period of transition from an agricultural to an industrial state; but
that the great change has now been completed, and the burdensome duties
which keep our prices high might perfectly well be dropped, since our
industries are now strong enough to compete with foreign industries.
But just at this point the Republican comes out less optimistically than
before. He says that American industry has indeed developed with
fabulous speed, and that the industrial exports of the country, which
now amount to 30 per cent. of the total, are a great showing, but this
is a symptom which ought not to be overrated. When prices throughout the
rest of the world fell, and England was paralyzed for the moment,
although the domestic demand had not yet reached its height, conditions
combined so favourably, it is true, as to cause the export trade in
American manufactured articles to increase rapidly. But this may not be
permanent. Industry is still not able to fill all the demands of the
home market; on the contrary, at the very time when American iron and
steel industries seemed likely to conquer foreign markets, it was found
that some sudden increase in domestic requirements necessitated large
importations. While the iron and steel exports decreased by $25,000,000
between 1900 and 1903, the imports during the same time increased
$31,000,000, and iron and steel include mostly unfinished products.
Thus even the strongest and most powerful industries greatly need
protection still against foreign competition. It is, Thomas Reed has
said, entirely mistaken to look on protection as a sort of medicine, to
be left off as soon as possible. It is not medicine, but nourishment.
The high tariff has not only nursed infant industries, but it is to feed
them through life. For it is not a happy expedient, but a system which
is justified by its results, and of which the final import is that the
American market is for the American people. Protection is a wall behind
which the American people can carry on their industrial life, and so
arrange it that wages shall be not only absolutely but relatively
greater than wages in Europe.
At a time when everything looked so prosperous as in the last few years
of industrial activity, it is difficult to contest the powerful argument
which the Republicans make in appealing to success. Every one is afraid
that a change in tariff might turn back this tide. And if there have
been reverses in the last few years it has been pointed out that
speculators and corporation magnates have been the chief sufferers, and
they are the ones who, least of all, would wish the tariffs removed.
It has been an unfavourable time, therefore, for the free-traders, and
their really powerful party has been rather faint-hearted in its fight
against the Dingley Tariff. Its satisfaction with the Wilson Tariff was
not unmixed, and although it could truthfully say that the law as
actually passed was not a Democratic measure since it received six
hundred and forty amendments in the Senate, nevertheless it realizes
that the legislative measures of the last Democratic régime pleased
nobody thoroughly and contributed a good deal to the subsequent
Republican victory.
Nevertheless, the Democrats feel that the Republican arguments are
fallacious. It is not the protective tariff, they say, which has brought
about American prosperity, but the natural wealth of the country,
together with the energy and intelligence of its inhabitants. The high
level of education, the free government, the pioneer ardour of the
people, and the blessings of quick and rapid railway connections have
made America great and prosperous. If, indeed, any legal expedients have
been decisive in producing this happy result, these have been the
free-trade measures, since the Republicans quite overlook the fact that
the main factor making for our success has been the absolute free-trade
prevailing between the forty-five states. What would have become of
American industries if the states had enacted tariffs against one
another, as the country does against the rest of the world, and as the
countries of Europe do against one another? The entire freedom of trade
from Maine to California, and from Canada to Mexico, that is, the total
absence of all legislative hindrances and the possibility of free
exchange of natural products and manufactures without payment of duties,
has made American industry what it is; and it is the same idea which the
Democrats cherish for the whole world. They desire to get for America
the advantages from free-trade which England has derived.
All the well-known free-trade arguments—moral, political, and
economic—are then urged; and it is shown, again and again, that every
nation will succeed best in the long run by carrying on only such
industries as it is able to in free competition with the world. It is
true, admittedly, that if our tariff were removed a number of
manufactures would have to be discontinued, and that the labourers would
for a time be without work, as happens whenever a new machine is
discovered, or whenever means of transportation are facilitated. The
immediate effect is to take labour from the workman. But in a short time
adaptation takes place, and in the end the new conditions automatically
provide a much greater number of workmen with profitable employment than
before. America would lose a part of the home market if she adopted
free-trade, but would be able to open as many more doors to foreign
countries as recompense. Her total production would in the end be
greater, and all articles of consumption would be cheaper, so that the
workmen could buy the same wares with a less amount of labour, and the
adjustment of the American scale of wages would better enable the
Americans to compete with the labour of other countries.
