sympathetic to the American people in general. The love of size
generated in the nation by the lavishness of nature must welcome this
consolidation of interest, and the strong spirit of self-initiative
claiming the right of individuals to unite and work together must surely
favour all sorts of co-operation. As a fact now an opposite tendency
operates, which after all springs from the same spirit of
self-initiative. The freely acting individual must not be prevented by a
stronger force from using the strength he has. Everything which excludes
free competition and makes the individual economically helpless seems
immoral to the American. That is old Anglo-Saxon law.
The common law of England has at all times condemned agreements which
tend toward monopoly, and this view dominates the American mind with a
force quite surprising to the European who has become accustomed at
least to monopolies owned by the state. The laws of almost all the
separate states declare agreements tending toward a monopoly to be
illegal; and federal legislation, in its anti-trust measures of 1887 and
1890, has seconded this idea without doing more than formulating the
national idea of justice. The law of the country forbids, for instance,
all agreements looking to the restriction of trade between different
states of the country or with foreign nations. Senator Foraker, in
February, 1904, called down public displeasure by proposing a law which
permitted such agreements restricting commerce so long as the
restriction was reasonable. It was feared at once that the courts would
think themselves justified in excusing every sort of restraint and
monopolistic hindrance. And yet there is no doubt that the
interpretation of what should constitute “restriction” to commerce was
quite as arbitrary a matter as the interpretation of what should be
“reasonable.” Indeed, the economic consolidation of competing
organizations by no means necessarily cuts off the beneficent effects of
competition. When, for instance, the Northern Securities Company united
several parallel railway lines, it asserted justly that the several
roads under their separate corps of officials would still compete for
public favour. Yet the public and the court objected to the
consolidation. The one real hindrance to the propagation of trusts lies
in this general dread of every artificial check to free competition.
Many circumstances which have favoured the formation of trusts are
obvious. In the first place, the trust can carry on business more
cheaply than the component companies individually. The general
administration is simplified by doing away with parallel positions, and
all expenses incident to business competition are saved. Then, too, it
can make larger profits since when competition stops, the fixing of
prices lies quite with itself. This is of course not true, in so far as
other countries are able to compete; but here comes in the function of
the protective tariff, which permits the trust to raise its prices until
they equal those of foreign markets plus the tariff.
The good times which America has enjoyed for some years have also
favoured the development of trusts. When the harvests are good and the
factories all busy, high prices are readily paid. The trusts can do even
better than single companies by shutting down unprofitable plants and
adapting the various remaining plants for mutual co-operation. Then,
too, their great resources enable them to procure the best business
intelligence. In addition to all this came a series of favourable
external circumstances. First was the rapid growth of American capital
which was seeking investment. In the seventies, the best railroad
companies had to pay a rate of 7 per cent. in order to attract
investors; now they pay 3½ per cent. Capital lies idle in great
quantities and accumulates faster than it can find investment. This has
necessarily put a premium on the organization of new trusts. Then, too,
there was the well-known uniformity of the market, so characteristic of
America. The desire to imitate on the one side, and patience and good
nature on the other, give to this tremendous region of consumption
extending from the Atlantic to the Pacific Ocean a uniformity of demand
which greatly favours manufacture on a gigantic scale. This is in sharp
contrast with the diversity of requirements in Europe.
It has been, doubtless, also important that the American feels
relatively little attached to his special business. Just as he loves his
Fatherland really as a conception, as an ideal system, but feels less
bound to the special piece of soil where he was born and will leave his
own farm if he is a farmer and go westward in search of better land, so
the American passionately loves business as a method, without being over
attached to his own particular firm. If the opening is favourable, he
gives up his business readily to embark on another, just as he gives up
an old-fashioned machine in favour of an improved one.
Just this quality of mind is so different from the German that here
would be probably the greatest hindrance to the organization of trusts
in Germany. The German feels himself to have grown up in his special
business, which he may have inherited from his father, just as the
peasant has grown up on his farm, and he does not care to become the
mere employee of a large trust. Another contributory mental trait has
been the friendly confidence which the American business man puts in his
neighbour. The name is here appropriate; the trusts in fact repose to a
high degree on mutual trust, and trusts like the American could not
develop wherever there should be mutual distrust or jealousy in the
business world. Finally, the laws themselves have been favourable, in so
far as they have favoured the issue of preferred stock in a way very
convenient to trusts, but one which would not have been approved in
Europe. And, moreover, the trusts have made considerable use of the
diversity existing between the laws of different states.
