96 IV. The Limits of Monopoly and the Permanency of Competition 141 V. The Concentration of Production and Trusts . 180 VI. Evils and Remedies 217 APPENDIX 275 MONOPOLIES AND TRUSTS CHAPTER I THE IDEA OF MONOPOLY The first step in the removal of the bewilder- ing confusion of thought in the current discussion of monopolies and trusts is taken when monopoly is clearly and accurately defined. The term mo- nopoly, with which we must begin any scientific treatment of our subject, stands in the popular mind not merely for many different ideas, but for a multiplicity of ideas, some of which are antago- nistic to each other. Two centuries ago Locke ex- pressed the opinion that disputations were traceable chiefly to failure on the part of disputants to con- nect with a common term the same idea, so that while they supposed they were talking about one and the same thing, they were really discussing dif- ferent topics. He gives an instance of a learned debate to which he once listened concerning the question " whether any liquor passed through the filaments of the nerves," and says that after the de- A I MONOPOLIES AND TRUSTS bate had continued for some time, having " been used to suspect that the greatest part of disputes were more about the significance of words than a real difference in the conception of things," he re- quested that before they went any further in their arguments they should first define the word " liq- uor." That ended the debate, for they discovered on examining into the term that to each of them it was a sign of a different idea, that their discussion turned merely on the use of a word, whereas they were in agreement in ideas. Locke also expresses the view " that it is no shame to ask men the mean- ing of their words," as it is " no discredit not to know what precise idea any sound stands for in an- other man's mind without he declare it to me by some other way than barely using that sound." While a precise definition of monopoly cannot be expected to produce harmony of views concern- ing monopolies and trusts, it paves the way for an intelligent discussion of the scientific and practical problems which they present, and for their settle- ment. It is also suggested that should no one take part in the discussion of these problems until he could explain to himself and others what he had in mind when he used the word monopoly, the vol- ume of discussion would for some time to come be very sensibly diminished, while, on the other hand, the improved quality of utterances relating thereto might be a sufficient compensation for their dimin- ished magnitude. But it must be admitted that the confusion of THE IDEA OF MONOPOLY thought on our subject extends beyond the general public, even to our experts in economics. By them, as by the general public, all sorts of things, differ- ing in essential characteristics, have been frequently lumped together as monopolies. So long as this condition of things lasts, confusion of thought can- not fail to continue. The reasons for the confusion are obvious. The term monopoly, when so broadly used, embraces various classes of business, and the mind transfers peculiarities of one business to an- other business which lacks some of these peculiari- ties. When it comes to debates, the confusion is increased if the same word carries several ideas ; for not only does the mind of each debater pass from one business to another, but the minds of the two move unequally and irregularly as compared with each other, so that they are frequently talking about different things when they imagine that they are discussing one and the same thing ; and the prospect of a really enlightening debate, ending in agreement, is hopeless. Manifestly, there are some large and vague no- tions to which the current discussion of monopoly may be traced. In a general way, it will doubtless be admitted by all that there is a distinction be- tween full and free competition and monopoly. An examination of popular speeches and articles on the one hand, and of economic literature on the other, makes it plain that monopoly differs in the mind of nearly if not quite every one from perfect competition. The difference may be slight or it 3 MONOPOLIES AND TRUSTS may be great, but the difference is acknowledged. There is no other term to which, in general usage, monopoly is so antagonistic as it is to competition ; and this fact must be our starting-point. Without attempting at the present time to give a history of the theory of monopoly,* it is instruc- tive to trace in a few typical writers the evolution of the idea of monopoly as something different from free and equal competition, and for present pur- poses we can do no better than to begin with William Nassau Senior, one of the ablest econo- mists of the English classical school, and one who, unfortunately, has been unduly neglected. While Senior did not follow out and elaborate sufficiently his own thought, what he wrote was suggestive, and in the field of monopoly especially should have been more fruitful in the development of economic theory. But the considerable part of Senior's Political Economy which deals with monopoly, while new and valuable at the time, appears to have been that portion of his treatise which above all others has been neglected. We go at once to the heart of the subject if we examine the following statement, quoted from Senior's Political Economy, in which we find a def- inition of monopoly and of monopolist : "Now it is clear that the production in which no appropriated * This will be done elsewhere, in the work on The Dis- tribution of Wealth, of which the present volume is only a small part. 4 THE IDEA OF MONOPOLY natural agent has concurred is the only produc- tion which has been made under circumstances of perfectly equal competition. And how few are the commodities of which the production has in no stage been assisted by peculiar advantages of soil or situation, or by extraordinary talent of body or mind, or by processes generally unknown or pro- tected by law from imitation ? Where the assistance of these agents, to which we have given the general name of natural agents, has been obtained, the result is more valuable than the result of equal labor and abstinence unassisted by similar aids. A commod- ity thus produced is called the subject of a monop- oly; and the person who has appropriated such a natural agent, a monopolist."* According to Senior, monopoly, then, is anything which confers upon those who enjoy it a special and peculiar economic privilege, whatever this special and peculiar economic privilege may be. Monopoly means to Senior production under cir- cumstances in which competition is not perfectly equal, but, on the contrary, under circumstances in which equal efforts, either subjective or objective, or both together, yield unequal returns to producers, f * Senior's Political Economy, p. 103. t The term effort, it will be observed, is used in a some- what extended and technical sense. If two men of equal strength lift unequal weights, their efforts are subjectively unequal. If two men of unequal strength make equal phys- iological and psychical sacrifices, their efforts are objective- ly unequal. If two men have unequal capacity, the one hav- 5 MONOPOLIES AND TRUSTS Several causes of monopoly are mentioned, although they seem to be summed up in the term " appro- priated natural agent." Mention is made of three causes namely, peculiar advantages of soil or sit- uation ; extraordinary talent of body or mind ; secret processes, or processes which the law pro- tects from imitation. It is clear, then, that to Senior monopoly is not something diametrically opposed to competition, but something which is different from perfectly equal competition. To Senior, monopoly means production so assisted by appropriated natural agents that it gives more valuable results than production not thus assisted. The idea is that which comes out so frequently in Senior namely, the idea of surplus value. Production under per- fectly equal competition is thought of as giving normal returns to labor and capital, and the supe- rior returns of monopoly are, to Senior, surplus value. Rent is thus included under monopoly, as it is an extra return due to a superior situation of land, or to fertility beyond that of land which yields simply ing talent, the other only normal faculties, equal subjective efforts would yield unequal returns. If two men of equal capacity cultivate ground of unequal fertility, equal objec- tive efforts would produce unequal returns. If our two cul- tivators of the soil have unequal intellectual capacity and cultivate land of unequal fertility, the inequality in returns would be due both to subjective and objective causes. And in all these cases we would, according to Senior, have to do with monopoly. 6 THE IDEA OF MONOPOLY normal returns to labor and capital ; that is, the land which it is only just worth while to cultivate. But Senior extends the term rent so as to make it cover generally what he regards as monopolistic gains. Whenever a differential advantage giving surplus value exists, we have, according to Senior, monopoly. The idea of monopoly given by John Stuart Mill is very similar, but in the way in which he puts it he has been followed more generally than Senior. Mill defines and describes monopoly in these words: " A thing which is limited in quantity, even though its possessors do not act in concert, is still a mo- nopolized article. But even when monopolized, a thing which is the gift of nature, and requires no labor or outlay as the condition of its existence, will, if there be competition among the holders of it, command a price only if it exists in less quan- tity than the demand. If the whole land of a country were required for cultivation, all of it might yield a rent. But in no country of any extent do the wants of the population require that all the land which is capable of cultivation should be cul- tivated. The food and other agricultural produce which the people need, and which they are willing and able to pay for at a price which remunerates the grower, may always be obtained without culti- vating all the land ; sometimes without cultivating more than a small part of it; the lands most easily cultivated being preferred in a very early stage of society, the more fertile, or those in the more con- 7 MONOPOLIES AND TRUSTS venient situations, in a more advanced state. There is always, therefore, some land which cannot, in ex- isting circumstances, pay any rent; and no land ever pays rent unless, in point of fertility or situa- tion, it belongs to those superior kinds which exist in less quantity than the demand which cannot be made to yield all the produce required for the com- munity, unless on terms still less advantageous than the resort to less favored soils." * Limitation, then, according to Mill, is the essence of monopoly ; " a thing which is limited in quantity, even though its possessors do not act in concert, is still a monopolized article"; and Mill speaks of " competition among the holders of it." He has just spoken about the owners of land " acting to- gether as one man," as something conceivable, though it has never happened. According to Mill, monopoly evidently involves the idea of surplus value something over and above returns to labor and capital ; yet there is, according to him, some- thing distinct and separate in "acting together as one man." He speaks of a possible competition among the holders of a monopolized article, and so, according to Mill, we have the apparent anomaly of a competitive monopoly. But in the very place where he gives this definition he says that landown- ers do not act together as one man, inasmuch as if they did they would have in their hands a complete control over all the people of the community and * Mill's Political Economy, book ii., chap, xvi., a. 8 THE IDEA OF MONOPOLY over the entire wealth of society. " The exclusive possessor of the land of a country," Mill tells us, " could not well be other than the despot of it. The effect would be much the same if the land be- longed to so few people that they could and did act together as one man, and fix the rent by agree- ment among themselves. This case, however, is nowhere known to exist."* So, according to Mill, there is something over and above mere monopoly and distinct from monopoly that is, the " acting together as one man." We next turn to Professor Henry Sidgwick, a writer deservedly distinguished, and frequently keen in analysis, who, however, in his treatment of monopoly, has not avoided considerable confusion of thought. Professor Sidgwick, in one place in his Principles of Political Economy, defines monopoly as " the control exercised by an individual seller or combination of sellers over a commodity that no one else can bring to market." f Then he goes on to say, " Now we must use this term more widely," and he begins a process of expansion, taking in things which he sees are beyond his definition. He says : " In the first place, it is convenient to extend it to cases in which a person or union of persons whom for brevity we will call the monopolist cannot control more than a portion of the whole * Mill, ibid. t This is the definition which he gives in book ii., chap, ii., and repeats in chap. x. 9 MONOPOLIES AND TRUSTS supply of the commodity," because such partial control may result in raising prices over and above what they would be were there free competition. Even where the monopolist has a complete con- trol over the supply at any particular time, Profess- or Sidgwick says that we must distinguish be- tween different degrees of completeness ; but this does not seem quite scientific. He says monopoly may be indestructible, either permanently, or for a determinate period. Thus the owner of a fine painting by one of the old masters, or the owner of land from which valuable mineral waters can be obtained, may be a monopolist. In the second place, monopoly may be due to " prospective unprofitableness of the outlay of wealth or labor, or both, that would be required to provide the commodity from other sources," either by consumers or as ordinary business ventures. Then, in the third place, he extends the concept to include buyers. He speaks of buyers' as well as sellers' monopolies, although there is no reason why he should not have included buyers in his definition. After all he does not introduce any essentially new ideas into his concept except to add partial monopolies and buyers' monopolies, and partial monopolies are included in the idea of monopoly. If we turn to two younger writers who have given much attention to monopoly namely, Pro- fessor Simon N. Patten and Mr. John A. Hobson we find that they have so enlarged the idea of 10 THE IDEA OF MONOPOLY monopoly as to include under the head of monop- oly all participation in a surplus gain in produc- tion or consumption over and above costs. Ac- cording to Professor Patten, we have this surplus over and above costs in every part of the economic field. Wages participate in the surplus ; profits do likewise, and rent also. They all participate in the marginal surplus, and thus as a result we have a society composed of monopolists. Every one has a monopoly; and then we have to make a further distinction between competitive monopolies and exclusive monopolies ! This is brought out by Dr. Emory R. Johnson in his article on " The Relation of Taxation to Monopolies," in the Annals of the American Academy of Political and Social Science for March, 1894; for in this essay he presents the views shared by himself and Professor Patten.* Dr. Johnson gives this definition of monopoly: "By a monopoly is meant any productive agent possess- ing monopoly force. A monopoly force is that which gives to a productive agent the disposal of a definite portion of the surplus resulting from pro- duction." And as all agents of production, accord- * Professor Patten's idea of monopoly pervades nearly, if not quite, all his economic writings. The following spe- cial references, however, may prove helpful to those who wish to examine further his concept of monopoly: "Cost and Utility," in the Annals of the American Academy for January, 1893, p. 35 ; his monographs, Dynamic Economics, pp. 63, 102, 107, 114; Stability of Prices, pp. 39-40, 57; Principles of Rational Taxation, pp. 7, 14. II MONOPOLIES AND TRUSTS ing to Professor Patten, do have the disposal of a definite portion of the surplus, we have the appar- ently curious anomaly of a monopoly force which includes the entire field of production. We could scarcely have a more violent departure from the ordinary usages of language ; and yet, in the distinc- tion they make between competitive monopolies and non- competitive monopolies, they have good company in Mill, although he did not elaborate the idea as they have done. Mr. Hobson has until recently had just as wide an idea of monopoly,* although he has considered the subject more objectively than Professor Patten. In every part of the industrial field, and in nearly every bargain that is made between men and distribution is effected by bargaining we find a surplus, and to that surplus, until recently, Mr. Hobson has given the name of monopoly gain. Now, however, he has yielded to the present writer's criticism, and to this gain which is found in the ordinary bargain he applies the term " forced gain"; and that is the term which will be found employed in his new book, The Economics of Distri- bution^ He has given up his former all-inclusive idea of monopoly. * See, for example, Mr. Hobson's article, " The Law of the Three Rents," in the Quarterly Journal of Economics for April, 1891, pp. 267-8, and 273-4. t The writer has had the privilege of reading the manu- script, and, on account of the importance which he attributes THE IDEA OF MONOPOLY We thus reach the termination of one line of evo- lution. We begin with the large and somewhaf vague idea of any superiority over and above thaf enjoyed by those who simply have the opportunity* to compete freely with anybody, this superiority yielding surplus value; and we end with the doc- trine that all who participate in production enjoy a surplus over and above what are to them costs that is, over and above the real pains and other sacrifices they undergo in production, and thus we have our entire industrial society composed of mo- nopolists. The conclusion suggests itself that a satisfactory discussion of monopoly must be based on a more restricted idea of monopoly. It is necessary to return to the more ordinary usage of language. What monopoly really signifies when we think of it as the opposite of competition, is unity in man- agement of some kind of business* in some essential particular. It may be in production, it may be in sales, or it may be in purchases, or it may be in any two or all three of these particulars. It is the writer's belief that this is the only satisfactory use of the term monopoly, for it alone gives us a clear, scientific concept which is workable. We may, then, formulate this definition of monopoly : to the work, feels himself justified in referring to it, though it will be several months before it appears. * Business is used here in the widest sense, embracing not only material production, but services of every sort. 13 MONOPOLIES AND TRUSTS Mon opoly means that substantial uni ty of ^t^n C!* 17ieJ>arto fone or more persons engaged iff some kind of business which gives exclusive control, more Par-_ licularl yTalThough not solely, with respect to price. ^ A few points in our definition require comment. Price is essential, and must be regarded as the fundamental test of monopoly, even if it is obvious that price-formation and price-control do not ex- haust monopoly, since its import reaches beyond price. The other things than price-control which monopoly carries with it flow from such control and are not secure without it. A certain unity of action may be obtained without the establishment of monopoly, since it does not give rise to monopoly until the power to control price is secured. Again, it may seem needless to put in " on the part of one or more persons," because it would appear to be a matter of course, and yet it is required to complete our concept. We may have a monopoly of one person, and one person may act in such a manner as to receive the advantages of unified control and if a person is mentally competent he will so act ; or we may have a monopoly controlled by a combination of persons. The essence of monopoly, then, is substantial and controlling unity of action. It is not said that unity of action need be absolute, but there must be sub- stantial unity of action. Those in control of a mo- nopolized business act as one man, as one person, and they gain the advantages, whatever they may be, great or small, of unified action. Professor 14 THE IDEA OF MONOPOLY Sidgwick has spoken about the possibility of a mo- nopoly which would not prevent price from falling below cost. That is quite possible and quite com- patible with the definition given. The advantage of unified action may be that the loss is diminished. There would then be a negative advantage. Some- times a monopoly will give perhaps simply normal returns ; sometimes there is loss, as in the case of an unprofitable copyrighted book ; sometimes it might happen that the monopoly price would be exactly the same as the competitive price ; some- times it may go, and generally will go, above the competitive price,* although there might be other gains than that resulting from higher price. But whatever the gains resulting from unified action, they belong to monopoly. Monopoly signifies this unity of action, this unity of control in business. If eighty per cent, of a business gives substantial and controlling unity in the business that is, if those who own eighty per cent, of the business are able to control it and make everything act in accord- ance with their policy, then we have monopoly, f * This point is discussed in chap, vi., pp. 221-225. t According to Mr. Henry O. Havemeyer, President of the American Sugar Refining Company, a man producing eighty per cent, of an article has a monopoly. The follow- ing are extracts from his testimony given before the "Joint Committee of the Senate and Assembly of New York State " in 1897 (the so-called Lexow Trust Committee), and are instructive in this connection : " It goes without saying that a man who produces 80 per cent. 15 MONOPOLIES AND TRUSTS The precise definition given here of monopoly appears in the main to be in accordance with the best English usage, and also to be in harmony with the meaning given to the corresponding word in other modern languages by those who use these languages with discrimination. The etymological history of a word is not deci- sive, but it is something which throws at least a side- light on the meaning of terms, and should not be neglected. The word monopoly is traced through the Greek nouns fMovorrcoXiov and fiovotraikia, to the two Greek words fwvos (alone) and ircoXelv (to sell). of an article can control the price by not producing; the price must advance if he does not produce ; and it must decline if he does pro- duce, if he produces more than the market will take." And a little further on he again states this in reply to a question : " It goes without saying that a corporation that controls 80 per cent, of the product does control the market price up to the import- ing point, if he chooses to exercise that power, for it goes without saying that that same power can be exercised to diminish the price ; when you ask whether it was the idea in mind on the formation of the company, I would say that I do not think it was ; that testi- mony wants to be read in connection with what went before it and with the objects of that investigation. " Then follows this question : "Then, according to your present version of it, in any event, whether it was your object or not, that object was reached by rea- son of your controlling 80 per cent, of the product ; you do in fact control the product and price in the United States ?" To which the answer was given : "We undoubtedly do." 16 THE IDEA OF MONOPOLY Movo7rco\ia means, first, simply exclusive sale, but it is natural to extend it so as to signify the exclusive right or power of sale, and the latter meaning is the one given in the dictionaries for /xovottcoXiov. The meaning of the Greek words is something which is reflected in the corresponding modern words, and those who employ language with fine discrimination have, in this case at any rate, not forgotten the Greek source of the terms monopoly and monopolist. The makers of dictionaries of the English lan- guage should be heard before a final decision is reached concerning the meaning of terms, especial- ly those employed in familiar discourse, but it is sufficient for present purposes to cite Webster's International Dictionary and the Century Diction- ary, as these two give all the essential points. Webster's definition is as follows : " The exclu- sive power, right, or privilege of selling a com- modity; the exclusive power, right, or privilege of dealing in some article or of trading in some mar- ket ; sole command of the traffic in anything, how- ever obtained ; as the proprietor of a patented ar- ticle is given a monopoly of its sale for a limited time ; chartered trading companies have sometimes had a monopoly of trade with remote regions ; a combination of traders may get a monopoly of a particular product." After saying this, Webster gives a quotation from Macaulay: "Raleigh held a monopoly of cards ; Essex of sweet wines." Web- ster gives two other definitions : " Exclusive pos- b 17 MONOPOLIES AND TRUSTS session, as a monopoly of land "; and " The com- modity or other material thing to which the mo- nopoly relates ; tobacco is a monopoly in France." In the Century Dictionary, we find the same idea namely, that monopoly means exclusive control: " An exclusive privilege to carry on a traffic." It is the same idea which is found in Blackstone also, as is seen in the quotation given from him in the Century Dictionary. It is as follows : " Monopolies are much the same offences in other branches of trade that engrossing is in provisions, being a li- cense or privilege allowed by the king for the sole buying or selling, making, working, or using of any- thing whatsoever ; whereby the subject in general is restrained from that liberty of manufacturing or trading which he had before."* Here we find monopoly applied to manufacturing and trading, and the privilege is granted by the king. That was the old idea of monopoly, as we shall see. The older monopolies, those which are mentioned in Bills of Rights and elsewhere in the constitu- tions of the American states, are these exclusive grants. A monopoly in these instruments signifies what is given in the Century Dictionary under "2" as belonging to English constitutional law and hence sometimes to American law name- ly, " An exclusive privilege when granted by the Crown or the State to an individual, association, or corporation for the sake of the pecuniary advantage * Blackstone's Commentaries, chap, iv., p. 1 59. 18 THE IDEA OF MONOPOLY of its exclusiveness." Whatever advantage comes from such exclusiveness belongs to monopoly. In the older English law a distinction was made be- tween engrossing and monopolies. Engrossing was not an exclusive privilege granted by the state, but an exclusive control secured by buying up and cornering the article. We do not now make this distinction.* The Century Dictionary seems to confine mo- nopoly to something objectionable. It speaks of exclusive privileges granted for regulation as not * Regrating and forestalling were in English law special kinds of monopolistic enterprises which grew up out of the conditions of early English life. The following definitions are taken from Beach's Monopolies and Industrial Trusts, pp. 5 and 6: " ' Regrating. In old English law, the offence of buying or get- ting into one's hands at a fair or market any provisions, corn, or other dead victual, with the intention of selling the same again in the same fair or market, or in some other within four miles thereof, at a higher price. The offender was termed a regrater. ' Black, Law Dictionary. " ' Regrating. In criminal law every practice or device, by act, conspiracy, words, or news, to enhance the price of victual or other merchandise, is so denominated.' " ' Forestalling the market. The act of buying or contracting for any merchandise or provision on its way to the market with the intention of selling it again at a higher price; or the dissuading per- sons from bringing their goods or provisions there ; or persuading them to enhance the price when there. 4 Blackstone's Commen- taries, 158. This was formerly an indictable offence, but is now abolished by St. 7 and 8 Vict., chap, xxiv.' Black, Law Diction- ary. See also Bouvier, title, Forestalling the Market." These distinctions have at present chiefly an historical and psychological interest. 19 MONOPOLIES AND TRUSTS deemed monopolies as the privilege of engaging in banking, carrying on a liquor business, etc. But then the Century Dictionary goes on to say that such a privilege would be a monopoly if granted to a limited number, to one or to a few. This distinction has meaning only as it points to the power of one or a few to exercise unified con- trol over a business. Patents and copyrights are not called monopolies by the Century Diction- ary. The third definition given by this dictionary is for the word as used in political economy and in a general sense in law : " Such an exclusive privilege to carry on a traffic or deal in or control a given class of articles as will enable the holder to raise prices materially above what they would be if the traffic or dealing were free to citizens generally." As an illustration, mention is made of the exclu- sive control of the only land from which a certain product can be obtained, such as rare mineral waters, earths, or ores ; and it is stated that busi- nesses over which such exclusive control is exer- cised are sometimes spoken of as natural monopo- lies in contrast to artificial monopolies. Continuing the definitions of the Century Diction- ary, we find in the fourth place that monopoly means " that which is the subject of monopoly, as opium in Bengal." Then, fifth, "the possession or assumption of anything to the exclusion of other possessors : thus, a man is popularly said to have a monopoly of any business of which he has acquired 20 THE IDEA OF MONOPOLY complete control." Sixth, " a company or corpora- tion which enjoys a monopoly." Furthermore, attention is called by the Century Dictionary to a distinction which is sometimes found in law between monopolies and virtual mo- nopolies. Virtual monopoly is stated to be a term found in constitutional law and in the history of legislation, the appropriate application of which is in dispute. It is "used to characterize a busi- ness which, though not declared by law to be a monopoly or exclusive franchise protected as such, as by a patent or exclusive charter, is yet so re- lated to the great channels and currents of com- merce that the allowing of it to enjoy the same protection as other private property and business secures to it indirectly exclusive advantages sub- stantially equivalent to a legal monopoly." The great grain elevators are given as an illustration. It is seen that there runs through all these mean- ings the notion of exclusiveness or unity as the dominating thought, as the essential thing for which the mind is more or less successfully struggling and the thought about which other things are grouped. Exclusive unity in business is what monopoly sig- nifies. The business is unified and others are kept out of it, except those who act with the combina- tion, if it is a combination. If it is only one per- son, then necessarily there is a monopoly. Strictly speaking, monopoly originally means the exclusive right to sell and not to buy or produce. The right of sale is emphasized by all of these def- MONOPOLIES AND TRUSTS initions. The Germans have a word, " Regal," which has sometimes been employed to indicate the ex- clusive right of manufacturing as opposed to the exclusive right of selling, and for this we could use the Latin word "regale." Such a distinction is, however, not usually made now, in either the Ger- man or the English language, but the word " mo- nopoly" (" Monopol " in German) is employed to cover both selling and manufacturing. Blackstone, in the quotation given, uses the term monopoly with reference to manufacturing. As the economists, to whom it peculiarly be- longs, have so generally failed to give any clear and concise notion of monopoly, it need not ex- cite surprise that the law has been confused and perplexed when it has had to deal with problems of monopoly; so that judicial utterances and de- cisions have been unsatisfactory to all interests in- volved, and frequently contradictory one with an- other in their interpretations. Two points in the legal treatment of monopoly, however, deserve con- sideration. One is the entirely sound tendency to emphasize unified control of business as an essen- tial characteristic of monopoly. Lord Coke, in the seventeenth century, laid emphasis upon the ex- clusive notion of monopoly, when he said that it consisted of power granted " to any person or per- sons, bodies politic or corporate, for the sole buy- ing, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any free- THE IDEA OF MONOPOLY dom or liberty that they had before, or hindered in their lawful trade."* Blackstone, in his Commen- taries on the Laws of England, gave almost precisely the same definition in the following century. Re- cent American decisions lay emphasis on exclusive- ness as a test of monopoly. The following extract brings out with exceptional clearness this peculiar- ity of monopoly : " A monopoly exists where all or so nearly all of an article of trade or commerce within a community or district is brought within the hands of one man or one set of men, as to practically bring the handling or production of the commodity or thing within such single control, to the exclusion of competition or free traffic therein. Anything less than this is not a monopoly." f Mr. F. H. Cooke, in his Trade and Labor Combinations, similarly defines monopoly as the " exclusive right of selling.":}: The second legal point in the definition of mo- nopoly is that which makes monopoly proceed from an express grant of public authority. Lord Coke says : " A monopoly is an institution or allowance by the king, by his grant, commission, or other- Coke, 3 Institutes, 181. Quoted by C. F. Beach, Sr., in his Monopolies and Industrial Trusts, 5. f See Herriman vs. Menzies, 115 Cal., 16, 20; Supreme Court, 46 Pac. Rep., 730 (1896). Quoted by F. H. Cooke in his Trade and Labor Combinations, part ii., 18, foot- note 1, p. 95. For pertinent utterances in other decisions, see the numerous quotations in the foot-notes accompany- ing part ii. of that work. \ Cooke, ibid. 23 MONOPOLIES AND TRUSTS wise " ; and Blackstone uses similar language in defining monopoly "as a license or privilege allowed by the king." Historically, this source of monopoly power is of paramount importance. From early times, English sovereigns granted monopolies either for public or private reasons, and they became a grievous bur- den. Queen Elizabeth in particular sinned in this respect, regarding the right to grant monopolies as " one of the fairest flowers " in her prerogative, and it was not long before the citizen found himself re- strained and shut in on every side by a privileged class of monopolists. Hume, in his History of England, describes forcefully the extent to which monopolies have existed in England, and in vivid language he portrays evils which proceeded from them. The following quotation is of such import- ance in this connection as to justify its length : "The active reign of Elizabeth had enabled many persons to distinguish themselves in civil and military employments ; and the queen, who was not able from her revenue to give them any rewards proportioned to their services, had made use of an expedient which had been employed by her predecessors, but which had nev- er been carried to such an extreme as under her admin- istration. She granted her servants and courtiers pat- ents for monopolies; and these patents they sold to others, who were thereby enabled to raise commodities to what price they pleased, and who put invincible re- straints upon all commerce, industry, and emulation in 24 THE IDEA OF MONOPOLY the arts. It is astonishing to consider the number and importance of those commodities which were thus as- signed over to patentees. Currants, salt, iron, powder, cards, calf-skins, fells, pouldavies, ox-shin bones, train- oil, lists of cloth, potashes, aniseseeds, vinegar, sea-coals, steel, aqua-vitae, brushes, pots, bottles, saltpetre, lead, accidences, oil, calamine -stone, oil of blubber, glasses, paper, starch, tin, sulphur, new drapery, dried pilchards, transportation of iron ordnance, of beer, of horn, of leather, importation of Spanish wool, of Irish yarn : these are but a part of the commodities which had been appropriated to monopolists. When this list was read in the House, a member cried, ' Is not bread in the num- ber?' ' Bread,' said every one with astonishment. 'Yes, I assure you,' replied he, ' if affairs go on at this rate, we shall have bread reduced to a monopoly before next Par- liament.' These monopolists were so exorbitant in their demands that in some places they raised the price of salt from sixteen pence a bushel to fourteen or fifteen shillings. Such high profits naturally begat intruders upon their commerce ; and, in order to secure themselves against encroachments, the patentees were armed with high and arbitrary powers from the council, by which they were enabled to oppress the people at pleasure, and to exact money from such as they thought proper to accuse of interfering with their patent. The patentees of saltpetre, having the power of entering into every house, and of committing what havoc they pleased in stables, cellars, or wherever they suspected saltpetre might be gathered, commonly extorted money from those who desired to free themselves from this damage or trouble. And while all domestic intercourse was thus restrained, lest any scope should remain for indus- 25 MONOPOLIES AND TRUSTS try, almost every species of foreign commerce was con- fined to exclusive companies who bought and sold at any price that they themselves thought proper to offer or exact. " These grievances, the most intolerable for the pres- ent, and the most pernicious in their consequences that ever were known in any age or under any government, had been mentioned in the last Parliament, and a peti- tion had even been presented to the queen, complaining of the patents ; but she still persisted in defending her monopolists against her people. A bill was now intro- duced into the Lower House, abolishing all these mo- nopolies ; and, as the former application had been un- successful, a law was insisted on as the only certain expedient for correcting these abuses. The courtiers, on the other hand, maintained that this matter regarded the prerogative, and that the Commons could never hope for success, if they did not make application, in the most humble and respectful manner, to the queen's goodness and beneficence. The topics which were advanced in the House, and which came equally from the courtiers and the country gentlemen, and were admitted by both, will appear the most extraordinary to such as are pre- possessed with an idea of the privileges enjoyed by the people during that age, and of the liberty possessed under the administration of Elizabeth. It was asserted that the queen inherited both an enlarging and a re- straining power; by her prerogative she might set at liberty what was restrained by statute or otherwise, and by her prerogative she might restrain what was other- wise at liberty: that the royal prerogative was not to be canvassed, nor disputed, nor examined; and did not even admit of any limitation : that absolute princes, such 26 THE IDEA OF MONOPOLY as the sovereigns of England, were a species of divinity: that it was in vain to attempt tying the queen's hands by laws or statute ; since, by means of her dispensing power, she could loosen herself at pleasure : and that even if a clause should be annexed to a statute, exclud- ing her dispensing power, she could first dispense with that clause and then with the statute. After all this discourse, more worthy of a Turkish divan than of an English House of Commons, according to our present idea of this assembly, the queen, who perceived how odious monopolies had become and what heats were likely to arise, sent for the Speaker, and desired him to acquaint the House that she would immediately cancel the most grievous and oppressive of these patents. " The House was struck with astonishment and admi- ration and gratitude at this extraordinary instance of the queen's goodness and condescension. A member said, with tears in his eyes, that if a sentence of ever- lasting happiness had been pronounced in his favor he could not have felt more joy than that with which he was at present overwhelmed. Another observed that this message from the sacred person of the queen was a kind of gospel or glad tidings, and ought to be received as such, and be written in the tablets of their hearts." * Our forefathers were so deeply impressed with * Hume's History of England, vol. iv., chap. xliv. The great "case of monopolies " in 1602 conveyed a somewhat different impression concerning the subserviency of the English citizen, for it was at that time and place distinctly asserted that "Commonweals are not made for Kings, but Kings for Commonweals." See William Noy, Reports and Cases, 2d ed., London, 1669, p. 178; cf. also p. 174. 27 MONOPOLIES AND TRUSTS the evils which they had suffered at the hands of the monopolists in old England that in the Bills of Rights and elsewhere in the early constitutions of our commonwealths they frequently inserted severe denunciations of monopolies, and prohibited them unqualifiedly; and these declarations and prohibi- tions still last in several states. Two illustrations will suffice. We read the following utterance in Article 39 of the Declaration of Rights which forms part of the constitution of Maryland: " Mo- nopolies are odious, contrary to the spirit of a free government and the principles of commerce, and ought not to be suffered." And the people of Texas still cherish Section 26 of Article I. of their constitution, which among other things declares that " monopolies are contrary to the genius of a free government, and shall never be allowed." While the spirit of monopoly is as old as man, there was until this century comparatively little opportunity for monopoly on any large scale save as it proceeded from express grants of public au- thority. These grants were sometimes made for public purposes, as Hume intimates was frequently the case in the reign of Queen Elizabeth, and some- times they proceeded from downright abuse of monarchical power, and were granted to favorites of royalty. We cannot now stop to discuss their merits and demerits, but call attention to the fact that they became odious, and were prohibited both in England and in this country, exception being made of patents, copyrights, and trade-marks. At 28 THE IDEA OF MONOPOLY the present time, however, monopolies proceed from the nature of industrial society, and are of far greater significance in our economic and political life than ever before. The really serious monopo- lies of our day are far more subtle, and have for the most part grown up outside of the law, and even in spite of the law. It implies a failure to recognize the most obvious social facts to limit the term monopoly to exclusive privileges expressly granted by the legislative branch of government. It is one thing to open one's eyes and see the clear facts of industrial society; it is another thing to seek for their underlying causes. We may well classify monopolies in accordance with their source, but we may not without serious error refuse the term monopoly to all classes of monopolies save those granted by public authority. The reluct- ance of courts to extend the term monopoly is simply another illustration of the well-known but unfortunate fact, so often commented on, that our law has not kept pace in its development with our industrial evolution. Fortunately, however, our legal authorities begin to perceive the neces- sity of an extension of the term monopoly. Thus Mr. F. H. Cooke, in his already cited Trade and Labor Combinations, uses these words : " Within a comparatively recent period the conception of a monopoly has been extended from a right created by government, to a condition produced by the acts of mere individuals; thus, where within a given area all sales of a given article are made by a single 29 MONOPOLIES AND TRUSTS individual or set of individuals."* And in a foot- note he adds the following important observation, including a quotation from a decision of a Federal court : " So revolutionary has been the recent ex- tension of the meaning attached to the word ' mo- nopoly ' that there is even a tendency to wholly ex- clude what was originally covered by the term. With reference to the use of the term ' monopo- lize' in the Federal and Louisiana anti- trust acts, it is said in American Biscuit & Manufacturing Company vs. Klotz, 44 Fed. Rep., 721 (Circuit Court, Louisiana, 1891): 'In construing the Fed- eral and State statutes we exclude from consid- eration all monopolies which exist by legislative grant; for we think the word "monopolize" cannot be intended to be used with reference to the ac- quisition of exclusive rights under government con- cession, but that the law-maker has used the word to mean "to aggregate" or "concentrate" in the hands of few, practically, and as a matter of fact, and according to the known results of human ac- tion, to the exclusion of others.' " It is, however, going to an opposite extreme to refuse the term monopolies to " the acquisition of exclusive rights under government concession." A particular statute may have required this limita- tion, but in the nature of things there is no pro- priety in limiting thus arbitrarily the meaning of words. It is confounding two orders of inquiry to * Cooke, /. c, part ii., 18, pp. 94, 95. 30 THE IDEA OF MONOPOLY say that a word stands for such and such ideas, and then to refuse the word-sign to those ideas when they operate in a given manner that is to say, bene- ficially or injuriously. We must let the term stand for a clear and definite idea, and when we have de- cided what the nature of the idea is, we may then endeavor to ascertain under what circumstances the thing described operates advantageously, and under what circumstances, disadvantageously. We have no right to assume without inquiry that monop- olies are either good or bad. It is precisely this sort of assumption that is responsible for the un- satisfactory progress which we have made in the discussion of monopolies, when we consider this discussion either in its immediately practical or its purely scientific aspects. There is thus no pro- priety in saying that patents or copyrights are not monopolies, for their essential idea is precisely mo- nopoly ; and, similarly, there is no propriety in us- ing the term virtual monopolies for monopolies not based on government concession. Likewise, the limitation of monopoly, as by Coke and Blackstone, to old pursuits or businesses, making monopoly in- clude only a grant " whereby the subject in general is restrained from the liberty of manufacturing or trading which he had before," is purely arbitrary and unscientific. We must anticipate our classification of monopo- lies sufficiently to state that we have partial monop- olies as well as complete monopolies, as this state- ment adds to the fulness of our idea of the term. 3i MONOPOLIES AND TRUSTS We have a partial monopoly where there is a unified control over a considerable portion of the industrial field, but not over a sufficient portion to give com- plete domination of the whole field. It can easily be understood that if ninety per cent, of a given business, but no smaller percentage, would afford control over the whole business, eighty per cent., while it would not be sufficient for domination, might carry with it an advantage to the person or persons enjoying unified control over the eighty per cent., yielding an excess above competitive re- turns which we may properly designate as one sort of surplus value. Businesses must often be in this position, and a monopoly may be obliged to go through several stages of partial monopoly before it reaches a position where it can exercise unified control over the entire business. But we must distinguish sharply between a con- dition of monopoly and other conditions, if we are to think clearly and accurately. One thing which does not yield monopoly is mere limitation of sup- ply, and it is strange that even an economist of the ability of John Stuart Mill should have found the essential feature of monopoly in this limitation ; for this at once makes monopoly cover the entire field of economic activity, inasmuch as economic activity is for the acquisition of valuable things, and things lack value whenever their supply is adequate for the satisfaction of all wants. It is only things limited in proportion to human desires that have value. 32 THE IDEA OF MONOPOLY Nor may we say that a valuable thing is monop- olized because its supply is limited and also grad- ed in quality. Land exists in quantities to which physical nature has assigned limits, and the supply of land exists in grades varying in fertility and de- sirability of situation, and as a consequence of this gradation we have the rent of land. Land is not, however, a monopoly, and it is misleading to speak of it as a natural monopoly. Nowhere do we find monopoly either in the ownership or in the culti- vation of land, but everywhere competition com- petition among unequals, to be sure, but still com- petition. As we have already seen in a quotation from John Stuart Mill, a unified control over land would carry with it the entire subjugation of all non-landowning classes.* *- Land-rent is a differential gain, a gain due to the superiority of the land owned by rent-receivers over that cultivated by those who are making use of land which affords nothing beyond returns to labor * The Bible describes the outcome of a monopoly in food supply in the account given of the operations of Pharaoh under the guidance of Joseph. All the money in the land was first given for food, " and Joseph brought the money into Pharaoh's house." The people of Egypt next ex- changed all their herds of cattle for food, and then they said to Joseph : " Buy us and our land for bread, and we and our land will be servants unto Pharaoh : and give us seed, that we may live, and not die, that the land be not desolate." Then it came to pass that the " land became Pharaoh's," and thereafter he had a fifth part of its prod- uce. Genesis, chap, xlvii. C 33 MONOPOLIES AND TRUSTS and to capital. Now we must distinguish between the broad concept of differential gains enjoyed by those in competitive pursuits, and the monopolistic gains which are based on the absence of competi- tion. Just as sharply must we distinguish between com- petitive businesses of large magnitude and monop- olies. Department-stores in no city in the world enjoy monopolies, but are subjected to the steady, permanent pressure of competition. There are those who call every business operating on a vast scale monopoly, and would put in the same eco- nomic category a gas-works without a competitor and a huge retail dry -goods establishment with rivals at every hand, ready to seize every oppor- tunity for an advantage over it and certain to ruin it if its managers relax their intense activity and watchfulness.* This implies a confusion of thought which must be removed before popular discussions of monopolies can become fruitful. It may or may not be true that a mammoth department-store is a serious evil ; with that we are not now concerned ; we wish to make clear that it is not a monopoly, precisely because competition and monopoly are opposites. * What could appear to be more solid than the immense business which Mr. A. T. Stewart a quarter of a century ago had built up in New York city ! How quickly after his death did it melt away in less competent hands ! And how different from a gas monopoly, due not to individual capacity, but to the nature of the business ! 