We have now examined the various forces which are destroying competition
in the production of goods in our factories, and of raw material from
our mines; in the transportation of these goods in their various
journeys between the producer and the consumer, and in the supply of the
especial needs of the dwellers in our cities.
It is an old and well-worn adage that "competition is the life of
trade"; and if this be true, we shall certainly not expect to find the
men who are earning their living by the purchase and sale of goods
endeavoring to take away the life of their business by restraining or
destroying competition. At first sight it seems as if it would be a
difficult matter in any case to destroy competition in trade. The buyer
and seller of merchandise has no exclusive control over natural wealth;
no mine or necessary channel of transportation is under his direction;
nor does he in his trade produce any thing, as does the manufacturer. He
only serves the public by acting the part of a reservoir to equalize and
facilitate the flow between the consumers and producers; and if
necessity requires, the two can deal directly with each other and leave
him out altogether. But in dealing with the question of monopolies we
must not conclude that the absolute control of supply is at all
necessary to the existence of a monopoly. While there are monopolies, as
we have seen, which have the keys to some of the necessities of
civilized life, there are others which control merely some _easier
means_ for their production, carriage, or distribution; and to this
latter class belong the principal monopolies in trade. To be sure that
this constitutes a monopoly, we have but to turn to the case of the
mountain pass mentioned in a former chapter. The use of that particular
pass for transporting goods is only an _easier means_ of transportation
than the detour to some other pass or by some other route; and the
degree of power of the monopoly depends directly on the amount which is
saved by the use of its facilities. So with the monopolies in trade.
Brokers and jobbers and retail merchants form a channel through which
trade is accustomed to pass, and through which it can pass more readily
than by any new one.
It is to be noted that under modern conditions the power of middle-men
has been greatly reduced from what it was formerly. As we have already
seen, manufacturing was then carried on only in families and small
workshops, and the mines which were worked were principally in the hands
of the king. The merchants were the wealthy men of olden time. They
controlled largely the transportation facilities of that day; and while,
as we have already noted, the commerce which then existed was but a
trifle compared with the present, the principal exchange being in local
communities, yet the trade in all articles which were imported, and all
domestic commerce between points any great distance apart was in the
hands of the merchants.
It is natural, therefore, that we find monopolies in trade to have been
among the first which existed and to have been of importance and power
when manufacturers' trusts were not dreamed of. The guilds which
flourished near the close of the Middle Ages, while not devoted to the
establishment of a monopoly, did nevertheless aim, in some cases at
least, to hinder competition from those outside their guild.
But turning to the present, let us examine the conditions under which
competition in trade is checked to-day. Let us take, first, the case of
retail trade in any of the thousands of country villages and petty trade
centres in the land. The history of the life of the country store-keeper
is a constant succession of combinations and agreements with his rivals,
interleaved with periods of "running," when, in a fit of spite, he sells
kerosene and sugar below cost, and, to make future prices seem
consistent, marks down new calico as "shop-worn--for half price." It is
true the sum involved in each case is a petty one, but when we consider
the enormous volume of goods which is distributed through these
channels, the total effect of the monopoly in raising the cost of goods
to the consumer must approach that effected by monopolies of much wider
fame. But perhaps it may not seem evident that this is a monopoly of the
same nature (not of the same degree) as a manufacturers' trust or a
railroad pool. It certainly _seems_ to be true that the merchant has a
right to do as he chooses with his own property; and that if he and his
neighbor over the way agree to charge uniform prices for their goods, it
is no one's business but their own. And, indeed, we are not yet ready to
take up the question of right and wrong in this matter. That the act is
essentially a "combination in restriction of competition," however, is
self-evident. The degree of this monopoly may vary widely. If the
merchants who effect this combination raise their prices far above what
will secure them a fair profit on the capital invested in their
business, and if it is difficult for their customers to reach any other
source of supply outside of the combination, the monopoly will have
considerable power. On the other hand, if the stores of another village
are easy of access, or if the merchants who form the combination fix
their prices at no exorbitant point, the effect of the monopoly may be
very slight indeed.
We find this class of trade monopolies most powerful and effective on
the frontier. Wherever railroad communication is easy and cheap the
tradesmen of different towns--between whom combinations are seldom
formed--compete with each other. The extension of postal, express, and
railway-freight facilities to all parts of the country, too, have made
it possible for country buyers to purchase in the cities, if necessary.