There have been retarding factors, too. We have mentioned the most
important of all—the legal discountenance of all business agreements
tending to create a monopoly or to restrain trade. There have been
others, however. One purpose of the trusts is to put prices up and so to
make the necessities of life dearer. It is the people who pay the
prices—the same people who elect Congress and determine the tariffs and
the laws; so that every trust works in the knowledge that putting up
prices tends immediately to work back on business by calling forth
tariff revision and anti-trust laws.
One source of great profit to the trusts has been the possibility of
restricting output. This method promised gain where natural products
were in question, such as oil, tobacco, and sugar, of which the quantity
is limited, and further for all technical patents. Where, however, there
is no such limitation the most powerful corporation will not be able to
avoid competition, and if it tries to buy up competing factories to stop
such competition, still more are built at once, solely with the purpose
of extorting a high ransom from the trusts; and this game is ruinous. In
other departments again consolidation of business means very little
economy; Morgan’s marine trust is said not to have succeeded for this
reason. In short, not all industries are susceptible of being organized
as trusts, and the dazzling profits of certain favoured trusts too
easily misled those who were in pursuit of fortune into forgetting the
difference between different businesses. Trusts were formed where they
could not be profitable. Perhaps the real founders themselves did not
overlook the difference; but they counted on the great hungry public to
overlook it, until at least most of the shares should have been disposed
of.
As a fact, however, the reluctance of the great investing public has
been a decidedly restraining factor too. The securities spoiled before
the public had absorbed them; everywhere the complaint went up of
undigested securities. The public came early to suspect that the
promoters were making their profits not out of the legitimate economies
to be saved by the trusts, but by enormously overcapitalizing them and
taking large blocks of stock for themselves.
There was still another unfavourable influence on public opinion. The
main profits of a protected trust lie in its being able to sell more
dearly than it could if exposed to foreign competition. But now if the
consolidated industry itself proposes to sell to other countries, it
must of course step down to the prevailing level of prices. It must
therefore sell more cheaply abroad than at home. But this is soon found
out, and creates a very unfavourable impression. The American is willing
to pay high prices, as far as that goes; but when he has to pay a price
double what the same factory charges for the same goods when delivered
in Europe, he finds the thing wholly unnatural, and will protest at the
next election. Thus there have been plenty of factors to counteract the
favourable conditions, and the history of trusts has certainly not been
for their promoters a simple tale of easy profits.
Now, if we do not ask what has favoured or hindered the trusts, nor how
they have benefited or jeopardized their founders, but rather look about
to see what their effect on the nation has been and will be, some good
features appear at once. However much money may have been lost, or
rather, however fictitious values may have been wiped out in the market,
the great enterprises are after all increasing the productive capacity
of the nation and its industrial strength in the fight with other
peoples. They give a broad scope to business, and bring about relations
and mutual adaptations which would never have developed in the chaotic
struggling of small concerns. They produce at the same time by the
concentration of control an inner solidarity which allows one part to
function for another in case there are hindrances or disasters to any
part of the great organism, and this is undoubtedly a tremendous factor
for the general good. A mischance which, under former conditions, would
have been disastrous can be survived now under this system of mutual
interdependence: thus it can hardly be doubted that the combined action
of the banks in the year 1903 prevented a panic; since, when stocks
began to fall, the banks were able to co-operate as they would not have
been able previously to their close affiliation.
Furthermore, economic wealth can now be created more advantageously for
the nation. The saving of funds which were formerly spent in direct
competition is a true economy, and the trusts have asserted again and
again that as a matter of fact they do not put up prices, but that they
make sufficient profits in saving what had formerly been wasted in
business hostilities. Certainly the trusts make it possible to isolate
useless or superannuated plants, without causing a heavy loss to the
owners, and thus the national industry is even more freely adaptable to
changing circumstances than before; and this advantage accrues to the
entire country. The spirit of enterprise is remarkably encouraged and
the highest premiums are put on individual achievement. Almost all the
men who hold responsible positions in the mammoth works of the Steel
Trust have worked up, like Carnegie himself, from the bottom of the
ladder, and made their millions simply by working better than their
fellows.