34 THE IDEA OF MONOPOLY Furthermore, we must sharply distinguish be- tween mere combination and monopoly, for com- bination of every sort is called monopoly in popular parlance, however severe the competition may be under which the combination works. For example, the Grape-growers' Union in Chautauqua county, in western New York, has been called a monopoly, al- though during the period of its existence, the com- petition among grape-growers has been so severe that the price has been below cost the greater part of the time. Again, it is essential to emphasize the fact that we may have substitutes for monopolized services and commodities. Perhaps the only case in which substitution would be impossible would be that of the entire food supply. If the land-owning or cul- tivating class could combine, they could monopo- lize the entire food supply ; and for this there would be no substitute. When there is a substitute for an article, the article may be monopolized just as well, and that does not interfere with the concept. If we have a complete monopoly of the street-car traffic, it does not follow that there may not be substitutes for the use of the street-cars. You may walk, if you please ; you may ride in a cab, if you please. But it is contrary to the idea of monopoly to say that an article is not monopolized because such and such substitutes are used for it. The use of substitutes is consistent with monopoly, and we nearly always have them. For almost anything we can think of, there is some sort of a substitute more 35 MONOPOLIES AND TRUSTS or less perfect, and the use of substitutes furnishes one of the limits to the power of the monopolist. In the consideration of monopoly we have to ask, what are the substitutes, and how effective are they? Finally, we must consider briefly the use of the word monopoly in economics to mean unified con- trol. First of all, in this connection, a personal word. The present writer uses the word monop- oly for unified control in his Problems of To-day, published in 1888, but in that work he follows Mill in the mistake of calling land a natural mo- nopoly. This, however, is out of harmony with the rest of the discussion in the Problems of To- day ; for it is there said, " there is one natural monopoly which stands apart by itself with pe- culiar qualities. It is land." Later in the same book (p. 124), it is said, " For one man to attempt to get a monopoly in farming is an absurdity." Steady, permanent pressure of competition is made decisive. Then, in the Introduction to Political Economy (p. 161), written in the following year (1889), land is ruled out in so many words. It is said of land, "it is a limited factor, but in the ownership or management of land there is no inevitable tend- ency to monopoly." In the Outlines of Economics, published in 1893, this definition of monopoly is framed: "Monopoly is nothing else than a busi- ness not limited by competition. A monopoly results whenever one competitor enjoys certain 36 THE IDEA OF MONOPOLY advantages which the other competitors cannot obtain, and the process of competition goes on far enough to drive them from the field." That is on page 59, and on page 295 the same defini- tion is repeated. Again, land is expressly ruled out, and the idea of business in one hand is made decisive. Then the writer's ideas of monopoly are still further formulated in the magazine Progress, in a series of articles written in 1898-99, but not so fully as in his lectures on the " Distribution of Wealth," which have been delivered in the University of Wisconsin during the past seven years. This same idea of monopoly is given by Walras in his Pure Economics, second edition, 1889.* Wal- ras dwells upon the absurdity of that enlarged idea of monopoly in earlier economic writings, which makes it cover the entire industrial field. He says that Mill and others claimed that it means scar- city, whereas, if it did, then, of course, we could not have value without monopoly, as value implies scarcity. Professor Lexis, who wrote the article on mo- nopoly in the Handworterbuch der Staatswissen- schaften,\ gives a characteristic of monopoly which harmonizes with the author's concept, although he does not carry it out consistently. He says it * The writer did not read Walras, however, until May, 1899, when this work had already been fully developed in its essential thoughts. t Edited by Conrad, vol. iv., 1892. 37 MONOPOLIES AND TRUSTS " means unified tactics with respect to price." But it means other things as well.* * The purpose of the latter part of this discussion of the use of the word monopoly by economists is to bring out certain facts of scientific interest and to fix certain dates. For a further word on this subject, see the Preface. It may be well to remind the reader again that differ- ences in terminology do not of necessity imply differences in essential ideas. While the author regards the extension of the term monopoly, to which attention has been called, as unfortunate both in its theoretical and practical con- sequences, he is not by any means opposing all that has been said about monopoly by the economists who have em- ployed monopoly to cover so many things ; but, on the con- trary, is carrying forward and developing further their ex- cellent work. 38 CHAPTER II THE CLASSIFICATION AND CAUSES OF MONOPOLIES As our first step in the discussion of monopolies is the definition of monopoly, so the second step is the classification of monopolies, with an examina- tion of their causes. What we need here as else- where in the scientific and popular discussions of economic problems is analysis, for the tendency in discussions of both kinds is to generalize too hasti- ly. The inclination is to say that monopolies are bad, or perhaps sometimes a desire may be dis- covered to say that on the whole they are good. Analysis, however, may reveal such differences in monopolies that we shall be able to say little if anything applicable to all monopolistic businesses save the simple statement that over them unified control is exercised in other words, that they are monopolies ! One further preliminary observation suggests itself namely, that classification of monopolies is not only based upon their causes, but reveals their causes ; consequently they may best be discussed together. 39 MONOPOLIES AND TRUSTS The first great separation of monopolies is into two main classes, and it has regard to ownership and the direct and immediate beneficiary. The two classes are : A. Public Monopolies. B. Private Monopolies.* Public Monopolies are those businesses which are owned and operated by some political unit, and this political unit is the direct and immediate beneficiary; in other words, to this political unit in the first place flow all the benefits of monopoly. A Private Monopoly, on the other hand, is a monopoly owned and operated by a private person; it may be a natu- ral person that is, a human being or some associa- tion of natural persons, as a partnership, or it may be the artificial person called a private corporation. In this case the first and immediate beneficiary of the benefits of the property and business is the private person, although large benefits may flow to the general public. We may also have mixed monopolies, as where a political unit owns monopolistic property which is managed by a private person, or where a private person owns monopolistic property, which is man- aged by a public agency. The former case is illus- trated by those railways owned by our common- * In our classifications the co-ordinate classes will be in- dicated by the same letters or marks. The capital letters will indicate the chief classes; the Roman numerals, classes subordinate to them ; and the Arabic, classes subordinate to those indicated by Roman numerals, and so on. 40 CLASSIFICATION AND CAUSES wealths or cities* and operated by private corpora- tions; the latter case finds illustration in privately owned railways operated by the State.f There are private corporations which have what is called a quasi-public character, because the busi- nesses owned and managed by them are of vital importance to society at large, and because soci- ety, through government, reserves special rights of regulation over their business operations. When, however, these businesses are monopolies, they fall within the class of private monopolies. They are privately owned, and the benefits of private prop- erty flow directly and immediately into private pockets.:}: It is believed that this great funda- mental distinction between public and private mo- nopolies is essential both to clear thinking and to sound public policy. Whoever undertakes to tell us what is true about monopolies, and what is wise for society to do with respect to monopolies, must make it plain whether he is talking about public monopolies or whether he is discussing pri- vate monopolies. * The North Carolina railroad, owned by North Carolina, and leased to the Southern Railway Company, and the Cin- cinnati Southern railroad, built and owned by Cincinnati, and leased to the Cincinnati, New Orleans, and Texas Pacific Railway Company, afford illustrations. t This formerly happened frequently in Prussia. I Our courts protect private property in railways, gas- works, etc., even while recognizing that they have public functions. 4i MONOPOLIES AND TRUSTS The second classification of monopolies is made with reference to the source of monopoly- power, and is based upon a different principle of classifica- tion, so that this second classification will cut across the first. We have again two main classes, and these are: A. Social Monopolies.* B. Natural Monopolies. A Social Monopoly is a monopoly which arises out of social arrangements and is an expression of the will of society as a whole, through government, or of a * Social monopolies are often called artificial monopo- lies, and in the author's previous works they are so called; but the term social monopolies appears to be a better term than artificial monopolies, because the word artificial carries with it a certain criticism, which anticipates the argument concerning their effects. It is preferable to discuss them hereafter and find out whether they are objectionable or not. In our classification, however, it is better not to imply a reproach unless it is necessary; but in some cases the term itself of necessity might convey a reproach. The term social monopolies, like all terms in economics, is more or less arbitrary, but it seems to point to the essence of these monopolies and to do as little violence to the ordinary usages of language as any term which could be employed. The term natural monopolies is a convenient designa- tion, and since the author's Problems of To-day appeared, it has become so widely accepted that it could not easily be changed. Shortly after the appearance of that book, how- ever, he was reproached by economists who had read it carelessly, because they thought that he wished to place land and enterprises like gas-works in the same category ! 42 CLASSIFICATION AND CAUSES section of society strong enough to impose its will on society. A Natural Monopoly, on the other hand, is a monopoly which rests back on natural arrange- ments as distinguished from social arrangements. The term natural here is used in its well-under- stood and customary sense, to indicate something external to man's mind. A natural monopoly is one which, so far from giving expression to the will of society, grows up apart from man's will and de- sire, as expressed socially, and frequently in direct opposition to his will and desire thus expressed. Social monopolies and natural monopolies may be divided into classes and sub-classes, as follows : A. SOCIAL MONOPOLIES. I. General Welfare Monopolies. i. Patents. 2. Copyrights. 3. Public Consumption Monopolies. 4. Trade-marks. 5. Fiscal Monopolies. II. Special Privilege Monopolies. 1. Those based on Public Favoritism. 2. Those based on Private Favoritism. B. NATURAL MONOPOLIES. I. Those arising from a Limited Supply of Raw Material. II. Those arising from Properties Inherent in the Business. III. Those arising from Secrecy. 43 MONOPOLIES AND TRUSTS It is necessary to explain further the various mo- nopolies which appear in this second classification, which is not only the most elaborate, but, for scientific and practical purposes, the principal classi- fication, when once we have thoroughly grasped the fundamental distinction between public monopolies and private monopolies. We have first, then, General Welfare Monopo- lies, those monopolies which society, through gov- ernment, has established to promote the general welfare. Most of these are simple enough. We have patents. In order to encourage invention, the government grants an exclusive right to the use of some idea for a limited time. The evil of monopoly is generally acknowledged by the advocates of the patent system, but it is said that the benefits de- rived from invention are a sufficient counterpoise or offset ; that society does better to put up with the evils of monopoly of the idea for a time, with the encouragement to invention which it gives, than it would to refuse thus to encourage invention. The monopoly is a limited one in time, and very prop- erly so, because the idea itself is quite largely a so- cial product. We can trace that out in every great invention. That is the reason why the same in- vention is often made in two or three countries at the same time. A given stage in the industrial arts suggests certain improvements. Men are working in different places to effect these improvements, and two or three at the same time frequently hit upon the same improvement. If these two or three 44 CLASSIFICATION AND CAUSES had not made the invention, it would have been made almost invariably, but a little later perhaps, by others. The race is stimulated, it is maintained, and, on the basis of experience, we may believe truly, by the reward. It does not seem quite fair, in one way. If you and I are racing, and one gets in five feet ahead of the other, he receives all the reward. It may be that one gets his invention in just a few days ahead of the other, and has all the reward, but nothing better has yet been devised than a well -guarded patent system. The only thing is to make sure that it protects both public and private interests. But the remedies for abuses of the patent system will be discussed briefly when we come to consider remedies for the evils of mo- nopolies. The case of copyrights is somewhat similar. We need not dwell upon them more than to say that they interfere less with industrial liberty than do patents. No two persons can produce quite the same book ; whereas two persons can make precisely the same invention, as is illustrated by the telephone. The Germans do not acknowledge the claim of Bell or of Morse to the telephone or the telegraph, as they have their own men to whom they attribute these inventions; and without any desire to detract from the services of these distinguished Americans, it must be frankly admitted that it is difficult to decide to whom among rival aspirants for the honor of priority, the palm is to be awarded, because the inventions were made at about the same time in the 45 MONOPOLIES AND TRUSTS United States and Germany. But a German and an American never wrote the same book or com- posed the same piece of music, because variety along these lines is infinite. At the same time, there are some who claim that there is reason why an author should have a perpetual right conferred. But this view is not sound. Man's intellect is a social as well as an individual product, and every man's work likewise is a social as well as an individual product. We could not have a Shakespeare in Africa. His genius was largely the result of life in England at a certain time. So it is with the work of every man, and if we were to make copyrights per- petual, we would then allow descendants to live upon the intellectual product of a man who is dead and gone. As a witty essayist has said, had per- petual copyrights been established in the time of Shakespeare, we would still be paying royalties to multi-millionaire heirs, doubtless Dukes of Shake- speare, for the privilege of reading the works of the immortal bard, although the sole social service of these heirs consisted in being born into this world to live in idle luxury! The purpose of copyright is to reward and to encourage service, and not to allow remote descendants to derive a support from those who have performed this service. The aim of these remarks is simply to show what society as a matter of fact seeks in copyrights. Public Consumption Monopolies are monopolies designed to regulate consumption beneficially ; either to promote some desirable consumption or 46 CLASSIFICATION AND CAUSES to restrict and confine within limits deleterious consumption. We have a number of public consumption monopolies. Whiskey and alcoholic beverages furnish the chief illustration. Thus we have the so-called alcohol monopoly in Switzer- land, the federal government having a monopoly of the manufacture* and wholesale trade in dis- tilled liquors ; that its aim is to regulate and con- fine within limits the traffic in distilled spirits, is made manifest when we learn that a part of the governmental profits are used to fight the alcohol evil through educational measures. The South Carolina dispensary system affords another illus- tration. As is well known, it establishes a State monopoly of sales. It seems to be gaining favor and making headway. It is, however, simple enough, and we need not dwell upon it longer, for to do so would carry us to one side of our present purpose.^ Trade-marks are of more significance than one * The Swiss federal government may make contracts with home or foreign distillers for the manufacture of dis- tilled liquors. Cf. Vincent's State and Federal Government in Switzerland, chap, ix., and also pp. 223-27 of part iii. The work is published as an extra volume in the Johns Hopkins University Studies in Historical and Political Science. f The salt monopoly of Zurich, Switzerland, maintained, not for fiscal purposes, but to insure a supply of pure salt at a low price, and the opium monopoly maintained by Japan in the island of Formosa in order gradually to stop the use of opium by the natives, afford further illustrations of public consumption monopolies. 47 MONOPOLIES AND TRUSTS who has not examined the question is apt to sup- pose. If one examines only their direct and im- mediate effects, it may be questioned whether they ought to be placed here. In one sense, they are monopolies. They give the use or monopoly of a certain sign or mark to distinguish one's own pro- ductions. The design is to secure to the individual the fruits of his enterprise and integrity ; so that if a man builds up a reputation along auy line, he may enjoy the fruits of it, and another may not step in and reap the benefits from a certain kind of goods which have value because they have been excellent- ly manufactured heretofore. Of course, another person may build up another class of goods, and may establish value for another trade-mark. Any one can have his own trade-mark. It is monopoly only in a certain line, marking off the goods of one manufacturer. The monopoly which a manufacturer may enjoy for goods under his name and trade - mark is fre- quently of an enormous value, as it affords a large surplus value, and the basis of it is twofold. The ordinary consumer is a poor judge of the quality of most commodities and is extremely timid in pur- chases ; consequently he attributes value to a trade- mark which in his experience has stood for honesty. Moreover, custom is still a powerful force, and we adhere to old practices in our purchases. It is on this account that jobbers (wholesalers) dislike to purchase commodities bearing the name and trade- mark of a manufacturer, for this would enable the 48 CLASSIFICATION AND CAUSES manufacturers to raise prices on the strength of a reputation built up by the dealers themselves. The wholesale dealers, in buying bicycles, for example, will, if possible, give them a name of their own, which they can transfer to the product of another manufacturer, should they find it advantageous to purchase bicycles elsewhere. It is said that one of the largest jobbers in Chicago lost a great deal of money because, as the writer's informant said, " he was caught in this way." The jobber in this case bought and sold an article under the name and trade-mark of a manufacturer, and then, when his customers demanded this particular article, the manufacturer raised his prices. Frequently the jobber is forced to sell goods under the name and trade-mark of the producer, but he does so unwill- ingly. All this serves simply to illustrate the value of well-known distinguishing marks of a particular commodity. If, however, the privilege which this power gives is long abused, it is likely to be lost. Custom in connection with a trade -mark may serve as the basis of at least a temporary monopoly. It is said that the manufacturers of thread have by combination established what may be termed a complete monopoly. If men are conservative, women are more so ; and in many sections of the country, retail dealers say that they can sell only one kind of thread, whereas in a different section another kind alone is sought. The conservatism of the users of thread, together with the conditions under which the business is carried on, makes it d 49 MONOPOLIES AND TRUSTS extremely difficult and expensive to introduce a new kind. A gentleman connected with a very large jobbing house gave to the writer this amusing illus- tration : He took home to his wife a new kind of thread for which the manufacturers were struggling to secure a place in the market. His wife com- plained that the thread broke and was generally unsatisfactory. He then removed from a spool to which she was accustomed the familiar label with the trade-mark, affixed it to a spool of the new kind of thread, took it home to his wife, and asked her to see if after all the old was better than the new. The following day he was informed that the old thread did not break and was decidedly superior in every way to the new! This is not to be dismissed as something merely amusing, for it presents an important psychological element of monopoly. Fiscal Monopolies are monopolies established for the public treasury. We have to do here simply with a method of raising public money. The best illustration is that of the tobacco monopoly in France. It differs from the monopoly in distilled spirits in Switzerland. The latter was not estab- lished for revenue purposes. The tobacco monop- oly was established for revenue purposes, and is very successful. It raises a large amount of revenue and is looked upon as simply one way of taxing the tobacco business. Another illustration would be the opium monopoly in India. Salt is a favorite subject of fiscal monopoly. A powder monopoly has existed in many places, although that had an- 50 CLASSIFICATION AND CAUSES other than a fiscal purpose. It was first established in order to insure to the government a good supply of powder for military purposes. We come now to the second main class of social monopolies namely, Special Privilege Monopolies and take up first those based on Public Favoritism. Our first sub-class, then, comprises those monopolies which are due to favoritism of some sort or another on the part of government. The old monopolies established in England were of this class, inasmuch as they rested back on a grant of the government. We have already discussed these monopolies suf- ficiently for present purposes, and we know that through the action of legislative bodies and courts in England and in the United States, and also through American constitutional enactments, they have passed away.* Here we have one kind of special privilege mo- nopolies, but that kind has now been done away * It would be interesting to read a fair account of the fight against these old monopolies based on public or govern- mental favoritism. An adequate history has doubtless never been written, but when one is, something will have to be said about Lord Erskine's services as described in his Life. It seems that the universities of Oxford and Cam- bridge had an exclusive right to publish almanacs, but when an action was brought against a bookseller, who, in defiance of the monopoly, printed better almanacs and offered them for a lower price, the judges declared the grant of the mo- nopoly void. When a bill was introduced into Parliament to make it valid, Erskine appeared as counsel against it and defeated it in what is called a splendid effort. 5i MONOPOLIES AND TRUSTS with. Of course, these monopolies were not always an abuse by any means. The monopoly given to the East India Company was not at first held to be an abuse. It was then supposed to be necessary to have a monopoly in undertaking anything so haz- ardous at a time when trade with a remote country was so full of risk and men were not accustomed to great enterprises. Sometimes they were estab- lished for the sake of revenue. Sometimes there was downright abuse, and they were given through the favoritism of the monarch solely for his own pleasure. Another illustration would be a monopoly found- ed upon a protective tariff. Whenever a monopoly has this basis, it is an abuse of the idea of a pro- tective tariff*, because protectionism claims to re- strict competition, but not to cut it off. Far more serious, however, are those special priv- ilege monopolies which rest upon private favorit- ism. It may be objected to the use of the term so- cial monopolies for this sub-class, that they are due to private favoritism, but are not social monopolies in the sense that they express the will of society. But they do give expression to the will of a class of society strong enough to gain its purposes, and society is responsible inasmuch as society is com- petent to prevent them. It is favoritism which produces the chief class of special privilege monopolies, especially the favorit- ism of those corporations having natural monopo- lies. Of course, we have especially in mind the fa- 52 CLASSIFICATION AND CAUSES voritism of the railways. Here we have one of the chief causes of monopolies. Frequently monopo- lies which are attributed to other causes are trace- able, strictly speaking, to private favoritism. This gives us a partial explanation of the " trusts," in so far as these have secured monopolies. When it is said that monopolies rest upon mere mass of capi- tal, or upon special skill, it will probably be found, if the investigation is carried far enough, that they rest upon private favoritism. Professor Emory R. Johnson makes this statement regarding the sugar trust : " The sugar trust has been established be- cause Mr. Havemeyer has great sagacity, and has had command of very large amounts of capital. The sugar trust has driven competition from a field where it was strong, and holds it out at present only by a very sagacious management of large amounts of capital."* The present author does not believe that this is the correct explanation of the sugar trust. A re- cent French writer attributes it to the tariff,f as does Mr. Havemeyer himself4 The tariff has doubtless had much to do with it, but the author * " The Relation of Taxation to Monopolies," in The Annals of the American Academy of Political and Social Science, for March, 1894. f M. Paul de Rousiers, in his excellent work, Les Indus- tries Monopolisms aux Etats-Unis, chap. iv. \ In his testimony at Washington before the Industrial Commission. Of course, it must not be forgotten that at the present moment there is severe competition in sugar, 53 MONOPOLIES AND TRUSTS believes that the railways also have had something to do with it. The sugar trust has been in the habit of quoting two prices to wholesale dealers one at the refinery, and the other delivered at the wholesaler's place of business. Now the difference between these two prices has been less than the freight which the wholesaler would have to pay, in consequence of which the wholesaler has allowed the trust to pay the freight. The facts have been such that they convinced one of the large jobbers of the country the writer's informant that the sugar trust has enjoyed special railway rates which the wholesaler could not secure. The cattle business has also been mentioned as a monopolized industry; it is not wholly a monopoly, but a partial monopoly, and rests probably upon special rates of the railway, or control over special terminal facilities, like stock-yards. It is significant that the president of the Long Island Railroad stated recently in a public address at Cornell Uni- versity that there were only three men in this coun- try who could ship wheat. * One of the men doubt- less referred to is also one of those concerned in the cattle business who have something which en- ables them to hold a monopoly, in certain parts of the country, of the cattle business. We can often see great principles at work in a small way ; and we have an excellent illustration of *He undoubtedly referred to Armour, Peavey, and Councilman. 54 4 CLASSIFICATION AND CAUSES this private favoritism in the transportation of bag- gage to and from railway stations in large cities. So far as access to the passengers in the stations and on the trains is concerned, the monopoly is granted to some one individual or company, and the result is that this person, to make a moderate estimate, frequently asks a price one hundred per cent, in excess of what the competitive price would be. The charge made by such a monopoly in Chi- cago for riding in a very slow bus from one railway station to another is fifty cents, while twenty-five cents would be a very fair price indeed. Between some points in Chicago where there is competition, one can ride in a bus for five cents,* and evidently a profit is made at a five-cent fare. Just one com- pany is granted the privilege, and probably one of the reasons why the railways now have ushers in the Chicago stations ready to direct passengers, carry luggage, etc., is to make sure that the pas- sengers wanting a hack or bus shall be directed to those having the monopoly.f We come now to Natural Monopolies those which arise from natural arrangements; which ex- ist, so to speak, outside of the social will ; those * This does not include transfer of a trunk, as the fifty- cent fare does, although fifty cents is charged even if one has no trunk. t This distinction between businesses which are natural monopolies and those which become such by alliance with natural monopolies is pointed out in chapter xxx. of the author's Problems of To-day, which appeared in 1888. 55 MONOPOLIES AND TRUSTS monopolies which are not an expression of the social will, but which very frequently exist in spite of the most pronounced social efforts. They are natural in the sense that they are outside of social arrangements and the social will. The first sub-class comprises monopolies arising from a supply of the raw material so limited, es- pecially geographically, that a body of men acting together as one man can gain control over the en- tire supply. In such a case, we have the conditions of monopoly, and if private favoritism aids these conditions already favorable, the tendency to mo- nopoly is further strengthened. Anthracite coal furnishes the best illustration. Anthracite coal is produced only in a very limited area. The best mines are restricted to one section of Pennsylvania. But favorable as these natural conditions are, it has not been found possible to establish a monopoly without the aid of the railways, and when the rail- ways cease to act in harmony, the monopoly in anthracite coal fails. During the past few months it has been said that the combination of producers is closer and more effective, but it is simply be- cause the union of the railways with the coal pro- ducers rests upon a securer basis. The sources of crude oil are spread over a wider area than is anthracite coal, there being in addition to other sources of supply the two great centres of production, Pennsylvania and Ohio. The natural conditions of monopoly are less favorable, but with the aid of railways and other transportation lines, 56 CLASSIFICATION AND CAUSES there is now going forward a development similar to that in the anthracite coal fields. The oil business heretofore has for a portion of the time been a com- plete monopoly so far as refining oil is concerned, but there has not been a monopoly in the produc- tion of crude oil. It looks now as if we would reach a monopoly not merely in the refining of oil, but in the production of oil itself, because the production is limited geographically. Natural gas affords an- other illustration. Another is afforded by articles, in barbarous and semi-barbarous countries, coming from animals and plants that are threatened with extinction. Here the inequality in resources and in capacities between highly civilized and semi- civilized nations affords special facilities in build- ing up monopolies. It is because the semi-barbar- ous people are like children. They are ready to part with natural resources, with great treasures, for any gewgaw that strikes their fancy. Illustrations in abundance could be afforded, if there were space. It is said that ivory, boxwood, and certain other rare materials, the supply of which is either limited by nature or is in the hands of primitive peoples, belong to this class. Of course, one can see that under certain conditions it would be easy to estab- lish a monopoly over the source of supply found in a semi-civilized country. All that would be neces- sary would be to induce these children for, as we have said, primitive peoples are but children to part with their treasures for a song, and then to find some way to keep them to their agreement, either 57 MONOPOLIES AND TRUSTS through a home government or through some out- side government exercising pressure upon them. This suggests one point of some importance, and that is the connection between monopoly on the one hand, and on the other, wealth -accumulation and wealth-concentration. We have to ask first of all, how many men are able to act together as a unit ? The larger the number of men who are able to act together as a unit, the more easily can the monopoly be established. Where we have the sup- ply limited at all, if a sufficient number of men act together they can establish a monopoly. Also, the greater the wealth in a few hands, the easier it is to establish a monopoly, because then the number of men who must act together as a unit is correspond- ingly decreased. It is at least conceivable that a comparatively few men should gain ownership of all the land of the world or of a country, provided the people remained passive. That, however, is not anything more than conceivable. It is not at all probable. Still, in this way the concentration of wealth is highly favorable to monopoly. Perhaps if wealth had not been so concentrated in this country we would not have had the anthracite coal monopoly, and there would be far less prospect of it in crude oil if the men interested in refining it had not such enormous wealth that they are able to purchase all of the land at least in a few States. So we see that the concentration of wealth has something to do with monopoly. The writer does not admit, however, that there is any monopoly 58 CLASSIFICATION AND CAUSES which is founded on mass of capital ; but the dis- cussion of this particular question is deferred. It is mentioned in this place simply to prevent mis- apprehension concerning the way in which, it is claimed, that concentration of wealth promotes mo- nopoly; it is concentration of wealth in conjunction with other favorable circumstances. We must at this point sharply distinguish between two quite different things. It is true that some kinds of busi- ness have reached such a point in their evolution that they require a large mass of capital for their successful operation. The businesses of refining oil and sugar and of mining anthracite coal afford illustrations. It is an entirely different thing from what is here admitted to claim that mass of capital gives monoply. Next we take up those monopolies arising from properties inherent in the business, and this gives us the chief class of natural monopolies. We have here the highways of all sorts, but especially rail- ways with their terminal facilities, including the grain elevators and stock-yards; canals; the post- office ; the telegraph lines, the telephones, irriga- tion-works, harbors ; docks ; light - houses ; ferries ; bridges; local rapid -transit agencies; gas-works, urban water-works, electric -light plants, etc., some of them national, some of them local or municipal monopolies. One marked distinction must be observed with respect to highways. In the case of all railways where the transportation is over fixed rails the 59 MONOPOLIES AND TRUSTS monopoly includes all the agencies of transporta- tion, whereas in the case of ordinary public high- ways, for the use of which toll is charged, the mo- nopoly is restricted to the ownership and manage- ment of the highway, and keen competition may exist among its users. The difference is due to technical conditions, for in the case of railways the use must be under unified control, whereas in the case of the public road, the use may be thrown open freely to all the world. Thus it is that the express business over railways is a monopoly, whereas in cities there is keen competition among those who carry small parcels for the general public. We have monopolies so far as the natural geo- graphical area of the enterprise is concerned. These different businesses have different natural geo- graphical areas. The natural geographical area of the street-car line is the city. It is the same with respect to lighting enterprises. The natural area of railways is the nation, etc. We do find in Ger- many that the area of railways is the State and not the nation, but that is secured rather by artificial arrangement. The natural geographical area of rail- ways in Germany would be the nation, but the state jealousies are of such a character that the natural development has been in a way prevented. The Prussian railways also extend outside of Prussia. We notice also a tendency on the part of com- bination to absorb the different units, illustrated by the tendency of a few men to get control of the street railways in different parts of this country ; 60 CLASSIFICATION AND CAUSES but that is more like the tendency to do business on a large scale. This appears to be all that it means, although here they are assisted by the great con- centration of wealth. It does not seem that there is any natural tendency which would lead to the ownership of all the street railways in the country by one combination of men. But wealth has been so accumulated on the part of those who have the street railways in the great cities of the country that they must invest their money in some way, and they naturally turn to street railways elsewhere. It is possible that strikes may assist men to gain control of the railways in the various cities, because men may be sent from city to city in case of a strike, and so the great combinations may utilize their facilities in different cities to break down strikes. The peculiarities of these monopolies have not as yet been given in the author's present treatment of the subject. It is possible to revise somewhat the characteristic features of these monopolies as com- pared with former statements and to simplify them considerably. Lord Farrer, in his work, The State in Its Relation to Trade, mentions five main char- acteristics of natural monopolies. These five are quoted in the author's Problems of To-day ; but in his Outlines of Economics they are changed some- what and reduced to three. It is there stated that the chief characteristics of natural monopolies of this kind are these: First, that the service or com- modity makes use of certain peculiarly favored spots or lines of land ; secondly, that it is furnished in con- 61 MONOPOLIES AND TRUSTS nection with the plant itself railway service, for example, cannot be shipped, but must be used in connection with the plant if it could be shipped as flour can be, then we would have a different result ; and thirdly, that the returns are in accordance with the law of increasing returns the greater the out- put, the larger the return.* The latter produces an inevitable tendency to monopoly. The cheaper the rate at which an increasing output can be furnished, the greater is the tendency to monopoly, because whenever two competitors unite, they can furnish the service or commodity more cheaply, and con- sequently there is always a gain ; in the case of street railways, for example, there is a very decided gain, which is the inducement to combination. Men are in business for the sake of gain, and where the law of increasing returns applies to their business, there always stands before them one way in which they can increase their gains. This prospect of ad- ditional gain is like a magnet. Ultimately it is found to overcome all other obstacles. Sooner or later it comes about that there is a combination. But there is an objection to that statement of the characteristic features of these natural monop- * It is only just to state in this connection that much credit for this formulation is due to the discussion by Pro- fessor Henry C. Adams of the law of increasing returns. Cf. especially his monograph, " The Relation of the State to Industrial Action," in vol. i. of the Publications of the American Economic Association. Its date is January, 1887. 62 CLASSIFICATION AND CAUSES olies which is found in the Outlines of Economics. It might seem from the statement as there given that we have to do with three independent causes of monopolies. We have natural monopolies, the products or services of which can be furnished only in connection with plants occupying peculiarly fa- vored spots or lines of land, because here we have to do with businesses which are operated far more cheaply when brought under unified control. But do we find the law of increasing returns operating without limit in these cases? If so, this operation must flow, so far as we now know, from mere mass of capital with its economies, and this is not admitted by the author to be a sufficient cause of monopoly. It is now possible to obviate the objection men- tioned and to simplify things somewhat. We can say that we have monopolies arising from the in- herent characteristics of the business, whenever there is a decided gain resulting from the combina- tion of all those engaged in it. Whenever there is a decided and continuous increment in gain result- ing from combination, we have a tendency to mo- nopoly which will overcome all obstacles. It is this increment in gain which is the cause of monopoly. Now that cause operates when we have to do with businesses which occupy peculiarly favored spots or lines of land, furnishing services or commodities which must be used in connection with the plant. We have, then, one single cause, and the circum- stances under which this cause clearly acts are stated ; whether it acts beyond these or not is a 63 MONOPOLIES AND TRUSTS matter of controversy. Under these circumstances, however, this cause surely does act. It is believed that the statement of the law of monopoly here given is superior to the older state- ment, that increasing returns produce monopoly, as it is more general and avoids some of the diffi- culties which arise in connection with the law as previously formulated. It is the clearly marked increment in gain arising from combination pro- ceeding even to the point of complete unity which produces monopoly in any particular kind of busi- ness. The causes of the advantages of monopo- lized over competitive business are more or less various. Let us take the case of the telephone. The importance of unity must sooner or later overcome all obstacles standing in the way of com- bination of the various telephone interests, inas- much as the gains to be secured operate unceasing- ly like a law of nature, and ultimately must prevail. And why? it may be asked. It is because men are rational beings and prefer to do things in a superior way rather than in an inferior one. Two telephone companies cannot perform the same ser- vice which one can perform, inasmuch as complete unity is lacking. The object of the telephone is to bring people together, and the more completely it does this, the better it performs its functions. Two or more competing telephone plants, however, sep- arate people, and thus operate antagonistically to the purpose for which the telephone was estab- lished. Ordinarily the increase in business will be 64 CLASSIFICATION AND CAUSES done at a relatively lower rate, at least up to a very- large production, but monopoly is not dependent exclusively upon increasing returns, and even if it be true that additional telephone service, when once a given point has been reached, involves a relative increase in expense, the advantages and increment in gain from combination still con- tinue.* Many small cities now exhibit the disadvantages of competition in the telephone business. New companies have practically dislodged an old mo- nopoly so far as local business is concerned, but the old company, alone having general long-dis- tance connections, holds the field, and those using the new service are, as a rule, put to inconvenience when they are obliged to telephone to a distant point. But does the law of increasing returns operate without limit in any one of the kinds of business here under consideration? It has never been proved that such is the case. The law of increas- ing returns operates up to the point of the full utilization of the existing plant of any one of these businesses, and very often that includes an indef- initely large increase in the quantity of production; but when we go beyond this point, expenses may increase even relatively. Let us suppose that we have a dynamo capable of running four hundred * The alleged increasing expense attending increasing telephone services receives comment on pp. 78-79. E 65 MONOPOLIES AND TRUSTS lights and that only two hundred are demanded at a given moment, but that later the demand in- creases until four hundred are required : in such a case the law of increasing returns holds until the four hundred are demanded ; but if the consump- tion still increases until five hundred are called for, a new dynamo must be procured and expenses may be relatively greater until consumption again ap- proaches the point of full utilization of plant. A street railway company can do business with de- creasing expenses per unit of traffic, until its exist- ing plant is fully utilized ; but an enlargement of plant then involves a great outlay, and may in- crease the expense per unit of traffic. It neces- sitates a large additional investment of capital to replace occasional switches with double tracks, and to increase correspondingly the supply of power for operation. The expense of the unit of traffic must at first be increased thereby, unless the traffic is at once greatly enlarged. The probability in the case favors a relatively greater expense of carrying on the business for some time, this increase in relative expense gradually diminishing as the point of full utilization is again approached; but by the time this is reached, the relative expense may possibly be lower than it was before the plant was enlarged, although not necessarily so. Great profits come more from a vast business than from the decreased relative expenses. Of course, there are those who claim that there is always an increment in gain resulting from combi- 66 CLASSIFICATION AND CAUSES nation. That is the socialist point of view, but it is not admitted by the writer. It is admitted that we have an increment in gain under the circum- stances which have been mentioned, but not under all circumstances. It is right at this point that controversy arises. Whenever there is a decided and clearly marked increment in gain resulting from combination, then we have a tendency towards monopoly ; but it is maintained by the author that in agriculture, com- merce (retail and wholesale), and in manufactures, that cause of monopoly does not obtain. It is claimed, for example, that it is not clear that there would be a decided increment in gain if Marshall Field & Co. and other large retail dealers in the same line in Chicago, or if Altman & Company and Wanamaker in New York city, should combine. The result would be doubtful, but it is probable that there would not be an increment in gain, but a loss, if they should combine.* But when we have * First of all, we observe that these firms do not combine, and do not even seek combination. As their managers are shrewd business men, avowedly seeking gain, the absence of attempted combination suggests that in their opinion nothing would be gained thereby. Each firm has its own facilities and its own customers, and it would be scarcely possible to keep all these under consolidation. Should they combine their resources into a still more gigantic en- terprise, the difficulty of unified management would be in- creased ; and how could they prevent new enterprises of magnitude from springing up? These are a few of the considerations which occur in this connection. 