But no doubt the times do not favour such logic. The Americans are too
ready to believe the statement of Harrison, that the man who buys a
cheaper coat is the cheaper man. And quite too easily the protectionists
reply to all arguments against excluding foreign goods with the opposite
showing that, in spite of the high tariff, the imports from abroad are
steadily increasing. Under the Dingley Tariff, in the year 1903, not
only the raw materials, but also the half and wholly manufactured
articles, and articles of luxury, imported increased to a degree which
had never been reached in the years of the Wilson Tariff. The raw
materials imported under a Democratic tariff reached their high point in
1897, with $207,000,000; when the Dingley Tariff was adopted the figure
decreased to $188,000,000, but then rose rapidly and amounted in 1902 to
$328,000,000, and in 1903 to $383,000,000. Finished products declined at
first from $165,000,000 to $94,000,000, but increased in 1903 to
$169,000,000. Articles of luxury sank from $92,000,000 to $74,000,000,
but then mounted steadily until in the year 1903 they were at the
unprecedented figure of $145,000,000.
In spite of this, the Democratic outlook is improving; not because
people incline to free-trade, but because they feel that the tariff must
be revised, that certain duties must be decreased, and others, so far as
reciprocity can be arranged with other countries, abolished. Everybody
sees that the international trade balance of last year shows a movement
which cannot keep on. America cannot, in the long run, sell where she
does not buy. She will not find it profitable to become the creditor of
other nations, and will feel it to be a wiser policy to close commercial
treaties with other nations to the advantage of both sides. Reciprocity
is not a theory of the Democratic party merely, but is the sub-conscious
wish of the entire nation, as may be concluded from the fact that
McKinley’s last great speech voiced this new desire.
He had, more than any one else, a fine scent for coming political
tendencies; and his greatness always consisted in voicing to-day what
the people would be coming to want by to-morrow. On the fifth of
September, 1901, at the Buffalo Exposition, he made a memorable speech,
in which he said: “We must not repose in fancied security that we can
forever sell everything and buy little or nothing. If such a thing were
possible, it would not be best for us or for those with whom we deal. We
should take from our customers such of their products as we can use
without harm to our industries and labour. Reciprocity is the natural
outgrowth of our wonderful industrial development under the domestic
policy now firmly established. What we produce beyond our domestic
consumption must have a vent abroad. The excess must be relieved through
a foreign outlet, and we should sell anywhere we can and buy wherever
the buying will enlarge our sales and productions, and thereby make a
greater demand for home labour. The period of exclusiveness is past. The
expansion of our trade and commerce is the pressing problem. Commercial
wars are unprofitable. A policy of good will and friendly trade
relations will prevent reprisals. Reciprocity treaties are in harmony
with the spirit of the times. Measures of retaliation are not.
“If perchance some of our tariffs are no longer needed for revenue or to
encourage and protect our industries at home, why should they not be
employed to extend and promote our markets abroad?”
This was the same McKinley whose name had been the apprehension of
Europe, and who in fact more than any one else was morally responsible
for the high-tariff movement in the United States. The unique position
which his service of protection had won him in the party, would perhaps
have enabled this one man to lead the Republican party down from its
high tariff to reciprocity. But McKinley has unhappily passed away, and
no one is here to take his place.
His successor has not had, in the first place, a great interest in
questions of commerce. He has necessarily lacked, moreover, such strong
authority within his party as would enable him to bring opposing
interests into line on such a new policy. The young President was too
much suspected of looking askance on great industrial companies. If he
had placed himself at the head of the Republicans who were hoping to
reduce the tariff, he would have been branded as a free-trader, and
would not have been credited with that really warm feeling for protected
American industries which in the case of McKinley was taken as a matter
of course. More than that, the opponents deterred him, and would have
deterred any one else who might have come in McKinley’s footsteps, or
perhaps even McKinley himself, with the ghost of bad times which are to
come whenever a certain feeling of insecurity is spreading through the
commercial world.
Everybody felt that, if the question of tariff should be opened up,
unforeseen disputes might ensue. On questions of tariff every industry
wields a lever in its own favour, and the Wilson Tariff had sufficiently
shown how long and how tragi-comic can be the course from the law
proposed to the law accomplished. It was felt everywhere that if the
country should be brought into unrest by the fact that no industry could
know for some years what its future was to be or where Congress might
chance to take off protection, that all industry would be greatly
injured. There could be no new undertakings for years, and whatever the
ultimate result might be, the mere feeling of uncertainty would make a
crisis sufficient to turn the tide of prosperity. And American
reciprocity was after all only a matter of philanthropy; for the
experience with Canada and Hawaii, it was said, only showed that
reciprocity meant benevolence on the part of America.
If America is to be philanthropical, there is enough to do in other
ways; but if America is to preserve her commercial interests and her
prosperous industries, it is absolutely necessary not to stir up trouble
and push the country once more into tariff disturbances and expose
industry to doubts and misgivings. And this ghost has made its
impression. McKinley’s words have aroused only a faint echo in the
party. The need, however, which he instinctively felt remains, and
public opinion knows it. It is only a question as to when public opinion
will be stronger than party opinion.