On the other hand, the trusts have their drawbacks. One of the most
regrettable to the American mind is their moral effect. The American
distrusts such extreme concentration of power and capital; it looks
toward aristocracy, oligarchy, and tyranny. At the same time the masses
are demoralized, and in very many cases individual initiative is
strangled. There are, as it were, nothing but officials obeying orders;
no men acting wholly on their own responsibility. Work ceases to be a
pleasure, because everything goes by clock-work; the trust supersedes
the independent merchant and manufacturer just as the machine has
superseded the independent artisan.
The trusts have other demoralizing effects. Their resources are so
tremendous as in the end to do away with all opposition. The independent
man who hopes to oppose the great rival, can too easily be put in a
position in which he is made to choose between beggary and the
repudiation of all his principles. Everybody knows the shameless history
of the Standard Oil Company, which has strangled not merely weak
proprietors, but, much more, has strangled strong consciences. Then,
too, the whole system of over-capitalization is immoral. Large trusts
can hardly be formed except by purchasing the subsidiary companies at
fancy prices, and issuing stock which in large part represents the
premium paid to the promoters. Indeed, this whole system of community of
interests which puts thousands of corporations into the hands of a few
men who everywhere play into one another’s hands, must bring it about
that these men will soon grow careless and overlook one another’s
irregularities in a way which will threaten sober business traditions.
The whole country was shocked on hearing the revelations of the
Shipbuilding Trust, and seeing with what criminal carelessness the
organization went on in a little group of friends, and how the methods
of poker-playing were applied to transactions of great moment. The
fundamental objection, however, is always that it is immoral to kill
competition by agreements which create a monopoly.
Now, what can be done to obviate these evils? Apparently the first thing
would be a revision of the tariff; and yet even their opponents must
agree that there is only an indirect relation between the protective
tariff and the trusts. It is true that the high tariffs have helped to
create those industries which have now come together in trusts, and if
the industries were to be wiped out, of course there would be nothing
left of consolidations. But it is surely not true that the trusts are
the immediate effect of the tariff, and the more a revised tariff were
to let in foreign competition so much the more would the national
industries need to form themselves into trusts for the sake of the
benefits of consolidated management. All the business advantages and all
the moral evils of trusts would still remain, even though the dividends
were to sink. And the trusts would not be carried off the field unless
American industry itself should utterly succumb to the foreign enemy.
Most of all, however, it seems clear that any policy prejudicial to the
conditions of production and distribution would first of all, and most
sadly, hit the competitors of the trusts. There is no absolute monopoly
in any American industry. Indeed, even the Sugar Refining Company has a
few outside competitors, and there is a legion of independent producers
outside of the Steel Trust who are themselves in part organized in
groups, and in many industries the trusts do not comprise even half of
the manufacturers. Now, if the high tariff wall should be torn down so
that a flood of cheap foreign manufactures could come in, it is certain
that the first sufferers would be the small independent companies, which
would be drowned out, while the mighty trusts would swim for a long
time. Indeed, the destruction of such home competition would greatly
benefit the trusts. Some of the strongest of these would hardly be
reached at all by a reduction of the tariff—as, for instance, the
strongest of them, the Petroleum Trust, which does not enjoy any
protection. And it is also to be asked if trusts do not prosper in
free-trade England? So soon as the water is squeezed out of their
stocks, as has in good part lately happened, the trusts would still have
a great advantage after protective duties should be abolished. And at
the same time the necessary depression of wages which would result from
that movement would endanger the whole industrial fabric. Moreover, the
social and moral evils of the trusts would persist. Therefore the
Republican party, which is just now in power, will take no part in
solving the trust question by reducing the tariff.
Those Republicans who oppose the trusts are much more inclined to
proceed to federal legislation. President Roosevelt has, in a number of
speeches which are among the most significant contributions to the whole
discussion, pointed to this way again and again. The situation is
complicated and has shifted from time to time. The real difficulty lies
in the double system of legislative power which we have already
explicitly described. We have seen that all legislative power which is
not expressly conferred on the Union belongs to the several states;
specially has each state the right to regulate the commercial companies
to which it has given charters. But if the company is such a one as
operates between several states—as, for instance, one which transports
goods from one state to another—it is regulated by federal law. Now, as
long ago as the year 1890, in the so-called Sherman Act, Congress passed
draconic regulations against interstate trusts. The law threatens with
fine and imprisonment any party to a contract which restricts interstate
commerce. It can be said of this law that it entirely did away with the
trusts in their original form, in which the various companies themselves
composed the trust. At the same time the federal officials were strongly
seconded by the judicial doings of the separate states, as we have
already seen. But the effect has only been to drive industry into new
forms, and forms which are not amenable to federal regulations, but fall
under the jurisdiction of the separate states. Corporations were formed
which have their home in a certain state, but which by the tremendous
capital of their members have been able to acquire factories distributed
all through the country. Indeed, they are not real trusts any more, and
the name is kept up only because the new corporations have descended
from trusts and accomplish the same purpose.