67 MONOPOLIES AND TRUSTS a combination of competing gas companies there is no doubt about the result. We do not need in this place to enter upon so exhaustive a discussion of the monopolistic evolu- tion of businesses of this particular class as would otherwise be necessary, inasmuch as this subject has received frequent treatment by the author as well as by many others ; and it is now generally consid- ered that in all businesses of the kind mentioned there may be discovered a clear movement in the direction of monopoly which is bound ultimately to prevail over all obstacles. If we take them up and examine them one by one, we reach the same result in each case. A thousand efforts to secure competition in the gas business have not given one success as yet ; a hundred efforts in England and the United States to secure effective competi- tion in the telegraph business have proved failures. But without examining the thousands of futile efforts to introduce permanent competition into the field of natural monopolies, let us proceed at once to that business which offers the most serious difficulties to the student namely, the railway business. When it is said that railways offer the most serious difficulties to the student who accepts the proposition that in their ownership and opera- tion they are natural monopolies, reference is made to the student in the United States ; for in other countries like England, France, and Ger- many the railways seem to be an unusually clear case. In Germany, a serious effort was made to 68 CLASSIFICATION AND CAUSES secure competition, the government owning some of the railways and operating them, and allowing private companies to own and operate others, though under strict supervision. This is a plan which has found advocates in our own country, but it was not successful in Germany. In fact, the difficulties of competition in the railway business between the government and private corporations are so enormous indeed insuperable that either the government or the private corporations must finally abandon the field. If the government ser- vice is poor and its competition ineffective, the result is general dissatisfaction. If the government has an excellent administrative system and com- petes seriously with private companies, it can hardly fail to drive them out of the field, because its resources are so much vaster. Even if the gov- ernment does not push its superior capacity so far as a private corporation would, but allows its rivals to exist, those who feel its competition keenly will complain bitterly of what they regard as oppressive action on the part of the government which they themselves help to sustain. What might have been foreseen, and undoubtedly was foreseen by deep thinkers, actually happened in Germany. The pri- vate lines were purchased, and have since then been operated as a part of the government system. In France and in England, there have been many pri- vate companies, and there appears to have been at one time, in both these countries, more or less faith in the possibility of effective competition in the rail- 69 MONOPOLIES AND TRUSTS way business. As a result of industrial evolution, however, in each of these countries there has been a consolidation of all the lines into a few great sys- tems, which, in the main, act harmoniously together, pursuing a unified policy with respect to price. Before turning from these two countries, it may be observed that France offers an illustration of the proposition which was laid down in the discussion of the German experience. There has been a slight attempt at competition through the ownership and operation of lines by the government. The best lines, however, appear to have always been private property, and there is no evidence of any effective, determined competition on the part of the govern- ment. The consequence has been dissatisfaction with the government service. Turning now to our own country, we find that there are some things in the United States which look like really effective competition in the railway business. Nevertheless, it is a fact well known to all who are familiar with this business that the most marked feature of its evolution in our own country has been consolidation. The railways of our country are gradually being combined into a few great systems, acting together with increasing harmony. Precisely because the country is new and vast; because the problems pre- sented to the owners and managers of railways are immensely complicated ; and because the railway development is even yet far from complete, freight wars and passenger - rate wars break out from time 70 CLASSIFICATION AND CAUSES to time. Even in the case of railways, however, it is to be observed that popular parlance still speaks of the struggle between railway lines as war. One difficulty has been this: After a comparatively stable equilibrium has been reached by agreement some new and powerful rival appears in the field. This new and powerful rival may be the result of some new combination, or it may be the result of the construction of a new railway line. A new rival appearing in the field is like a new cow put into a pasture with a herd that has been there for some time. The cattle which belong to the field have through struggle reached what may be called a condition of equilibrium. Each one knows the strength of all the rest, and this strength is re- spected, so that quarrels are no longer necessary. But a new cow entering the herd, battles have again to be fought to determine the conditions of a new equilibrium. And so it is in the field of rail- ways. When the strength of the new rival in the field is thoroughly tested, a new adjustment is secured. This sort of thing will have to go on till our railway system has nearly completed its devel- opment, so far as its main features are concerned, provided always that private ownership and man- agement of our railways continue ; and about that we shall for the present express no opinion either one way or the other. After all, the agreements among the railways are of such a kind that for the most part they may be described as unified tactics with respect to 7i MONOPOLIES AND TRUSTS price. Passenger rates and freight rates are gener- ally fixed by agreement. Even more than this is true. The rate of speed is very frequently limited by agreement, in order that those railways having the best natural facilities for speed may not utilize their facilities in the public interest, if such utiliza- tion is to the disadvantage of other railway com- panies. It is thus that there have been agreements with regard to the time of travel between New York and Boston, Chicago and Minneapolis, Chicago and Denver ; and also, as appears from an interview with Mr. Depew, President of the New York Cen- tral and Hudson River Railway Company, between Chicago and New York. In this interview, as re- cently reported in the Outlook, Mr. Depew made the statement that his road was not allowed to utilize fully the advantages which it enjoyed for making fast time between the two cities last men- tioned. The railways which do not have the best natural facilities for speed enter upon a rate war to prevent the most favored line from making its maximum rate of speed. On account of some fast trains which one of the lines between Chicago and Denver recently started, a rate war was for some time imminent; but it seems to have been averted by agreement. It must not be supposed that a monopoly se- cured by agreement, or even by absolute consoli- dation, prevents all rivalry. A limited rivalry is compatible with general unity of management, es- pecially as expressed in price. Agents of various 72 CLASSIFICATION AND CAUSES lines may go out of their way to solicit patronage at stipulated rates, and, of course, unless they are held under firm control, they will cut rates. This, however, is being prevented, precisely because a firm control is being established. There are also occasional efforts to gain an advantage over rival lines by offering superior advantages of one sort or another, although this rivalry does not go very far. Lines west of Chicago, for example, have chair-cars without extra charge, but lines east of Chicago have not. Doubtless, as one railway may not with impunity seek to gain an advantage over others through speed in excess of agreement, so one would hesitate about offering a decided im- provement upon present facilities at the old rates, fearing attacks in the matter of rates from those who may be left behind. It is difficult to measure precisely how far one railway line competes with another with respect to comforts and conveniences, but each reader may on the basis of his own experi- ence form an estimate, though he must be careful about reaching over-hasty generalizations. It may, in conclusion, be observed that even com- plete or absolute monopoly does not prevent all rivalry in the direction of superiority. The vari- ous departments of one railway may engage among themselves in a rivalry amounting to quasi - com- petition. Very frequently the various departments of one business do thus engage in rivalry with each other. This is also seen in a university in which there is rivalry not merely with other universities, 73 MONOPOLIES AND TRUSTS but also among its own various departments ; and in a well-managed university this rivalry furnishes a helpful stimulus, though it must be closely watched lest it degenerate into something baleful.* We come next to monopolies arising from se- crecy. Secrecy is not so available for an improve- ment in a machine, as the machine itself reveals the improvement, but it is available for processes. It is the case with many monopolies at the present time that they are in part based upon secrecy, and secrecy is, therefore, an important cause in a scien- tific treatment of the subject. One object of the patent system is to do away with this secrecy. It is held by the law-makers to be better that a man should publish to the world his invention or im- provement and receive in return protection for a limited period of time, rather than that he should manufacture secretly. Yet, as has just been stated, secrecy is observed more or less in manufacturing at the present time, and it is quite possible that the amount of secrecy has been underestimated by modern economists, for it is rarely mentioned. The patent system does not seem to suit the needs of some manufacturers as well as secrecy. One of the largest tanners in the United States recently told the author that he always preferred secrecy to * Those who wish a further elaboration of the author's views in this particular will find an early expression of them in his Problems of To-Day, and a more recent one in his Outlines of Economics, and Socialism and Social Reform. 74 CLASSIFICATION AND CAUSES patents. " Of course," he added, "the secret pro- cesses are likely to become known soon, but appli- cation for a patent would make them known at once, and while secrecy lasts there is an advantage over others." The Krupps, of Germany, the great can- non manufacturers, are, it is said, reluctant to al- low visitors to enter their works. They have se- cret processes which they are desirous should not become known. It has recently been stated that the same is true of the Duponts, in this country, the manufacturers of gunpowder. They have secret processes which they wish to protect. The same is also true with respect to the manufacture of cer- tain wheat preparations in Minneapolis. One is not admitted to the works without an introduction, and an assurance given to the proprietor that the visitor will not imitate the manufacture of anything that he sees there. It is also difficult to gain ac- cess to the Franklin Sugar Refinery, in Philadel- phia. Secrecy, the author has been told, was long observed with respect to a very important part of the manufacture of india-rubber, and was at least a chief cause of the monopoly of some favorite articles made of this substance. Secrecy is also used very largely in the manufacture of chemicals e.g., soda- ash, by the Solvay Company, of Syracuse and De- troit, and in large chemical works in Germany. Secrecy, then, is a source of monopoly at the pres- ent time. Opportunity will be found in later portions of this volume to say more about the causes of 75 MONOPOLIES AND TRUSTS monopoly, especially when we come to an exam- ination of the limits of monopoly. We now pass to other classifications of monopoly, which we may go over more rapidly, as they are less elaborate and less important, although by no means without sig- nificance. With reference to the completeness of the mo- nopoly, we have a classification into : A. Absolute Monopolies. By this we mean a complete control over the entire supply of the article or service. A gas busi- ness, in the hands of one corporation, alone furnish- ing gas to the inhabitants of a given city, affords an illustration. B. Complete Monopolies. By a complete monopoly we mean a monopoly which results from substantial unity of action on the part of those in the business what people ordinarily call a monopoly, although there may not be absolute control over the entire business. We might say, perhaps, that the Standard Oil Company is a complete monopoly, but it does not have an absolute monopoly. It is sometimes said that a combination of those furnishing from seventy- five to ninety-five per cent, of the supply of a com- modity results in substantial control over price, and thus gives a monopoly.* The proportion of supply necessary to establish a monopoly must vary with the circumstances of each particular case. Monop- * Cf. chap, i., pp. 8, 9. 76 CLASSIFICATION AND CAUSES oly, as it is defined in the present work, includes complete monopoly, and a higher form would be absolute monopoly. C. Partial or Incomplete Monopolies. Partial monopolies have already been explained in another connection. They exist whenever one or more persons control so large a portion of the field of a particular business that they are able to restrain competition and secure some of the advan- tages of monopoly; so that the conditions deter- mining price and other conditions are appreciably different from what they would be under free com- petition.* We may make another classification with refer- ence to the increase in the supply of the monopo- lized articles : A. Monopolies which permit No Increase in the Supply of the Monopolized Articles. An example would be the works of an old master like Raphael. There is no increase of the supply possible. B. Monopolies permitting an Increased Supply of the Monopolized Articles. * It could be objected that incomplete monopolies are really not monopolies at all, as monopoly does not arise until unified control is secured. This is a logical objection which has force, but we find the category of businesses which correspond to this description, and it is believed that here, as so frequently elsewhere in real life, we may with advantage adopt a convenient nomenclature, even if we sacrifice something in the direction of strict logical require- ments. 77 MONOPOLIES AND TRUSTS The supply of a monopolized article may fre- quently be increased by those who control the monopoly. That is the case, for example, with ref- erence to the gas supply. We may also have at this point a sub-classifica- tion with reference to the conditions under which the supply may be increased : I. With Increasing Difficulty. It is alleged that the telephone service in a great city is of this kind, but the author does not know whether it is true or not. It is so claimed by our private companies, but it is unfortunately true that their claim is not sufficient to convince some of us. To find out whether this is true or not, we would have to go to a place where the service is provided by public bodies. Unless the point of full utilization of an existing plant has been reached, the alleged increasing ex- penses per unit of increasing business in the case of the telephone must refer to single items, especially those immediately belonging to that department of the service which has to do with establishing con- nections between the increasing number of users of the telephone. Obviously many other expenses do not increase in proportion as the business increases. Manifestly, also, the telephone business of any city can be conducted for less by one plant than by two competing plants, provided that the same ends are even approximately secured ; for rivalry implies two telephones for a large proportion of the subscribers ; and even if every subscriber had two telephones, 78 CLASSIFICATION AND CAUSES the same ends would be only approximately reached, as the absence of unity would be an inconvenience involving considerable annoyance and loss. Apropos of the salt which must frequently ac- company acceptance of the claims of great cor- porations, it may be remarked that the Western Union Telegraph Company claimed for years that it was impossible to have underground wirs, al- though it was known at the time, and had long been known, that such an arrangement was quite possible.* Another illustration of this sub-class would be the pictures of a great living artist, who had al- ready painted as many as he could easily, but with a certain increasing difficulty might increase the number. * When the author at one time was in the office of a large electric-lighting company in one of the principal cities of the United States, he pointed to the very large number of wires in front of the window where he was standing, which almost darkened the sky. In reply to his remark that it was really a shame to have all those wires in the street, and that they ought to be buried under the street, he was told " It is not possible." Presently, the same gentleman who had said that it was not possible to bury the wires was kindly showing the author photographs of European cities in which the company operated, and when it was pointed out to him that there were no poles in the streets of these cities and that the wires were evidently underground, he said, " Oh, yes, that is true ; but it costs more !" When our large cor- porations tell us that things are not possible, it is found by experience that their remarks not infrequently require inter- pretation. 79 MONOPOLIES AND TRUSTS Another possible case would be some choice wines from vineyards in a particular section of the country. II. With Constant Difficulty. Possibly, after a certain point is reached, a copy- righted book would be an illustration. Up to that point, the larger the supply the less will be the cost per book. By the time we reach one hundred thousand we have perhaps got as low in price as possible. The publisher, in that case, could not fur- nish two hundred thousand copies for less per book than he could one hundred thousand. III. With Decreasing Difficulty. The gas business affords an illustration ; but the qualifications already mentioned must be borne in mind. The above classification is one which has especial importance in the discussion of price and of the tax- ation of monopolies. The next classification, with reference to the area within which the monopoly operates, is as follows: A. Local Monopolies. These are monopolies extending over a relatively small area. The gas supply of any city is an illus- tration. There are various monopolies which are confined to a single locality. Then there are tem- porary local monopolies which under peculiar ex- igencies may arise. Two young men in Chicago last winter cornered the market on eggs and made fifteen thousand dollars out of the operation. The weather was so cold that eggs could not be shipped 80 CLASSIFICATION AND CAUSES to the city, and for a few days these speculators had a monopoly, accounts of which appeared in the newspapers. B. National Monopolies. C. International or Universal Monopolies. There have been various attempts to secure uni- versal monopoly, of which the copper monopoly of 1889 affords an illustration. These are more or less arbitrary divisions, be- cause a protective tariff may enable a monopoly to exist in one country when the same article or ser- vice is not monopolized in another country. There are attempts to establish monopolies beyond the nation, but how large will be the number of cases in which success will be achieved remains to be seen. There is no doubt that the oil companies of the United States and Russia are endeavoring to estab- lish an international and even a world- monopoly. The Standard Oil Company has a complete mo- nopoly in this country, in Germany, in England, and in France. We may have a classification based upon the position which the monopolist holds with reference to sales and purchases. This gives us : A. Sellers' Monopolies. B. Buyers' Monopolies. Buyers' monopolies are less frequent than sellers' monopolies, because the buyers of any commodity or service are so often more numerous than the sellers. There are, however, cases in which buyers have special facilities for establishing monopolies. MONOPOLIES AND TRUSTS Wholesale buyers have some facilities, because they are not so large in number as those from whom they purchase. The buyers of labor power, especially, have facilities for establishing a monopoly. Pro- fessor Wilhelm Lexis mentions the buyers of sec- ond-hand goods. It is hard to see how a second- hand dealer has, in general, anything which can properly be called a monopoly, although, as Pro- fessor Lexis says, a man may feel a certain reluct- ance to sell a second-hand suit of clothes, and this may give the buyer an advantage. We may also have the following classification with reference to the objects of monopoly : A. Material Goods. B. Services. I. Services which are incorporated in ma- terial goods what the Germans call " material labor services," e. g., the service in the transportation of freight. II. Personal Services; as those of a physi- cian or nurse. But it is only rarely that a monopoly of this sort exists on a large scale. Where it is found, it is usually in some small town or rural district. These, then, are the various classifications. Doubt- less we could extend the classifications indefinitely from one point of view or another, but the classi- fications given are sufficient for our purposes. The most important classification, and the most thor- oughgoing, is the second one, which is the classi- 82 CLASSIFICATION AND CAUSES fication with reference to the sources of monopoly- power. It will be convenient now to present by them- selves, without comment, the classifications of mo- nopolies which the author offers, before passing on to classifications which other writers have given. First Classification : A. Public Monopolies. B. Private Monopolies. Second Classification : A. Social Monopolies. I. General Welfare Monopolies. 1. Patents. 2. Copyrights. 3. Public Consumption Monopolies. 4. Trade-marks. 5. Fiscal Monopolies. II. Special Privilege Monopolies. 1. Those based on Public Favoritism. 2. Those based on Private Favoritism. B. Natural Monopolies. I. Those arising from a Limited Supply of Raw Material. II. Those arising from Properties Inherent in the Business. III. Those arising from Secrecy. Third Classification : A. Absolute Monopolies. 83 MONOPOLIES AND TRUSTS B. Complete Monopolies. C. Partial or Incomplete Monopolies. Fourth Classification : A. Monopolies which admit of No Increase in the Supply of the Monopolized Articles. B. Monopolies which admit of an Increased Sup- ply of the Monopolized Articles. I. With Increasing Difficulty. II. With Constant Difficulty. III. With Decreasing Difficulty. Fifth Classification: A. Local Monopolies. B. National Monopolies. C. International or Universal Monopolies. Sixth Classification : A. Sellers' Monopolies. B. Buyers' Monopolies. Seventh Classification: A. Monopolies of Material Goods. B. Monopolies of Services. I. Services Incorporated in Material Goods. II. Personal Services. It will be profitable to make a comparison be- tween the author's classifications of monopoly and other classifications. Attention is first of all called to the classification given by Senior in his Political Economy. That is a classification which is merito- rious. It appeared at an early date, and shows an 84 CLASSIFICATION AND CAUSES attempt to treat the subject critically and scientif- ically. He divides monopolies into four kinds. The first class of monopolies consists of those businesses in which the monopolist has superior facilities as a producer and can increase with undiminished or even increased facility the amount of his product, but where he has not the exclusive power of pro- ducing. This is not a true monopoly according to our definition. However, the one who is in this position may become a monopolist. If any one has superior facilities or advantages and can in- crease indefinitely his production, he is in a posi- tion to become a monopolist. Senior instances the case of Arkwright, the yarn producer, who could not sell yarn for more than others, but who, selling at the same price, was in a position to reap an enormous gain. Thus his price was limited by what those could produce it for who had less de- sirable facilities than he, but he did not have the whole field and did not choose to drive out all others. Here was a large differential gain, but not a complete monopoly. The second kind consists of those who have no competition, and enjoy a supply of which no in- crease can be effected, so that really there can be no competition. Senior instances the case of the owners of vineyards producing choice wines say, " Constantia," which has a peculiar flavor. This was all owned by one man. No increase and no competition were possible. 85 MONOPOLIES AND TRUSTS The third kind of monopoly consists of those cases in which the monopolist is the only producer, and in which, consequently, there is no competi- tion, while the business is of such a kind that the monopolist can increase his production indefinitely. Copyrighted books afford an illustration. Here we have a monopoly, and the supply can be increased. The fourth class of monopolies exists where pro- duction is assisted by natural agents, limited in number and varying in power, and repaying effort with a decreasing reward; in other words, busi- nesses of decreasing returns, especially agriculture, where production can be increased, but where the increase is attended with increasing difficulty. We have, then, as the first class of monopolists, those who are subject to a certain kind of competi- tion, for the time being at any rate, but who are in a position eventually to establish monopoly. The second and third classes are real monopolists. In cases of the fourth class, we have only differential gains. The next classification to be mentioned is the more elaborate one of Professor Lexis in the Ger- man Dictionary of Political Science.* He makes two main classes : A. Sale Monopolies, or Sellers' Monopolies. B. Purchase Monopolies, or Buyers' Monopolies. His discussion is concerned principally with Sell- * Handworterbuch der Staatswissenschaften, edited by Conrad and others. 86 CLASSIFICATION AND CAUSES ers' Monopolies, and these are the ones usually re- ferred to when monopolies are discussed. Much that he says in regard to this class would be applicable also to the other class. His sub-classes under A are: I. Natural Monopolies. II. Artificial Monopolies. Natural Monopolies rest upon scarcity, and Pro- fessor Lexis says that among these, personal talents form the most easily understood class. That is not, in the present writer's opinion, correct. No one, by reason of his talents, is in such a position that he is a genuine monopolist. Persons of great talent may have something approximating monopoly, but that is all. A singer like Patti, for instance, is in a class by herself. Artificial Monopolies, according to Professor Lexis, rest upon (a) combination or secrecy of technical aids, (b) State institutions upon the power of the State. Where the conditions for natural monopoly are present in part, but not com- pletely, the process is completed by an artificial combination on the part of the sellers, removing competition where it would otherwise remain. When the production can be increased at pleasure with constant difficulty, there cannot be an arti- ficial monopoly; it is simply temporary, unless aided by State restriction, as by the prohibition of imports or high protective duties. Mere combination by itself,* Professor Lexis * Not even if aided by a large mass of capital. 87 MONOPOLIES AND TRUSTS maintains, cannot establish monopoly. That is a position which the present author has long taken and upheld against the writings of Professor J. W. Jenks and some other economists, and he is glad to have such strong support. Professor Lexis says truly, that there must be other conditions present to make anything more than a temporary monop- oly possible. If these other conditions are not present ; if there is no State aid, and if there are no natural conditions favoring monopoly, then it is held that there can be nothing more than a tem- porary monopoly. Under the second sub-class (b) the same author has Public Artificial Monopolies. Here he has reference to patents, etc. He also puts under this head trade licenses, like those in Germany permit- ting one to undertake the business of an apoth- ecary. Here we have only a limited competition, not real monopoly. He is here inconsistent with his definition, for, to use his own phrase, we do not in this case have "unified tactics with respect to price." He has also the following sub-classes : III. General Monopolies. IV. Local Monopolies. We have had this classification, and need not now dwell upon it. Attention may, however, be called to an instance given by Professor Lexis of a world- wide monopoly. He says that the London house of Rothschild had a monopoly of quicksilver from 1835 until the discovery of the mines of cinnabar 88 CLASSIFICATION AND CAUSES (red sulphid of mercury) in New Almaden, Cali- fornia. This monopoly embraced the entire earth, and rested upon an agreement with the Spanish government, the owner of the quicksilver mines of Almaden, and the Austrian government, the own- er of the quicksilver mines of Adria. With these governments the London house of Rothschild had formed a combination. This would be an illus- tration of a world-wide monopoly resting upon a natural basis and completed by combination. It is said that the diamond fields in some parts of the world are monopolized. Professor Lexis mentions the attempts that have been made to monopolize tin. It is comparatively rare, although found in more places than quicksilver, but these attempts have been only temporarily successful. Between 1887 and 1890 there was a strong effort to monopolize copper, but this failed because the cop- per production was not sufficiently limited was too extensive and too easily enlarged. In other words, the natural basis was too large, and the mo- nopoly failed. Then a distinction is made as follows : V. Temporary Monopolies. VI. Permanent Monopolies. Professor Lexis says that if the monopoly is per- manent, the annual income is capitalized, and the new purchaser accordingly has no special advan- tages, but has to be satisfied with current returns upon his investment. He says that the purchaser has no monopoly. That is not strictly true. Take 89 MONOPOLIES AND TRUSTS the quicksilver mines. Suppose there is re-estab- lished a world - monopoly. The one who pur- chases some interest in it may have no special advantage over the one who makes another kind of investment, because the price is so high that it takes out for the new purchaser all advantage. But he does have a monopoly quite the same, although the advantage of the monopoly has been kept by some one else. The new purchaser does not get in "on the ground floor," but gets in only when the special advantages have already been reaped : in other words, he does have the monopoly, although he reaps no special advantages from his monopoly. Of course, that will always be the case. It is the same with personal privileges. Professor Lexis mentions the fact that the number of agents on the Paris Stock Exchange is fixed at sixty, and that the price for the privilege of dealing on the Bourse is about two and a half million francs. One who has this privilege does not sell it except at a price which will reduce the advantages of the posi- tion to those of positions which are competitive. The monopolist does not put his position into the competitive world until he has taken out all the advantages. Professor Lexis gives as his next classification : VII. Productive Monopolies. VIII. Commercial Monopolies. As the terms imply, Productive Monopolies are monopolies on the part of producers, using the word producers in the popular sense, referring es- 9 CLASSIFICATION AND CAUSES pecially to those concerned with raw materials and to manufacturers ; while, of course, Commercial Monopolies are those in the mercantile field. An illustration of the latter would be the East India Company. Finally, he makes this distinction : IX. Absolute pr Perfect Monopolies. X. Relative or Imperfect Monopolies. There is, in the author's opinion, no such thing as a relative monopoly. There is a partial monopoly. Professor Lexis puts land under the head of rela- tive monopolies; but this is not correct, for, to use his own expression, there is no " unity in price tactics" among landowners and cultivators. Under B, Purchase Monopolies, or Buyers' Mo- nopolies, Professor Lexis mentions local dealers as having such a monopoly, especially with respect to those indebted to them. They sometimes have a sort of monopoly. He also mentions second-hand dealers. They might have a monopoly in some places. We turn next to the classification given by Pro- fessor Emory R. Johnson for himself and Professor Simon N. Patten.* Form Income Differential / k and , and rent . 1 Restrictive mo- . \ [^ s d 0nal Marginal rent I P olies en " Monop-J Optional < Goods Interest surplus olies. | Non- differ- (^ Labor Surplus wages J ential or < ( Exclusive mo- Marginal TTrrliioivA / Private Tallage J nopolies en- Jixclus,ve \ Public Fiscal taxes joying free I. surplus t * It is primarily, Professor Johnson tells us, the work of Professor Patten. f See Tables on pp. 79 and 87 of " The Relation of Tax- 9i MONOPOLIES AND TRUSTS We find illustrated in this statement of monop- oly by Professors Patten and Johnson just what has been already said namely, that to them mo- nopoly absolutely covers the entire field of indus- try and of economic life. Where we have economic life, there we have monopoly. Attention is now and here simply called to one or two expressions.* " Differential monopolies," according to the theory of the present work, are really not monopolies at all, but businesses in which certain persons have an advantage over others. " Non-differential monopo- lies" are those businesses which afford a surplus at the point of marginal production.f Professor John- son says, for himself and Professor Patten, that every pursuit affords such a surplus. He calls some mo- nopolies optional monopolies, because in those cases the monopolist can put his resources to one use or another, and that gives him a marginal surplus. Professor Johnson also includes exclusive monop- olies, which are, according to our definition, the only ones which are real monopolies. He says that private exclusive monopolies have a gain which he ation to Monopolies," by Professor Emory R. Johnson, in The Annals of the American Academy of Political and Social Science for March, 1894. * The part of this work dealing with the history of the theory of monopoly will discuss Professor Patten's theories at greater length. t In production under the least favorable circumstances under which it is carried on, surplus means an excess above subjective costs or sacrifices. 92 CLASSIFICATION AND CAUSES calls "tallage," and that public exclusive monopo- lies may have a gain through fiscal taxation. All those monopolies which are not exclusive are term- ed restrictive monopolies, because " the monopoly forces do not here prevent competition, but merely restrict it within certain limits." Professor J. W. Jenks incidentally gives a clas- sification of monopolies in his valuable article on " Monopolies in the United States " in Palgrave's Dictionary of Political Economy. He divides them into three main classes namely, Legal Monopolies, Natural Monopolies, and Capitalistic Monopolies. Legal monopolies include patents, copyrights, etc. ; while his class Natural Monopolies includes such businesses as railways, gas-works, etc. Capitalistic monopolies are, according to this author, monop- olies which rest on mass of capital, his idea be- ing that quantity of capital can secure monopoly. The present writer's dissent from this view has al- ready been mentioned, and will later receive fuller treatment. The best classification of monopolies to be found in any text-book of economics is that which Dr. Charles J. Bullock gives in his excellent manual, Intro- duction to the Study of Economics.* It is as follows: A. Personal Abilities. B. Legal Monopolies. I. Private Monopolies, such as patents and copyrights. * First edition, 1897, 93 MONOPOLIES AND TRUSTS II. Public Monopolies, such as the postal business of modern countries. C. Natural Monopolies. I. Monopolies of location, such as the mo- nopoly of anthracite coal. II. Monopolies due to consumption of prod- ucts in connection with the plants, such as gas- and electric-light works and railways. D. Capitalistic Monopolies ; such as agreements, pools, and the former trusts, and the vast corporations which now replace the trusts. This classification has the merit of compactness, and Dr. Bullock's discussion of monopolies con- trasts most favorably with what is found in the or- dinary text-book of economics. What the writer has said already and his own classifications show the points of difference between Dr. Bullock and himself. Mr. Sidney Ball, of St. John's College, Oxford, incidentally gives a brief classification of monopo- lies in an article which he wrote on " Mr. Herbert Spencer on Industrial Institutions," in the Inter- national Journal of Ethics for January, 1898. He gives simply three classes of monopolies, as follows : I. Monopolies of Efficiency, as in the case of Krupp or Armstrong. II. Monopolies of Local Services, etc. III. Monopolies resulting from Combination, as in syndicates and trusts. 94 CLASSIFICATION AND CAUSES The present writer denies that there is such a thing as a monopoly of efficiency, holding that efficiency can give only differential gains somewhat analogous to the rent of land. So far as the third class is concerned, he has, in common with Professor Lexis, already expressed the conviction that com- bination itself cannot produce monopoly. Doubt- less, however, Mr. Ball did not intend the above as a complete scientific classification. 95 CHAPTER III THE LAW OF MONOPOLY PRICE The mention of monopoly price* brings us face to face with the chief thing in the power of mo- nopoly ; but it is a mistake to suppose that it is the only thing, and some are making a mistake in their discussions because they have excluded al- most every other aspect of the subject except this price-power of monopoly. The monopolist has the power of withholding supplies or of furnishing the supplies irregularly, and that power enables him * The term monopoly price is used in two somewhat dif- ferent senses. Sometimes it signifies the price actually charged by a monopolist, and sometimes it means the price which will yield the highest net returns. The price actual- ly charged may be regulated by statute, and this may differ from the price which would yield the highest net returns; again, the two may differ because the monopolist fails to discover the price yielding the highest net returns, as, in fact, he frequently does. It was, for example, a long time before the postal authorities of the world discovered the profitableness of low postage rates on letters. It is be- lieved, however, that in this work the variation in use, which cannot be avoided without wearisome circumlocu- tion, need occasion no confusion of thought. 96 THE LAW OF MONOPOLY PRICE to break down competition. It is through this power that the monopolist can drag others under the wheels of monopoly and crush them out. His is not simply the power of raising the price. The power of withholding supplies or of furnishing them irregularly has likewise to be considered. For ex- ample, take the way in which the railways some- times break down a coal business. It is not simply by charging a higher rate to those who are destined to be crushed, but by withholding cars for the trans- portation of their coal. Here are two rival com- panies: one is destined to be crushed, and the other "stands in" with the railway company. For some reason, this one's cars are sent through promptly, while those of the other are side-tracked.* It is hard to understand this, if one offers complete cre- dence to the statements of the offending compa- nies, but it happens so again and again. There are thousands of ways besides the control over prices whereby competition can be crushed and the power of monopoly exerted over industry; and it appears necessary to state these things at the outset of this discussion of the law of monopoly price, so that our readers may at once know that power over price does not include all the power that belongs to monopoly. * On p. 48 of his work, Les Industries Monopolisies aux Etats-Unis, M. de Rousiers uses these words: " A partisan of the trust said to me, ' The Pennsylvania Railroad could not refuse the cars of a competitor of the Standard Oil Com- pany, but nothing could hinder it from side-tracking them.' " G _ 97 MONOPOLIES AND TRUSTS So far as price is concerned, the power of monop- olies consists not merely in raising prices, but also in lowering them.* The railways can ruin a manu- facturer or dealer just as well by lowering as by raising the prices charged for their services. Sup- pose, for instance, that prices are reduced just after certain dealers have secured a large supply ; then their competitors can undersell them. If those " on the inside " get a suggestion or a " tip " that freight rates will be lower at such and such a time after their rivals have laid in their supplies, the fa- vored ones can ruin those over whom they have so marked an advantage. It is by lowering freight charges, it is alleged, that railways crush out independent manufacturers in Colorado. The writer has been told by a gentle- man who may be regarded as, in a peculiar degree, * The limits of the power to lower prices are found in the resources of the monopolist, and these are so variable that it does not appear possible to formulate any scientific gener- alization concerning them. These resources include credit, and in the case of monopolies with immensely valuable fixed and specialized capital, like railways, an unprofitable busi- ness may be continued for years, the losses amounting to millions, and possibly, in some cases, to tens of millions, be- fore the end is reached. This power of continuing business, even at a loss, for so long a time is sufficient to crush out any opponents except a few who likewise have unusual eco- nomic strength. When two monopolistic concerns with gigantic strength engage in warfare through a reduction of prices below cost, the waste of wealth involved may become a matter of national significance. 98 THE LAW OF MONOPOLY PRICE the spokesman of the best and most conservative elements in Colorado, and who is himself a friend of more than one railway president, that the rail- ways, in order to gain their end, lower the freight charges to producers in the East whenever manu- facturing competition shows itself in Colorado, until they have crushed out production in that State ; and that they then raise the rates again, the pur- pose being to keep up the volume of freight traffic from the East with the high charges to which it is subjected. Now when we consider monopoly price, we have to ask primarily, What are the limits of the power of monopoly for raising price ? What is it that the monopolist has control over, and what has he not control over? According to our very hypothesis, the monopolist has control over the supply. He can, for the time being at any rate, furnish much or little as he pleases. He can ask any price which he pleases, and some of the cruder statements simply leave it there. But there is something that the monopolist does not have control over, and that is demand or consumption. And it is in demand or consumption that the monopolist finds the limits of his power with respect to price. The gains of the monopolist may be regarded as a function of two interdependent variables to use a mathemati- cal expression the number of sales and the profit on each. What the monopolist wants, therefore, is to get that combination of number and profit which will give him the maximum net returns, or, on the 99 MONOPOLIES AND TRUSTS other hand, the minimum net loss, if it is a ques- tion of loss, as on an unsuccessful copyrighted book, which cannot be sold at a profit. What, then, are the limits of monopoly? The monopolist constructs a sort of table. In one way the entire thing is experimentation. There may be a certain monopolized article or service for sale. What are the limits of price? The highest price tried, we will say, is one thousand dollars ; but as this induces no sales, there are no profits. The low- est price, we will say, is nothing; the demand, per- haps, a million ; profits are less than nothing, and there is loss. Within the field of monopoly there is an infinite variety of prices which will give the highest net returns, depending upon the intensity of the want in each case, and upon the resources of those who demand the service or commodity. As has just been said, it is simply a process of experi- mentation. We have a demand rising as price de- creases; and, on the other hand, the profit on each unit falling as the price decreases. We stop at the point where the total net profit from increasing sales just counterbalances the decreasing profit on each unit, or a little less than counterbalances it.* We stop there, because if we were to carry pro- duction further, or our sales further, there would be a smaller total net return. Let us take the street * It is here taken for granted that action requires motive, and that without at least a minimum increment in profit, the motive of action would be wanting. ioo THE LAW OF MONOPOLY PRICE railway business as an illustration. Assume a price of five dollars for a ride. In Chicago we would have but little traffic. Occasionally somebody would want the service then and there sufficiently to pay five dollars, and there would be some traffic. Put the charge per ride down to four dollars or three dollars, and traffic would increase. Put it down to five cents, and there is an enormous in- crease. The profit will probably increase greatly down to five cents, because five-cent fares in Ameri- can cities induce a very large number of purchases ; but when we go below five cents to three cents, the profit on each unit begins to fall off very rapidly. Probably it is not ordinarily advantageous for the monopolist to go below five cents, because the sales would not increase sufficiently to offset the loss in profit on each passenger. There is a variation in the price schedule, and the point at which the fall in prices will stop varies according to the resources of those who purchase. The fall in prices will vary from time to time, and from country to country. The time may come when in Chicago a three -cent fare will be more profitable than a five-cent fare.* It is quite con- ceivable. And it is conceivable that a charge of ten cents may be profitable at one time and a charge * Recently one street-car line in Chicago has tried a rate of twelve rides for a quarter as an experiment, and it has been said that the increase in traffic has been so phenome- nal that the new rate may prove more remunerative than the old charge of five cents. IOI LIBRARY WVfVERS.'TY OF CALIFORNIA RIVERSIDE MONOPOLIES AND TRUSTS of five cents at another. In California, some time ago, a charge of ten or fifteen cents /. t." a bit" was doubtless more profitable for many small ser- vices than five cents, because money was abundant, and people spent it freely. Similarly, there is a variation from country to country, just as from time to time. The fare which is most profitable in New York would not be the most profitable in Berlin, because in the latter city we would not go down so far relatively into the mass of the people with a five-cent fare as we do in the former. If we stop at five cents in New York we have included the great mass of the people in the purchasers of street-car service. In Germany this would not be so, because the average means of the people are less, and they are more careful about small sums of money. The writer has little doubt that the price of highest net returns for a ride on the street cars in Berlin is that which is actually charged, namely, ten pfennige for one of their zones. Most people do not ride more than a zone. The ordinary man in Berlin pays just ten pfennige, goes that far, and then stops and walks a little distance. Even were the charge in Berlin not limited by law, the street-car companies there would probably not wish to charge more, because the present price yields the largest net rdturns. We have already discussed the dependence of monopoly price upon the law of highest net re- turns, but something more fundamental than what is found in the ordinary formulations of this law is 1 02 THE LAW OF MONOPOLY PRICE needed to supplement it. The considerations con- tained in the preceding paragraphs lead to a new law of monopoly charges, which the writer has for- mulated as follows : The greater the intensity of cus- tomary use, the higher the general average of eco- nomic well-being, and the more readily wealth is generally expended, the higher the monopoly charge which will yield the largest net returns. We may adduce the customs of the English and of the Germans with respect to the use of tea and coffee as an illustration. The English use relatively very large quantities of tea and very little coffee, being strongly attached to the former and caring comparatively little for the latter. The statistics of consumption show that precisely the reverse is the case in Germany. If a fiscal monopoly of tea and coffee, therefore, existed in both countries, the government would find its control over price ma- terially influenced by custom. England is a coun- try in which there is a higher general average of economic well-being and in which people expend wealth more readily than in Germany ; and so, if other things were equal, the monopoly price of coffee would be higher in the former country than in the latter. But as coffee does not have a strong hold on the English, a high price would discourage the consumption in England more than it would in Germany, inasmuch as to the Germans coffee comes near the class of goods designated as neces- saries. Custom might, therefore, counteract the higher average of economic well-being and the 103 MONOPOLIES AND TRUSTS greater general readiness in the expenditure of money in England to such an extent that monopoly prices would be the same in both countries. When we come to tea, however, as custom reinforces wealth conditions, the divergence in price would be very great, and it is quite possible that the mo- nopoly price of tea in England would be more than twice what it would be in Germany. It is quite natural, then, that monopolists should seek to draw custom to their aid. This is done by cultivating habits of use by means of low prices until these habits become so fixed that the use be- comes almost a necessity. It is shrewd practice to establish low prices at first for telephones or elec- tric lights, so that their use may become general, and then to raise prices when these services seem to those who enjoy them almost necessities. Prac- tices of this sort are so common that the reader will probably be able to give illustrations which have come within his own field of experience or observation. Our law of monopoly charges, then, explains vari- ations in monopoly charges from time to time and from place to place. A good illustration is afforded by the fiscal monopoly of tobacco which exists both in France and in Austria. It is possible in France to put far more taxation * into the price of a given * The profits on tobacco are spoken of as taxation, inas- much as the monopoly exists primarily for the sake of the public revenue which it yields. The monopoly is looked at simply as one method of taxation. This view is not 104 THE LAW OF MONOPOLY PRICE quantity of tobacco than in Austria. Indeed, it is reported that the monopoly price of tobacco in France is such that it includes more than twice the revenue for the government that the monopoly price in Austria does. It is stated that the net revenue to the public treasury derived from a hun- dred pounds of tobacco in France is from fifty to sixty-eight dollars, whereas in Austria it is less than twenty-five dollars. Such a difference in revenue would seem to indicate either a striking variation in wealth conditions or in customary use, or a marked difference in skill of management. The French are a richer people and spend their money more readily. If they did not, the sales of tobacco would so fall off with the higher price necessary to secure the revenue that the government would de- rive a larger gain by lowering the price. It is, then, apart from the other influences mentioned, because the French are a richer people that the great dif- ference obtains. It is for the same reason that they are able, having a monopoly, to realize a greater profit on every hundred pounds of tobacco. In Austria the government must be content with less than one-half of the amount which France derives. Of course, the government, having a complete mo- nopoly, could put on a tax which would make the price higher, but if it did so, the sales would fall off and the profit would be diminished.* absolutely correct, but it does not require criticism in this place. * The author takes these facts concerning the tobacco 105 MONOPOLIES AND TRUSTS Another illustration is the difference sometimes found between the prices of American manufactures in this country and abroad. In order to secure the most remunerative sale of a patented or otherwise monopolized American article abroad, it is occasion- ally necessary to charge less than in this country, because if the American prices were charged say, in Germany the sales would fall off and the article would become unprofitable. A friend of the writer was several years ago offered a rate of $12.50 on sewing-machines on board a ship in Baltimore Har- bor destined for Brazil, whereas he could not have bought them to be sold in Baltimore for anything like that amount. He could sell them in the Bra- zilian market far more cheaply than in the Amer- ican market. And why? Probably because those owning and manufacturing the machines, having to consider the price which would yield the largest net return in Brazil, found that it was less than in this country, and therefore put a lower price on the goods destined for foreign consumption than on those destined for American consumption.