Thus the railways have been a chief instrument in _lessening_ the power
of this species of monopoly in country retail trade, which was of great
power and importance a half century ago.
Of retail trade in the cities, it is not necessary to speak at length.
Combination here has seldom been found practicable because of the great
number of competing units. There is, however, a noticeable tendency of
late to the concentration of the trade in large establishments, which by
their prestige and capital are able to take away business from their
smaller competitors. It does not seem likely, however, that this
movement will result in any very injurious monopoly among city
retailers.
The wholesale trade is on quite a different basis from the retail. The
number of competitors being so much less, combination is vastly easier.
The tendency toward it has been greatly fostered and strengthened by the
formation of trusts among the producers. These combinations made the
manufacturer more independent in his treatment of jobbers, and disposed
him to cut their profits to the lowest point. Naturally these men
combined to resist this encroachment on their income. They refused to
handle any goods for less than a certain minimum commission. It might be
possible in many cases for manufacturers to sell directly to the retail
traders, but in general the difficulty of changing old commercial
channels is such that the friction and expense is less if the goods are
permitted to pass through the wholesaler's hands. It is to be noted that
one cause for ill-feeling between manufacturer and wholesaler is the
fact that before the days of trusts the latter often reaped much greater
proportionate profits than the producer himself. But in time this cause
of dissension will be forgotten, and the trust and the wholesalers'
association will work in harmony.
The point of greatest interest in this is the fact that combinations
among this first class of middlemen are fostered and made possible by
the combination of producers. Nor does the series end here necessarily.
The increased price which the retail dealers are obliged to pay for the
goods, with the fact that others are making larger profits, makes them
eager to do the same; and by the aid and co-operation of the wholesale
merchants they may be able to do much toward checking competition among
themselves and increasing their profits. Thus by the operation of the
combination at the fountain-head among the producers, there is a
tendency to check competition all along the line, and grant to each
handler of the goods between producer and consumer an abnormal profit.
An excellent example of this is found in the sugar trade. The wholesale
Grocers' Guild of Canada, which includes 96 per cent. of the Dominion's
wholesale traders, entered into a compact with the Canadian sugar
refiners, who agreed that dealers outside of the guild should be charged
30 cents per 100 pounds more for sugar than those who were in the guild.
In November, 1887, fourteen members of the guild were expelled and were
compelled to pay the higher price. The executive committee of the guild
fixed the selling price for the retail dealers. The guild was so
successful with sugar that it extended its operations to starch, baking
powder, and tobacco, fixing prices for those goods as well. The
committee of the Dominion Parliament, appointed to investigate the
guild, reported that it was a combination obnoxious to public interest,
because it limited competition, advanced prices, and treated with gross
injustice those in the trade who were not its members. In New York State
there are two associations of wholesale grocers which are working to
prevent competition in the sugar trade. They have fixed a uniform price
for sugar, and have tried to make arrangements with the managers of the
sugar trust by which that organization shall discriminate against all
grocers who are not members of the association by refusing to sell them
sugar or charging them a higher price. In some other sections an attempt
has been, or is being, made by which the retail grocer sells only at
certain fixed prices determined by a committee of the wholesalers who
issue each week a card of rates. It is urged in defense of the movement
that sugar has been sold at an actual loss by both the wholesale and
retail trade for a very long time. The Grocers' Association, at its
first meeting, passed a resolution declaring that it was opposed to
combinations for the purpose of extorting unreasonable profits from the
public, and that all that was sought was to prevent the evil of handling
certain staples below the cost of doing the business. But if we inquire
why these staples have been handled at a loss, the answer is, because of
the strong competition which has prevailed. The organization, then, is a
combination to limit competition, to suppress it, in fact, and the
difference between its purpose and work and that of the Sugar Trust is a
difference of degree and not of kind. The reason for its moderate
demands may be because grocers are more liberal-hearted than refiners,
or because they understand that their power over the trade is more
limited than those who control the original product, so that an attempt
to exact too large profits would offer a tempting premium to competitors
of the Association.
Another staple article of consumption in which combinations are known to
exist is meat. It is affirmed that a combine of buyers and slaughterers
controls the markets of Chicago and Kansas City, and both depresses the
price paid for cattle in the market, and raises the price of beef to the
retail dealer. This monopoly proved so oppressive, and attracted so much
attention, that in February, 1889, Gov. Humphrey of Kansas, called a
convention of delegates from the legislatures of ten different States
and Territories to devise a system of legislation, to be recommended for
adoption by the several States, which should destroy the power of the
combination.