Of course, this change would have been of no advantage for the several
companies if the stern spirit shown by Congress in this legislation had
been manifested once more by the separate states, that is, if each
separate state had forbidden what the Union had forbidden; but so long
as a single state in the whole forty-five permitted greater freedom to
business than the others, of course all new companies would be careful
to seek out that state and settle there. And, what was more important,
would there pay taxes—a fact which tended to persuade every state to
enact convenient trust laws.
Now, it is not a question between one state and forty-four others, but
rather between the diversities of all the forty-five. Almost every state
has its peculiar provisions, and if its laws are favourable to the
trusts this is because, as each state says, if it were to stand on high
moral grounds it would only hurt itself by driving away profitable
trusts, and would not benefit the whole country, because the trusts
would simply fly away and roost in some other state. More especially the
industrially backward Western States would be always ready to entertain
the trusts and pass most hospitable laws, for the sake of the revenue
which they could thereby get for their local purposes. And so it is
quite hopeless to expect the trusts to be uprooted by the legislation of
the separate states. If all forty-five states were to pass laws such as
govern stock companies in Massachusetts, there would be no need of
further legislation; and it is also no accident, of course, that there
are very few trusts in the State of New York. All the great trusts whose
directors reside in the metropolis have their official home across the
river in the State of New Jersey, which has made great concessions to
the companies.
If these companies are to be reached by law, the surest way seems to be
by taking a radical step and removing the supervision of large stock
companies from the single states, and transferring it to the federal
government; this is the way which President Roosevelt has repeatedly
recommended. In our political section we have explicitly shown that such
a change cannot be introduced by an act of Congress, but only by an
amendment to the Constitution, which cannot be made by Congress, since
it is in itself a product of the Constitution. Congress would be able
only to take the initiative, and two-thirds of both houses would have to
support the proposition to change the Constitution; and this change
would have to be ratified by three-fourths of the state legislatures
themselves. Now, it would be difficult to get a two-thirds majority in
both houses on any question hostile to trusts; but it is quite out of
the question to induce the three-fourths of the states to cripple their
own rights in so important a matter as the regulation of stock
companies; particularly as in economic matters local power is necessary
to local optimism, and the weaker states would never consent to give up
such rights, since they would be forced to see industrial laws framed
according to the requirements of the more highly developed states. Was
the President, then, in his speeches, like Don Quixote, tilting against
the windmills; or was he proposing, as some of his opponents said, quite
impracticable solutions in order to divert attention from such a handy
solution as that of tariff reduction? And was he declaiming loudly
against the trusts before the public in order really to help on the
friends of capital?
Perhaps another point of view may be found. It may be that President
Roosevelt proposed a constitutional amendment in order to arouse
discussion along certain lines, and in order specially to have the
chance of demonstrating that federal control of those overgrown business
enterprises is necessary, and that their control by the several states
is dangerous. It looks indeed as if such discussion would have been
highly superfluous if not insincere, if it were true that the sole way
of helping the situation were the quite impossible constitutional
amendment.
But such is not the case; there is another way of reaching the same end
without meeting the difficulties involved in changing the Constitution.
Of course, the President was not free to discuss this means, nor even to
mention it. This way is, we think, for the Supreme Court to reverse its
former decision, and to modify its definition of interstate commerce in
closer accord with the latest developments of the trusts. We have seen
that there are drastic laws relating to interstate commerce which have
overthrown all the earlier trusts; but a corporation claiming home in
New Jersey, although owning factories in different states and dependent
on the co-operation of several states for its output, is to-day treated
by the Supreme Court as a corporation pertaining to one state. If, now,
the Supreme Court were to decide that such a corporation transacts
interstate commerce, then all the severity of the existing federal laws
would apply to such corporations, and everything which could be
accomplished by an amendment to the Constitution would be effected by
that one decision. Of course, the President could not suggest this,
since the Supreme Court is co-ordinate with the Executive; yet if public
attention should be awakened by such a discussion, even the judges of
the Supreme Court might consider the matter in a new light.