* monopoly in France and in Austria from a treatise on pub- lic finance, and he assumes no responsibility for their precise accuracy. * It is also said that one reason why American goods are sometimes sold abroad more cheaply than at home is that the foreign retailer is willing to take a lower rate of profit. Other reasons given, as, for example, the quicker returns on foreign sales in the case of agricultural implements, need not detain us here, as they do not affect the general prin- ciple which we are considering. 106 THE LAW OF MONOPOLY PRICE Another illustration would be the charge for books in England and in this country. In Eng- land there is a class of purchasers of books who will buy three-volume novels at half a guinea a volume, and consequently this price is a profitable one. The American publisher does not find it profitable. The price which yields the highest net returns in England is higher than in this coun- try, and that for two reasons: First, because a larger number of people of considerable means will pay the higher price ; and, secondly; because if the price were to be lowered there would not be reached so great a purchasing public as in this country. The American is not so particular about a five -cent street- car fare,* but when it comes to paying seven or eight dollars for a book he is more careful. It is also true, as just stated, that it is not possible to reach such a large mass of readers by lowering the price as in America, because here we have a large mass of intelligent but not highly trained people, and that class can be reached by putting down the price. * An illustration of the neglect of small economies by the American may be seen any day in the city of Washington, D. C. The street-railway companies in that city sell six tickets for twenty -five cents, but charge five cents for a single ride, unless six tickets are bought. The possible saving is i6 per cent., but the number of people who neg- lect to effect this saving is surprisingly large, as is demon- strated by the frequency with which the five -cent fare is paid. 107 MONOPOLIES AND TRUSTS This also illustrates something else. It illustrates the difficulty of fixing a monopoly price. When, as secretary of the society, the writer was publish- ing the monographs of the American Economic Association for several years, it was his office to put a price on the monographs. It was also his duty to get a revenue for the association, because without such a revenue the association could not continue its existence. The question was, If the price of the ordinary monograph is put down from seventy-five cents to fifty cents, will there be a suf- ficient increase in sales to counterbalance the loss in profit on each sale ? The writer's policy was to ask the higher price. Some thought that he was wrong, but there was no evidence that by lowering the price he would reach a large class of people. He believed that at seventy - five cents he reached the class of people who would read these mono- graphs, whereas he could not hope to reach the working people or any very large class of people even at fifty cents. We have now shown that monopoly causes varia- tions of price from time to time and from place to place ; but we have hitherto assumed uniformity at the same time and place. In discussions of monop- oly, such uniformity at one particular time and place is generally assumed. As Professor Walras has well shown, however, monopoly price, if left to itself, is not uniform even at one time and place. Conse- quently, wherever we find uniformity, pressure is shown. Generally there does exist pressure of some 1 08 THE LAW OF MONOPOLY PRICE sort, so that monopoly cannot, without some pre- text, charge one person more than another ; and in the case of the great monopolies with which we are chiefly concerned in the United States, there is a pressure of some sort which at one particular time and place compels a uniform price. But where the monopolist is free, he will vary the price. The price will not be uniform where there is a possi- bility of variation. There is such a possibility from country to country, as we have seen. At a price of one hundred, the monopolist reaches a certain number of purchasers ; at ninety, he reaches an- other and a larger number. The street - car com- panies find this so, and therefore reduce the price from ten to five cents in any place where the net gains at this price are uniformly the greatest.* The question which would naturally occur to them would be, Would it not be a good thing if we could keep our ten-cent customers while from others we accept five cents? That is a great problem, and one upon which the American monopolist has not as yet worked so carefully as the foreign monopolist. The monopolist will try sooner or later to dis- * The elevated railways in New York city, several years ago, reduced fares from ten cents to five cents, although no statute compelled the management to do so. It is possible that a law establishing a five -cent fare was anticipated, as only the veto of Governor Cleveland had prevented the enactment of such a law a short time before ; but it is also probable that a larger profit was expected from the lower rate. 109 MONOPOLIES AND TRUSTS cover some way to reach the different classes of customers with different prices. Professor Walras mentions the case of a manufacturer of chocolate. He puts it up in a modest wrapper and sells it at a moderate price ; then he puts up the same grade of chocolate in papier glact, calls it " Chocolat Superfin," and sells it at three francs a pound; then wraps it in gilt paper and calls it " Chocolat des Princes," and sells it at four francs a pound. An- other, in commenting upon Professor Walras's il- lustration, adds that this chocolate manufacturer omits the flavoring, calls the resulting preparation "Chocolat de SanteY' and charges for it from five to seven francs per pound. Another illustration is found in the custom which certain firms practise of publishing different editions of books. They get out their high-priced edition to reach one class of customers, and then, when they have exhausted that class, they get out a cheaper edition to reach the class below. This, however, is true of the English publisher to a greater extent than of the American. Wherever possible, then, we find that monopoly results in variation in prices to reach different classes of customers. The reason that we do have one uni- versal price in many cases is because there is some sort of external pressure that produces one price. The street-car and the railway companies could not charge you ten dollars and me five for a given dis- tance. We see this same tendency to variation in price as a development of American railways. They THE LAW OF MONOPOLY PRICE try to suit all classes. Some trains go a little faster than others, and for such a higher fare is charged. Then there is an extra charge for drawing-room cars, etc. But there is not always a difference in quality commensurate with the difference in price.* An- other illustration of monopoly price is afforded by the custom of charging two prices for gas, one when used for illuminating purposes and one when used for fuel (cooking, etc.). It is well known that the gas is in both cases the same, but is simply meas- ured by two meters. The gas company finds that the price of gas which will yield the highest net re- turns when used for illuminating purposes is con- siderably higher than the price which will yield highest net returns when gas is employed as fuel, and by means of the two meters maintains the two monopolistic prices. How different from a com- petitive price ! If our grocer should, when selling us flour, ask if we intended to use it for cake or bread, in order to charge a higher price for the cake-use than the bread-use, we would regard it as a piece of impertinence on his part, and would not at all submit to his efforts to introduce class price. His endeavors would be altogether futile. There has recently been observable a marked tendency in this country to reach different classes of consumers * Frequently, first- and second-class passengers enjoy, as a matter of fact, precisely the same conveniences, although they pay quite different prices for their tickets. Railways running between Buffalo and Chicago afford an illustration of this statement. in MONOPOLIES AND TRUSTS with different prices for very similar goods or ser- vices, and we shall probably see a development along this line. That is one of the characteristic indications of monopoly the absence of uniform- ity of price. A difficulty suggests itself at this point : It has been suggested that individual variations in prices of non-monopolized articles and services are found. This is true ; but it is true only in so far as compe- tition fails to do its perfect work, for the very hy- pothesis of perfect competition is that in a given market at a given moment there is one price, and only one price, for any article there offered for sale. The truth is, however, that competition does its perfect work as an exception, rather than as a rule, the moment we leave the great markets in which staple articles, like wool, cotton, and corn, stocks and bonds, are sold. In cases where we have to do with world-markets, and in the case of articles in these markets which fall into great classes with units susceptible of indefinite division or multipli- cation, we have something like perfect competi- tion. In other cases, competition as a rule simply sets limits, and within these limits a bargaining process determines price a higgling process, a bid- ding and rejecting, an experimentation with offers on either side, bluff and more or less deception, an attempt on the part of each side to read the mind of the other side all these constitute bargain- ing, although they may frequently take on various refinements of form in a highly civilized society. 112 THE LAW OF MONOPOLY PRICE If we take the case of a sale of a horse, or a lot of land, and ask what competition does, we find that it simply sets limits, and frequently very wide limits, within which the buyer and seller must by bargain- ing come to an agreement in regard to price. In all these cases we have opportunity for variations in price, simply because, mixed up with competi- tion, we have elements persisting which resemble monopoly. After all, when we consider a single in- dividual horse by itself, it has at least slight differ- ences separating it from every other horse, and these slight differences constitute a small quasi- monopoly element. There was only one horse Dexter. Each lot of land has its own peculiarities, however slight, separating it from every other lot of land. Similarly, every manufacturer has exclu- sive control over his own products, and to the ex- tent that his name and trade-mark are prized he may pursue monopolistic tactics, as does the manu- facturer of chocolate mentioned by Professor Walras. Along with competition, then, there is frequently a residuum of bargaining, with an element of gain to be divided by the bargaining; and the amount of this gain is represented by the distance between the limits to which competition forces buyers on the one side and sellers on the other: an element of gain which Mr. John A. Hobson has designated as " forced gain." * This gives opportunity for price * In his forthcoming book, The Economics of Distribu- tion. H 113 MONOPOLIES AND TRUSTS variations somewhat like those in monopolistic charges, precisely because in their purchases and sales there are elements akin to monopoly. As competition increases, as its work in those pursuits which are competitive in their dominating tendency approaches perfection, the variations in charges from individual to individual and from class to class diminish; whereas, precisely as competition increases in its intensity in competitive pursuits in the United States, we witness an increasing de- velopment of price-specialization on the part of monopolists. Monopoly, then, as we have seen, means varia- tion in price, not only from time to time and from place to place, but even from individual to individ- ual. Class price, however, is a better term than in- dividual price, if we have reference to the condi- tions of modern industrial society ; for monopoly price to-day, in the more important cases, means class price. Where there is no pressure brought to bear, the monopolist charges prices which vary from class to class in such a way that he will secure the different social strata as purchasers at the dif- ferent prices. For the clearer comprehension of the working of a monopoly in the matter of fix- ing prices, we may derive assistance from the use of various hypothetical cases. Let us for this pur- pose construct a table showing the number of sales of a monopolized article or service at different prices; the expenses involved in furnishing the supply, it being assumed that each unit involves a 114 Table I Number of sales I.OOO Gross yield IO,000 Expenses per unit 8 Total expenses 8,000 2.000 l8,000 8 1 6,000 5,000 IO.OOO 42,500 70,000 8 8 40,000 8o,000 THE LAW OF MONOPOLY PRICE constant expense of eight (8);* and finally the profit remaining to the monopolist: p . iMumDer uross .expenses lotai Profits of sales yield per unit expenses 10 1,000 10,000 8 8,ooo 2,000 9 2,000 18,000 8 16,000 2,000 2,500 10,000 If the monopoly price is, let us say, 10, and the number of sales 1000; then, if the expenses are 8 per unit, as indicated in the table, the profits will be 2000. But, according to this table, the monopoly price which yields the highest net returns is 8, be- cause that yields net returns of 2500 ; so that if one uniform price is to be charged, it will be 8.f But * Here, as elsewhere, we introduce a simplicity rare, in- deed, in the world's market, but this simplification renders it far easier to illustrate the principles involved, and for present purposes introduces no error. t Mr. John A. Hobson, in his discussion of the " Economic Powers of the Trust," in chapter vi. of his work Evolution of Capitalism, has fallen into misleading errors of theory. He says very truly that " the interest of a trust . . . lies in fixing supply at the highest net profits. Now the net prof- its of producing and selling any specified quantity of supply are ascertained by deducting the expenses of production from the aggregate takings " (gross yield). That is precise- ly what we have done. But immediately afterwards Mr. Hobson says that it is the proportion between " aggregate takings " and expenses which determines monopoly price. Now this is something quite different. Matters are made "5 MONOPOLIES AND TRUSTS the thought occurs to the monopolist, why not re. tain the sale of these iooo units at 10, and also the additional iooo units at g, while still selling 3000 still worse in his explanation of his diagram of monopoly prices and monopoly expenses, for he there says that " pro- duction stops where profit bears the largest proportion to the expenses of production, or, in other words, where the area of absolute takings shows the largest surplus over the area of aggregate expenses." Monopolistic production stops at the point which gives the largest net returns, and net returns increase as long as production yields a surplus over expenses. It is not a question of proportion between profit and expenses, but a question of surplus. Let us, for illustration, assume that expenses are 10 and gross revenues 20. We have a proportion of 1 to 2. Let us now further assume that if production is continued we have expenses amounting to 20, and gross revenues amounting to 35. The result is a proportion of 1 to 1.75 only, but, as the net gain is 15 instead of 10, the larger production is preferable. Our argument assumes that if capital is borrowed to en- large a business the interest paid is included in the expense account, and naturally it is advantageous to borrow capital as long as it yields a surplus. So far as fixed and specialized capital is concerned, we need not have regard to that. The monopolist wants as large a return as he can secure from it, but finds any return preferable to none. Similarly we may neglect fixed expenses, as by the very hypothesis they cannot be altered. But all variable expenses must be in- cluded under expenses when we determine monopoly price, and, when they are included, monopolistic production con- tinues while a surplus lasts, as in this way the largest net returns are secured. The further treatment of Mr. Hobson's discussion of mo- nopoly price is deferred to that part of the general work on 116 THE LAW OF MONOPOLY PRICE additional units at 8, because in that way there will be a still larger net profit? That is exactly what the monopolist attempts to do; and the rea- son that this point has been overlooked by Ameri- can writers on the subject and also very generally in other countries* is that, so far as the great monopolists are concerned, an external pressure is brought to bear which secures uniformity at one time and one place. That is the case with street- car service and with the service offered by steam railways, etc. But even in this country there is noticeable a development of classes and facilities for travel designed to secure the purchase of service on the part of the public at variable rates, So it is essential in the development of a theory of mo- nopoly price that it is something which varies not only from time to time and from place to place, but even from class to class. So far as any large num- ber of sales is concerned, the monopolist could hardly treat customers as individuals that would The Distribution of Wealth which deals with "The His- tory of the Theory of Monopoly." It should in this place be observed that the author is as far as possible from any desire to detract from Mr. Hobson's merits, which in this connection are especially great, but errare humanum est, and Mr. Hobson's mistakes and self-contradictions in the chapter referred to are surprising in so gifted an econo- mist. * Professor Walras is a notable exception, as his clear- ness of thought on the subject is admirable, although he has not sufficiently elaborated the point. 117 MONOPOLIES AND TRUSTS not be possible but he can treat economic classes as economic classes. Now, according to our table, if we are to have a uniform price, 8^ will be the monopoly price, because it is the point of largest net returns. We may suppose that this is the price on a copyrighted or a patented article. But it is quite possible that under competition 8^ would turn out to be the price which would yield normal returns on the capi- tal and the labor involved. The point to which at- tention is called is that the monopoly price is not necessarily different from the competitive price. It is conceivable that this price of 8 per unit of ser- vice or commodity, which the monopolist charges, because it gives him the highest net returns, is pre- cisely the price which would be brought about by competition. Quite likely the monopolist may have larger profits than those engaged in a com- petitive business would have. This will be the case if the monopolistic method of doing business is cheaper than the competitive method. It is even conceivable that 8^ may be less than the competitive price. Doubtless that will be the case in some instances. It is quite possible that under the competitive method the expenses may be so great that the necessary-supply price will be higher than the monopoly price. Let us suppose that the expenses are very much greater. Then the necessary-supply price will be higher than 8, the monopoly price. It is conceivable, again, that the wastes of the competitive method in adver- u8 THE LAW OF MONOPOLY PRICE tising and in high expenses in bringing the prod- uct to the consumer may raise the actual expenses of the producer to 9 per unit, which would make the competitive price necessarily higher than the monopoly price ;* but 8 is the price which yields the largest returns, because the returns of a mo- nopoly are a function of two variables, as we have said the function of the number of sales and the net profit per unit. Professor Sidgwick says that we may assume generally that in order that a mo- nopoly may be a source of gain, the amount sold within a certain time must be somewhat less than it would be if there were no monopoly. That is not necessarily true. The number of sales may be still greater than would be the case were there no monopoly, because the monopoly price, even when not regulated in any way by legislation, may be less, and under some circumstances will be less, than the competitive price. In general, it is safe to say, on the basis of experience, that monop- oly price is higher than the competitive price, but it must be fully understood that this is not necessa- rily the case. Unquestionably, one of the objects in * The theory of this work is that in pursuits which be- long to the true field of competition, the competitive price will not be permanently higher than the necessary-supply price under monopoly, inasmuch as the wastes of the com- petitive order are off-set by its gains: in other words, the author in this particular adheres to what has been regarded as most fundamental in the theory of the classical English school of economics with respect to competition. 119 MONOPOLIES AND TRUSTS the attempted formation of monopolies is to raise the price ; but actual and would-be monopolists al- most invariably lay emphasis upon the economies of monopolized production; and they aim to secure these economies, doubtless frequently deceiving even themselves as to what is possible in this di- rection. These would - be monopolists generally make the claim that they will offer goods or ser- vices at the old price, or even at a diminished price, but they do not, generally, live up to what they claim. While, as a rule, it is probably true that monopo- ly raises price, any complete theory of monopoly must also contemplate those cases in which the price yielding the highest net returns is positively less than the competitive price the gains of mo- nopoly coming through the economies of monopo- lized production. Some of the monopolistic gain doubtless comes in that way, especially in the case of those businesses which we have styled natural monopolies ; but ordinarily not all of it, as a rule.* In close connection with the foregoing, there is something else to be noticed in the matter of mo- nopoly price that the monopoly price varies with the expense of production and with the taxes on the units of services or commodities; taxes being in- * The reasons why we may believe that monopoly price is usually higher than competitive price that is to say, the price yielding normal returns under conditions of compe- tition are given at greater length in chapter vi. of this work, on pp. 221-225. 120 THE LAW OF MONOPOLY PRICE eluded here, because they are, from the point of view of the producer, to all intents and purposes, expense. In the case illustrated by our table, we have the price of 8 yielding the highest net re- turns if we have a uniform price, the expense of production being 8 per unit. Let us, however, consider what result may be anticipated if the mo- nopolist's expenses of production fall as product increases. We may roughly illustrate this case by a modification of Table I., found on page 115. If we let the expenses per unit fall from 8 to 7, then to 6, and finally to 5, we have this result: Table II Price Number of sales Gross yield Expenses per unit Total expenses Profits IO I.OOO 10,000 8 8,000 2,000 9 2.000 l8,000 7 14,000 4,000 H 5,000 42,500 6 30,000 12,500 7 10,000 70,000 5 50,000 20,000 We observe that in the case of falling expenses, as illustrated in this table, the monopoly price is also likely to fall. Provided the fall in expenses is a considerable one, and demand is considerably stimulated by the decrease in price, the intelligent monopolist will reduce prices, and, owing to econ- omic law, will be obliged to allow the public to share in the gains. To what point will monopoly price fall ? It will fall to that point where the reduction in price per unit to secure increased sales, multiplied by the 121 MONOPOLIES AND TRUSTS number of sales, offsets, or more than offsets, the fall in expenses per unit, also multiplied by the number of sales. Let us suppose that in Table II. the price is reduced to 6, and that as a result we have 20,000 sales, but that the expenses per unit fall only to 4^; it being assumed that with a production of 10,000 the greater part of the econ- omies of large-scale production have been secured. The gross yield will be then 120,000, expenses will be 90,000, and profits will be 30,000. Conse- quently it will be in the interest of the monopolist to reduce price to 6. Let us assume that a fall in prices to 5 again doubles sales, but that ex- penses per unit fall only to 4^. We will then have a gross yield of 200,000, total expenses of 170,000, and profits of 30,000. It would then be indifferent to the monopolist whether or not he extended pro- duction to 40,000 units, provided he regarded prof- its alone. We may safely assume that as he has no economic motive to enlarge production, he would stop at 30,000. Of course, we do not here consider the prospects of future gain resulting from a still greater traffic, but we have regard only to conditions at the given moment. If we go a step further and suppose that a charge of 4 per unit adds fifty per cent, to sales, and that expenses per unit do not fall, the point of maximum efficiency having been reached, we shall have gross yield of 240,000, expenses 255,000, and therefore a loss of 15,000. Our table would then read as follows : 122 THE LAW OF MONOPOLY PRICE Table III Price Number of sales Gross yield Expenses per unit Total expenses Profits IO I.OOO 10,000 8 8.000 2,000 9 2,000 l8,000 7 I4,000 4,000 8* 5,000 42,500 6 30,000 12,500 7 IO.OOO 70,000 5 50,000 20,000 6 20,000 I20.000 4| 90,000 30,000 5 40,000 200,000 4i 170,000 30,000 4 6o,000 240,000 4i 255,000 I5,000 Price will then fall to 6 and stop there under the assumed hypotheses, which include a choice only among the prices mentioned. The action of the intelligent monopolist will then vary according to the classes of goods with which he is concerned and with the classes of people which he hopes to reach. According to the law of " marginal utility," consumption of a good stops at that point where the purchasers regard it as just worth while to buy the quantities sold. Values may be high for small quantities and low for large quantities, finally falling to zero, when all wants are satisfied, as value depends on unsatisfied wants. The rapidity with which values fall is regulated by the elasticity of demand in each case. The de- mand for ordinary articles of food is urgent, but inelastic. If a monopolist had control over the food supply, he would then desire to let people feel hunger, as unsatisfied desires would give a very high price for food. An illustration of the movement of values for ordinary articles of food is 123 MONOPOLIES AND TRUSTS furnished by potatoes. The demand for these is extremely urgent, and in a year of scarcity, owing to the reluctance of the ordinary man to change his habits of consumption, the price may go as high as one dollar a bushel, even in interior towns. When, however, the supply is larger than usual, even by a comparatively small percentage, price falls rapidly, and in cities like Madison, Wisconsin, it is not al- together easy to sell them for twenty-five cents a bushel, while in some country districts it is difficult to find persons who will take them as a gift. When we come to articles of clothing, the demand is far more elastic, and by lowering prices for good cloth- ing large new strata of purchasers can be reached. If a monopoly of this class of goods were possible, the monopolist would be inclined to extend pro- duction if he could do so at considerably decreas- ing expense, whereas a monopolist of articles of food supply would frequently find it to his interest to destroy a portion of the supply, as a destruction of a small percentage of it would enlarge profits enormously.* This line of thought may be ex- tended indefinitely and illustrations multiplied without limit. It may be true, however, that the monopolist, falling into routine like that which can be observed sometimes where a prosperous monopoly has long * On this subject the author may refer to his treatment of value in his Outlines of Economics (College edition), book ii. part ii. chaps, i. and ii. 124 THE LAW OF MONOPOLY PRICE existed, may be content with gains already his, and prefer to "let well enough alone" rather than at- tempt a policy of expansion with lower prices for the prospect of higher gains ; for, apart from the effort involved, a new move is always attended with uncertainty in its outcome. But even if the mo- nopolist does reduce prices and build up a large business, he will not usually reduce prices to a point where only competitive gains will be secured, and for this conclusion reasons will be given hereafter.* It has been assumed in this case that the fall in expenses is considerable. If the fall should be very small say, a mere fractional part of I then the monopolist would find it to his interest simply to pocket the gains.f If from the figures in Table I. we have a reduction of -^ per unit in expenses in each case after the first, we would have this result : Table IV Price Number of sales Gross yield Expenses per unit Total expenses Profits IO I, COO 10,000 8 8,000 2.000 9 2,000 l8,000 7& 15,800 2,200 8* 5,000 42,500 7t% 39,000 3.SOO 7 IO.OOO 70,000 7tV 77.000 7,000 Let us next take an illustration which the writer holds to be typical in manufacture, agriculture, and * In chap, vi., pp. 221-225. \ Here, as elsewhere, the author assumes that there is choice only among the prices named in the table (I). Such restricted choice is frequent. 125 MONOPOLIES AND TRUSTS commerce. Expenses are assumed to decrease to a point which presents indefinite variety in the rapidity with which it is reached, and then when that point is reached the expenses are assumed to increase. We add to Table III. two classes of sales, the ex- pense increasing by per unit for each class, and we have as a result this table : Table V Price Number of sales Gross yield Expenses per unit Total expenses Profits IO 1,000 10,000 8 8,000 2.000 9 2,000 l8,000 7 I4,000 4,000 8* 5.000 42,500 6 30,000 12,500 7 I0,000 70,000 5 50,000 20,000 6 20,000 120,000 4i 90,000 3O,O0O 5 40,000 200,000 4* 170,000 30,000 4 6o,000 240,000 4i 255,000 I5,000 3* 70,000 235,000 4i 315,000 90,000 3 8o,000 240,000 4f 380,000 140,000 It is obvious that the advantages of large-scale production stop at 20,000 units ; for beyond that point the advantages of large-scale production are offset or more than offset by the fall in price. If no regard is had for price, a production of 60,000 gives the maximum production which can be had before the turning-point is reached, and expenses per unit begin to rise. Even if the producer could in the last two classes of sales increase his sales without a re- duction in price, the result would be the same, for in these cases at a price of 4 we would still have a 126 THE LAW OF MONOPOLY PRICE loss of 35,000 with a production of 70,000, and a loss of 60,000 with a production of 80,000. But according to the general law of prices, it re- quires a fall in prices to increase sales. And price realized is what is decisive in increasing or decreas- ing returns, so far as the monopolist is concerned. When the individual entrepreneur is obliged to lower prices to such an extent that his net money returns begin to fall, he has reached what is for him the point of decreasing returns, even if his expenses are still falling. Production is carried on in present society for money values, and an extension of the market of a producer or dealer into a field which has heretofore belonged to others may involve an un- profitable fall in prices, and thus set a limit to his expansion and afford room for the existence of com- petitors.* The reasons for the hypothesis that Table V. represents what is typical in agriculture, manufacture, and commerce are given in the fol- lowing chapters, in which the attempt is made to show that these businesses reach the point of de- creasing returns for the entrepreneur before the mar- ket is supplied, and thus are competitive in their nature, inasmuch as unified action of all producers in any one of these lines is generally difficult, and, indeed, as a rule, impossible; and inasmuch, further, * This subject is treated in an interesting and original manner by Professor John R. Commons, in his discussion of the laws of increasing and decreasing returns, considered socially and individually, published in his Distribution of Wealth, chapter iii, 1, but especially in chapter iv. 127 MONOPOLIES AND TRUSTS as could such unified action be brought about, it would not, according to our theory, result in a de- cisive increment in gain. According to what has been shown in our discussion of the causes of mo- nopoly, if the law of increasing returns held these businesses would be monopolistic in character. Let us next take the case of taxation of monopo- lized articles and assume a tax of I per unit ; then the price yielding the highest net returns will no longer be &J-. We must add this expense of I per unit on account of taxes, and we then find that manifestly 10 is the price which yields the highest net returns, and, in fact, is the only price which yields any. Our table, therefore, takes the follow- ing form : Table VI Expenses per unit p Number Gross (a tax of one Total Profits of sales yield per unit being expenses included) 10 1,000 10,000 9 9,000 1,000 9 2,000 18,000 9 18,000 o 8| 5,000 42,500 9 45,000 2,500 7 10,000 70,000 9 90,000 20,000 When, therefore, the tax on the monopolized pro- duction is on the units of service or of commodities, and is high, it is probable that the result will be a higher price and diminished production. If, however, the tax on each unit is relatively small, the monopolist will frequently be obliged to bear it. The charge paid by the street-car com- panies of Baltimore for the privilege of using the 128 THE LAW OF MONOPOLY PRICE streets affords an illustration. It is nine per cent, of the gross revenue, which amounts to a little less than half a cent on each five-cent fare. Now, even if the Baltimore companies were not restricted to five cents by law, it is quite possible that a six-cent fare would cause such a falling off in traffic as to reduce the profits of the business. It is important to emphasize this, because the statement is frequently made that taxes on mo- nopolies come out of the monopolist, and do not rest on the general public. That is true, if the taxes are fixed and definite sums, or if the taxes are laid upon net revenue. Let us take the cases indicated in Table I., and let us suppose that the tax in each case is just exactly iooo. Then the highest net return would be 1500, and the price of highest net return would be 8. If we take off from the profits a certain definite sum, we do not change any of the factors which determine price, and the monopolist will therefore gain nothing, but will even lose if he changes his price. The only thing that he can do, then, is to bear the taxation himself. Next suppose to take the other alterna- tive that the taxation is in proportion to net re- turns. Take, for instance, ten per cent, of the net returns, and we shall have a result like that in the case of taxation in definite amounts. We shall have the same price, the same number of sales, the same gross revenue, etc., if we take just a certain percentage and still leave net returns, provided we do not take away such a proportion of the profits 1 129 MONOPOLIES AND TRUSTS as to stop production ; but this we shall sooner or later accomplish if we diminish the advantages of the taxed business to such an extent that those engaged in it will prefer to leave it for other busi- nesses or occupations open to them. So one must be cautious in discussing this subject of the taxa- tion of monopolies. To repeat, if, on the one hand, the tax is one that adds materially to the expense of production per unit of service or commodity, then the producer will probably find it to his ad- vantage to raise the price and to diminish produc- tion. It will depend, of course, upon the relation between the amount of the tax and the diminution in production due to the greater price. If the tax is as much as I in Table I., the tax according to our assumed hypotheses would, as we have seen, raise prices and diminish production. We can, however, state the principle in more general terms as follows : If there is a higher price, which with the resulting diminished production will cut off less from profits than the loss which the monopolist would suffer should he assume the tax without a change in price or production, prices will be raised. If, on the other hand, the tax is a fixed sum, or is proportioned to net revenue, then no new factor en- ters which enables the monopolist to throw a part of the burden upon the public by means of increased price. We have in all our tables taken certain hypothet- ical cases, and used definite numerals. We could, without any alteration in results, construct any 130 THE LAW OF MONOPOLY PRICE number of similar tables with hypothetical cases. It is also possible to construct similar tables with algebraic symbols, which would give the conclu- sions a more general and abstract form ; or the graphical method could be employed for illustra- tion. The more general and abstract forms of rea- soning would, however, give no different results, and would be difficult for non-mathematical readers to follow.* Professor Sidgwick is much troubled by the case of a monopoly which is confronted by another mo- nopoly, and he says in his treatment of monopoly price that this is beyond the range of economic science. But this is not so. We have already seen that what competition does is simply to set certain limits within which bargaining can take place. Now when we have monopoly against monopoly, we have, of course, no opportunity for competition, and bar- gaining assumes a large place. That is all. We do not have such narrow limits set to the bargaining as we do in a case where there is competition. But even where there is competition in ordinary deal- ings, there is room left for bargaining. There is a certain margin between necessary-supply price on either side, but when we have monopoly versus monopoly we do not have competition drawing the buyers and sellers together, and there is, therefore, * It is scarcely necessary to tell the economist that the subject of price is one which receives further treatment in the author's general work on The Distribution of Wealth. 131 MONOPOLIES AND TRUSTS frequently a wide range of possible prices. The actual price within this range must be determined wholly by bargaining.* Another consideration is brought forward by the question, How will monopoly price affect future sup- plies? It is intimated by Professor Sidgwick that the monopolist looks ahead and asks himself, What will be the effect of bearing down too heavily upon the seller who sells an article of which the monop- olist is a purchaser? We are speaking about the buyer as the one having the monopoly. He asks, How will it affect the future supply ? Professor Sidgwick applies this to the case of labor, and inti- mates that the purchaser of labor power, even if he has a monopoly in a large market, will ask himself, What will be the influence upon future labor sup- ply? His implication is that the monopolist will not press down so hardly and heavily upon labor as to cut off future supply. But the evidence af- forded by the modern industrial world leads us to believe that ordinarily the monopolist does not look a long way ahead, so far as the purchase of supplies is concerned. Quite generally, the monopolist wishes rather to reap a harvest and retire from the field. Cer- tainly, it seldom happens that any one in the posi- tion of a monopolist with respect to the purchase of labor power will look ahead for years and ask, Is * This subject will be discussed at greater length in that part of the present work on The Distribution of Wealth which deals with competition. 132 THE LAW OF MONOPOLY PRICE not the course I am pursuing likely to diminish the labor supply? We do not find any action on the part of the purchaser of labor power which would in- dicate that this is the case. Take the example of the sweater and his victims. We do not find that he is held back from exercising his full power over them by the fear that he will cut off the future supply of labor power. He thinks that it will be forthcoming from some source ; but even if not, he says, Before the supply dries up I will reap my harvest ; I will make my fortune. There are doubtless some cases in which the monopolist will look measurably ahead. Take the case of a canning-and-packing establishment which stands alone in a country district. That establish- ment may be the sole purchaser on any large scale, let us say, of tomatoes, accessible to farmers in a wide region of country. Of course the owner of the establishment, if he expects to do business year after year, will not in one year be likely to bear down so heavily as to discourage the farmers alto- gether. He will hold out the hope that in the fut- ure the price of tomatoes will be remunerative. He will, at least, induce them to believe each year that next year the state of the market will be better; and he cannot do this if prices are kept below a certain point which only a knowledge of current conditions can determine. Another consideration which has to be taken into account in the determination of monopoly price is the influence of surrogates or substitutes. We have i33 MONOPOLIES AND TRUSTS seen that there is a substitute, more or less perfect, for any monopolized article which could be men- tioned. That is the case often with respect to books. It may happen sometimes that one must have a certain book this would be the case with a student in a class where a certain book was pre- scribed. Often in such cases there is an outside public which has a considerable option. Take the novel, for example ; the ordinary purchaser can get along without any one particular novel, and he will frequently purchase something else than the book which is his first choice, if he regards its price as excessive. The more closely a substitute approaches in its nature a monopolized article or service, the more dangerous it may become to the monopoly. Con- sequently, we observe a tendency on the part of monopolists to secure ownership, or at least effec- tive control, over those substitutes which are able to render similar services with approximately the same expense, and we have as a result allied groups of monopolies. We say allied groups of monopolies because control cannot be secured unless these sub- stitutes lend themselves to monopoly. The tele- graph and telephone afford an illustration of allied monopolies. The services which they render are so similar in character that they really may be re- garded as parts of one whole, and by united man- agement effective gains are secured ; the gains flow- ing primarily into private pockets, if these industries are privately owned and managed, but inuring to i34 THE LAW OF MONOPOLY PRICE society at large, provided they are owned and effi- ciently managed by the public. Electric lights and gas, both artificial and natural, constitute another allied group of monopolies. The service supplied by kerosene oil is similar, and it is a substitute, but not an effective one, as for many purposes for example, all public lighting it ren- ders a service so much inferior. On the other hand, it is much cheaper; and it is not unnatural that the kerosene-oil interests should reach out for control of gas and electricity, exhibiting, in fact, an inclination to secure a monopoly of all illuminants save the sun and moon ! All the most effective means of intramural and suburban transportation constitute an allied group of monopolies. We have here to do with street- cars of all descriptions, elevated and underground railways, steam railways furnishing suburban ser- vice, since all these must sooner or later, in the nature of things, fall under unified control. Delays in coming to terms of agreement may temporarily but only temporarily prevent this consumma- tion. On the other hand, the service rendered by cabs has been so inferior for most purposes, and also necessarily so much more expensive, that as substitutes they have not been able to influence ap- preciably, if at all, monopoly price. It is alleged, however, by those who should know, that in one of our greatest cities the street -car interests opposed improved pavements lest cabs and buses should be more generally used. On the other hand, auto- i35 MONOPOLIES AND TRUSTS mobiles evidently have in them the possibilities of a more effective substitute, and it is therefore not surprising to find street-railway interests reach- ing out for control over transportation by automo- biles. We have also to consider the influence of fashion upon monopoly price. It may dictate the use of a certain monopolized article, and is very tyrannical. There are those who find the higher prices more at- tractive, but there are others who will be shut off by the higher prices. Habits of consumption will have to be taken into account, because in some cases there is a certain flexibility in consumption. Professor Patten has called attention to considera- tions of this kind in his discussions of consump- tion, and for this he deserves praise; but he has exaggerated the power of the consumer to control monopoly price.* The conclusion which we reach, then, is that mo- nopoly prices are generally higher than competitive prices, and that, as a rule also, monopoly takes a goodly share of the wealth resulting from excep- tionally favorable conditions for wealth production, and absorbs a considerable proportion of the in- creasing wealth of the community ; although it is true that where there is flexibility in the habits of This, as well as the other parts of Professor Patten's theory of monopolies, the present writer hopes to treat at length in that part of this work dealing with the " History of the Theory of Monopoly." 136 THE LAW OF MONOPOLY PRICE the people the power of the monopolist will be re- stricted thereby, but only to a limited extent. We see in monopoly, then, one of the chief rea- sons for the vast concentrated wealth in this coun- try. The reader will recall the author's law of monopoly charges that the monopoly price is in- fluenced by the general level of well-being and by the readiness with which people spend money. The higher the general average of well-being, and the more readily they spend money, the higher will be that price which will yield the largest net returns. We have these conditions meeting in the United States. We have a high average of well-being and a great readiness in the expenditure of money, and consequently we have a high monopoly price. So, to borrow the language of our tables, if in Germany the price would be 8, in this country it would very likely be 10. Let us suppose that prices charged for monopo- lized services or commodities fall in one way or another that, for example, they are reduced by legislative enactment, as street-car fares may be what will be the result? It will largely depend upon how generally monopoly prices fall. If some monopoly prices fall and others do not, there is at least a chance indeed, a strong probability that part of the gain will be absorbed by other monopo- lies, or by rent, which we do not call a monopolistic gain. Let us suppose, for example, that street-car fares are reduced in cities generally by means of leg- islative enactment. Now, if the legislature stops at i37 MONOPOLIES AND TRUSTS that point, there is danger that a part of this gain will be absorbed by rent -receivers, that rents may go up to correspond with the fall in the price of transportation in the city. Henry George at times said that this would be the sole result. This can- not be true, however, because if the price of urban and suburban transportation falls, of course the amount of available land supply is increased, and rents tend to fall in that way. But doubtless a portion of it would be absorbed by rent or by other monopolies. But if the price of monopolized services and com- modities in general falls, what would then be the result? One result might be a higher standard of life; another might be a larger population. If, as one result of a fall in the price of monopolized articles, there were earlier marriages and larger families, then a part of the gain would be eaten up by the surplus of population, and a part by rent- receivers, on account of the increased demand for land. But it is quite possible that people might raise their standard of life, and raise it permanently, in which case the gain would be absorbed in that desirable way. It is one of the offices of taxation to secure part of the gains of monopolized production for those higher purposes which are calculated to raise the standard of life. If part of the gains of monopo- lized production is taken by taxation, it may be used to minister to the higher wants, and this ac- tion by government will result in a higher standard 138 THE LAW OF MONOPOLY PRICE of living and not in a larger population. For ex- ample, it may be used for educational purposes of all sorts. One other question presents itself in this connec- tion or two, perhaps. The first concerns personal gains. We ought not to call personal gains monop- oly gains, as they are different in so many particu- lars from those which result from social opportuni- ties of a monopolistic nature, and they do not give a monopoly according to our definition. At the most, and only in rare instances, can we call them quasi-monopolistic gains. Another question is, Where do we discover mo- nopoly gains in bookkeeping? Monopoly gains are a large item in wealth distribution, and yet when we look over railway accounts and private books we find no place where monopoly gains appear. They are carefully covered up, so far as may be, and that is done consciously and purposely by the managers of monopolies. Royalties explain a part of monop- oly gains. Occasionally, they are reflected in high price of stock, but there is an attempt to do away with this, as it is a crude and primitive way to ab- sorb monopoly gains, and the modern capitalist does not want monopoly gains to be thus reflected. He prefers to water stock, and he will do that whenever there is an opportunity, adding an amount of stock, so that what was originally a one-hundred-dollar in- vestment may appear to be a four-hundred-dollar or five-hundred-dollar one, and the returns may thus appear to be no higher than the returns on capital i39 MONOPOLIES AND TRUSTS invested in competitive enterprises. Stock-water- ing in this country, at any rate is one of the chief methods of absorbing monopoly gains. High salaries may also eat up part of the monopoly gains. It is well understood that in some businesses, and especially in the case of railways, the only real in- vestment is that which is covered by the bonds. Stocks in such cases represent surplus. It is hoped that they will be of some value on account of the surplus value of monopolized gains, but, as a rule, they do not represent any real investment. This is admitted by those interested in the business. Any man going into the street-car business in this coun- try to-day would not expect that the stock should represent any real investment. In fact, one who should propose to go into the business and pay for the construction of street -car lines by stock invest- ment would be called very foolish and unbusiness- like. The point is, that through various methods, especially through stock-watering, through salaries, through royalties, sometimes through high prices paid for purchases of commodities or land, under some term or another, the gains of monopoly are mostly covered up. 140 CHAPTER IV THE LIMITS OF MONOPOLY AND THE PERMANENCY OF COMPETITION It is a rather strange phenomenon that progress should result in the establishment of monopolies. It is a mistake to think that monopolies did not exist in earlier times. They did, and the desire for monopoly is about as old as the human race. It could not be described better than it is in Isaiah v. 8 : " Woe unto them that join house to house, that lay field to field, till there be no place, that they may be placed alone in the midst of the earth 1" But the possibilities of monopoly in early times were much less. Monopoly existed locally and on a much smaller scale, was often due to legal action, and did not frequently spring up spontaneously out of properties inherent in business. The truth is, that since the industrial revolution the increased indus- trial field is largely a non-competitive one. But there is a critical question which still confronts us. We have admitted that a certain large portion of the industrial field is a monopoly field. The ques- tion still confronts us : Is competition self -annihilat- ing? Is it self-annihilating through the entire in- 141 MONOPOLIES AND TRUSTS dustrial field ? Here is the point at which the socialist separates from the non - socialist. It is the assumption of the socialist that in this re- spect there is no inherent difference between busi- nesses ordinarily designated as natural monopo- lies and other businesses. They say simply that some lines develop more rapidly than others, and that some exhibit sooner than others the monopo- listic character. If this be true, we must have a reconstruction of our industrial order. And to ad- mit this is, so far as the present writer can see, to admit the claims of socialism.