One of the combinations investigated by the New York State Committee
appointed to investigate trusts and similar organizations, was an
association of the retail butchers, and the brokers buying sheep, lambs,
calves, etc., from the farmers. The purpose of the association is to
prevent competition among its members and keep control of prices in its
own hands by charging a higher price to outsiders than to members of the
association. The ultimate effect is to increase profits by paying less
for the animals and getting higher prices for the meat sold.
We might go on at indefinite length to examine the various monopolies of
this sort, but it does not seem necessary. The salient fact which is
evident to any one at all conversant with business affairs is, that in
almost every line of trade the restriction of competition is in force to
a greater or less extent. Those monopolies are strongest, indeed, which
have control of production; but in so far as they can control the
market, the men engaged in buying and selling are equally ready to
create minor monopolies, and an acquaintance with the general markets
convinces one that these monopolies are numerous enough to have a very
important effect in increasing the cost of goods to the consumer.
We are accustomed to think of competition as a force which always tends
to keep prices down, and of a monopoly as always raising prices; but it
should be understood that this is true only of the competition and
monopolies among _sellers_ of goods. It must be remembered that the
competition among _buyers_, is a force which acts in the opposite
direction and tends to raise prices; and that it is quite possible to
have combinations among buyers to restrict competition and keep prices
down. Of course, where the buyer is the final consumer, this is almost
impossible, for the great number of competitors forbids any permanent
combination. Also where the product concerned is a manufactured article
or a mineral product, the mining or manufacturing company or firm will
generally have capital enough and business ability enough to defeat any
attempt of the wholesale merchants to combine to reduce the prices paid
for their output. This he can easily do by selling to retail dealers
direct. But in the case of products gathered from the farmers the case
is different, and the producer can less easily protect himself against
combinations among buyers to fix the price he shall receive. The power
and extent of these monopolies varies with the distance of the farmer
from markets, and also, it must be said, with the intelligence and
shrewdness of the farmer. In districts remote from railways and markets
the farmers are often dependent on the travelling buyers for a chance to
sell their cattle or produce. In a thinly settled region there may be no
more than two or three times in a season when a farmer will have an
opportunity to dispose of his surplus products; and, realizing his
necessity, he is apt to be beaten down to a much lower price than the
buyer would have given if other buyers had been competing with him to
secure the goods. In the chief markets, too, there is often a
combination of buyers formed to keep down prices. The combine of
cattle-buyers in Kansas City and Chicago has just been noted. The New
York Legislative Committee discovered that a milk trust had control of
the supply of milk for New York City, fixing the price paid to the
farmer at three cents per quart, and the selling price at 7 or 8 cents
per quart. According to the suit brought by the Attorney-General of
Louisiana against the Cotton-Seed Oil Trust, that monopoly has reduced
the price paid to the planters for seed from $7 to $4 per ton. As the
total amount of cotton seed which it purchases is about 700,000 tons a
year, it is evident that this feature of the combination alone puts into
the pockets of the owners of the Trust over two million dollars per
annum, over and above the profits made through its control of the
cotton-seed oil market. Evidently the combinations which lower prices by
restricting competition among purchasers are not to be overlooked
because of unimportance.
In the chapter on monopolies of mineral wealth it was stated that the
French copper syndicate is not a "trust," but a "corner." It has not
been common to consider "corners" as a species of monopoly, except as
they have, like the latter, acquired a bad reputation with the general
public from their effect in raising the price of the necessaries of
life. But if we look at the matter carefully, it becomes plain that the
aim of the maker of corners is the same exactly as that of the organizer
of trusts,--to kill competition. The difference lies in the fact that
the "corner" is a temporary monopoly, while the trust is a permanent
one. The man who forms a corner in, let us say, wheat, first purchases
or secures the control of the whole available supply of wheat, or as
near the whole supply as he can. In addition to this he purchases more
than is really within reach of the market, by buying "futures," or
making contracts with others who agree to deliver him wheat at some
future time. Of course he aims to secure the greater part of his wheat
quietly, at low figures; but after he deems that the supply is nearly
within his control, he spreads the news that there is a "corner" in the
market, and buys openly all the wheat he can, offering larger and larger
prices, until he raises the price sufficiently high to suit him. Now the
men who have contracted to deliver wheat to him at this date are at his
mercy. They must buy their wheat of him at whatever price he chooses to
ask, and deliver it as soon as purchased, in order to fulfil their
contracts. Meanwhile mills must be kept in operation, and the millers
have to pay an increased price for wheat; they charge the bakers a
higher price for flour, and the bakers raise the price of bread. Thus is
told by the hungry mouths in the poor man's home, the last act in the
tragedy of the "corner."