There is another thing which gives the anti-protectionists a better
chance. Democrats say that high tariff has favoured the trusts. This may
be true or false, and statistics speak for both views. But here is a
watchword for the party which makes a deep impression, for the trusts
are popularly hated. This, too, may be right or wrong, and may be still
more easily argued for both sides, but the fact remains, and the
seductive idea that abolishing high tariff will deal a fatal blow to the
hated, extortionate, and tyrannical trusts gets more hold on the masses
day by day. In vain the protectionists say that there is not a real
monopoly in the whole country; that every instance of extortionate price
calls out competition at once, and injures the trust which charges such
price; that protection benefits the small and poor companies as much as
the large, and that an attempt to injure the large companies by
free-trade enactments would kill all small companies on the instant.
And, besides, politics ought not to be run in the spirit of hatred. But
the embitterment exists, and arguments avail little. It is incontestable
that, of all the motives which are to-day felt to work against
protection, the one most effective with the masses is their hatred of
the trusts. Herewith we are led from the tariff question to this other
problem—the trusts.
_The Trust Question_
“_Von der Parteien Hass und Gunst verwirrt_”—to be hated and to be
favoured by the parties is the fate of the trusts. But the odd thing is
that they are not hated by one party and favoured by the other; but both
parties alike openly profess their hatred and yet show their favour by
refraining after all from any action. And this inconsistency is not due
to any intentional deception.
To be sure, a good deal of it is political policy. The evils and dangers
of many trust formations are so obvious that no party would like to
praise them openly, and no party will dispense with the cheap and easy
notoriety of declaring itself for open competition and against all
monopolies. On the other hand, the power of the trusts is so great that
neither party dares to break with them, and each has its special
favourites, which could not be offended without prejudicing its campaign
funds. Nevertheless, the deeper reason does not lie in the matter of
expediency, but rather in the fact that no relief has been proposed
which promises to be satisfactory. Some want to treat the evil
superficially, as a quack doctor tries to allay secondary symptoms; and
others want, as President Roosevelt has said, to end the disease by
killing the patient. The fact that this inventive nation has still not
solved its great economic problem, is probably because the trusts have
grown necessarily from the organic conditions of American life, and
would continue to exist in spite of all legislative hindrances which
might be proposed against them.
When Queen Elizabeth, in violation of the spirit of Anglo-Saxon law,
distributed in the course of a year nearly fifty industrial monopolies,
and caused the price of some commodities to be doubled, the House of
Commons protested in 1601, and the Queen solemnly declared that she
would revoke all privileges which endangered industrial freedom; and
from that time on, monopolies were done away with. The American people
are their own sovereign, and the effect of monopolies is now about the
same as it was in England three hundred years ago. But the New World
sovereign cannot issue a proclamation revoking the monopolies which it
has granted, or at least it knows that the monopolies, if taken from
one, would be snatched by another. It is true that the present form of
trusts could be made illegal for the future, but some other form would
appear, to compass the same ends; and if certain economic departments
should be liberated by a free-trade legislation, the same forces would
gather at other points. We must consider the essence of the matter
rather than its outward form.
The essence is certainly not, as the opponents of trusts like to
represent, that a few persons are enriched at the expense of many;
that the masses are plundered to heap up wealth for a small clique.
The essence of the movement does not lie in the distribution of
wealth, but in the distribution of power. The significance of the
movement is that in recent times the control of economic agencies has
had to become more strongly concentrated. It is a mere attendant
circumstance that in the formation of the trusts large financiers have
pocketed disproportionately large profits, and that the leading trust
magnates are the richest men of the country. The significance of their
position lies in the confidence which is put in them. But the actual
economic endeavour has been for the organized control of larger and
larger undertakings. It has been very natural for the necessary
consolidation of smaller parts into new and larger units to be
accomplished by men who are themselves rich enough to retain a
controlling share in the whole business; but this is a secondary
factor, and the same result could have been had if mere agents had
been appointed by the owners to all the great positions of confidence.
Almost the same movement has gone on in other economic spheres than the
industrial. Railroad companies are all the time being consolidated into
large companies, controlled by fewer and fewer men, until finally a very
few, like Morgan, Vanderbilt, Rockefeller, Harriman, Gould, Hill, and
Cassatt, virtually control the whole railroad system. But this economic
movement in the railroad world would not really stop if the state were
to take over all the railroads, and a single badly paid secretary of
railroads should be substituted for the group of millionaires. The main
point is that the savings of the whole country are invested in these
undertakings, and are looking for the largest possible returns, and get
these only when leadership and control are strongly centralized.