* But he does not believe that we must admit this. This is the rea- son why he is not a socialist. He holds, on the contrary, that, so far as we can now see, we have superadded to the old competitive field a new non- competitive field ; that agriculture, manufactures, and commerce are still competitive in their nature, and that where monopolistic tendencies exist in any of these lines of business, especially in manu- factures, we may find an explanation which does not necessitate the admission that these businesses are monopolies in their very nature. It is true, as Professor Adolph Wagner says, that manufacturing producers may prefer an agree- ment to competition; but to prefer an agreement is one thing to effect an agreement, real and vital and * Since this was written the author has been glad to see that M. de Rousiers takes the same position in his work Les Industries Monopolisms aux Etats- Unis. 142 THE LIMITS OF MONOPOLY lasting, is a quite different thing.* A committee of Congress reports that "combination grows out of, and is the natural development of, competition, and that in many cases it is the only means left to the competitors to escape absolute ruin."f Is that true ? It remains to be seen. There is no doubt that we have had pools and trusts, and that, since these are now becoming obsolete, another form has succeeded them. We now have combinations of corporations into new corporations. About this there is no doubt. But several things to which attention has already been called must be considered before we take up our main question regarding the self-annihilation of competition. One is that business on a large *An illustration is afforded by the retail book trade, which generally, in the cities of the civilized world, allows a discount of some 20 per cent, from the list price of books. The author remembers that for some twenty-five years and doubtless the movement goes back further than that there have been more or less persistent and determined efforts to effect an agreement which should result in abol- ishing this discount. These efforts have thus far been futile, although, even from the stand-point of the purchasing pub- lic, something can be said for the movement, as a more generous profit would make possible a higher grade of book- shops, especially in our smaller cities. The author recalls a very determined effort some twenty years ago to abolish the discount in question in the city of Berlin. It included an attempt to cut off supplies from the principal offending firm ; but it all came to nothing. t Quoted by Professor Alfred Marshall in his address on Some Aspects of Competition, p. 1 5. 143 MONOPOLIES AND TRUSTS scale, or concentration of business, and monopoly are two different things. Monopoly means some- thing more than business on a large scale. But how, then, shall we explain some of these large-scale businesses manufacturing businesses which are likewise monopolies? How can we reconcile our theory of competition with facts? It has been suggested by the author that the union of an ordinary business with a natural mo- nopoly may explain a monopoly when it is found outside of the monopoly field. If a manufacturing business is favored by the railways, it may become a monopoly, not through inherent forces tending towards monopoly, but through the favor of the monopolistic railway. Tariffs may explain, or help to explain, a few of these monopolies. Geographi- cal concentration of natural riches may explain some. Thus what we have already admitted with respect to monopolies explains at least a goodly proportion of the monopolies in the field of manu- facturing. We can find an explanation of the observed ten- dency of the cattle business towards monopoly without being obliged to admit that there is any- thing in the nature of the cattle business which would make it a monopoly. We can find an expla- nation of the sugar trust which does not necessitate the admission that it is in its nature a monop- oly. There is nothing in the refining of oil which necessitates the admission that that business has an inherent tendency to monopoly. 144 THE LIMITS OF MONOPOLY The author has a gifted friend, an engineer and inventor, who once, while a member of one of his classes at Chautauqua, became interested in the dis- cussion of monopolies and trusts, and took issue with him concerning his classification of businesses into those naturally monopolistic and those natural- ly competitive. This friend wrote the author sev- eral letters, of which three are quoted, inasmuch as they present admirably, and with all the freedom of friendly correspondence, the arguments in favor of the position that in all businesses there is an inher- ent tendency towards concentration and centraliza- tion which will not stop short of monopoly. The letters read as follows:* "June 7, 1892. " Dear Professor Ely, When we were in Chau- tauqua we had a little discussion on the subject of mo- nopolies. I thought that back of and beyond all special tendencies, (as in the case of natural or artificial monop- olies), there was in every modern industry an innate tendency to consolidation. All that I have since seen * These letters have not been revised, but are printed ex- actly as the author's friend, without a thought of publica- tion, wrote them. Doubtless for publication the writer of them would wish to elaborate many points, but for present purposes the statement, it will generally be admitted, is ex- cellent. The readers of this book will join with the author in the hope that his correspondent may sometime offer over his own name an elaboration of his position, to the effect that both physical laws and psychical laws favor pro- duction on a constantly and indefinitely increasing scale. K 145 MONOPOLIES AND TRUSTS or read has strengthened this opinion, and as I am now able to put my reasons therefor in more definite shape, I thought I would write to you upon the subject. " My theorem is that, in the present advanced state of civilization, large capital, intelligently applied, tends to make every industry a monopoly. "In the first place, as you have well said, the real reason that men form monopolies is that they can make more money in that way than by competing with each other. If they can make more money by a monopoly, then monopoly is inevitable. My task is therefore tan- tamount to proving that, in the most advanced stage of civilization, all industries whatsoever are becoming in- dustries of increasing returns. We are only beginning to enter on this stage in America, and not all of our in- dustries have reached it as yet; but I maintain that all will do so ultimately, unless preventive forces unknown at present should arise. " Let us now analyze the specific forces that give a business with large capital a decided advantage over small producers. They are : " i. The almost universal law in business that the greater the amount of goods purchased, the cheaper the price per piece. This at once places the small pro- ducer at a decided disadvantage, since his large rival can procure all his raw material and supplies at a much cheaper rate, and can therefore undersell him without loss. One of the principal advantages the large manu- facturer gains in this way is cheaper freight rates. This advantage has frequently been abnormally increased by unfair discrimination on the part of private owners of natural monopolies; but even with government owner- ship of railways the advantage would remain, unless 146 THE LIMITS OF MONOPOLY the government were to charge the same rates on a few pounds as on a train-load. " 2. As the amount of business increases, the fixed charges become a decreasing percentage of the cost. This is peculiarly the case with the cost of the talent necessary for superintendence, engineering, etc. A large corporation can afford to hire the best talent. "3. A rich company can invest enough capital to secure the maximum efficiency of plant. With the prog- ress of invention and the increasing use of expensive machinery, the amount of capital necessary to secure this maximum efficiency constantly increases. " 4. Having enough capital of its own, a rich company is not compelled to do business on borrowed capital. In times of panic this is a great advantage. A rich company is not obliged to do business from hand to mouth. It possesses great staying power, and can wait for a favorable market before buying or selling. "5. Large capital can at times ' corner ' the market. This is a very risky business when production can be quickly increased in answer to the higher price. But there is a class of commodities the demand for which comes from highly civilized, growing communities, and the supply of which is either limited by nature or is in the hands of primitive peoples who use antiquated and wasteful methods of production. The price of these commodities is surely rising, and, with adequate capital, a corner may be secured by long contracts with pro- ducers and safely held. To this class belong : India- rubber, gutta-percha, boxwood, ivory, whalebone, plati- num and other rare minerals, and all products of ani- mals or plants which are threatened with extinction. There is already a purchasing trust or pool which con- i47 MONOPOLIES AND TRUSTS trols the rubber trade at Para in Brazil. I do not know whether there is a platinum trust as yet, but the price has risen rapidly recently. The price of whalebone has risen from fifty cents per pound some years ago to six dollars a pound at the present time. "Another species of corner arises from patent monop- olies. It is obvious that large capital can afford to pay the highest prices for valuable patents. Also in the case of men whose talents are unique, the large capital can pay the highest salaries. "Where there is strong competition, the above-men- tioned forces invariably drive out the small producers. We must next examine those forces which favor the monopolies after they are formed, thereby offering a constant temptation to the formation of new monopolies, as well as strengthening those already in existence. " 6. Monopolies can save many wastes arising from competition : " (a) The unnecessary duplication of plants, stocks of goods, retail agencies, etc., is avoided. " (b) They no longer require a large army of competing commercial travellers. " (c) The large expense for competitive advertising is saved. " (d) They do not have to give away presents with their goods in order to sell them. The American Tobacco Company (cigarette trust) claim to have saved $250,000 a year since their consolidation through not being com- pelled to give away cigarette pictures. " ( tri e probable er- V n 1 . I 27/* ror of the mean of the n observations is : 0.6745 v/ ' r-^-r V *(*_,) the ratio of these is : O.6745 \/ V v n i 159 MONOPOLIES AND TRUSTS and could invest the capital represented by the remain- ing 56 in some other way. There is an unconscious ac- knowledgment of this force in the tendency of all the stores selling a certain class of goods to congregate in one ' district ' in a city. Each one hopes to catch the customer his rival cannot at the moment supply. " These forces, favoring the larger firm, make for consolidation in the retail trade, and will in the long run carry this form of industry the way of all others. There are already vast aggregations in the retail trade in every great city, and, if one were to ask any small retail dealer, almost anywhere, what he most feared, he would answer ' The big stores.' "Signed, " It is interesting to examine the claims made by those who organize industrial combinations of the sort popularly called trusts when they present their projects to the general public, and more especially to that portion of the general public comprising in- vestors, and to compare these claims with the ad- vantages of the trust as enumerated by the author's friend. The author has examined their claims, both in the advertising columns of newspapers and in the circulars sent out by their agents in solicitation of subscription for stocks and bonds. It is plain from such a comparison that the hopes of those entering these combinations and putting their money into them are well described in these letters. The au- thor has before him as he writes a large number of circulars and newspaper advertisements which af- ford abundant illustration. An advertisement of 160 THE LIMITS OF MONOPOLY preferred stock of the American Type Founders' Company is a good example, and from it a few quotations will be made. First of all, it is to be noticed that the twenty- three companies and firms in the combination are enumerated, and that according to the " Vendor's Statement" these companies and firms "manufact- ure and sell about eighty-five per cent, of the entire output of type in the United States." After ob- serving that tariff changes cannot affect the business unfavorably on account of the export business in American type, due to its superiority, it is claimed that the " excessive expenses " of the past will be reduced and cutting in prices will be stopped. Con- centration will save, it is said, " expenses and rent of a large number of duplicate branch offices," and will practically abolish " commissions to middle- men." A very large saving will be effected, it is claimed, in " specimen books " which each foundry has heretofore issued, " costing one foundry over twenty thousand dollars for a single issue." A large saving is also promised in the expense of pro- ducing new designs, which with competing com- panies involves a duplication of plant " at great expense." If we should go through the entire collection of advertisements and circulars, we would find these same points brought forward again and again in a variety of forms, but we would come upon scarce- ly a point not brought out already. The schedule of questions prepared by Professor J. W. Jenks for l 161 MONOPOLIES AND TRUSTS the use of the Industrial Commission of the United States in its investigation of " Industrial Combina- tions " also brings forward these same points. Let us now take up those causes which, it is claimed, are operating to monopolize every kind of business, and examine them one by one, first reminding the reader once more that large-scale production is a thing which by no means necessa- rily signifies monopolized production. But before we continue the discussion, the writer wishes to disclaim any desire to take the part of advocate for either the one side or the other in this controversy. His desire is to investigate scientifically the forces which give shape to industrial society, and he ad- mits frankly that we do not now have the data which would enable us to reach mathematical cer- tainty either deductively or inductively. He seeks to interpret according to his light the data now available. To pass on, then, to a consideration of the argu- ments presented by the author's friend, it is said that large producers enjoy an advantage in making purchases, and especially in the purchase of railway service in the transportation of freight. Will this stand the test of critical examination as a cause producing monopoly? Every day the careful ob- server may witness the shrewd man making small purchases at a low rate which could with difficul- ty be duplicated on a large scale. " Bargains " may be " picked up " in a small way as well as in a large way. Again, if one wishes to purchase on a large 162 THE LIMITS OF MONOPOLY scale, one must be careful lest the demand raise price; and frequently those who wish to make vast purchases divide up their orders, lest they suffer serious disadvantage from the very magnitude of their operations. This is more marked in the case of some valuable things, naturally, than in the case of others. Real estate would furnish the most marked illustration, for it is a well-known fact that consider- able purchases within a restricted area raise prices greatly. The purchase of fifty lots in a city of ten thousand inhabitants, if the purchaser were impru- dent in his methods, would raise prices by a very appreciable percentage. It is also true that a large demand for horses on the part of one person can with difficulty be satisfied by purchases in one place without an increase in price. Illustration could be continued indefinitely ; and the cases in which a large purchaser is at a disadvantage can be frequently seen by any keen observer. The writer of the letters evidently had in mind the merchant who places large orders with the manufacturer buying, for example, the entire out- put of the latter for a number of years. There is no doubt that the result would be a concession in prices ; and there are many cases in which the pur- chaser of large quantities of commodities has a marked advantage. Normally, however, this has its limits. One reaches sooner or later the point of maximum effectiveness, and beyond this there would be no advantage in going. Another, pur- chasing in equally large quantities, would have as 163 MONOPOLIES AND TRUSTS great an advantage ; and, unless aided by some ex- ternal forces, such as control over transportation agencies, it would be ruinous for one person to at- tempt to purchase the entire supply of any im- portant commodity. When a daring Chicago op- erator a short time since attempted to secure, through large purchases, the control of the world's supply of wheat, the result was higher and higher prices, and finally his ruin. Freight rates play an important role in business, and in many lines they enter into expenses to so large an extent that manufacturers and merchants favored appreciably are able to drive out of busi- ness those who are not favored. That is fully con- ceded. It is maintained, however, that there is a limit to the reduction in freight rates which a rail- way can profitably make to secure large shipments from a single person. It is generally conceded that a railway may with propriety charge relatively less for " car-load lots " than for a few pounds, but it is questioned whether a railway may go further than this. At any rate, in this case we again, sooner or later, find a point where there are no further ad- vantages to be gained in freight rates, if a railway is honestly managed ; and the tendency in the case of government railways, and also in the case of pri- vate railways under public control provided they obey the laws is to reach this point with com- paratively small shipments. Here again, then, critical analysis fails to discern a cause inevitably operating to produce monopoly. 164 THE LIMITS OF MONOPOLY It is said in the letter that the fixed charges de- crease relatively as the magnitude of the business increases. We admit that in the case of natural monopolies belonging to Class II. those which arise out of properties inherent in the business this is true to an extraordinary extent, and is one of the causes operating to produce monopoly. Railways are an illustration. It is true that in a manufacturing business there are at a given point in its growth certain charges which are relatively stable, and which may be designated as fixed charges. A superintendent is employed, and if the business is on a large scale the portion of the sal- ary which will inhere in the expenses of the pro- duction of each article will be relatively small. There must be a certain plant. If this is not fully utilized, then that part of the cost of the plant which must be assessed upon each unit of service or commodity will decrease as production increases until the plant is fully employed. All this is freely admitted, but it is claimed in reply that it does not prove that we have here to do with a cause of monopoly. A point of maxi- mum efficiency is sooner or later reached, and new fixed charges emerge as business grows. A super- intendent who can be had for fifteen hundred dol- lars a year has to give way to one who can com- mand ten thousand dollars, fifteen thousand dollars, or even more. The bookkeeping has finally to be reorganized and made more expensive ; new build- ings must be constructed ; expenses of an entirely i6s MONOPOLIES AND TRUSTS new sort appear. A large item in the expense ac- count of many huge establishments consists in an outlay to prevent being cheated and robbed, or to keep in order immense forces of employes. Thus, in the case of some vast businesses, we hear a great deal about the employment of " spotters " and pri- vate detectives. In the third place, the author would freely grant the claim of his correspondent that a large com- pany may have a plant of maximum efficiency ; but, surely, so may another large company. A rich company does not have to borrow capital, but we may have several rich companies which do not have to borrow capital. Moreover, a resort to credit, if it is prudent, will frequently increase gains in spite of the danger of crises. Many a small pro- ducer went through the crisis of 1893 in perfect safety ; many a large company became bank- rupt. Large capital, it is urged, can corner the market ; this is a point to be proved. Patents are admitted by the author to be monopolies, and in some in- stances causes of other monopolies. It depends upon the significance of the patent in a particular business. Frequently a patent owned by one man- ufacturer may be offset by a patent owned by an- other. Really unique talent in business is denied ; there may be rare talent. In so far as that portion of the industrial field is concerned which lies outside of our admitted field of monopoly, we do not admit, then, that the five 166 THE LIMITS OF MONOPOLY causes enumerated tend to produce anything more than many instances of business on a large scale. We next have an enumeration in the letter of the advantages of monopoly when once it has been secured. We might reply that we have nothing to do with these unless causes first operate to produce monopoly. Some of the advantages of monopoly have to be admitted as peculiar, and are not found in competitive businesses even when they are con- ducted on a vast scale. Commercial travellers may be dispensed with, advertising expenses may be re- duced, presents to attract customers may be abol- ished, and a needless duplication of plant may be avoided. In other words, we have, in the case of monopolies, an abolition of the wastes of the com- petitive system. But likewise we have an abolition of its advantages. When once monopoly is secure, it is likely to become listless, non- inventive, con- tent to follow in the old ways, indifferent to small economies; in short, it is held by non-socialists that, both from the individual point of view and from the social point of view, the gains of compe- tition outweigh its admitted losses ; and that, con- sequently, if for a time monopoly could be secured in the manufacture of some one article, or class of articles, competition would inevitably spring up and new producers would hold their own in the field of production.* * It is strange that some conservative economists appar- ently fail to see that what they concede to the advocates 167 MONOPOLIES AND TRUSTS We next turn our attention to lists of " trusts," as they are popularly called, and examine them critically in order to ascertain whether or not ex- isting concrete conditions are in harmony with our general principles. We take up for this purpose two of the most recent lists, claimed by their com- pilers to be as nearly complete as any ever pub- lished up to the moment when they appeared namely, the one published in the Commercial Year- Book for 1899* and the one published in the Review of Reviews for June, 1899, in an article by Mr. Byron W. Holt. These lists at first glance indicate that we have a veritable "rush to industrial monopoly" which threatens to absorb the entire field of indus- try. But a more critical examination suggests doubts about the extent of the movement as a monopolistic movement ; and that, too, in spite of the fact that these lists are not so crude as many others which have been offered to the public.f of the superiority of monopolized businesses implies an abandonment of the fundamental position of economics concerning the advantages of competition, and is a virtual surrender to the theory of socialism. * Issued by the Journal of Commerce and Commercial Bulletin of New York. t As an illustration of absurdities in this direction, we may cite the following headings of an article of some length which appeared a few months since m a prominent Chicago newspaper: "Ice-Cream Trust Now Four Chicago Firms Unite." A little later another newspaper startles us with these head-lines: "Trust in Prunes and Derby Hats!" 168 THE LIMITS OF MONOPOLY First, it is observed on careful examination that comparatively few of these combinations enjoy what, with the utmost stretch of language, can be called a monopoly. We notice, for example, " The California Wine-Makers' Corporation (allied with the California Wine Association)." This surely has no significance except as part of a wide-spread drift in the direction of business on a large scale. Com- petition has no more been abolished by this "trust" than it has by the " United Fruit Company," men- tioned in one of the lists, or by the " Chautauqua Grape-Growers' Union," with its entirely laudable and socially beneficial purposes. The "American Bicycle Company" is mentioned as in the process of formation, as are many other combinations; but up to the present moment there is competition in the manufacture and sale of bicycles which makes it indeed difficult for many in the business to maintain bare solvency, and the purchasing public enjoys the full advantages of competition except in so far as patents set comparatively insignificant bar- riers. Competent judges regard the possibility of stopping competition in this business as most re- mote.* Another fact noticeable in these combinations is the number of them working in the same field, thus Since the above was written, a newspaper item has appeared with these head-lines: "Unite Against the Trust. Three Bicycle Manufacturers Combine, it is Said, for Protection." 169 MONOPOLIES AND TRUSTS giving promise of competition. We notice, for ex- ample, this item in our lists : " American Glucose Sugar Refining Company (opposition company)." We observe also several combinations of brewing companies, but as beer is shipped the very longest distances, we see no evidence of monopoly in the fact that the breweries in a single city may be con- solidated into one company. Nor can we believe that the " Wholesale Grocers of New England " have a combination which will deprive the retail grocers of the benefits of competition in the purchase of their supplies. Secondly, we observe that the lists include many businesses which fall within our classification of monopolies, and so far as these are concerned we have admitted all that is claimed. We acknowl- edge that they lie outside of the competitive field. In the third place, it is significant that Mr. Holt in his article comes back again and again to special freight rates and to the connection between the rail- ways and other monopolies. He says : " The vir- tual monopoly which Armour, Swift, Morris, and Hammond have had in cattle and meats comes less from any formal agreement as to prices which they will pay for cattle or at which they will sell beef (though they fix prices in both directions) than from the centralization of the business, the great capital invested, and the advantages which such immense dealers and shippers have in obtaining freight rates and in the distribution of meats and meat products." 170 THE LIMITS OF MONOPOLY Not all of this is clear. It is clear, however, that the claim is put forth, or simply stated, that they have an advantage in freight rates. The present writer believes that quite as great as the advantage in freight rates is that which they have in terminal facilities, the use of stock-yards, etc. Further on we read : " The great industrial trusts about which we are so greatly concerned just now began to appear in 1872, when the anthracite coal combination was formed by an alliance of producers and carriers, and when the interests which now compose the Stand- ard Oil Trust first began to work in harmony." We have already accounted for the anthracite coal trust and the Standard Oil Company. We know, of course, that the coal-carrying railways are in close combination with the coal corporations, and that some of the railways are themselves great owners of coal-fields. That is the case with the Lehigh Valley, Lackawanna, and the Reading roads. It is also brought out in Mr. Holt's article that the Standard Oil people have had much lower rates than other refiners, and that the excess of the rates charged to the others was in some cases turned over to the Standard Oil people. The most extreme case is one the story of which has been repeated so often and which was proved in court, where a railway com- pany of Ohio charged Mr. George Rice, of Marietta, Ohio, a rate of thirty-five cents, and the Standard Oil Company a rate of ten cents, for carrying oil the same distance and under the same circumstances, and then of this thirty-five cents turned over twenty- 171 MONOPOLIES AND TRUSTS five cents to the Standard Oil people as rebate.* Of course, competition is simply impossible under such circumstances. With reference to pipe lines, Mr. Holt expresses himself as follows : " Unable to obtain fair treat- ment from the railroads, the independent refiners in 1878-9, with a capital of $5,000,000, constructed the Tidewater Pipe Line Company. Immediately the railroads reduced their rates on oil from $1.15 per barrel to 80 cents, to 30 cents, to 10 cents, and at last, as the General Freight Agent of one of the roads stated, to a rate that would not pay for wheel grease. The Tidewater Pipe Line Company survived the many attacks until 1883, when it was gobbled up by the trust." We see here, again, that it is not only through raising rates, but also through lower- ing them, that competitors are ruined. It is very natural that, with these advantages in transportation, attempts should be made to curtail production, and thus raise prices. It is chiefly be- cause efforts to restrict production have not thus far met with any large measure of success for a long period that the price of oil has been so low as it has been. The only way to sell the large product was to put down the price. Hereafter, efforts to curtail production may be more successful. In the meantime, the following statement from the well-known economist and Superintendent of * The railway was the Cleveland and Marietta. The case is described in the author's Problems of To-day, pp. 202-208. 172 THE LIMITS OF MONOPOLY Schools in Chicago, Dr. E. Benjamin Andrews, is instructive :* "On November i, 1887, the Standard Oil authorities made a stipulation with the Producers' Protective Asso- ciation of the oil-fields by which five million barrels of oil belonging to the Standard were set apart for the benefit of the association upon its engaging to curtail the production of crude oil at least 17,500 barrels a day. The paper was actually signed by the Standard Oil Company of New York, but the Producers understood, and so testified, that they had made it with the trust. If at the end of the year the production proved to have been lessened by the aforesaid amount, the Producers were to get all that this oil sold for above sixty-two cents a barrel ; storage, fire - losses, and insurance being first subtracted. To make good its part of the writing, the Producers' Association entered into a covenant with the Well - Drillers' Union, agreeing to pay them the profits over sixty - two cents a barrel on one million barrels of oil and part profits on another million, in return for their promise to desist from drilling and cleaning wells throughout the oil - fields. . . . The Drillers called this 'earning' the oil. After the date of this agreement the average reduction was 25,000 barrels a day. Perhaps to the extent of 7000 barrels it was due to natural shrinkage, but the rest was in consequence of the shut- down." There is also something in Mr. Holt's article about the combination on the part of the paper producers : * Mr. Holt's article, loc. cit. 173 MONOPOLIES AND TRUSTS " Immediately after the organization of the trust it raised the price of paper wherever it was possible. In three cases it raised its price $10 a ton, and has aver- aged an increase of $5 a ton on its daily output of 1420 tons, equalling an increased tax of $2,130,000 per annum upon the newspapers of the country, which now pay a total exceeding $20,000,000 per annum for their paper supply. The newspaper men admitted, however what the trust claimed that it has a monopoly of the water- powers and wood -tracts so situated as to be available for the cheap production of paper. Domestic compe- tition, at least for the present, is therefore out of the question. Thus, while the mills might be duplicated for $15,000,000, the water-powers and forest-tracts cannot be duplicated at any price." We see here that the source of the monopoly is in wood-tracts and water-powers which are limited. This case affords another confirmation of the theory advanced by the author. We have, then, explained the existence of some monopolies within the competitive field as due to the causes mentioned, and especially to private fa- voritism. A critical examination of the lists of trusts fails to reveal a single monopoly which cannot be explained on the grounds already advanced. With- out entering the realm of prediction in the field of industrial society an incursion which has proved disastrous to so many we may simply say that no one has yet adduced an instance of an important monopoly resting upon mere mass of capital or upon mere combination without external aid. 174 THE LIMITS OF MONOPOLY Furthermore, we find no difficulty in raising enor- mous amounts of capital for competition, even if it is necessary to wait a long time for returns. It is stated, for example, that on a single work an Ameri- can publishing house was willing to spend one mill- ion dollars before returns were received, and infor- mation from a reliable source would lead the author to regard this as a conservative estimate. Nor do we find business men hesitating to enter any field where they have what is called " a fighting chance." We have admitted that the oil business is now a monopoly. We, nevertheless, find a few competi- tors struggling on, and we find actual or would-be competitive refiners demanding only equal trans- portation facilities, and promising active competi- tion, if these can be secured. It must be remem- bered, however, that equal transportation facilities are not necessarily obtained when equal rates are given. What has already been said should be suffi- cient on this point. The writer, however, distinctly remembers a conversation with competitive refiners in which the endless difficulties encountered by them in the matter of transportation facilities were dis- passionately recited. Much juggling can be effected with freight classification, moving things from one class to another in such a way as to surprise and injure those who are marked out for ruin.* It was * Complaint has been made in Pennsylvania that the in- dependent refiners who wished to ship refined oil in tank- cars, receiving thereby rates much lower than those given for shipments in barrels, could not secure the tank-cars, and 175 MONOPOLIES AND TRUSTS shown how, chiefly through obstacles imposed by railways, it had been necessary to abandon field after field in which business had formerly been car- ried on. It is necessary to add a few further suggestions concerning the relation between monopoly and mass of capital. If mass of capital alone can pro- duce monopoly, there ought to be some discover- able ratio between mass of capital and monopoly forces. If, however, we take businesses in general, we cannot find even the slightest approximation to any ratio between mass of capital and forces mak- ing for monopoly. We find a small water company with a capital of $50,000 secure in the enjoyment of a monopoly in a village of 3000 inhabitants ; and, on the other hand, we find great publishing houses with capital running into the millions competing vigorously with one another, and indeed with a vigor which has grown as the amount of capital were thus forced to use the more expensive method of shipment. By an order of 1892, the Inter-State Commerce Commission required the carrying companies to furnish tank-cars to shippers impartially, or pay a penalty for fail- ure. The independent refiners subsequently brought against the offending carriers a claim for damages suffered. A de- cision of the Commission, printed in the twelfth (last) annual report, p. 191, sustains the claim of the refiners. Up to September, 1888, there was no difference in freight rates per barrel as between shipment in barrels and shipment in tank-cars. Since that time the tank rate has remained con- stant, whereas the barrel rate has steadily increased until it now exceeds the tank rate by about 30 per cent. 176 THE LIMITS OF MONOPOLY has increased. We find mercantile and manufact- uring establishments, with capital in the case of each establishment amounting to several millions, competing with one another; while, on the other hand, we observe that a street-car company, with a capital of $100,000, has a complete monopoly in its field. It may be urged that we should take each kind of business by itself. But, so far as any in- formation now available is concerned, we shall not in that case reach a different result. If we take the lists of trusts published by the Review of Reviews and the Commercial Year-Book to both of which reference has already been made and go through them one by one, arranging the " trusts " in classes according to the nature of the business, we shall still fail to discover any approximation whatever towards a proportion between mass of capital and the extent to which monopoly obtains, or to the progress made in the direction of monopoly. It has just been said that so far as our knowledge now extends we cannot discover a connection be- tween mass of capital and monopoly force, whereas we do discover a relation between monopoly force and the other conditions which have been mention- ed. We must avoid dogmatism. Our knowledge of concrete conditions is imperfect. It is conceiv- able that in some kinds of business the mass of capital required to secure even minimum living efficiency may be so vast that only a very few com- binations say, for example, six capable of supply- ing this mass of capital, can be effected. If such is m 177 MONOPOLIES AND TRUSTS the case anywhere, we undoubtedly have there con- ditions favorable for the establishment of monopoly. We may, however, justly claim that nothing of the kind has been shown up to the present ; and here, again, it does not seem unfair to place the burden of proof upon those who come forward with eco- nomic doctrines contrary to opinions accepted for generations, and contrary to what has been hereto- fore regarded as the experience of modern industrial society. It seems not unreasonable to concede that the very necessity of a large mass of capital as a req- uisite of minimum living efficiency is helpful in the establishment of monopoly when it meets with other conditions favorable to monopoly; yet, when we observe how readily capital can be raised by the millions for promising enterprises, we can hardly escape the conclusion that, so far as our present knowledge is concerned, we are not warranted in attaching much weight to mere mass of capital even as a helpful condition. We may, then, conclude that thus far our analy- sis of existing industrial conditions gives us no rea- son to abandon the conviction that competition is a permanent social force. The causes of competi- tion are founjl in human nature and in the laws of the external physical universe, under the operation of which men must toil for their daily bread. Pro- fessor Giddings gives a philosophical statement of this truth in the following language : " That com- petition in some form is a permanent economic proc- ess is an implication of the conservation of energy. 178 THE LIMITS OF MONOPOLY Given an aggregate of units of unequal energy, their unequal activity is an inevitable consequence. With the complexity of social environment that every quarter of the earth everywhere presents, and the limitless variations of heredity, a society com- posed of individuals of equal energy is an impossi- bility. Therefore, when market competition seems to have been suppressed, we should inquire what has become of the forces by which it was generated. We should inquire, further, to what degree market competition actually is suppressed or converted into other forms, and within what limits combinations can hold together and act effectively. The combi- nation equilibrium may be at best an unstable one."* We sum up the matter, then, in this way : So far as we now see, we have a large field belonging to monopoly ; but outside of this field we have an- other in which, under right conditions, competition is a permanent social force. Furthermore, we place the burden of proof upon those who claim that com- petition in industry is self -annihilating and invari- ably makes way for monopoly. * The Modern Distributive Process, p. 22. 179 CHAPTER V THE CONCENTRATION OF PRODUCTION AND TRUSTS We have endeavored to show that production on a large scale does not signify the abolition of com- petition, and does not as its necessary outcome im- ply monopoly. Our treatment, however, would not be complete without an additional discussion of large-scale production. To what extent does it as a matter of fact prevail ? What does it carry with it ? What are its limitations ?* There can be no doubt that there has been considerable concentration of production in cer- tain branches of industry. So far as the writer is aware, this has not even been called in question. It is brought about by competition acting upon and through the improved machinery and im- proved processes which have resulted from the in- ventions and discoveries of the past one hundred * The author would have it clearly understood that he does not profess in this chapter to discuss large-scale pro- duction in all its aspects, but desires simply to bring out some of its more general features which have a direct bear- ing on the subject of the present volume. 1 80 CONCENTRATION OF PRODUCTION and fifty years.* Manufactures especially have grown in the magnitude of the single business- unit. Their tendency is to increase up to a point where maximum efficiency is reached. And unless the size of the business-unit increases up to the point where capital and labor are so efficient as to secure, for the one, replacement, together with an outlook for at least the lowest returns on capital which at the time will be accepted, and, for the other, subsistence according to an accepted stand- ard of life, production must be suspended. This point we may call the point of minimum living efficiency. The point of maximum and the point of minimum efficiency vary with eveiy kind of business and vary also from time to time. It is significant that the general tendency during the past two or three generations has been to increase the size of the business-unit both of minimum and of maximum efficiency. The writer is familiar with the history of a watch factory which was finally obliged to suspend operations. This was some time since, but, if the writer's memory serves him correctly, it was then said by those con- nected with it that to secure a sufficiently cheap production to market their watches, they must do business on a scale large enough to occu- py something like three hundred employes. The * This subject is ably discussed by Mr. John A. Hobson in his Evolution of Capitalism, especially in chapter iv., en- titled "The Structure of Modern Industry." 181 MONOPOLIES AND TRUSTS precise number is not of significance. It is of significance that this establishment, like many- others, perished because the business could not be conducted on a scale of minimum living effi- ciency. Another illustration within the writer's knowledge may prove helpful, as it is one which can be paral- leled by every reader with even a moderately wide acquaintance. In one of our large cities a man began business about seventy years ago. One of the principal products of the business was bells, and it is said that at the beginning the proprietor him- self gathered up the old metal and carried it on a wheelbarrow to his foundry. The business began in the smallest possible way, but as years went on it increased to large proportions, and the proprietor died a wealthy man. The amount of capital with which the business was begun was so insignificant that a prudent mechanic could, within a short time, easily gather it together. Probably half a million dollars would to-day be a small sum with which to start a similar man- ufacturing establishment with a fair prospect of success. The data which would enable us to tell the pre- cise degree of present concentration of production have not as yet been gathered together, and still less are we able to measure accurately the progress which has been made in this direction. We have, however, a considerable amount of statistical infor- mation, and it is sufficiently full and accurate to 182 CONCENTRATION OF PRODUCTION indicate a pronounced movement in many indus- tries.* The general movement in manufactures from 1870 to 1890 is indicated by the following table, taken from the Census Report : /Per establishment. \ Year. Establishments. Employe's. Product. Employes. Product 1870 252,148 2,053,996 $3,385,860,354 8.15 $13,428 1880 253,502 2,700,732 5,349,191,458 10.66 21,101 1890 322,638 4,476,884 9,056,764,996 13.88 28,071! The census figures for the four branches of the textile industry namely, cotton manufacture, wool manufacture, silk manufacture, and dyeing and fin- ishing are as follows : Combined Textiles r- Per establishment.-v Year. Establishments. Employe's. Product. Employes. Product. 1850 3.025 146,897 $128,769,971 48.5 $42,568 i860 3P27 194,082 214,740,614 64.I 70,942 1870 4.790 274,943 520,386,764 574 108,640 1880 4.OI8 384.251 532,673,488 95.1 132,572 1890 4,114 511,897 721,749,262 I24.4 175.435 Mr. Willoughby offers the following remarks in explanation of the table, and also of the tendency * The best concise presentation of some of the leading facts in regard to this movement in the United States is probably that given by Mr. W. F. Willoughby, in the Yale Review for May, 1898, under the title "The Concentration of Industry in the United States." t Cited by Mr. Willoughby, ibid., p. 73. \ Cited by Mr. Willoughby, ibid., p. 75. 183 MONOPOLIES AND TRUSTS towards localization or geographical centralization of industry : " Combining the four branches of the textile trade, it is seen that while the number of establishments in- creased during the forty years considered but 36 per cent., the number of employe's increased 248 per cent, and the value of the product 465 per cent. The average number of employe's per establishment has thus steadily risen from 48.5 in 1850 to 64.1 in i860, 57.4 in 1870, 95.1 in 1880, and 124.4 i n 1890. In the case of all of the industries, it is important to notice that the move- ment towards concentration has gone on more rapidly in the later years. "The tendency towards localization, or for similar es- tablishments to group themselves in the same places, has been scarcely less strong, and has resulted in mak- ing four cities in different States the chief localities in which each industry is carried on Philadelphia, Pa., in wool manufacture; Fall River, Mass., in cotton manu- facture ; Paterson, N. J., for silk ; and Cohoes, N. Y., in the hosiery and knit-goods manufacture. The enormous growth in the wool-manufacturing trade during the last twenty years has been entirely confined to eight States in the East, while in the remaining States there has been an actual loss of 45 per cent. Philadelphia alone, in 1890, produced 21.82 per cent, of the entire woollens output of the country during that year." * The iron business is one in which the movement has been especially rapid, and in which it has gone * Cited by Mr. Willoughby, ibid., p. 76. CONCENTRATION OF PRODUCTION far. The late Hon. Joseph D. Weeks, editor of The American Manufacturer and Iron World, probably one of the best authorities on this subject, wrote a letter to the author under date of January 8, 1894, from which the following is a quotation : "I have yours of the 4th, regarding the tendency to concentration of production in the iron business. There is no question at all as to this tendency. I have been collecting statistics of the iron business now since 1870, and I have observed this tendency and written upon it again and again. When I first began gathering statistics of blast furnaces in 1872 there were quite a number of charcoal furnaces active in Pennsylvania. I do not recall the number, but I should think eighteen or twenty; you can count the number left now on the fingers of one hand. Not many years ago there were fifteen or twenty charcoal furnaces up the Alleghany River, near Pittsburgh. There is not one to-day, nor has there been one for years. It is not many years since the greater proportion of the pig-iron produced in the United States was made with anthracite coal as a fuel in the eastern part of Pennsylvania and up the Hudson ; to-day much the larger percentage is coke-smelted iron. Up to 1859 there was not an iron furnace in Pittsburgh, the first fur- nace being built in that year; to-day Pittsburgh produces as much pig-iron as the entire South produces from Southern ores. I am speaking now from my own ob- servation and knowledge. " I do not know as the statistics showing these move- ments of the iron business have been collected and pub- lished, but the data are available, and with a little work 185 MONOPOLIES AND TRUSTS they could all be shown. Statistics are available cer- tainly as far back as 1855 or 1856, and since 1870 there are yearly reports showing production by districts." After the death of Mr. Weeks, The American Manufacturer and Iron World, under date of De- cember 10, 1897, published a long article giving statistics showing the movement towards concen- tration in the blast-furnace industry. The most salient points brought out by the tables are pre- sented in the following extract from an editorial which appeared in the same issue of that periodical : " A truly remarkable showing is made. By reference to the tables on page 838, it will be seen that in Janu- ary, 1890, there were 345 furnaces in blast with a total weekly capacity of 175,002 tons of pig-iron, or an aver- age weekly capacity per furnace of 507 tons. On No- vember 1, 1897, the number of furnaces in blast was only 185, while the total weekly capacity was 219,638 tons, equivalent to 1187 tons per furnace. Thus in 1897, with the number of furnaces less by 46 per cent, than in January, 1890, there is an increase of 25 per cent, in the total capacity, and of more than 130 per cent, in the average capacity per furnace. Another in- teresting feature shown by this table is that while the capacity of each charcoal furnace, and also of each an- thracite-and-coke furnace, has increased, there has been a notable decrease both in the number of furnaces and of the total production. That is to say, the number of charcoal furnaces has decreased from 66 to 20, the total capacity from 12,693 tons to 4863 tons (nearly two- thirds), while the weekly capacity of each furnace in 1 86 CONCENTRATION OF PRODUCTION blast increased from 192 tons to 243 tons. In the an- thracite - and - coke furnaces the number has decreased from in to 27, the total capacity from 41,964 to 18,992 tons, while the capacity per furnace has nearly doubled. Among the bituminous furnaces there has been a de- crease of about 20 per cent, in number, an increase of more than 50 per cent, in the total capacity, and the average capacity per furnace has nearly doubled. These statistics show very clearly how iron-making has fol- lowed the general tendency, and these figures may also be taken as one of the reasons why the prices of pig-iron have fallen. With greater capacity comes lessened cost, and less cost is followed by lower prices." There are evidences that concentration in the iron business has increased still further since 1897, while the new developments following the opening-up of the Mesaba Range in Minnesota and the so-called Rockefeller-Carnegie combination* promise a fur- ther remarkable concentration in the iron-and-steel business, but not by any means the necessary sup- pression of competition ; for there is nothing even pointing in the direction of the abolition of compe- tition which cannot be explained by causes already advanced. In other words, competition still persists, * See M. de Rousiers* Les Industries Monopolisms aux Etats- Unis, chap. v. The author relies upon M. de Rousiers for his facts concerning the Rockefeller-Carnegie combina- tion. A recent newspaper item alleging that Mr. Rockefeller is "squeezing " the Carnegie interests in freight rates would indicate a less close alliance than one would infer from M. de Rousiers' statement. 187 MONOPOLIES AND TRUSTS especially international competition, which would be stimulated by a reform of the protective tariff; and we have promise of still further competition by new establishments for the working of iron and steel on a vast scale, whereas the greatest menace to competition comes from the superior transportation facilities on water and land enjoyed by a power- ful combination. Furthermore, it must be remem- bered by the reader that a sufficient concentration of decidedly superior mineral treasures has already been admitted as a possible cause of monopoly, pro- vided these mineral treasures are privately owned. The purpose of the present book is not to give a full concrete presentation of industrial concentra- tion, for, as already intimated, the time is not yet ripe for such a presentation. The present work deals rather with general principles, and it is hoped that it will be helpful to those who may hereafter give us the presentation of concrete phenomena. The facts concerning the iron business are adduced simply by way of illustration. Accurate statistics of the brewing industry in Germany exist, and they show the same movement in the concentration of industry, which is as wide- spread as modern industrial civilization. The num- ber of breweries decreased from 1400 in 1872 to 1050 in 1885, an< 3 yet, accompanying this decrease in the number of business-units, there was a large increase in production. The beet -sugar industry in the same country shows a largely increased pro- duction accompanying increased concentration. In 188 CONCENTRATION OF PRODUCTION 1836 the capacity per factory was n tons, and in 1884-5 ^ was 2 ^oo tons. The life-insurance business in the United States affords another illustration of concentration of in- dustry. The World Almanac gives statistics of the "old-line" life-insurance companies reporting to the New York Insurance Department for twenty-five years. In 1873 the number was fifty-six and the total income was $1 18,396,502 ; in 1897 the number was thirty-five with a total income of $301,268,179. The flour-milling industry in the United States exhibits a similar movement. In fact, this business can, as a rule, with difficulty be carried on except on a large scale. The writer had a conversation a few years ago with an acquaintance who owned a flour mill in a rural district. It had been a mill of some importance, and the proprietor was then revolving in his mind the problem whether it would be better to provide the mill with modern ma- chinery and attempt to secure sufficient wheat for milling on a large scale and a market for the flour, or to retire from the business altogether. This is a typical case, for thousands have been confronted with the same problem. The time to argue about this has gone by, as the movement is a clear one. It does not mean any necessary tendency towards monopoly, but it does mean that in many quarters of the industrial field it is not possible to do busi- ness on so small a scale as formerly. Very significant in this connection is the present crisis in the Social Democratic party of Germany. 189 MONOPOLIES AND TRUSTS Present-day German socialism was founded upon the theories of Karl Marx, who, in his work Capital, maintains that in every branch of industry there are forces at work which, operating under the iron law of nature, will produce a complete monopoly, so that ultimately it will be necessary only to replace private monopoly with public monopoly in order to usher in socialism. This hypothesis is accompanied by others, making an apparently solid framework of doctrine. One hypothesis among these others is the increasing misery of the masses. Now it is precisely at the present time that one of the lead- ers of the German Social Democrats, Herr Eduard Bernstein, takes the position that socialism is not coming as the result of universal monopoly and increasing misery, but that, on the contrary, it will be the outcome of generally improved conditions. The following is a quotation from a recent work by Herr Bernstein : " Notwithstanding continual changes in industrial groups and in their internal arrangements, the picture which presents itself to us to-day does not indicate that large manufacturing establishments continually devour business-units of small and moderate dimensions, but this picture simply shows large business establishments growing up by the side of smaller ones. It is only those establishments so small as to be called ' dwarf establish- ments ' iZwergbdriebe) which are suffering an absolute and relative decline. So far as the business -units of small and moderate size are concerned {Klein- und Mit- tel-betriebe), they are increasing. This is shown for Ger- 190 CONCENTRATION OF PRODUCTION many by the following statistics of employes in estab- lishments of these three classes : Small establishments 1882. 1895- Increase, per cent. (i to 5 persons) 2,457.950 3,056,318 243 Moderate-sized establishments (6 to 10 persons) 500,079 833.409 66.6 Large establishments (10 to 50 persons) 891,623 1,620,848 81.8 " The population, however, increased at the same time only to the extent of 13.5 per cent." After further observations, Herr Bernstein uses the following words, which under the circumstances may be called remarkable : " If modern society is to break to pieces by reason of the disappearance of the middle classes between the two extremes of the social pyramid, if this breaking to pieces depends upon the absorption of these middle classes by the extremes above and below, then this break-up is no nearer its realization to-day in England, Germany, and France than it was in any earlier period than the nine- teenth century."* In commerce we notice the development of the mammoth department -store in all modern cities, and we are pained by the distress of those who suf- * Cited in an interesting article entitled " Bernsteins Kritik des Sozialismus," in the Wochenblatt der Frank- furter Zeitung, April 21, 1899. See, for the original, Bern- stein's Voraussetzungen des Sozialismus und die Aufgaben der Sozialdemocratie, pp. 59-66. * 191 MONOPOLIES AND TRUSTS fer under the pressure of competition. But notice, it is the pressure of competition, not the pressure of monopoly that produces the distress. Notwith- standing this development, we observe, alongside of these mammoth establishments, many small retail stores, and we can still see retail stores of one kind and another starting in the humblest way and pros- pering on account of the diligence and skill with which they are managed by their proprietors. Agriculture least of all exhibits any general move- ment in the direction of concentration. We see a few large farms growing up and prospering, but at the same time many great estates are divided up, and it is not clear that in our own or other countries we have had during the last two generations any concentration of production. A personal word in this connection is sufficiently instructive to warrant its insertion. The writer's course on the Distribu- tion of Wealth has been given in the University of Wisconsin for seven years, and in his classes he has had many bright minds, some of whom are al- ready beginning to be known by their writings, and give promise of eminence. Again and again the subject of concentration of production in agricult- ure has been assigned to members of the classes, and a great amount of time has been expended in in- vestigation of available data. Any one at all familiar with the author's methods will readily accept the statement that not the slightest pressure has ever been brought to bear upon a student to influence him towards a foreseen conclusion. Now the point 192 CONCENTRATION OF PRODUCTION is this : No one yet has been able to show any con- centration in agricultural production, so far as area is concerned, although one investigator thinks that there is some indication of concentration so far as the value of the farms cultivated is concerned. The results are, perhaps, in no case as yet ready for pub- lication, but undoubtedly some of those who have been engaged in these investigations will sooner or later publish the facts so far as they shall then be ascertained.* * The figures in chapter iv., in regard to wheat production in California, which the author's correspondent quotes (see p. 155), are altogether misleading, as anyone widely familiar with agriculture knows. The author is inclined to doubt their accuracy, even for California, but even if accurate for that State, it is owing to exceptional conditions, among which the climate is an important one. The following quo- tation from Dr. Charles B. Spahr's article, entitled " The Northern Farm," which appeared in the Outlook for No- vember 4, 1899, is especially instructive in this connection : " I went from Litchfield to the Red River Valley to investigate 'bonanza farms.' Ever since David A. Wells, in his Recent Eco- nomic Changes, published about ten years ago, urged that the prices of farm products were being reduced by the cheaper methods of production employed on the great ranches, the impression has been circulated far and wide that in agriculture as in manufacturing the ' big fish are eating up the little ones,' and that the independent small farm is soon to be a thing of the past. From the time I en- tered Minnesota till the time I left North Dakota the supposed fields of gold for the great wheat ranches I heard not a single fact that even seemed to support the prevalent Eastern theory. In southern Minnesota everybody I asked agreed that the large farms had been the least successful, and Superintendent Gregg assured me that all over the State the big farms were gradually being broken up N 193 MONOPOLIES AND TRUSTS The size of the business- unit of maximum ef- ficiency must depend upon the capacity of the head of the business-unit, upon the nature of the particu- lar business, and upon the progress which, at the given moment, has been made in the methods of organization. Whenever a business outgrows the capacity of one man to maintain unity, the danger point is reached. Men differ greatly in the general- ship required for the management of a vast business, and unity is maintained in some businesses far more easily than in others. It is quite possible that with a division of the railways of the United States into suitable geographical areas, each with a large meas- ure of autonomy, a unified management could in a general way be exercised over them all. The size of the business concern in manufacturing over which unity can be exercised is, so far as can now be seen, much smaller; and still smaller is the mercantile establishment over which unified control can be ex- into smaller ones. On the railroad-car north, my first travelling companion proved to be the agent of one of the very large land companies in the western part of the State, and when I asked him about the profitableness of farming on a large scale, he said that his company had now adopted the policy of selling its land to small farmers. He did not, indeed, depict the ' bonanza ' farm as hope- less, but he recognized that it was less profitable than the small farm managed and tilled by its owner. When I reached the Red River Valley, where the large farms are still the rule, this judgment was universally confirmed. The great estates of that region are doomed to disintegration. The great wheat ranch cannot compete with the small diversified farm. In agriculture the big fish are fur- nishing food for the little ones." 194 CONCENTRATION OF PRODUCTION ercised. Vastly smaller in agriculture is the size of the business-unit over which unified control can be exercised. With the change from extensive to intensive culture there is apparently a general ten- dency to divide up large estates, although it is per- haps true that after this change has once been made there is again a very moderate movement in the di- rection of larger farms.* When large-scale production without any special favors conquers a position for itself in any por- tion of the industrial field, it is because it carries with it advantages for society. These have been frequently described, and it is probably not too much to say that they are at present familiar not merely to students of economics, but to well - in- formed persons generally. A more extended divis- ion of labor in these cases means a more effective organization of industrial forces whereby an econ- omy is effected both in human labor power and in the expenditure of capital. Large-scale production means a use of machinery which multiplies the work of human labor power, ten, one hundred, and even one thousand -fold. Large-scale production also means particularly the utilization of former waste, and in this direction some of its most signal triumphs have been achieved. There are many stories afloat which illustrate the utilization of * This movement is suggested by Professor Amos G. War- ner in two valuable articles on " California Land Problems," which appeared in the Record and Guide, of New York, in the issues for March 7 and 14, 1896. 195 MONOPOLIES AND TRUSTS waste in the great packing -houses in Chicago, of which this one is typical : " Mr. Armour says that the only part of the hog which he cannot save and utilize is its dying breath." The field for general- ship which large-scale production affords has already been mentioned. It utilizes and develops abilities, perhaps comparable to those of a great warrior, while details are left for men of a subordinate order of talent. We need not dwell longer upon this familiar ground. Large-scale production adds to human comfort and well-being through increased produc- tion of material wealth. Large-scale production increases the margin between the human race and bare subsistence, or even starvation. Further prog- ress is needed in the production of, material wealth. The surplus over subsistence may seem to be vast when we contemplate the mode of life of the well- to-do and the wealthy, and the surplus is, indeed, vast. Nevertheless, any considerable addition to the average income of the people could be effected only by a vastly increased production of material wealth. If there are seventy millions of human be- ings in the United States at the present time, an addition of five cents a day to the income of each would mean an annual increase in the total na- tional income of $1,277,500,000; and of course it must always be remembered that the conditions in the United States are exceptionally favorable ; that elsewhere hundreds of millions of human beings lack what we regard as the barest necessaries of life 196 CONCENTRATION OF PRODUCTION in the way of food, clothing, and shelter. The point which must be emphasized, then, is that one of the conditions of satisfactory human progress is increased efficiency in production. Resistance to large-scale production, when this kind of production comes about not through external favoritism, but as a result of inherent advantages, is like resistance to machinery, to which it has so often been, com- pared. There are, indeed, serious evils connected with that evolution of industry which has brought us the growth of the business-unit of vast propor- tions. But these evils must be cured, in so far as cure is possible and a great deal is possible in the way of cure while still keeping the increased efficiency of large-scale production with all its benefits. But it is not true that the entire movement is altogether in the direction of large-scale production, even in manufactures, where, as Professor Marshall points out, there are special advantages on account of the fact that manufacturers have the power to choose freely the locality in which they will do their work, whereby they are enabled to select that locality in which the greatest advantages are con- centrated, manufacture presenting in this respect a contrast with agriculture and also with extractive industries in which the locality for occupation is largely dictated by fertility and the presence of the natural treasures. The difference is simply that a large production in manufactures can be conducted on an incomparably smaller area than in agriculture or the extractive industries. 197 MONOPOLIES AND TRUSTS But, as already stated, not even in manufactures does everything move in the direction of large-scale production. The industry of repairing tools and machines, for example, is carried on by prosperous mechanics on the smallest scale. We find their little shops in considerable numbers in every com- munity of any size. There is also opportunity for small-scale manu- facturing in all cases in which things are made to suit individual tastes. The most familiar illustra- tion is furnished by what is called custom-made clothing. But this catering to the individual tastes of the consumer is not by any means all, nor is it even what is most significant in recent develop- ments. There is along many lines an increasing demand for things which give expression to indi- viduality in the worker. Printing is now carried on in more that one great city almost as a fine art and on a small scale with a minimum amount of machin- ery. Bookbinding also is undergoing a develop- ment which places it almost if not quite within the realm of the fine arts. There are indications that development of the handicrafts along this line is not to be attributed to mere passing whim and ca- price, or what we frequently designate as faddism. There is a desire for individualization in production, and there is some ground to suppose that there will be in the future a considerable class of persons de- manding not so many things, but fewer and better things, and especially things which give opportunity for an expression of the individuality of the worker. 198 CONCENTRATION OF PRODUCTION This movement is well described by Mr. John A. Hobson in his excellent work, John Ruskin, Social Reformer. It appears from this work that there has been formed in England under the influence of Mr. Ruskin's teaching a society called " The Home Arts and Industries Association." One of its aims is stated as follows : " To revive the old handicrafts which once flourished in England and which have now almost died out, and to encourage the labor- ing classes to take a pride in making their homes beautiful by their own work." After describing the considerable progress of the work of this so- ciety, Mr. Hobson says: " It is, in a word, a practical informal attempt of a civilized society to mark out for itself the reasonable limits of machine-production, and to insist that 'cheap- ness ' shall not dominate the whole industrial world to the detriment of the pleasure and benefit arising from good work to the worker and the consumer. Such a movement neither hopes nor seeks to restore mediaeval- ism in industry, nor does it profess hostility to machinery, but it insists that machines shall be confined to the heavy, dull, monotonous, and therefore inhuman, proc- esses of work, while for the skill of human hand and eye shall be preserved all work which is pleasant and educative in its doing, and the skill and character of which contribute pleasure and profit to its use."* The author does not desire to emphasize unduly the importance of this movement, but it at least in- *Sce Hobson'sy^Aw Ruskin, Social Reformer, pp. 322-3. 199 MONOPOLIES AND TRUSTS dicates that not everything is going in the direction of large-scale machine-production. Nor does all progress favor even machine- pro- duction on a large scale. We have already given statistics showing the persistence of small-scale manufacturing-production in Germany, and these statistics could be paralleled in every modern coun- try. Inventions and discoveries have, on the whole, favored the development of production on a large scale. Now, however, there are schools and various other agencies which have for their express purpose a wide diffusion of technical knowledge ; and these agencies render the knowledge available to the one who is working on a small scale. The possibility of securing cheap gas as a fuel and electric or water power at low rates frequently helps the one who produces on a small scale to hold his own against the large producer. Recent progress has made it possible to have gas and electric power, and often water power, at a very low rate, and this possibility is realized especially in the case of public ownership and operation of those utilities. Too frequently in the case of private ownership and operation this cheapened production is used for increased divi- dends and stock-watering, and also too frequently in the case of private undertakings the interests of the large consumer are advanced by lower rates than those accorded to the small consumer, and that, too, to a needless and unwarranted extent. It is noticeable, however, as an indication of prog- ress favorable to the small producer, that the idea 200 CONCENTRATION OF PRODUCTION and the practice of public ownership are rapidly- gaining ground. It is not the purpose at the pres- ent time to enter into any argument concerning the advantages of public ownership as contrasted with private ownership, but simply to call attention to a drift favorable to production on a small scale in many parts of the industrial field. The development of postal facilities is favorable to large department-stores, but it also favors many small producers who are able to send their products long distances for low rates. Thus, printing-work for secret societies is done to some considerable extent in a little village in western New York, and in the same way the post-office affords opportuni- ties for producers in a rural district in Virginia to v aise violets for the Philadelphia market. These in- stances are simply illustrative. Frequently there is opportunity for the individual producer with initiative to discover some improved way of satisfying old wants, and to begin produc- tion on a small scale with prospect of success, pro- vided he is alert and diligent as well as technically skilful. We have seen manufacturing establish- ments rise in this way in small cities in the North- west and elsewhere which have been able to supply improved underclothing, while other producers were continuing to move in old ruts. Underclothing has come to be made more generally to suit individual needs, and has also been improved in other ways as the result of the efforts of men who started manu- facturing in a small way. 20 1 MONOPOLIES AND TRUSTS Though we may condemn attempts to reverse the manifest order of evolution to turn backward to old forms we may yet contemplate with satis- faction certain indications of a movement which will restore some of the advantages of old forms while maintaining the efficiency brought us by new methods. But we must not overlook the other side of the picture. If the industrial evolution which we have just been describing, resulting in large-scale pro- duction in so large a proportion of the industrial field, has brought us benefits, it has also brought us evils, although these evils have not always been correctly perceived, and features of the movement which are really beneficial have been regarded by some as evils. Allegation of evils is in many cases due to a faulty political economy. If, as the result of concentration, it is possible to dispense with the services of thirty -five thousand drummers, as is so often alleged probably an exaggeration it is a good thing, because it means increased efficiency and a larger supply of human brains and energy available for the satisfaction of the wants of the world. Frequently mention is made of the vacant stores in cities, as if this were an evil ; but the real problem is to increase available land supply in large crties, and if department -stores make it possible to do the commercial business of these cities on a much smaller area, more ground is left for dwellings and for purposes of recreation, and the result is a gain. To resist this movement CONCENTRATION OF PRODUCTION is on a par with burning down houses to make work. Where, then, are the real evils? If those drum- mers who lose their positions do not find something else to do which will fully employ their powers, we have an evil. Many of them do find other employ- ment, and many are positively helped by being jarred out of the ruts into which they have fallen ; but this is not by any means the case with all who lose their occupations as a result of industrial read- justments. It is here as it has been in the case of machinery. One of the errors of many speakers at the Chicago Conference on Trusts was an over- hasty generalization concerning the universality of the beneficial effects of machinery. On the whole, machinery is a benefit, and it was folly to attempt to oppose it. Nevertheless, machinery did displace a great many workers, and not all of them succeeded in finding employment. Many mechanics suffered, and suffered grievously. Some of the utterances heard at this conference were in marked contrast with the scholarly lectures on the subject of Indus- trial Revolution, given the past summer at the Uni- versity of Wisconsin, by Dr. William Cunningham, of Cambridge University, England. In these lect- ures Dr. Cunningham showed by analysis that in some cases there was an expansion of the oppor- tunities for work for example, in the spinning in- dustry of such a kind that no one suffered on account of machinery ; whereas in very many other cases for example, wool-combing there was very 203 MONOPOLIES AND TRUSTS little expansion and there was intense suffering.* Particularly those in middle life or beyond, who have acquired a specialized skill which is rendered useless by improved methods of production, are like- ly to suffer permanently. It is of no use to talk to them about what happens " in the long run," for their life is, as has so frequently been observed, only a short run. Many other alleged evils are either not evils at all or are of less importance than has been repre- sented. We have, for instance, the independence of the small producer, of which much has been made. President Cleveland, in one of his annual messages to Congress, emphasized the loss of the benefits of the sturdy independence of the man working on his own account, as the chief objection to the trust movement.! There is something in * Cf. his work, The Outlines of English Industrial History, chapter ix., on " Labor and Capital." f "Another topic in which our people rightfully take a deep interest may be here briefly considered. I refer to the existence of trusts and other huge aggregations of capital, the object of which is to secure the monopoly of some par- ticular branch of trade, industry, or commerce, and to stifle wholesome competition. When these are defended, it is usually on the ground that though they increase profits they also reduce prices, and thus may benefit the public. It must be remembered, however, that a reduction of prices to the people is not one of the real objects of these organ- izations, nor is their tendency necessarily in that direction. If it occurs in a particular case it is only because it accords with the purposes or interests of those managing the scheme. 204 CONCENTRATION OF PRODUCTION this, but it can well be exaggerated. Take, for ex- ample, the case of a small struggling merchant who lives by personal solicitation. Is such a man really- independent ? Does he openly express his views on religious and political matters ? We have all seen timidity, or even servility, and not independence in cases of this kind. The condition of the small British tradesman in this matter of servility to cus- tomers is well sketched by George Eliot in her por- trayal of English life, and it is not a pleasant pic- " Such occasional results fall far short of compensating the palpable evils charged to the account of trusts and monop- olies. Their tendency is to crush out individual indepen- dence and to hinder or prevent the free use of human facul- ties and the full development of human character. Through them the farmer, the artisan, and the small trader is in dan- ger of dislodgment from the proud position of being his own master, watchful of all that touches his country's pros- perity, in which he has an individual lot, and interested in all that affects the advantages of business of which he is a factor, to be relegated to the level of a mere appurtenance to a great machine, with little free will, with no duty but that of passive obedience, and with little hope or oppor- tunity of rising in the scale of responsible and helpful citi- zenship. " To the instinctive belief that such is the inevitable trend of trusts and monopolies is due the wide-spread and deep- seated popular aversion in which they are held, and the not unreasonable insistence that, whatever may be their incidental economic advantages, their general effect upon personal character, prospects, and usefulness cannot be oth- erwise than injurious." Message of President Cleveland, December 7, 1896. 205 MONOPOLIES AND TRUSTS ture.* Many an employe of a vast corporation or of a large political unit has a far greater degree of true independence as well as a better opportunity for the development of his faculties. To take an extreme case : Will the professor in a great uni- versity gain in independence and in his sphere of action if he resigns his position to start a private school? Ordinarily not. There are undoubtedly some, and especially those not performing func- tions requiring any high degree of skill or special talent, who are placed in a position of dependence, frequently degrading, in the service of vast aggre- gations of capital. Here we have an evil. It is claimed for large-scale production that it se- cures steadiness of employment. Mr. Willoughby, in his article on " The Concentration of Production in the United States," f enlarges on this point, and asserts that the wage-earners have in consequence of concentration gained decidedly in regularity of employment. It is, however, difficult, in the pres- * Mr. Harold Frederic, in his novel, The Market Place, incidentally gives us a similar picture. A rich parvenu, named Thorpe, buys an estate called Pellesley Court and changes its name to High Thorpe. " By the autumn of the following year, a certain small proportion of the people in- habiting the district in Hertfordshire which set its clocks by the dial over the stable tower of Pellesley Court had accustomed themselves to give the place its new name of High Thorpe. These were for the most part the folk of peculiarly facile wits and ready powers of adaptation, like pushing small tradesmen, and the upper servants in country houses." t Yale Review, 1898. 206 CONCENTRATION OF PRODUCTION ent transitional and formative stage of industry, to speak positively concerning the connection between the growth of the business-unit and steadiness of production. A conclusion cannot be drawn from a few selected establishments, but rather we must take the movement as a whole. When we do so, we recall the violent fluctuations in production and irregularity of employment which have attended the growth in the size of the business -unit. It may not be that we have here to do with a causal relation, but, at any rate, the two have existed side by side namely, a growing business-unit and ir- regularity of employment. We must, however, distinguish between busi- nesses simply producing on a large scale and those in which there is an attempt to secure monopoly. If we consider a competitive business which has without special favors grown to large proportions, we shall be inclined to admit that a greater reg- ularity of operation may be anticipated than in the case of many small businesses. The large area of its operations undoubtedly tends to diminish the chance element, in accordance with well-known and accepted principles. Local adversity in one quarter of its field of operation may be offset by unusual prosperity in another quarter of the field. On the other hand, it should not be overlooked that everywhere we may find small businesses en- gaged in steady production, and apparently suffer- ing little even in times of general depression. There is probably not a city of twenty thousand 207 MONOPOLIES AND TRUSTS inhabitants in the United States in which small businesses with remarkable steadiness of produc- tion cannot be discovered. When we take up businesses striving for mo- nopoly in what, according to the theory of this work, is regarded as the competitive field, we can- not fail to observe many irregularities. Perhaps these irregularities have been most keenly felt by investors. There have been prepared for the writer graphical illustrations of the fluctuations of sever- al so-called trust stocks from 1890 to 1896. These illustrations include the American Tobacco Com- pany, the American Sugar Refining Company, the Distilling and Cattle Feeding Company, and the National Cordage Company. The graphical illus- trations suggest the zigzag course of a streak of lightning in its movement across the heavens. The course of the stock market has not, to be sure, been accompanied with equal irregularities in employ- ment; yet the irregularity in employment in the case of the manufacturing concerns which have endeavored to secure monopoly has been great. Indeed, one of the principal sources of popular anx- iety at the present time comes precisely from ir- regularity and uncertainty of employment. Many factories have been closed, and the workmen have been discharged. Elsewhere in this volume it is admitted that economy in labor power and in the use of capital is, on the whole, a good thing ; but we cannot for that reason overlook the irregularities which have accompanied recent industrial evolution. 208 CONCENTRATION OF PRODUCTION And when we speak of these irregularities, we must consider not merely the gigantic establishments themselves, but their influence upon steadiness of production and employment in other establishments. If some of the manufacturing establishments which have been fighting to secure monopoly should finally succeed in passing beyond the fighting era, doubtless very different results will appear. A mo- nopolized business has possibilities of systematic, planful production, which it must be admitted do not exist in the same degree for competitive busi- nesses. In other words, we reach here one of the strongest points made by the Socialists. Where production is strictly unified, the whole field can be overlooked ; demand can be anticipated, and pro- duction regulated accordingly. We come back again, then, to the old controversy between social- ism and competition. It is held by the non-social- ist that the active stimulus of competition in its field more than counterbalances admitted disad- vantages of competition. Naturally this subject belongs chiefly to that part of the general treatise on The Distribution of Wealth which deals with competition. It is here suggested, on the one hand, that as a result of improved statistical knowl- edge, revealing what is going on in each branch of production, some of the evils of the competitive order may be greatly mitigated. On the other hand, it is suggested that the very complaints which we now hear in regard to competition show some of the advantages to be secured by the mainten- o 209 MONOPOLIES AND TRUSTS ance of the competitive order, if it is granted that this is possible. Thus, for instance, it is said that it is extremely difficult to " make money " in a com- petitive business. This is true ; and the fact serves as a powerful stimulus to activity. The struggle of competition is undoubtedly severe, and it requires large capacity and intense activity to secure great gains. But under a normal competitive order, large capital coupled with intense activity means an un- usual amount of social service. Is not this, then, as it should be ? Those who render large social service have large reward. And through competition a diffusion of the benefits of improvement is secured. This is a claim for competition, provided that com- petition can be maintained and competitive business placed upon a high ethical level, in which case it will only remain for every one to equip himself in the best possible manner for the service with its appropriate reward. On the whole, it can hardly be claimed that the wage -earners have, with the growth of the busi- ness-unit, lost in opportunities for development.* It must not be forgotten that with the increase of * Mr. W. F. Willoughby takes, perhaps, too roseate a view of the effects of concentration of business on the position of the workman; and yet it must be admitted by every one that what he says is for the most part true, even if not the whole of the truth. Among other things he says : "In the first place, the material conditions, or the environment under which the laborers carry on their work, is far superior in the large establishment. The large establishment means large mills, 210 CONCENTRATION OF PRODUCTION the business -unit comes organization, and that or- ganization also has its social and educational ad- vantages, as well as, in turn, its own evils. large plants. In the place of small buildings, often structures erected for other purposes and ill suited for the work carried on in them, and with low ceilings and insufficient light, in which the small establishment was located, one now sees large, specially con- structed buildings, with high ceilings, an abundance of light, good drainage and water supply. Here are found labor-saving machines, improved devices for guarding against accidents, for removing dust or other substances injurious to the health of the laborers. In the large establishment it is possible for the employers, or for the men themselves, to maintain various institutions for the latter's comfort, such as baths, libraries, club-houses, eating- and lodging-rooms for the unmarried men. To secure the needed room, employers are more and more going to the outskirts of the cities, or even to the open country, to locate their plants. Instead of being located in narrow streets of the squalid quarters of a city, establishments of the larger concerns are now situated where the benefits of pure air and pure water can be obtained, where the men and their families can live in detached cottages instead of crowded tenements, and where they can more readily become the owners of their own homes. These are points that cannot be proven by the marshal- ling of figures. It needs but a slight acquaintance, however, with the actual conditions under which industry is now carried on, to perceive that the growth of the large establishment means the great improvement of the conditions under which the workingmen must perform their labor. One has but to glance at the conditions per- taining in the garment-making and tobacco-manufacturing trades as now practised in our large cities, where, under the regime of num- erous small shops, the sweating system holds full sway, and con- trast them with those of the mill operatives, who have made the cloth, to realize the superiority of the latter. The effort to abolish the sweating system is the attempt to have this work performed in krge mills and regularly organized and equipped workshops. " It is now, moreover, pretty generally accepted that the state 211 MONOPOLIES AND TRUSTS The trust movement, so called, considered apart from the movement in the direction of wealth con- centration on the one hand, and the movement towards monopoly on the other, means at the present time nothing else than this general ten- dency towards increased size of the business- unit. Of course the author would here be understood as referring to a genuine industrial evolution and not to a merely speculative movement which has aimed to take advantage of a favorable condition of the stock market.* Formerly the trusts were businesses has a part to play in determining the conditions under which in- dustry shall be carried on. Such legislation as the prohibition of the employment of children of tender age, the requirement that mill -owners shall provide seats for female employees, separate toilet facilities for the two sexes, the maintenance of hygienic con- ditions, etc., have contributed greatly to improving the condition of the laboring classes. The weak point in this legislation has been the difficulty with which it is enforced. In the small and widely diffused shops such enforcement is often impossible. The growth of the large establishment simplifies greatly this task of the state. Concealment or evasion is here difficult." "The Concentra- tion of Industry in the United States," Yale Review, May, 1898. * President Arthur T. Hadley, in an article on " Trusts " in Scribner's Magazine for November, 1899, calls attention to still another phase of this movement. He ascribes it in part to a legitimate desire to find a wider market for the secur- ities of manufacturing establishments than they, as a rule, have had heretofore. A local manufacturing establishment, even if large and prosperous, has scarcely more than a local market for its stocks and bonds ; but when it combines on a national scale with other establishments engaged in the same kind of business, it finds a national or even a world 212 CONCENTRATION OF PRODUCTION which found unity through trustees into whose hands they were placed for management. Trustee- ship was simply a mode whereby combination was effected. When legislators who failed to look below the surface phenomena outlawed this sort of trus- teeship, other modes of union were formed, espe- cially the vast corporation which absorbed the smaller corporations. It must be clearly under- stood, then, that there is no such thing as a trust problem in itself. The trust problem, as it is called, means the wide-spread tendency to do business on a large scale. The so-called trusts are not a bad thing, unless business on a large scale is a bad thing. On the contrary, when they come about as the re- sult of a free development, they are a good thing, and it is a bad thing to attempt to break them up ; from efforts of this kind no good has yet come to the American people. The futility of attempts to accomplish anything beneficial by efforts of this kind is well illustrated by the result of the success- ful suit brought by the Attorney-General of Illinois against the Pullman Company. It was found that this company had undertaken to do a great many things which the act of incorporation did not en- title it to do. The suit of the Attorney-General in the interests of the people was, as just stated, suc- cessful; but it would be hard to find the human market for its securities. The present author would only add that this wider market for securities should follow and not precede the natural evolution of industry. 213 MONOPOLIES AND TRUSTS being who has received any benefit from this suc- cessful suit, unless it be a few lawyers who have re- ceived employment in the process of readjustment. If the Pullman Company has been obliged to sell its gas-works, it does not necessarily mean that gas will be supplied under more favorable conditions. It doubtless means that the small gas-works will be absorbed by the greater gas-works, so that the people will be brought face to face with another vast aggregation of capital. We have spoken of the "trust movement "as a genuine industrial evolution, and such it has been in part ; but, in part, as we have also intimated, it is -a purely speculative movement. As a specula- tive movement it belongs to the category of opera- tions which, on the one hand, have offered a sad exhibition of the credulity of men, and on the other have produced more wide-spread disaster than all the earthquakes of which history furnishes a record. We place the speculative movement on a par with the Mississippi schemes of John Law not by any means altogether unreasonable in every particular and the bubble companies of the eighteenth cen- tury in England, culminating in the South Sea Bubble, which burst in 1720. The success of the Standard Oil combination and a few others has captivated the imaginations of men ; the limitations of monopoly not being perceived, there has been a readiness to believe that every combination has in it a potential gold mine, and a speculative temper on the stock exchange has made it possible for pro- 214 CONCENTRATION OF PRODUCTION moters to exploit the general public. The trust movement is not likely to yield such a large wreck- age as the bubble movement of the eighteenth cen- tury, because it has received checks from several sources ; and of these checks one of the more po- tent has been the action of the bankers in a closer scrutiny of trust projects. Yet even they did not move vigorously until many had sown the wind to reap the whirlwind ; and it is not certain that even now in their scrutiny of projects they are perform- ing their full duty to the public. For it must be remembered that their position as advisers of in- vestors places a heavy responsibility upon them.* *The point just made in the text is well brought out in the following quotations from three conservative period- icals : " The advantages of combination, which have rendered it one of the striking tendencies of the general economic situation, have, of course, their influence in producing the present manifestations. But, in addition, the success which has attended so many of the new combinations organized and brought out within the past twelve months has rendered manufacturers in other lines of business the more prone to listen to suggestions of this kind, while it is now comparatively easy to enlist the support of large financial interests, and even of conservative bankers, in the formation of the syndicates whose assistance is a necessary part of the general plan of such op- erations. The present week has brought further additions to the combinations incorporated or actually brought out and to the num- ber of those which are understood to be still in the stage of negotia- tion and preparation, and which embrace a great variety of differ- ent industries." "Industrial Combinations," Bradstreefs, Satur- day, February 18, 1899, volume 27, page 98. " For the wild commotion on the stock exchange during the last 215 MONOPOLIES AND TRUSTS month or two, the blame is commonly laid at the door of the so- called ' industrial ' incorporations. This is true to the extent that the spirit of reckless speculation has, perhaps, concentrated more on this class of stocks than on others. But the fact is that, in the pe- culiar position of the public mind at the opening of the year, it was merely a question of finding something which the promoter could foist upon the public at inflated values." " The Wall Street Inci- dent," Nation, Thursday, April 13, 1899, volume 68, page 270. "We have spoken of the accumulation of capital as one potent factor in the extension of these industrial combinations. It will be very evident how strikingly, this being the case, the organization of such enterprises adapts itself to the existing situation. Every one knows the peculiar position of American capital at the present time. Our fortunate trade of the last three years, and our equally fortunate economies as a people, have made the United States, for the time, richer in available funds than at any previous epoch in its history. Simultaneously it has been discovered that the field of available investment has not widened along with the new supplies of capital. ... It is not, then, at all surprising that promoters of industrial combinations should be hastening to place their shares in the open market." " The Industrial Stocks," The Commercial and Financial Chronicle, Saturday, January 7, 1899, volume 68, page 5. 