The very obvious opulence of the leaders naturally excites popular
criticism, but it has been often shown that the wealth of these rich
people has not increased relatively to the average prosperity of other
classes, and the corporations themselves make it possible to distribute
the profits saved by concentration throughout the population. The famous
United States Steel Company had last year 69,000 stockholders, and the
shares of American railroads are owned by more than a million people.
For instance, the Pennsylvania Railroad alone has 34,000 stock and bond
holders, who intrust the control to a very few capitalists. In fact, the
whole railway system belonging to a million people is controlled by
about a dozen men; and the Steel Company with its 69,000 owners is
managed by twenty-four directors, who in turn are guided by the two
presidents of the administration and finance committees. The chief point
is thus not the concentration of ownership, but the concentration of
power.
This same movement toward concentration has taken place in the banking
business; and here the point is certainly, not that one man or a few men
own a main share in the banks, but only that a few men are put in charge
of a group of financial institutions for the sake of organized
management. In this way the public is more uniformly and systematically
served, and the banks are more secure, by reason of their mutual
co-operation.
Among the directors of the Bank of Commerce there are, for instance,
directors of two life-insurance companies which have a capital of
$750,000,000, and of eight trust companies; and the directors of these
trust companies are at the same time directors of other banks, so that
they all make a complete chain of financial institutions. And they stand
more or less under the influence of Morgan. There is, likewise, another
system of banks, of which the chief is the National City Bank, which is
dominated by Rockefeller; and these personal connections between banks
are continued to the industrial enterprises, and then on to the railroad
companies. For instance, the Rockefeller influence dominates not only
banks and trust companies whose capital is more than $400,000,000, the
famous Standard Oil Company with a capital of $100,000,000, the
Lackawanna Steel Company worth $60,000,000, and the gas companies of New
York worth $147,000,000, but also the St. Paul Railroad, which is
capitalized at $230,000,000, the Missouri, Kansas and Texas at
$148,000,000, and the Missouri Pacific at $212,000,000.
It is certainly true that such tremendous influence under present
conditions can be gotten only by men who actually own a huge capital.
And yet the essential economic feature is always the consolidation of
control, which is found necessary in every province of industry, and
which entirely overtops the question of ownership. It has been estimated
that the twenty-four directors of the United States Steel Company exert
a controlling influence in two hundred other corporations; that back of
them are the largest banks in the whole country, about half the
railroads, the largest coal, oil, and electric companies, and the
leading telegraph, express, and life-insurance companies, etc. They
control corporations with a capital of nine billions of dollars: and
such consolidation is not to be undone by any artificial devices of
legislation.
If economic life, by reason of the dimensions which it has assumed in
the last decades, requires this welding together of interests in every
department, then the formation of syndicates and trusts is only a phase
in the necessary development; and to prevent the formation of trusts
would affect the form, and not the essence of the movement. Indeed, the
form has already changed a number of times. The earliest trusts were so
organized that a number of stock companies united as such and intrusted
their business to a new company, which was the “trust.” That system was
successfully abolished; the trust itself seemed unassailable, but the
state could revoke the charters of the subsidiary companies, because by
the law of most states these latter might continue only so long as they
carried on the functions named in their charters; that is, so long as
they carried on the transaction of their affairs themselves. A stock
company has not the right, possessed by an individual, to intrust its
property to another. And if the stock companies which came together into
a trust were dissolved, the trust did not exist. In this way the State
of New York proceeded against the Sugar Trust, Ohio against the Standard
Oil Company, and Illinois against the Chicago Gas Company.
But the course of events has shown that nothing was gained by this.
Although it was recognized that corporations could not legally combine
to form a trust, nevertheless the stockholders controlling the stock of
separate companies could join as individuals and contribute their
personal holdings to a new company which was virtually a trust; and in
this form the trusts which had been demolished were at once reorganized.
Moreover, of course any number of stock companies can simply dissolve
and merge into one large company, or they may keep their individuality
but make important trade agreements with one another, and so indirectly
fulfil the purposes of a trust. In short, the ways of bringing assenting
industrial enterprises under one management and so of virtually making a
given industry into a monopoly, are manifold.
To promote the development of trusts, there was nothing necessary but
success at the outset. If the first trusts were successful, the device
would be imitated so long as there was any prospect of profit. It really
happened that this imitation went on finally as a sort of mania, where
no special saving of profits could be predicted; one trust followed
another, and the year 1903 saw 233 purely industrial trusts
incorporated, of which 31 had a capital of over $50,000,000 each, and of
which the total capitalization was over nine billions.