2l6 CHAPTER VI EVILS AND REMEDIES A STATEMENT of the problems presented by monopolies and trusts suggests the evils for which remedies are sought. What, then, are the problems with which we are dealing ? As we have already seen, there is, strictly speaking, no trust problem. But when people talk about trusts, they have problems in mind which are real and genuine. Analysis reveals that we have here to do with three main problems : First, a monopoly problem ; secondly, a problem of industrial concentration ; and thirdly, a problem of wealth concentration. The evils of monopoly have for the most part been already stated or implied in our previous dis- cussion. There remains, however, something to be added, and we can continue the discussion of evils in no better way than by directing attention to the statement of these evils by the courts. A lead- ing case is the English one of Darcy vs. Allein, of 1602. The evils of monopoly were stated in these words : " First. ' The price of the same com- modity will be raised, for he who has the sole sell- ing of any commodity, may and will make the 217 MONOPOLIES AND TRUSTS price as he pleases. . . . The second incident to a monopoly is that after the monopoly is granted the commodity is not so good and merchantable as it was before : for the patentee, having the sole trade, regards only his private benefit, and not the commonwealth. Third. It tends to the impover- ishment of divers artificers and others, who, be- fore, by the labor of their hands in their art or trade, have maintained themselves and their fami- lies, who now will of necessity be constrained to live in idleness and beggary.' " This exposition of * Quoted by Beach, Monopolies and Industrial Trusts, p. ii, where it is spoken of as the case of Darcy vs. Allen, but it should be vs. Allein. The outline of the case as taken from u Coke's Reports, 84 f. et seqq., is sufficiently interesting and important to warrant its insertion. " The Case of Monopolies. Trin. 44 Eliz. A grant by the Crown of the sole making of cards within the realm, is void. "A dispensation or licence to have the sole importation and mer- chandizing of cards, without any limitation or stint, is against law, notwithstanding the 3 E. 4, which imposes a forfeiture upon their importation. S. C. [(Moor. 671. Noy 173.)] " Edward Darcy, Esquire, a Groom of the Privy Chamber to Queen Elizabeth, brought an action on the case against T. Allein, Haberdasher, of London, and declared, that Queen Elizabeth, 13 Junii, anno 30 Eliz. intending that her subjects being able men to exercise husbandry, should apply themselves thereunto, and that they should not employ themselves in making playing cards, which had not been any ancient manual occupation within this realm, and that by making such a multitude of cards, card-playing was become more frequent and especially among servants and apprentices, and poor artificers ; and to the end her subjects might apply themselves 218 EVILS AND REMEDIES evils has been very frequently endorsed by Ameri- can courts, and one of these courts adds this com- ment upon the third ground mentioned: "The third objection, though frequently overlooked, is to more lawful and necessary trades ; by her letters patent under the great seal of the same date granted to Ralph Bowes, Esq. full power, licence and authority, by himself, his servants, factors, and deputies, to provide and buy in any parts beyond the sea, all such playing cards as he thought good, and to import them into this realm, and to sell and utter them within the same, and that he, his servants, factors, and deputies, should have and enjoy the whole trade, traffic, and merchandize, of all playing cards ; and by the same letters patent further granted, that the said Ralph Bowes, his servants, factors, and deputies, and none other should have the making of playing cards within the realm, to have and to hold for twelve years ; and by the same letters patent, the Queen charged and commanded, that no person or persons besides the said Ralph Bowes, &c. should bring any cards within the realm during those twelve years ; nor should buy, sell, or offer to be sold within the said realm, within the said term, any playing cards, nor should make, or cause to be made any playing cards within the said realm, upon pain of the Queen's highest displeasure, and of such fine and punishment as offenders in the case of voluntary contempt de- serve. And afterwards the said Queen, n Aug. anno. 40 Eliz. by her letters patent reciting the former grants made to Ralph Bowes, granted the plaintiff, his executors, and administrators, and their deputies, &c. the same privileges, authorities, and other the said premises, for twenty-one years after the end of the former term, rendering to the Queen 100 marks per annum ; and further granted to him a seal to mark the cards. And further declared, that after the end of said term of twelve years, j. 30 Junii, an. 42 Eliz. the plaintiff caused to be made 400 grosses of cards for the necessary uses of the subjects, to be sold within this realm, and had expended in making them 5000/. , and that the defendant knowing of the said grant and prohibition in the plaintiffs letters patent, and other the premises, 15 Martii, anno 44 Eliz. without the Queen's licence, or the plaintiffs, &c. at Westminster caused to be made 80 grosses 219 MONOPOLIES AND TRUSTS none the less important. A society in which a few men are the employers and the great body are merely employes or servants, is not the most de- sirable in a republic ; and it should be as much the policy of the laws to multiply the numbers en- gaged in independent pursuits or in the profits of production as to cheapen the price to the con- sumer. Such policy would tend to an equality of fortunes among its citizens, thought to be so de- sirable in a republic, and lessen the amount of pauperism and crime."* of playing cards, and as well those, as ioo other grosses of playing cards, none of which were made within the realm, or imported within the realm by the plaintiff, or his servants, factors, or depu- ties, &c. nor marked with his seal, he had imported within the realm, and them had sold and uttered to sundry persons unknown, and showed some in certain, wherefore the plaintiff could not utter his playing cards, &c. Contra formam praedicf literal patentium, et in conlemptum dictac dominae Reginae, whereby the plaintiff was disabled to pay his farm, to the plaintiff's damages. The de- fendant, except to one half gross pleaded not guilty, and as to that pleaded, that the city of London is an ancient city, and that within the same, from time whereof, &c. there has been a society of Haberdashers, and that within the said city there was a custom, quod quaelibet persona de societate ilia, usus fuit et consuevit emere vendere et libere merchandizare omnem rem et omnes res merchandizabiles infra hoc regnum Angliae de quocunque, vel qui- buscunque personis, et &*c. and pleaded, that he was civis et liber homo de civitate et societate ilia, and sold the said half gross of playing cards, being made within the realm, &c. as he lawfully might; upon which the plaintiff demurred in law." This quotation is also found in Beach (loc. cif.), but as there given it contains an astonishing number of errors. * In State ex rel. vs. Standard Oil Company, 49 Ohio St., 220 EVILS AND REMEDIES It is frequently stated by courts as it was by Hume, and as it is continually by popular writers that the monopolist may exact what price he pleases, following in this the dictum of the Eng- lish court of 1602. Our exposition of the law of monopoly price shows that, strictly speaking, this is not true even in the case of an absolute monop- oly. It being assumed that men are governed by rational motives, the monopolist, discovering that he has not control over demand and consumption, has to put upon the monopolized article or service that price which will induce a sale sufficient to yieloV him the largest gains. It is not necessary to enter into this at greater length at the present time. The outcome is that frequently the monopoly price is not so high as one would be at first inclined to an- ticipate. Very frequently it is relatively but little higher than it would be if the industry were com- petitive, and occasionally not at all higher. Some students and some spokesmen for monopolies, ob- serving this, have represented the increase in price due to monopoly as something of little significance. There are, however, several reasons why we must re- gard this view as decidedly erroneous. First, we may take as a premise from which to reason deduc- tively the familiar experience and common knowl- edge of men, thus taking as our basis that ground which served as a foundation for the English classi- 137, 187 ; Supreme Court, 30 N. E. Rep., 279 (1892). Quoted by Cooke in Trade and Labor Combinations, p. 97. 221 MONOPOLIES AND TRUSTS cal school of economics ; and to this course there can be no objection, provided other possible lines of argument are duly considered. We appeal to the experience of men to-day. Is it found, so far as we may learn from observation, that when monopoly is really secured, monopolistic prices are advanced? It is believed that the answer returned by the un- biased will be, almost unanimously, yes. We next make our appeal to history, and the utterances of history are clear and unmistakable. We have already noted the fact that the courts were so impressed with the high prices of monopo- lized articles that it became a judicial dictum that the monopolist could charge what price he pleased. For centuries, the courts of England and America have been under the impression that monopoly price means high price, and in a matter of this kind especial weight should be given to their utterances. Cases have come before them and they have had facts presented to them, so that in this particular they should know whereof they speak. Of course, an explanation of the theory of monopoly is an en- tirely different matter, and it does not at all follow that we should look to judicial utterances for that. In the next place we observe the impression made by monopolies upon historians. Hume speaks about the prices of monopolized articles as exorbitant, and cites particularly the case of salt, the price of which had in some places been increased tenfold or more. It would thus appear that historical experience warrants the belief that very generally those prices EVILS AND REMEDIES of monopolized articles and services which yield the highest net returns are very decidedly higher than competitive prices. Dealing with human nat- ure as we find it, we have no reason to suppose that it has so changed that the monopolist to-day will be more lenient in the use of his power over price than he has been in the past. Professor Al- fred Marshall suggests, it is true, a willingness on the part of the monopolist to accept, from purely philanthropic motives, a lower price than he could successfully ask, and thus to share his gains with society at large.* But when and where has this happened? We have no large experience in the United States which would substantiate that view. We might not be disappointed should we hope that the monopolist would contribute for a public pur- pose some of the gains of monopoly, but in our public policy, if the monopolist is left to his own devices, we cannot hope that monopoly prices will * In his Economics of Industry, it is stated that one reason why a monopolist may lower his price is his concern "for the well-being of the consumer," since a very little sacrifice on the part of the monopolist will frequently add very greatly to the gains of the consumer. After mentioning two cases of prices lowered by the monopolist, he adds: " In some other cases the owners of a monopoly will take a price that affords them less than the greatest net revenue, because they are willing to sacrifice themselves a little in order to benefit the consumers of their goods much." This is in book v., chapter viii., section 2, of the edition of 1892. This expression of opinion appears to be omitted from the corresponding chapter of the third edition of 1899. 223 MONOPOLIES AND TRUSTS be less than the highest which yield the largest net returns. A statistical investigation of monopoly prices suggests itself, but we have no body of statistics bearing upon this question sufficiently large and ac- curate to tell us all that we would like to know. We may, however, say that such researches as we have had indicate that in the case of monopoly prices of all important articles and services, the price which will yield the largest net returns is far higher than the competitive price, in cases where it is possible to have a truly competitive price ; and that in the case of those services which are of such a nature that it is impossible to tell what a com- petitive price is for example, municipal monopo- lies the price will be far higher than that yielding normal returns. It appears to be a moderate state- ment that monopoly price will frequently go one hundred per cent, above the competitive price.* The case of baggage transfer and transfer of pass- engers in Chicago has been cited. Street-car traffic * The De Beers Mining Company controls the four great diamond mines in Kimberley, South Africa. It has closed two of the mines, and by thus restricting production has kept the price of diamonds at twenty-three shillings per carat, although before the combination the price had fallen as low as eighteen shillings and sixpence per carat. The increase in price indicated is nearly twenty-five per cent., and this was brought about by a partial monopoly in the case of an article ranking among the luxuries. See The American Monthly Review of Reviews, November, 1899, p. 550. 224 EVILS AND REMEDIES in our large cities may also be instanced. Such in- vestigations as we have had would indicate that in every great American city a three -cent street- car fare, increasing the traffic very largely, would yield ample returns upon all the capital actually invested, and would highly remunerate all the la- bor power and managing capacity employed. Yet the usual rate is higher by sixty-six and two-thirds per cent. This is an enormous surplus, so far as the single fare is concerned, preventing many who most need the service from riding; and it is an enormous surplus also, so far as the aggregate is concerned, yielding unearned wealth amounting to millions upon millions in the great cities of our country.* But even if the price is raised only a little above the competitive price, it is a serious matter. The result is a privileged class of monopolists in the community, who, in the general struggle for exist- ence and economic well-being, perpetually have at least a slight advantage on their side. Now, in the struggle for existence in human society, as well as in the animal and vegetable world, a slight ad- vantage always turned on one side is a matter of the utmost moment, and is sufficient to be decisive in domination and survival. Reference on this point may be made to the volume, Municipal Monopolies, edited by Professor E. W. Bemis, which gives the results of the most careful investigations made up to the present. Much interesting material is also found in the quarterly publication, Municipal Affairs. P 225 MONOPOLIES AND TRUSTS Mention is also made by the courts of deterio- ration in quality, and it is believed by the writer that the point is well taken. We see the natural operation of monopoly in this particular whenever it has secured its position. Reliance is placed upon the monopoly instead of upon excellence of work, and it is only in the transition period that the con- trary is likely to be the case. We have to do here with well-known principles of human nature. It proves nothing, but affords an illustration which many a reader can duplicate from his own experi- ence, when the writer states that he is obliged to use daily a monopolized article of which the price has been raised more than fifty per cent., while at the same time the quality has deteriorated as shown by laboratory tests. No mathematical proof can be afforded of the position taken by the courts, but reference can be made to common experience and to the well-known principles of human nature, war- ranting, it is believed, the conclusion that only ef- fective control can counteract this tendency of mo- nopoly to furnish articles of inferior quality. This holds true both of private monopoly and public monopoly. The question is, Whence the control ? The third point made is one to which in recent discussions too little attention has been given, and especially was this noticeable at the Trust Confer- ence held in Chicago. In the case of those busi- nesses which naturally belong to the monopolistic field we have to accept the fact of monopoly and make the best of it. When we do this we secure 226 EVILS AND REMEDIES the largest amount of benefits with the smallest amount of evils. It is, however, a hardship when, by public or private favoritism, some are driven out of a business which naturally belongs to the com- petitive field. If a producer has established an independent economic existence, it is a grievous wrong to him to be forced out of it against his will through the brute force of monopoly, and not through the natural workings of competition. It is not sufficient that he should be paid a price for his business, even though the price be a fair one. Moreover, we must not only consider the influ- ence of monopolies in driving others from their own monopoly field, but particularly when we are speaking of monopolies built upon favoritism we must also consider their influence in oppressing those who produce the raw material or other prod- ucts which the monopolies use. Much complaint is made, and apparently with justice, that in these cases we have buyers' monopolies which are op- pressive to those who are called prime producers. Thus, the producers of crude petroleum feel them- selves much aggrieved by the monopoly to which they offer their product, and while it would appear that its low price has been very largely something beyond the power of the monopoly in the refining of oil to control,* even so conservative a writer as *The Standard Oil Company seem in a way to be between the upper and nether millstones. They must persuade the producers that they do what they can to keep up the price 227 MONOPOLIES AND TRUSTS M. de Rousiers leaves the impression that producers of crude oil are in the power of the monopoly, and of crude oil, while they endeavor to convince the consumer that they have reduced the price of refined oil. It is sometimes alleged by those standing near the pro- ducers and speaking for them, that the excessive gains of monopoly come exclusively from the depression in prices paid to the prime producers, who are made the beasts of burden of monopolists. It is argued that high prices to consumers would beget dangerous discontent, and that it is far safer to oppress the producers, whose dispersion into small groups renders united action on their part dif- ficult. While our discussion does not warrant such a con- clusion, the following quotation from an article in the Petroleum Gazette of May 27, 1897, entitled "Monopolizing Combinations vs. the Producer," does bring forward one direction in which monopoly will act whenever it has the opportunity : " The interest of all aggregations of capital in restraint of open, free competition in the purchase, manufacture, distribution, and final sale of the products of industry to consumers is directly op- posed to that of the producers of raw materials as well as that of those engaged in the varied branches of commerce which springs from the effort to satisfy their requirements. " The corner-stone of all these combinations must be the control of the price of raw produce, and the extent of this restraint on prime markets is the measure of success in monopolizing any branch of trade. In the recent investigation of the Sugar Trust, Mr. Searles, its secretary, testified that by being the largest buyer his company had been able to keep down the price of the raw sugar, and thus to make the refined article cheap to consumers and its manufacture profitable to the trust. In all instances where combinations of cap- ital have seized upon and become possessed of the avenues of distri- bution, the segregated producers of the raw produce have been forced to sell their output at prices which more than counterbalance 228 EVILS AND REMEDIES that this power has, in some instances at least, been used in an oppressive manner.* Private monopoly has been regarded as some- thing odious. The common law of England has for centuries pronounced against it, and the com- mon law has been reinforced by statutes in the United States. History pronounces against mo- nopoly, and the present deep-seated feeling against it, is largely a survival resulting from historical experiences. Human nature is so constituted as to afford decisive objections to private monopoly. The same old arguments against despotism which the ' little economies,' ' the aggregation of brains,' ' the introduction of improved methods,' and 'the cheapened supply to ultimate con- sumers.' Between these two extremes the margin of profit to the combinations has been sufficient to enrich their stockholders and to furnish a fund to prostitute law in the aggrandizement and perpetu- ation of their restrictions on commerce. "The edict of the Tobacco Trust goes forth, and the price for the tobacco crop responds ; the Standard Oil Trust marks the price of refined either up or down, and at the same time directs its pur- chasing agents what they shall pay for the crude supply. If com- petition enters the field for raw sugar, for leaf tobacco, or for crude oil, the whole machinery of the combinations who assume to be Sugar, Tobacco, and Oil is put in motion to drive out the intruders, and this is usually accomplished by lowering ultimate markets and forcing prime markets to respond. Under all circumstances the producers are made the beasts of burden, and the revenues rendered necessary in the subordination of legislation, in the prostitution of courts, and in the manipulation of distributive tolls, become taxes on the producers, and are assessed and collected through reduced prime markets." * See Les Industries Monopolisms aux Etats- Unis, chapter ii., on " Le trust du petrole." 229 MONOPOLIES AND TRUSTS we have gone over again and again in political sci- ence until they have been thoroughly threshed out and conclusions have been reached for civilized society, hold equally against private monopoly. Political despotism is good in its government if we have a good despot. But we do not want despot- ism, because, on the one hand, we dare not trust human nature, and, on the other hand, we prefer to govern ourselves. We may make some mistakes, but we have the satisfaction of governing ourselves, and we also have the development of intellect and character which proceeds from so doing. So, too, economic despotism has some advantages, doubt- less, if the monopolists who exercise this despotism are good men ; but we fear to trust human nature, and we wish self-government so far as may be in industrial affairs.* We observe also the insolence of * The Supreme Court of Ohio in a decision of March 27, 1891, uses these wise words : " Much has been said in favor of the objects of the Standard Oil Trust, and what it has ac- complished. It may be true that it has improved the qual- ity and cheapened the costs of petroleum and its products to the consumer. But such is not one of the usual or general results of a monopoly ; and it is the policy of the law to regard, not what may, but what usually happens. Experi- ence shows that it is not wise to trust human cupidity, where it has the opportunity to aggrandize itself at the expense of others. The claim of having cheapened the price to the consumer is the usual pretext on which monopolies of this kind are defended ; and is well answered in Richardson vs. Buhl, 77 Mich., 632. After commenting on the tendency of the combination, known as the Diamond Match Company, 230 EVILS AND REMEDIES private monopoly wherever it even begins to get se- curely on its feet. Representatives of a great mo- nopoly said to a distinguished gentleman in Ohio in regard to an independent producer, " We are going to wind him up now very soon," and said it with positive glee. The same thing was said by the representatives of a monopoly concerning an independent dealer in the author's home city. A few months later that which had been predicted befell. Here again we deal simply with illustra- tions, and readers can verify the truth of what is said by their own experience and by their own judgments concerning human nature. It is on ac- count of the odious character of private monopoly that the general conviction has been reached, both in England and the United States, that it is con- trary to the principles of Anglo-Saxon liberty to allow it to go uncontrolled, and that the right to control has in both countries been placed beyond controversy by judicial interpretations of the com- mon law. There is, then, only one question before us, and that is, how to exercise the control. to prevent fair competition and to control prices, Champlin, J., said : 'It is no answer to say that this monopoly has in fact reduced the price of friction matches. That policy may have been necessary to crush competition. The fact exists that it rests on the discretion of this company at any time to raise the price to an exorbitant degree.' " Monopolies have always been regarded as contrary to the spirit and policy of the common law." State ex rel. vs. Standard Oil Company, Ohio State Re- ports, 49, p. 1 86. 231 MONOPOLIES AND TRUSTS Before we go further, however, it must be stated that the evils of monopoly exist chiefly in the United States. We hear much in these days about the trusts in England and France and other parts of Europe; but what is said in this particular is misleading. Why is it that there is no such thing as an agitation against trusts in these countries? Leaving out Germany, where there is some discus- sion of combinations of manufacturers and where some evils have been experienced from them, it is beyond controversy that there is little effort di- rected against trusts, so called ; and even in Ger- many there is nothing which can be dignified by the name of agitation. M. de Rousiers speaks very clearly on this subject, and as what he says harmonizes with the most trustworthy information which the present author is able to secure, a quo- tation bearing upon this particular topic is here offered : "In Europe as well as in America the phenomenon of the trust is possible. If in England there is no example of one, it is because the necessary artificial condition of monopoly is not found. The establishment of free trade has removed the abuses of state intervention in private industrial affairs, and public interests have been sufficiently protected by those who have had them in charge to avoid the confiscation of public services (pub- lic utilities) for the benefit of private citizens without guarantees and compensation. " In France and in Germany the public services have been too jealously guarded to afford room for trusts, 232 EVILS AND REMEDIES but the same system of protectionism has furnished a favorable occasion for the establishment of trusts in private industry. "Fortunately the natural but exceptional circum- stances which we have observed meeting together in America in the case of the prosperous trusts are en- countered more rarely in Europe. The sugar industry, which has been placed under an artificial regime by the enormous tax which rests upon its consumption, added to bounties upon exportation, furnishes us with the sole French example of a de facio monopoly in private in- dustry. The Russian petroleum and Austrian petroleum are also considered as objects of monopoly. Finally, the mining and iron- and steel-working industries have given rise to numerous attempts to form agreements, of which some have been crowned with success. . . . "In other words, the trusts are not essentially an American phenomenon. If we suffer less in Europe, it is not because we are less advanced in industrial evolu- tion. England, which leads in this movement, is pre- cisely that one of the great European nations which is most free from them ; it is especially because we have in Europe a less degree of confusion of public and pri- vate interests."* * Les Industries Monopolisies aux Etats-Unis, par Paul de Rousiers, pp. 324-5. It is gratifying to the present author to find agreement in so many points between M de Rousiers and himself. Perhaps this agreement has significance, inasmuch as it was reached by different methods and each author has worked independently of the other. The present author published the more important views concerning which there is agree- ment long before M. de Rousiers' work appeared, whereas 233 MONOPOLIES AND TRUSTS An instructive article appeared some time since in one of the leading German newspapers* in which it was stated that the reason why private monopolies like those in the United States did not exist to a great extent in Germany was that the railways there were State railways, and that all producers and dealers were treated impartially. The point to which attention is called is the state- ment that the non-existence in Germany of mo- nopoly problems such as ours is something familiar to all and not requiring argument. In recent years, however, a great deal has been said in the European press about one particular monopoly in Europe which, rightly or wrongly, has been found objectionable, and that is the Standard Oil monopoly. Objection has likewise been made, although apparently in less degree, to the Russian monopoly, which, it is said, is acting in harmony with the American monopoly. Vigorous efforts have been made to overcome the oil monopoly, and in this case alone, so far as the present writer is aware, has the movement against monopoly reached such proportions that it could be called an agi- tation. The truth of the matter is, that the European trusts, of which we, in this country, have been hear- ing so much of late, are generally little else than ordinary combinations, not at all shutting out com- the latter, following his own lines of investigation, has evi- dently reached his conclusions by independent processes. * Die Frankfurter Zeitung. 234 EVILS AND REMEDIES petition, and simply part and parcel of the general movement in the direction of an enlargement of the business-unit, and they are usually discussed in Eu- ropean countries as belonging to the subject of in- dustrial combination. But the author would not be misunderstood. The causes which produce monopoly in the United States are capable of producing monopoly in other countries. The only question is, To what extent are the same causes in operation in the countries of Europe? M. de Rousiers has already men- tioned the sugar monopoly in France. The manu- facture of sugar is also approaching the condition of a monopoly in Germany, and considerable com- plaint appears to have arisen.* It is taxation which has established the sugar monopoly in Germany. The German producer is protected by customs duties from competition with foreign producers, and, in addition to this cause of monopoly, in itself scarcely sufficient, there is an internal-revenue tax- ation of monopoly which is so framed that it is difficult for new refineries to gain a foothold. After a refinery has been in operation for a year it pays only a proportionate share of the sugar tax, but up to that time it has to pay a sum on each ioo pounds which is decidedly in excess of its share of the tax after apportionment. The old refineries pay an ap- portioned tax. In other words, a certain sum to be * See, for example, " Das deutsche Zuckermonopol," Wochenblatt der Frankfurter Zeitung, April 28, 1899. 235 MONOPOLIES AND TRUSTS raised is distributed among them. The new refin- ery pays a definite sum on each ioo pounds, and this is higher than the rate under apportionment. The Russian government is also interested in a sugar monopoly, and actually assists in its develop- ment, although it has done a thing which to an American seems curious. When the price of sugar once rose to a high point the Russian government imported a large amount of sugar, and sold it at a price which put down and kept down the price of sugar to a price established by the government. There are some who have recommended such a measure as this to repress the excesses of monopoly. Unskilful governmental taxation is everywhere capable of producing monopoly. A limited supply of natural treasures will pro- duce a monopoly in Germany or France just as readily as in this country. The greatest German State Prussia passed a law in 1865 which sepa- rates the ownership of treasures below the surface of the earth from agricultural property, rendering the former public property. The effect of this measure, if properly carried out, is to secure any surplus value from mining for public use, and also to render control over mining operations, even when privately conducted, more effective. It would not, however, remove the naturally favor- able condition for monopoly. Patent monopolies, and monopolies based upon secret processes, may be anticipated in every mod- ern country. 236 EVILS AND REMEDIES The causes which do not operate to the same extent in favor of monopoly in countries like France, England, and Germany are the favoritism of railways and the dishonest management of cor- porations. There is also a conscious effort in those countries so to regulate patents that they may in- terfere as little as possible with industrial liberty while accomplishing their main purpose. About this a word will be said later.* The efforts of the great countries of Europe have been either to control monopoly or to prevent it by general indirect measures. Perhaps the most impor- tant discussion of industrial combinations ever held in Europe was that which took place at a meeting of the German Union for Social Politics in Vienna, in September, 1894. The meeting was attended by economists of the first rank, and the discussion was an able one. Anything resembling the cry " Smash the trusts !" was not heard. The proposals for re- form related to more effective control over large- scale business, especially whenever it develops any monopolistic tendencies. But the general em- phasis was upon the concentration of production. Reports upon various combinations {Kartelleri) were made, but they do not, in the opinion of the author, contain any disclosures not in harmony with the theory of the present work.f One of the best-known and most recent essays * Infra, pp. 266-7. t See Schriften des Vereins fUr Socialpolitik, vols. 60 and 61. 237 MONOPOLIES AND TRUSTS on concentration in England is that by Mr. Henry W. Macrosty,* entitled " The Growth of Monopoly in English Industry." This essay presents many interesting facts concerning industrial combinations, but it fails to disclose any considerable growth of monopoly in manufactures. The concentration of production is sufficiently proved, and the belief is expressed that this concentration will terminate in private monopolies, which it is recommended should first be stringently controlled and afterwards taken over by the State and made public enterprises. It has been stated that the problem with which we in the United States are really dealing when we speak of the trusts is, among other things, a problem of industrial concentration. We have al- ready discussed this problem in some of its salient features. Some of the evils which are connected with industrial concentration are such as are natu- rally incident to a period of rapid growth and re- adjustment, like that through which we have been passing. Some of the evils, like child-labor, which are commonly mentioned in this connection, are not peculiar to large-scale production, and are fur- thermore being successfully overcome. Other evils will find treatment in connection with the discus- sion of private corporations. The third problem involved in a popular discus- * The essay appeared originally in The Contemporary Re- view (London), March, 1899. It was subsequently enlarged and printed as a tract by the English Fabian Society in September, 1899. 238 EVILS AND REMEDIES sion of trusts is the quite distinct one of wealth- concentration, and that belongs mainly to another portion of the general work on The Distribution of Wealth. It has been generally admitted by phi- losophers and statesmen of all ages that there is danger in wealth concentration, on account of the vast power which enormous fortunes bring to their owners. There is scarcely any thoughtful person who, at least when he is off his guard, will not make confessions which show that he regards mam- moth fortunes as dangerous to those who own them, and still more so to their children.* From the time of Aristotle onward it has been held especially dangerous in a country with a republican form of government that the extremes in society should be very widely separated with respect to property. It is generally held that it is better in every way that there should be a more wide-spread diffusion of wealth and of its responsibilities. The * The following extract from the daily press furnishes an illustration : " Young Cornelius Vanderbilt has designed a new kind of loco- motive, which, upon being tried, proves to be quite an improvement over the railroad engines now in use. Mr. Vanderbilt was disin- herited because he married against the wishes of his parents, so he got a job in the mechanical department of the New York Central Railroad and went to work for a living. His experience shows that it might be a good thing if more rich men would give their un- fortunate boys a chance." This may, or may not, be a true statement so far as this particular case is concerned ; with that we have nothing to do. 239 MONOPOLIES AND TRUSTS connection between wealth-concentration and mo- nopoly has already been mentioned, and it is this re- lationship which has especial interest for us in the present discussion. A few further words about this point will be found in the treatment of remedies.* Other countries than the United States have attempted various indirect methods to prevent private monopoly; but this country alone has di- rectly and immediately attacked the problem and attempted to prevent the existence of private monopoly. We have tried legislative prohibition, and even constitutional prohibition of monopolies, especially of the so-called "trust monopolies." Dr. Ernst von Halle, in his Trusts, or Industrial Com- binations in the United States (pp. 17-18), says: "By the end of 1894 the federal government, twen- ty-two states, and one territory, had enacted anti-trust laws. The first provision in this direction was intro- duced in the Constitution of Georgia in 1877: 'The General Assembly shall have no power to authorize any corporation to make any contract or agreement what- ever with any [other] corporation which may have the effect, or be intended to have the effect, to defeat or lessen competition in their respective business, or to encourage monopoly; and all such contracts or agree- ments shall be illegal and void.' This was not, of course, originally directed against trusts, but against railroads, but it could afterwards be readily applied to trusts. Anti-trust laws were passed in 1889 by Kansas, Maine, Michigan, Missouri, Nebraska, North Carolina, Tennes- * Infra, pp. 264-6. 240 EVILS AND REMEDIES see, Texas, and the territories of Idaho, Montana, and North Dakota; and the new states of Washington and Wyoming introduced provisions in this direction into their constitutions. In 1890 anti-trust laws were passed by Iowa, Kentucky, Louisiana, Missouri, and South Dakota. In 189 1 Kentucky and Missouri introduced similar provisions into their constitutions. In the same year Alabama, Illinois, Minnesota, and the territory of New Mexico ; in 1892 New York and Wisconsin legis- lated to a like effect; while in 1893 California forbade combinations in live-stock, Nebraska in coal and lumber. Amendments to these laws were passed in Missouri and Tennessee in 1891; Louisiana in 1892; Illinois, Minne- sota, and South Dakota in 1893. The United States Act was passed in 1891, and the tariff act of August, 1894, makes some general provisions of the same character as to the regulation of prices. No anti- trust legislation was passed in 1894 in the several states." We have here a first period of vigorous legisla- tion against trusts, beginning about 1889, followed by a period of quiet ; now we are again in a period of active trust legislation. Bills have recently been introduced into several state legislatures. One in the Wisconsin legislature was declared unconsti- tutional and failed to receive the approval of the governor. New York and Indiana introduced bills into their legislatures during the last sessions, and in the former state a bill has been passed which has attracted some attention. Legislative investiga- tions have been conducted by New York and Ohio, and elsewhere the subject has been agitated. A Q 241 MONOPOLIES AND TRUSTS noteworthy convention called to consider the sub- ject of trusts was held in Chicago under the aus- pices of the Civic Federation, September 13-16 of the current year (1899), and another less not- able one, consisting of a few governors and attor- neys-general, was held the week following in St. Louis. The problem has never been more active- ly agitated than at the present time. It is quite probable that a great many more anti- trust laws forbidding combination will be passed in the near future. It would be well, however, for those who desire to remedy the evils of which complaint is made to pause for a time before recommending new laws, and to inquire into the actual results of past legislation. It is instructive to read on the subject of trusts the newspaper utterances which appeared in the latter part of 1892. A number of these lie before the writer. One is headed, "Black Eye for the Trusts Important Decision handed down in Chicago"; another has the heading, "Trusts are Illegal Strong Decision of the New York Court of Appeals " ; another clipping, which appeared somewhat earlier in the year, tells us that " the Standard Oil Trust has resolved upon dissolution," in obedience to the law; in November of that year an editorial which appeared in a prominent paper expresses the hope that President Harrison, making use of the Federal Anti-Trust Law, "will deal a death-blow to trusts."* * Many similar headings can be found in copies of news- 242 EVILS AND REMEDIES Comment on these utterances of the press is scarcely necessary to-day. If there is any serious student of our economic life who believes that any- thing substantial has been gained by all the laws passed against trusts, by all the newspaper edito- rials which have thus far been penned, by all the sermons which have been preached against them, by all the speeches of politicians denouncing them, this authority has yet to be heard from. Forms and names have been changed in some instances, but the dreaded work of vast aggregation of capital has gone on practically as heretofore. The writer does not hesitate to affirm it as his opinion that efforts along lines which have been followed in the past will be equally fruitless in the future. All of these remedies which it has been proposed to try are, in the author's opinion, faulty and in- deed deplorable ; should they become so thorough and so drastic in penalties as many have recklessly proposed, the results might be nothing short of a papers issued during March, 1897. The headings of three which lie before the writer are as follows : No. 1. " Pools are hit Hard. United States Supreme Court Up- holds Sherman Act. Decision is a Surprise. Vir- tually Declares all Traffic Agreements Illegal. Competition will be Open. Railroads will be Amenable to Interstate Commerce Commission. Managers greatly Concerned." No. 2. "Trusts in a Panic Tobacco Combine Makes the First Im- portant Surrender," etc. No. 3. " Trusts Busted. Far-Reaching Effects of the Supreme Court De- cision." 243 MONOPOLIES AND TRUSTS national calamity.* The true remedies must not be direct, but indirect. If a law is passed forbid- ding combination, the law itself shows its faulty character and that it was framed and passed by men who, if sincere, did not understand the nature of the problem with which they were dealing, and hence attacked not causes, but symptoms. When one contemplates all this legislation and bears in mind the ineffectiveness of the federal statute, except against labor unions, one sees the force of M. de Rousiers' sententious assertion, that our law has been strong for the weak and feeble for the strong.f The effect of constitutional provisions and legis- lative enactments against trusts thus far has been to increase centralization and to strengthen mo- nopoly rather than otherwise. It was possible to forbid various corporations to put their business into the hands of a common board of trustees, and thus to abolish the old type of the trust. This, however, was going very far, and would seem to be The following communication to a well-known news- paper furnishes an illustration of the extremes to which some thoughts are going, as well as their futility : " Would not a statute like the following be a good thing for trust- killing ? viz. : An act that no person shall vote, hold office, or sit on a jury or obtain any writ, warrant, or legal process who does not first make oath that he is not interested directly or indirectly in the profits of any trust or similar organization. If that would not kill them, what can ?" t See Les Industries Monopolisms aux Etats-Unis, p. 124. 244 EVILS AND REMEDIES depriving persons of one of the rights incident to property. It has not, however, been found possi- ble to prevent corporations from selling their busi- ness outright to a new corporation, which thus ab- sorbs them, and it is difficult to see how this can be prevented if private property, as we now under- stand it, is to be maintained.* Another proposal is the limitation of incorpora- tion and the refusal of the corporate form of busi- ness except to those who are engaged in furnishing public utilities that is to say, engaged in businesses like railways and gas-works, which fall under the classification of natural monopolies, belonging to our second group. It has not appeared clear from any previous discussions of the subject what pre- cise thing it is proposed should be accomplished by the limitation and refusal of incorporation ; where- as many evils would be the inevitable outcome. It The recent decision of the Supreme Court of Illinois in the so-called Glucose Case, forbidding the sale of the prop- erty of one corporation to another with the purpose of sup- pressing competition, comes too late for extended comment in this place. The author does not believe that the decision will prove at all effective in the accomplishment of the pur- pose of anti-trust legislation. It may hereafter be interest- ing, however, to remember this heading of a long article which appeared in one of the organs of the Farmers' Alli- ance and the Industrial Union : " The Supreme Court of Illinois makes a very Radical Decision which Knocks the Trusts ' Galley-West.' All the Tricks and Subterfuges Brushed Aside, and the People Triumph." 245 MONOPOLIES AND TRUSTS should, first of all, be considered that the corpora- tion has made its way in all lands of industrial civil- ization. In the struggle for existence it has shown its fitness for survival among all business forms. We may suppose, then, that it has peculiar advan- tages. If so, why should it be refused ? Why should we be forced to do business in some other way when the corporate form is better? Is it not taking a step backward if we refuse to utilize im- proved business methods? The advantages of private corporations have been described so frequently and are withal so ob- vious that it is scarcely necessary to dwell upon them here. The private corporation makes possi- ble the massing of large quantities of capital for great enterprises; the gathering together of sums, large and small, into aggregates of any desired di- mensions. The property is divided into shares of stocks and into bonds, and thus there may be wide- spread participation in vast enterprises, giving us a diffusion of property with concentration of produc- tion. The limitation of risk is also an advantage, and, if properly guarded, gives no just cause for complaint. I may be willing to invest $500, but no more, in some enterprise which, if successful, will result in important social as well as individual benefits, but which is attended with risks, as are most new undertakings. If it is known that I invest precisely $500, and no more, no one is wronged, so far as I am concerned. It is thus that great natural resources have been opened up. The corporation, 246 EVILS AND REMEDIES on account of the continuity of its existence, avoids many accidents to which natural persons are ex- posed, and this feature also has its marked advan- tages. A century and a quarter ago Adam Smith concluded that on account of the keener action of self-interest in individual businesses and partner- ships, corporations could not succeed except in the case of those engaged in transportation and a few other enterprises. But everywhere the corporation has gone on winning its way, and has absorbed a very large proportion of the business of the civiliz- ed world. Moreover, if we examine into the discus- sions of private corporations in modern countries we find, to be sure, proposals of reform more or less far-reaching; but, with the fewest exceptions, we find it nowhere suggested by thoughtful and well - informed persons that private corporations should be abolished. As has been said, it has been suggested by a few in this country that private cor- porations should be abolished, with the exception of those engaged in providing public utilities. Curi- ously enough, however, it is precisely in the case of these undertakings that we find a conviction shared by many persons of intelligence and large experi- ence that incorporation should be refused ; and the movement which seems to be most promising in the direction of the abolition of private monopoly is the replacing of private corporations in these undertak- ings by public ownership and management. But if this suggestion of the limitation of incor- poration should prevail, who would gain anything 247 MONOPOLIES AND TRUSTS thereby ?* It would limit participation in busi- nesses of large magnitude, and also very largely in many smaller enterprises, and it would bring about the closer union of rich people ; and as the poor would of necessity be shut out by the risks and re- sponsibilities attendant upon a large proportion of the business of the world, the general tendency of the movement would be monopolistic.f Among other remedies suggested is that of tax- ation. This need not, however, detain us long. Arguments which have already been advanced in this book show that a discriminating tax, like that which Missouri has recently passed X against depart- * An item in the daily press tells us that what was the " Deering Harvester Company" has become a partnership. No one has as yet described the public gain resulting from the change. t The author's views concerning private corporations find further elaboration in three articles written by him entitled, respectively, " The Nature and Significance of Corporations," "The Growth of Corporations," and "The Future of Corporations," which appeared in Harper's Monthly Magazine in the issues for May, June, and July, 1887. \ See Laws of Missouri, 1899, pp. 72 et seqq. This law, which went into effect September 16 of this year, divides into classes and groups the goods which mercantile estab- lishments of all kinds handle. Thus, the group Dry Goods embraces classes one to eight, inclusive ; the group Cloth- ing embraces the classes from eight to fifteen, inclusive, with the exception of class twelve ; the group Hats and Caps includes classes ten, twelve, fourteen, and fifteen, which, with the exception of class twelve, are also included, as may 248 EVILS AND REMEDIES ment-stores, is socially injurious, as it tends to pre- vent the development of business forms which are most advantageous. In so far, however, as exist- ing taxation discriminates against the small pro- ducer and it does so to a very considerable ex- tent the remedy suggests itself. The reform of taxation has a general importance, and here as else- where it will be helpful. One or two special appli- cations of taxation are recommended by the author as among the remedies for the evils of the existing situation. Taxation, however, can only be looked upon as one among other remedies, and its relative significance may easily be over-estimated. We turn our attention now to some of the more conservative suggestions, passing over them has- tily, in order to preserve due proportion in the pres- ent volume. In some quarters it has been suggested that natural law furnishes a remedy, inasmuch as under natural law, according to the allegations of those who make this proposal, the return on capital be seen in the group Clothing. Other groups, with the in- cluded classes, are similarly arranged. The law provides that in cities having a population of fifty thousand or more, the proprietors of stores employing fifteen or more persons shall pay a license fee of not less than $300 nor more than $500 for the sale of " every class or group, or for any par- ticular article of any class or group mentioned in the ap- plication for such license, being in addition to the class or group" which the proprietor may choose to regard as the basis of his business. For the sale of this one line of goods no license-fee is charged. The law at least gives promise of long litigation. 249 MONOPOLIES AND TRUSTS tends to fall continuously in proportion to the re- turn for present labor and enterprise, so that those who are at any given moment engaged in the world's work enjoy a constantly increasing advantage over those whose dependence is upon capital accumula- tions resulting from past efforts. This is a return to the optimism of Frederic Bastiat, whose writings attracted considerable attention about the middle of this century. His economic theories have gen- erally been rejected by science. Without now en- tering at length into a discussion of this theory,* attention may be called to the fact that many features of significance are overlooked by its advo- cates. We have to consider not merely the per- centage of return on capital, but the increase in quantity of capital. We have to consider also not merely the returns on actual investments of capi- tal, but the returns to monopoly, which are re- flected in inflated capitalization as distinguished from actual investments of capital. We have also to consider that portion of the income of society which goes to the owners of natural opportunities under the name of rent. Again, we do not find from experience that we live in a kind of a world in which evils cure themselves. They are cured by intelligent and well-directed effort on the part of human beings. By others a sufficient remedy is found in poten- * This will be done elsewhere in the author's work on The Distribution of Wealth. 250 EVILS AND REMEDIES tial and residual competition. It is not altogether clear what it is hoped that potential competition namely, competition which may come into exist- ence; and residual competition, namely, survivals of competition in centralized business will accom- plish. Where we have to do with real monopolies, competition in its true sense is non-existent, and the causes which produce monopoly are relied on to continue that monopoly. No evidence has been adduced of the sufficient action of potential com- petition in the case of monopoly. The spirit of monopoly, even when it fears attack, is expressed in the injunction, " make hay while the sun shines." Take as an illustration the case of the gas-works in Baltimore. There have been five or six attacks upon these works by new companies. It might be supposed that these potential raids for that they are, rather than potential competition would have kept the gas-works in adequate check, and would have given the people of Baltimore cheap and good gas. Such has not been the case, however. At the present moment it is safe to say that it is not upon the excellence and cheapness of its product that the existing gas company relies to prevent a raid so much as it is upon the legislative checks stand- ing in the way of such a raid, and also upon the growing popular perception of the futility of at- tempted competition in the gas business. Numer- ous illustrations are also afforded by the railway history of the United States. The potential exist- ence of the West Shore and Nickel Plate railways 251 MONOPOLIES AND TRUSTS was not sufficient to keep down the earnings of the New York Central & Hudson River and Lake Shore & Michigan Southern railways to the level of com- petitive business ; nor was the potential existence of these railways sufficient to secure an altogether satisfactory treatment for those who were obliged to make use of the service of the old lines. But there are cases in which .we can rely upon a combination of residual and potential competition, and possibly when the arguments of Professor John B. Clark, the most scholarly advocate of potential competition, are analyzed, they do not mean any more than the present writer is prepared to admit.* In the case of a business which is not a natural mo- nopoly we may have a large combination control- ling a great part of the production of some article. Professor John Graham Brooks, at the Chicago Trust Conference, described the English bedstead trust, which manufactures the larger part of the bedsteads used in England, although it appeared that some residual competition is left in England, and that the trust is still exposed to international competition. Now if we have combinations of this sort, which have been formed without any favors, and under full and free competition, as the result of excellence of work and low prices, potential and residual competition is sufficient. The old enter- prises which still survive will quickly enlarge their * The theories of Professor Clark will receive fuller treat- ment in that portion of the present work dealing with " Com- petition," as well as elsewhere. 252 EVILS AND REMEDIES production if the combination furnishes inferior or high-priced work, and there is also a possibility of new enterprises availing themselves of openings made by the failure on the part of the combination to maintain excellence and cheapness. This suggests another point of which a good deal has been made namely, the accumulation of new capital.* The accumulation of capital is going for- ward apace, and outside the proper and natural field of monopoly it is a tremendous force making for competition when open opportunities are main- tained. In the case of true monopolies, however, new accumulations of capital beat in vain against their doors, and, driven off, return to the competi- tive field, only to reduce still further the gains in competitive industries. Another line of suggestion is this: Let us await fuller knowledge and do nothing at present. This sounds safe, and at first appears to be scholarly. We are told that we should first know all that it is possible to know about the great trusts, and that when we have the details spread before us, then we may act. But when is that time coming? It is a general truth that we have fulness of knowl- edge only about dead institutions. But social forces * Professor Franklin H. Giddings, of Columbia Univer- sity, brought this point forward forcefully in the work which he wrote jointly with Professor J. B. Clark, entitled Modern Distributive Processes, and it was also strongly em- phasized by Mr. Bourke Cockran at the Chicago Trust Conference. 253 MONOPOLIES AND TRUSTS operate continuously, and while we are doing noth- ing, they are producing their results. To do noth- ing means simply to let the immense blind social forces now at work operate without interruption and bind us more securely. It has been one of the chief faults of English economics that, so far as public action is concerned, it has insisted upon a policy of waiting. It has told us that we must do nothing until harm has come from private action. The London water supply in private hands shows the result of this policy. For more than two generations it has been generally ad- mitted that private control of this vital public need is a great evil, but the evil has become so deeply and firmly rooted that, until the present time, it has not been possible to abolish it. A still better illus- tration is afforded by the concentration of wealth in England, which is traceable very largely to causes that were in operation during the reign of George III. During the past fifty years England has been trying to remedy the evils which have resulted from mistakes made during the preceding fifty years, but she has as yet by no means succeeded.* Similarly, a very brief period, beginning with the Civil War a period probably not exceeding twenty-five years is very largely responsible for the excessive central- ization of wealth in this country, f and for many * See Spahr's Distribution of Wealth, part i., chapter i. t The author has in mind among other things the char- acter of taxation, the financial methods of railway con- 254 EVILS AND REMEDIES evils which it will take more than one generation to overcome. It is the office of science to foresee evils and to prevent them, as well as to remedy them when they have occurred. On the other hand, we have already seen in this country the effect of that reckless action which results in evil. What we must do, then, is to go ahead and go ahead as quickly as possible but by all means in the right direction.* Turning now to the remedies which the author would propose, mention may first of all be made of education. We must have both general education and special education: general education, to fit men better to fight the battle of life; and special edu- cation in economics, giving instruction concerning struction and management, and the issues of depreciated paper currency. * Professor Marshall in one place uses words which show an appreciation of the importance of quick action in the solution of economic problems, for in the closing paragraph of his address on " Some of the Aspects of Competition," delivered before the Economic Science and Statistics Sec- tion of the British Association at Leeds in 1890 we find the following timely utterance : " Every year economic prob- lems become more complex; every year the necessity of studying them from many different points of view and in many different connections becomes more urgent. Every year it is more manifest that we need to have more knowl- edge, and to get it soon in order to escape, on the one hand, from the cruelty and waste of irresponsible competi- tion and the licentious use of wealth, and on the other from the tyranny and the spiritual death of an iron-bound socialism." 255 MONOPOLIES AND TRUSTS the nature of monopolies and the problems to which they give rise. We take up next the problem of natural monop- olies, those admitted to be such because of prop- erties inherent in the business. The author has in mind especially railways, telegraph lines, tele- phones, lighting-works, water-works, etc. What are the objects to be accomplished by society in its re- lation to these businesses, which are admitted to be monopolies ? As they are monopolies, the con- trol which competition exercises over other busi- nesses is in their case absent. The problem, then, is the abolition of favoritism: favoritism with re- spect to the income of this kind of property must be abolished abolished so that surplus value may not fall into private pockets. Those who engage in businesses of this kind must, with respect to returns on capital and enterprise, be placed on the same footing with others. They must be con- tent with normal returns upon actual investment. Moreover, it must be borne in mind that not all capital in the industrial field can count on any re- turns whatever. It is only capital invested with normal prudence and skill which may count upon normal returns. If those engaged in these busi- nesses are not placed on the same footing with others they constitute privileged classes of monop- olists. Franchises gotten for nothing and sold for millions of dollars are simply one of many evidences of the existence of these privileged classes. If pri- vate monopoly is to be allowed to continue in these 256 EVILS AND REMEDIES fields some method must be devised, through tax- ation, through regulation of franchise grants, and otherwise, which will place on a footing of equality those engaged in these monopolistic businesses and those engaged in competitive businesses. No regulation of this sort has as yet been devised, but many things suggest themselves. It has been hoped that in the case of street-railways the sale of franchises would eliminate the private receipt of surplus value ; but where it has been attempted in New York State it has not cured this evil. By way of reduction and regulation of rates, more can be accomplished than has hitherto been effected. But to both reduction and regulation of rates, hav- ing in view the elimination of surplus value, there has been strenuous resistance, and the cases which have been fought out in the courts have not thus far given much promise of relief. It must be brought about that no favoritism shall be shown by these monopolies in their treatment of others. This is one object of the Interstate Com- merce Commission. In this case, too, the results thus far achieved are not reassuring, and the last report of the Commission bears a pessimistic tone.* * The following is a quotation from pages 5 and 6 of this report the twelfth bearing date January 9, 1899 : "In previous communications to the Congress, especially those of more recent date, attention has been called to the vital respects in which the act to regulate commerce has proved defective and in- adequate. Some of its provisions were early seen to be imperfect, while others were so uncertain or ambiguous as to give rise to pro- R 257 MONOPOLIES AND TRUSTS We have, however, simply the two alternatives on the one hand, public control of private prop- erty ; and, on the other, public property with public management, the latter alternative necessarily car- rying with it social control. Is the first plan namely, that of public con- trol of private corporations possible in general, and especially is it possible in a democratic society like ours? The first difficulty which suggests itself is this the attempt to secure a union of antagonistic principles. Private property is in its nature exclu- tracted litigation, resulting finally in authoritative construction by the Supreme Court of the United States. The Commission has taken much pains to explain the various questions that have thus been decided and the effect of these adjudications in defeating the purposes of the act. To state that the law in its present condition cannot be enforced is only to repeat what has already been said. Until further and important legislation is enacted the best efforts at regulation must be feeble and disappointing. " This subject was fully discussed in our last annual report, and we are unable to add anything to the presentation then made. In that and previous reports we have not only set forth in general terms the necessity for amending the law, but have formulated and proposed the specific amendments which appear to us positively es- sential. With the renewal of these recommendations no duty of the Commission in this regard remains undischarged. " Meanwhile the situation has become intolerable, both from the stand-point of the public and the carriers. Tariffs are disregarded, discriminations constantly occur, the price at which transportation can be obtained is fluctuating and uncertain. Railroad managers are distrustful of each other, and shippers all the while in doubt as to the rates secured by their competitors. The volume of traffic is so unusual as to frequently exceed the capacity of equipment, yet the contest for tonnage seems never relaxed. Enormous sums are spent in purchasing business and secret rates accorded far below the 258 EVILS AND REMEDIES sive, and the proprietor's control of his property under general regulations is one of its incidents. The individual and social benefits of private prop- erty come largely as the result of a free hand in its management. But in the public control of private property we retain private property, and yet take away from it that measure of control which is one of its natural incidents. It is a very serious question whether these two antagonistic principles can thus be reconciled. One inevitable result is a struggle of interests, with consequent political corruption and class arrayed against class. Those standard of published charges. The general public gets little bene- fit from these reductions, for concessions are mainly confined to the heavier shippers. All this augments the advantages of large cap- ital and tends to the injury, and often to the ruin, of smaller dealers. These are not only matters of gravest consequence to the business welfare of the country, but they concern in no less degree the higher interests of public morality. " The conditions now widely prevailing cannot be better illus- trated than by reference to investigations of the Commission during the last year, an account of which appears in the following pages. These are not isolated and exceptional cases ; their counterpart may be found in many localities. The facts thus brought to light carry their own comment, and nothing said by us can add to their signif- icance." In this connection a personal experience may not be without interest. The author was a member of a society in which there at one time arose a discussion as to whether or not rebates were still paid to shippers by the railways. After the debate had continued for some time, one gentle- man present a railway official quietly remarked that he had spent the day in paying rebates ! 259 MONOPOLIES AND TRUSTS whose private property it is attempted to control are bound to resist the attempted control which, however just it may be, they will regard as unjust ; and to resist it means to enter politics in order to control those agencies which are designed to con- trol them. In this way we have the most power- ful classes using politics to promote their private ends. The problem which is thus presented is difficult anywhere ; yet in a country like Germany, with its strong and highly trained governing class, it can be understood how a moderate measure of success can be attained in this line ; but how is it possible in a country like the United States? Property gives strength. Have we, or can we have, a class sufficiently strong to control those owners of immense property who are engaged in monopolistic undertakings ? It is frequently ob- served that those who are to be controlled exhibit a strength superior to that of those who are to con- trol them. How helpless against a combination of railways is the city of twenty-five thousand inhabit- ants when struggling to do such a seemingly small and entirely right thing as to provide gates at grade railway crossings. The writer has one case in mind. The very modest efforts of the city were met with the threat that the railway shops would be removed to a village some thirty miles distant and in an adjoining state. Even the city of Chicago has had a mighty struggle, continuing for years, in its efforts to protect life at railway crossings. At one time 260 EVILS AND REMEDIES it was proposed by the railways to leave Chicago and build another city in adjacent territory to escape what was regarded by the railways as oppression on the part of the city. A former editor of the North American Review even suggested to the present writer that he prepare an article in regard to what would be the outcome of such action on the part of the railways. Apart from the question of the simple difference in economic strength as between the contesting parties, we have the question of skill on the two sides. Now skill is most naturally acquired in the management of property. It is almost inevitable, then, that those who are to be controlled should be in possession of the superior skill. Contrast in this particular the helplessness of the ordinary municipal council, even if comprised of entirely honest men and this is granting a great deal with the trained skill exhibited by the combination of street-railway interests with which it may have dealings. There is, indeed, a possibility that we may have a growth of purity in our political life, and there is every reason to hope that such may be the case. There is also going forward a growth in enlighten- ment, and it is doubtless conceivable that we may develop in the end a class sufficiently wise and strong to control powerful monopolies owning a third or a fourth of all the wealth of the country. It is possible also that a union of local, state, and national agencies may give us a combination suffi- ciently strong to hold in check these vast aggrega- 261 MONOPOLIES AND TRUSTS tions of men and capital. A prudent man must judge for himself in regard to the probability of such an evolution. Public ownership with public management rend- ers control easy, because it is in the very nature of public property that it should be publicly con- trolled. Can we, however, find a class of office-hold- ers wise enough and good enough to manage the monopolistic businesses of modern times ? About this there can be no doubt. There are men wise enough to manage these businesses; these men are now very largely employed in such management, and they could be retained under public ownership and management. There is also sufficient virtue in the American people ; and of this we have abundant evidence. Quite another question, however, is this one : Can we trust to the wisdom of the people to select and to give continuous employment to this class of men who are sufficiently wise and strong for the management of these businesses? We come, then, to the question as to what developments of the civil service are possible and probable. We frequently notice that public work improves as its importance increases, and as public employ- ment rises in dignity it will naturally attract a su- perior class of men. A separation of public and private interests also such as would be brought about by the public ownership of natural monopo- lies would array on the side of good government strong classes who are now acting against good gov- ernment. 262 EVILS AND REMEDIES On the other hand, we observe that when great waves of political passion arise, such as the money- question produced in 1896, even friends of civil service reform have justified the partisan use of the civil service. We observe also that the plat- form of a great political party declares for a large increase in governmental activity, and at the same time expresses little sympathy with civil service re- form. But other platforms which have gone still further in their demands for public activity have, as a rule, coupled these demands with a further de- mand for a stable and improved civil service. All this carries with it as a part of the solution of our problem a new way of looking at government. The evolution of society has made the old idea of civil government entirely inapplicable to present conditions. As our life is complex, our govern- ment must be elaborate. This is in the very nat- ure of things, and cannot be avoided. The devel- opment of control as opposed to public ownership does not simplify, but rather complicates govern- ment, and renders it not easier, but more difficult, than direct public ownership and management of monopolistic businesses. Whatever we do, we must recognize that social evolution has brought us problems which in their very nature are difficult. The question is, Which method in the long run offers the least difficulty and promises the most beneficial results public control of private property in natural monopolies of the kind under consideration, or public ownership and 263 MONOPOLIES AND TRUSTS management of such natural monopolies? The evidence of a rapid shifting of public opinion mani- fested at the Chicago Trust Conference was most remarkable, and was to the author a great surprise. When, less than fifteen years ago, he began urg- ing the superior advantages of public ownership and management of these monopolies, he found comparatively little sympathy. During the period that has intervened, however, there has been such a change in sentiment on the part of others coup- led, perhaps, with a slight lessening of ardor on his own part that at Chicago he found himself stand- ing among those who would be regarded as the conservative element, while those who have figured as opponents of governmental activity were pre- dicting that we would have government ownership of railways sooner than the writer can anticipate. In the case of natural monopolies of the first sub-class, where we have a limited supply of raw material, such as the natural treasures of the earth, we can aim to secure as a goal government owner- ship, even if we do not have government operation. In the case of those intricate industries in which the supply of raw material is narrowly limited, it may be that government ownership with private operation will be sufficient, and even socially preferable.* A third remedy lies in the line of regulation of bequests and inheritances by taxation and other- * This is discussed at length in another part of the pres- ent work on The Distribution of Wealth. 264 EVILS AND REMEDIES wise, in order that in this way vast fortunes may gradually be broken up and wealth more widely diffused. Thus surplus value which has been ac- cumulated by monopoly will in part be absorbed by society for social purposes, and will in part be widely scattered. What is here recommended is simply in the line of what is already going forward throughout the civilized world. For example, in the states of Illinois and New York, as well as in some of the Swiss cantons and the Australasian provinces, great estates inherited by distant rela- tives or strangers in blood are taxed as high as 20 per cent.* The most conservative jurists f are, in addition, recommending that the laws which tend to prevent the building up of large family estates be strengthened, and that the laws be ren- dered more favorable to the wide diffusion of prop- erty among friends and relatives. Even conserva- tive legislation of this kind, operating continuously from generation to generation, produces a marked effect, as we may see in the case of France, where the laws compelling a very nearly equal division of property among children have produced during the present century a wide diffusion of wealth. * In the case of Illinois and New York the federal tax is added to the state tax to make the rate of taxation men- tioned. t See " Property: Its Rights and Duties in our Legal and Social System " an address delivered before the New York State Bar Association, January 15, 1895, by the Hon. John F. Dillon, LL.D. 265 MONOPOLIES AND TRUSTS This subject is discussed elsewhere in the au- thor's general work. At the present time it is only- necessary to call attention again to the connection of great fortunes with monopoly. It has been said that where supply is so restricted that a combina- tion of men acting as a unit can secure the entire source of supply, we have the conditions of mo- nopoly. But this condition becomes increasingly possible of realization with the growth of large fortunes. When we have a great many men with fortunes running from five to two hundred mill- ions, it is possible to secure control of the source of supply even when this is relatively very large. Originally that is, if the problem had been taken hold of in time it might not have been necessary to regulate bequests and inheritances through tax- ation and otherwise, in order to prevent monopoly. But things have gone so far now that we have to work along this line also. As a fourth suggestion, there is the aid to be de- rived from tariff reform, which has already received mention in a different connection. So far as mo- nopoly is due to the tariff, the remedy is very- simple. Remove the tariff from imported commod- ities thus monopolized. To confine ourselves to a single illustration, the reader may be reminded that, according to the statement of its president, the sugar " trust " has been aided by the tariff. In the fifth place, the reform which is suggested is a reform of the patent law to cover all cases in which patents are made the basis of objectionable 266 EVILS AND REMEDIES monopolies. Various commissioners of patents have suggested reforms. One is for the govern- ment to reserve the right to purchase any patent at an appraised valuation. So, if the Bell Tele- phone people, for example, have a patent which is objectionable, the right to purchase it at a price fixed by a commission and then to throw it open to the public would be reserved. A second remedy is to grant patents only on condition that the use of the patent shall be free to any one on payment to its owner of a reasonable royalty, the amount of which could be determined by a board in ac- cordance with carefully elaborated principles. An- other is to put a tax, increasing each year, on the use of patents, and to let those lapse on which the tax is not paid. Another is to provide forfeiture for the non-use of patents. These constitute in the main the remedies which have been suggested. Some of them have already been tried to a greater or less extent in different countries of the civilized world. So far as safe-guarding the interests of so- ciety is concerned, the two best patent laws are those in England and Germany. In our own coun- try we have some excellent features, but we have not done what we could do to prevent monopoly. In the sixth place, the reform of the law of pri- vate corporations along approved lines may be urged. This suggests the establishment of bureaus of corporations in the various states ; and in order to prevent one state from preying on another un- der the shelter of interstate comity and constitu- 267 MONOPOLIES AND TRUSTS tional guarantees, it is desirable to have a federal bureau of private corporations. At the present time, as has been intimated, one state, for the sake of corporation fees and taxes, may, by its loose legislation, induce men to form corporations which, though formed in a manner that is socially in- jurious and though lacking all proper supervision, have nevertheless the right as a matter of fact to do business throughout the country. New Jersey has hitherto been pre-eminently the home of the so-called trust formations, but now Delaware is avowedly outbidding New Jersey in the attempt to secure incorporations under terms which will in- crease her revenues, but which will remove all effec- tive control over private corporations. It seemed to be a very general opinion at the Trust Con- ference in Chicago and, in fact, one from which there was only slight dissent that the time has come for the formation of some kind of federal bureau to exercise general supervision over private corporations. Perhaps the best model that can be suggested is the office of the Controller of the Cur- rency, which exercises supervision over national banks ; and the aim should be to secure the same sort of effective control over all private corpora- tions engaged in interstate commerce. With state and federal bureaus acting together, it should be possible to exercise the desired control over private corporations, whether engaged in state business or in business involving interstate commerce. The sole purpose of this control should be honesty and 268 EVILS AND REMEDIES individual responsibility; and to secure this, com- plete publicity is necessary. This is not the place to go into this subject in detail, for a treatise on private corporations and their reform would, if at all adequate, fill a much larger volume than the present one. This discus- sion is designed simply to show the general direo tion of the desired movement for supervision. The proposal is to bring it about that some one shall be accountable for every act of a private corporation, and that measures shall be devised for fastening individual responsibility upon him. And this is not by any means Utopian. It is meas- urably secured in France, Germany, and England, and also in the case of our own national banks. Let us consider, for instance, the issue of a pro- spectus by a private corporation under our pro- posed plan of regulation. This prospectus should be signed, and those signing it should be held re- sponsible, both to investors and to the general public, for the accuracy of its statements. It should be pos- sible for any one injured to recover damages, and serious misrepresentations should be a criminal of- fence. It should be possible for any shareholder to enforce his rights. This would add to the responsi- bility of the directors, and if it should diminish the number of directorships held by one person and this has been suggested so much the better. The director should be a man who directs not a blind man leading other blind men into the ditch. Especially should no misrepresentation be per- 269 MONOPOLIES AND TRUSTS mitted in regard to capital invested. The provis- ions of the National Bank Act, in so far as they have to do with over-capitalization, may be some- what too strict to be applicable to general manu- facturing and commercial business ; but even with them, discretion in the matter of over-capitalization should be confined to very narrow limits. It cannot always be told in advance how much capital is going to be needed, and it may be advisable to permit the issue of shares half paid up, with liability for the full nominal amount of the shares ; but it should be clearly and explicitly stated exactly how much is paid in, so that no one may be deceived on this point. The purpose of a provision against over-capitalization is to prevent deception of investors and creditors, and also to bring it about that in case it may be desirable for the public to regulate or to purchase a business, an excessive valuation may not be successfully set up as a basis for permissible charges in the case of regulation or as a basis of negotiations in the case of purchase. What is here urged in regard to a fed- eral bureau for supervision of private corporations would probably require a modification of the federal constitution, and this is accordingly recommended.* But this is as far as the present writer is prepared to go in acceptance of the recommendation of vari- * As this is a matter of such grave importance, it is ap- propriate to reinforce it by the reprint of a circular issued by a company which makes it its business to induce people to form corporations in Delaware. The reprint will be found in the Appendix. 270 EVILS AND REMEDIES ous economists that a commission should be ap- pointed to regulate trusts. We must limit regu- lation of private business if private business is to be carried on successfully. Some of us can be regu- lated by all of us, but how everybody is going to be regulated indefinitely by everybody cannot well be explained. The attempted regulation becomes bur- densome ; there is opposition to it all along the line, and the struggle is attended with political corrup- tion. It is difficult to escape the conclusion that if it has become necessary to appoint a commission to regulate all the great businesses of modern times, the present economic order has become bankrupt. This the present author does not believe; but he maintains, on the contrary, that the remedies sug- gested, with a few others to be mentioned, would prove sufficient for the disease of monopoly. He holds that when movement has gone far along the lines recommended there will still be a wide field of free competition in which there can be a large and spontaneous play of social forces. Sir James Steuart, in his unduly neglected Political Economy, .says that "the principal object of this science is to employ the inhabitants ... in such a manner as naturally to create reciprocal relations and depend- ences between them, so as to make their several interests lead them to supply one another with their reciprocal wants."* It has been one of the * Works of Sir James Steuart, London edition, 1805, vol. i., page 3. 271 MONOPOLIES AND TRUSTS guiding thoughts in the present work to separate the field of monopoly from the field of competi- tion, and to recommend that in the latter there be allowed free play of natural and social forces. In conclusion, it may be well to speak briefly of some other remedies for certain evils which are not peculiar to monopoly. In so far as department- stores and other sorts of large-scale business are concerned, the principal suggestion of reform is that all those employed by them, directly or in- directly, should be protected from oppressive evils, by the elevation of business to a higher ethical plane. Child-labor can be restricted ; the labor of young persons can be regulated ; the use of sanitary appliances can be enforced ; through the license sys- tem and otherwise, as in Massachusetts, the sweat- shop evil can be greatly abated. This is altogether different from the proposals of restrictive legisla- tion, which are so rife, since it places no obstacles in the way of the growth of these businesses, but gives them a full and free field. Other reforms may be effected through insur- ance. Old-age insurance taking the form of pensions provides for those who are displaced by industrial readjustments. In various countries of the world, insurance is doing a large work in a manner which has been well described by Mr. W. F. Willoughby in his Workingmen s Insurance. By insurance, provision can be made against many con- tingencies of economic life. We in the United States have hardly begun as yet to realize what 27 a EVILS AND REMEDIES can be accomplished by this means. It is bound to receive a great extension and to become one of the problems of the future. Finally, it must be remembered that the indus- trial field does not exhaust all social activities. We have a large field outside of the field of industry, and this large field offers many opportunities for individual development, amply offsetting any loss which may result in the industrial field from con- centration of business, provided only that this out- side field is properly utilized. We have abundantly increasing opportunities for development along physical, intellectual, and moral lines, including the immense educational training-field afforded by the rich, expanding life of modern political society, s 273 APPENDIX* "The State of Delaware has just adopted the most favorable of existing general corporation laws one marking a forward step in the evolution of the corpo- ration. "It does not encourage reckless incorporation nor permit the existence of wildcat companies, but it fur- nishes, at least expense, ample rights to stockholders, and reduces restrictions upon corporate action to a minimum. "The enactment is not the result (as is the case in most other States) of hesitating, halting, enacting, amend- ing, and repealing, but is a logical and systematic meas- ure, framed by a committee of able lawyers appointed by the legislature to examine the statutes of the various States and to prepare a bill which should embody the good, and eliminate the bad, points of existing laws. "The law is based broadly upon that of the State of New Jersey, and embraces all of the beneficial provis- ions and safeguards found in the laws of that State. It has, however, in many respects advanced far beyond New Jersey, and makes Delaware a much more attrac- tive home for a business corporation. In the following * This Appendix consists of a reprint of a circular issued by a company which aims to promote incorporation in Delaware. 275 APPENDIX salient provisions the Delaware and New Jersey laws are substantially identical, namely : "First. Any three persons may organize a corpora- tion. " Second. It may engage in ' any lawful business ' ex- cept banking. " Third. Its existence may be perpetual or limited. " Fourth. It may purchase and deal in real and per- sonal property, wherever situated, and to any desired amount. "Fifth. It may be a mortgagee or a mortgagor. " Sixth, It may conduct business anywhere in the world. "Seventh. Stock may be issued for property pur- chased (and, in Delaware, for services rendered), and, in the absence of fraud, the judgment of the directors as to the value of such property (or services) is con- clusive. "Eighth. It may easily wind up its affairs and dis- solve itself. "Ninth. Its authorized capital stock need not be more than $2000, and only $1000 of this need be sub- scribed for. " Tenth. The amount of capital stock which it may issue is unlimited. " Eleventh. It may file its certificate of incorporation and even commence business before any sum whatever is paid in. " Twelfth. It may have different classes of stocks with different privileges or restrictions. " Thirteenth. The charter may be easily amended. "Fourteenth. Only one director need be a resident of Delaware. 276 APPENDIX " Fifteenth. Capital stock may be easily increased or decreased. " Sixteenth. The corporation may be readily merged into or consolidated with other corporations. " Seventeenth. It may own and vote upon the stock of other corporations. "Eighteenth. The incorporators may or may not limit the authority of the directors as to the amount of indebt- edness or liability the incorporation may incur at any one time. "The Delaware law possesses the following decided advantages : "(i) The original fee to be paid for incorporation is small, about three-fourths of that in New Jersey, for instance. " (2) The annual tax is very small, one-half of that in New Jersey. Delaware is a small State, and does not need a very large revenue. " (3) Stockholders and directors may hold their meet- ings wherever they please, and need never meet in the State of Delaware. (New Jersey stockholders must meet in that State.) " (4) The original Stock and Transfer Books (which in New Jersey corporations must be kept in the State) may be kept in or out of Delaware, in the discretion of the company. " (5) The examination of the books by intermeddlers is much more difficult under the Delaware law than under the laws of any other State. " (6) The liability of the stockholder is absolutely lim- ited when the stock has once been issued for cash, prop- erty, or services. " (7) Stock may be issued in compensation for services 277 APPENDIX rendered, and in the absence of fraud in the transaction, the judgment of the directors as to the value of such ser- vices is conclusive. (In New Jersey, authority is given to issue stock for property, but not for services.') * (8) In certain important classes of corporations, as, for instance, railroad, railway, telegraph, telephone, cable, electric-light, steam, heat, power, gas, oil, pipe-line, or sleeping-car companies, the advantage is still more marked. "(9) The annual report of a Delaware corporation is required to give no secret or confidential information. "(10) The certificate need not show, nor need public record be in any way made of the amount of stock sub- scribed to by any incorporator. " This company is authorized to act as the agent and trustee of corporations organized under the Delaware law. It will maintain the principal office of the com- pany in Delaware, and keep an agent in charge within the State. It is formed for the purpose of facilitating the incorporation of companies in Delaware, and of aid- ing them to comply, at a minimum expense, with the re- quirements of the Delaware law. We are ready to aid and give.full information to incorporators, corporations, or their counsel. We do not interfere between attorney and client, and do not conduct a law business. " Copies of the Delaware law, blank forms, and infor- mation concerning Delaware corporations, furnished on application. " All communications to us are confidential." 278 INDEX Absolute monopoly, 76. Advertising, saved in large scale production, 148, 167. Agriculture, subject to tendency to concentrate, 154. absence of concentration in, 192. Andrews, E. B., on the Standard Oil Co., 173. Anthracite coal, 56. Anti-trust legislation, von Halle on, 240. history of, 241. effect of, 243. B Ball, Sidney, classification of mo- nopolies, 94. Beef trust, aided by private favorit- ism of railways, 54. Bequest and Inheritance, regula- tion of, may remedy monop- oly evil, 264. Bernstein, Eduard, on concentration of industry in Germany, 191. Blackstone, on meaning of mo- nopoly, 23. Brewing, concentration of, in Germany, 188. Brooks, on the English bedstead trust, 252. Bullock, classification of monopo- lies, 93. Business unit, increasing in size, 181. Buyers' monopolies, 81. Cattle business, an illustration of industrial concentration, 153- Chicago Conference on Trusts, 242, 264. Clark, J. B., on potential compe- tition, 252. Classification of monopolies, 83, 84. by Senior, 85. by Lexis, 86. by Patten and Johnson, 91. by Jenks, 93. by Bullock, 93. by Sidney Ball, 94. Class price, characteristic of monopoly, 114. Cleveland, President, on evils of large scale business, 204. Coke, on meaning of monopoly, 22. Combinations, distinguished from monopoly, 35. Commercial travellers, number reduced by large scale pro- duction, 148, 167. Competition, opposed to monop- oly, 3. merely sets limits within which higgling determines prices, 112. is it everywhere self-annihilat- ing ? 141. gains of, as compared with monopoly, 167. a permanent social force, 178. 279 INDEX Competitive prices, may be no lower than monopoly price, 118. Complete monopoly, 76. Concentration of industry, general causes of, 180. Willoughby on, 183. in iron production, 185. in iron and steel, 187. in brewing in Germany, 188. in flour-milling, 189. in life insurance, 189. advantages of, 146, 195, 206. evils of, 203, 204. Concentration of production. See Concentration of industry. Concentration of wealth, caused by monopoly, 137. evils of, 239. Constitutions, provisions of regard- ing monopoly, 28. Cooke, Trade and Labor Combina- tions, on monopoly, 23. Copyrights, 45. Cornering the market, possible to large capital, 147. a point to be proved, 166. Corporations, reform of law of, a remedy for monopoly evil, 267. Corruption, engendered by private monopoly, 260. Crude petroleum, limitation of supply, 56. Cunningham, W., on the effect of the introduction of machin- ery, 203. Custom reenforcing trade marks, 49. D Darcy vs. Alleyn, an early English monopoly case, 217. Definition of monopoly, by Senior, 5- by J. S. Mill, 7. Definition of monopoly, by Sidgwick, 9. by Johnson, 11. by Hobson, 12. by the author, 14. by the makers of dictionaries 17 and 18. by Lord Coke, 22. by Blackstone, 23. by F. H. Cooke, 23. Delaware, lax laws regarding cor- porations, 268, 275. Department stores, industrial force creating, 157. De Rousiers, on power of monop- oly over raw material, 228. on the origin of the sugar trust, 53- Differential gains, treated by Senior as monopoly, 7. in competitive industry not monopoly gains, 34. Discrimination, 256. by railways, 54. a cause of monopoly, 98. in freight rates, 170. in accommodation, 175. Duplication, avoided in large scale production, 148. East India Co., an early legal monopoly, 52. Education, a remedy for monopoly, 255- Elizabethan monopolies, 24. English bedstead trust, 252. Etymology of the word monopoly, 16. Fashion, influence of, on monopoly price, 136. Favoritism. See Discrimination. 280 INDEX Federal interference, with corpora- tions, 268. Fiscal monopolies, 50. tobacco in France and Austria, 104. Fixed charges, less for large scale production, 147. limit to such advantage, 165. Flour-milling, concentration of in- dustry in, 189. Forced gain, 12, 113. Freight rates, smaller for larger shipments, 146. limits to such advantage, 164. G General welfare monopolies, 44. George, Henry, on result of fall in monopoly price, 138. Giddings, F. H., on the rationale of competition, 178. H Havemeyer, on the origin of the sugar trust, 53. Hobson, J. A., idea of monopoly, 12. forced gain, 113. on some advantages of small scale production, 199. Holt, Byron W., list of trusts, 168. Hume, on early legal monopolies, 24. I Incomplete monopolies, 77. Interstate Commerce Commission, 257. Iron production, concentration in, it>5. Jenks, J. W., classification of monopolies, 93. Jenks, J. W., questions for use of Industrial Commission, 162. Johnson, Emory R., idea of mo- nopoly, 11. classification of monopolies, 91. Large scale businesses, not in them- selves monopolistic, 144. economic advantages possessed by, 146. See also Concentration of in- dustry. Large scale production. See Con- centration of industry. Law of increasing returns, in its bearing on natural monop- oly, 65. Law of monopoly charges, 103. Legal decisions on the nature of monopoly, 22, 30. Lexis, W., on unity of control, 37. classification of monopolies, 86. Life insurance, concentration of business in, 189. Limitation, the essence of monop- oly according to Mill, 8. of the supply of raw material, 56. Limits of monopoly power, as respects price, 99. in demand or consumption, 99. Local monopolies, 80. Locke, on necessity of precise defi- nition, 1. Lord Farrer, on characteristics of natural monopoly, 61. M Macrosty, H., on concentration in England, 238. Marshall, A., on philanthropy of monopolists, 223. Marx, K., view regarding concen- tration of industry, 190. 281 INDEX Mill, J. S., definition of monopoly, 7. limitation of quantity, 8. unity of action, 9. Mixed monopolies, defined, 40. Modern monopolies, origin of, 29. Monopolies of material goods, 8a. of services, 82. Monopolies, with power of increas- ing supply, 77. with increasing difficulty, 78. with constant difficulty, 80. with decreasing difficulty, 80. Monopoly gains, where entered in the accounts of monopolies, 139- Monopoly groups, 134. Monopoly price, power over price not sole characteristic, 96. how fixed, 100. changing from time to time, 101. and from place to place, 102. law of, 103. sometimes lowered to increase demand, 104. not always uniform, 106. difficulty of determining, 108. absence of uniformity even at the same time and place, 108. is class price, 114. not of necessity higher or lower than competitive price, 118. result of fall in, 123, 137. influence of taxes upon, 128, 130. influence on future supplies, 132. influenced by surrogates, 133. influenced by fashion, 136. generally higher than competi- tive price, 136, 221. N National monopolies, 81. Natural areas of monopoly, 60. Natural gas, 57. Natural monopolies, 55. defined, 43. Natural monopolies. based on inherent properties, 59. origin of, 63. New Jersey, lax laws of, regarding corporations, 268. Over-capitalization, prevention of, a remedy for monopoly evil, 270. Over-production, avoided by mo- nopoly, 149. Paper trust, 174. Partial monopolies, defined, 32. See also Incomplete monopo- lies. Patents, 44. combined in large scale pro- duction, 149. reform of law of, a remedy for monopoly evil, 266. Patten, S. N., idea of monopoly, is. classification of monopolies, 91. on influence of custom and fashion on monopoly price, 136- Personal gains not monopoly gains, 139- Pipe lines, connection with mo- nopoly, 172. Pools, a condition of unstable equilibrium, 151. Potential competition, an insuffi- cient security against mo- nopoly, 251. J. B. Clark on, 251. Price-cutting, a weapon of monopo- lies, 98. Private monopolies, defined, 40. usually an evil, 229. insolence of, 231. less common in Europe than in America, 232. 282 INDEX Prohibitions of monopolies in American state constitu- tions, 28. Protective tariff and monopoly, 52, 266. Public consumption monopolies, 46. Public control of monopoly, 258. Publicity, a remedy for the mo- nopoly evil, 268. Public monopolies, defined, 40. Public ownership of monopolies, 258, 262, 264. Quasi-competition, possible even with monopoly, 73. Quicksilver monopoly, universal, 88. Railways, favoritism a source of monopoly, 54. a natural monopoly, 68. rate-wars among, 71. indications of monopoly in, 72. attempts at variable prices by, in. special favors from, 170. and the coal business, 171. and Standard Oil Co., 171. Regulation, excessive, to beavoided, 271. Residual competition an insufficient security against monopoly, 251- Retail trade, forces leading to con- centration, 157. Rice, George, experience with Stan- dard Oil Co., 171. Rockefeller-Carnegie combination in iron and steel business, 187. Secret processes, a source of monopoly, 74. Sellers' monopolies, 81. Senior, definition of monopoly, 5. causes of monopoly, 6. classification of monopolies, 84. Sidgwick, definition of monopoly, 9. on monopoly price, 119. on monopoly vs. monopoly, on influence of monopoly price on future supplies, 132. Small scale production, advantages of, 197. Social Democratic party in Ger- many, division in, 190. Socialism, its view of monopoly, 67. its position regarding limits of competition, 142. Social monopolies, defined, 42. Special privilege monopolies, de- fined, 51. based on public favoritism, 51. based on private favoritism, 52. Stages in industrial concentration, 150. Standard Oil Company, a complete monopoly, 76. an international monopoly, 81. railway discrimination favoring, 171. Statistics, showing concentration in industry, 183, 191. Steuart, Sir James, on the object of political economy as an art, 271. Stock-watering a means of disguis- ing monopoly gains, 139. Strikes, sometimes promote mo- nopoly, 61. Substitutes. See Surrogates. Sugar trust, aided by railways, 53. Surrogates, not inconsistent with monopoly, 35. influence of, on monopoly price, *33- 283 INDEX Tariff, reform of, a remedy for monopoly evil, 266. Tariffs, and trusts, 156. a cause of monopoly, 17a the source of the sugar monop- oly in Germany, 235. need of reform, 266. Taxes, influence on monopoly price, expressed as a law, 130- influence on monopoly, 249. Terminal facilities, a source of monopoly, 171. Trade marks, 47. Trusts, claims of promoters of, 160, effect on steadiness of produc- tion, 208. futility of attempts to destroy, 213. partly speculative in character, 214. von Halle on attempts to destroy, 240. U of Unity of action, the essence monopoly, 14. Unity of control, made an essential element of monopoly by the author, 36. Unity of control, by Walras, 37. by Lexis, 37. Universal monopolies. See Inter- national monopolies. Virtual monopolies, defined by the Century Dictionary, 21. Von Halle, E., on American at- tempts to destroy trusts, 240. W Wagner, Adolph, on the desire for agreement among producers, 142. Walras, L., on unity of control, 37. 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