Fourier tells of an event in his early life which made a lasting
impression on him. While in the employ of a mercantile firm at
Marseilles, his employers engaged in a speculation in rice. They
purchased almost all the available supply and held it at high prices
during the prevalence of a famine. Some cargoes which were stored on
shipboard rotted, and Fourier had to superintend the work of throwing
the wasted grain, for the want of which people had been dying like dogs,
into the sea. The "corners" of the present day are no less productive of
discontent with the existing state of society than were those of
Fourier's time.
But, returning to our subject, it should be said that the "corner,"
generally speaking, does much less injury to the public than is commonly
supposed. As we have shown, the manipulators of the corner make their
chief profits from other speculators who operate on the opposing side of
the market; and it is but a small part of their gains which is taken
from the consumers. The effect on the consumer of the abnormal rise in
price caused by the corner is sometimes quite made up for by the
abnormal fall which occurs when the corner breaks. Generally, however,
the drop in prices will be slower to reach down to the final consumer,
past the middlemen, than will the higher prices. The corner makers also
are apt, if they are shrewd and successful, to make the total of their
sales for the current supply yield them a profit. Thus suppose that the
normal price of wheat is 70 cents per bushel, and that the syndicate
secures control of five million bushels at the normal price. If while it
keeps the price up it sells two million bushels at $1.20 per bushel, it
can afford to get rid of the rest of its stock at an average price as
low even as 50 cents per bushel, and still make four hundred thousand
dollars' profit.
The operations of corner makers are confined principally to goods which
are dealt in upon commercial exchanges. One evident reason for this is
that the vast purchases and sales, which are necessary in the formation
of a corner are impossible without the facilities afforded by an
exchange. It must be said, too, that the plain truth is that our
principal commercial exchanges, while they do serve certain useful
purposes, are yet practically devoted chiefly to speculation. This,
simmered down to its essence, means that the business of the speculators
is to bet on the future prices of the articles dealt in,--a game in
which the largest players are able to influence prices to accord with
their bets, and hence have their "lamb" opponents at an obvious
disadvantage. The evil of this sort of commercial gambling is recognized
by practical men of every class; but its cure is yet to be effected.
A sort of business allied both to trade and transportation is the
business of storage or warehousing, and this has recently shown some
interesting cases of monopoly.
The owners of warehouses along the Brooklyn waterfront combined their
business in January, 1888, and doubled their rates for storage. In the
testimony of one of the members of this trust, before the New York
Legislative Committee, he said: "We want to destroy competition all we
can. It is a bad thing." The owners of grain elevators at Buffalo, N.
Y., have long combined to exact higher prices for the transfer of grain
than would have prevailed were free competition the rule. At the session
of 1887 the New York Legislature took the bull by the horns and enacted
a law fixing a maximum rate for elevator charges; a statute which was
based on the popular demand for its enactment, but is hard to accord
with the principles of a free government.
There are a number of lines of business auxiliary to trade in which
competition is more or less restricted by the fact that the amount of
capital controlled and the prestige of the established firms renders it
a difficult and risky matter to start a new and competing firm. The
insurer of property or life, if he be wise, will demand financial
stability as a first requisite for the company in which he takes a
policy. The companies engaged in the business of fire insurance have
long been trying to agree on some uniform standard of rates and the
avoidance of all competition with each other. These combinations,
however, are apt to be broken, as soon as formed, by the weaker
companies, whose financial condition operates to prevent them from
getting their share of the business under uniform rates. Even when this
rate-cutting is stopped, there is still competition to be met from the
various small mutual companies, who are necessarily outside the
combination.
Banks are a necessity to the carrying on of modern commerce, and they
have great power over the financial affairs of the business men of the
community which they serve. As a general rule, however, they are
largely owned by the merchants and others who patronize them, and the
instances of this power being abused are, therefore, not common. It is
to be remembered, in discussing this, as in other monopolies, that the
power of a monopoly depends entirely upon its degree. A bank, trust
company, or real-estate guaranty company which has a great capital, an
established reputation for safety and conservatism, sole control of many
special facilities, and conveniences for obtaining and dispatching
business, has a real monopoly, whose degree varies with the tendency
people have to patronize it instead of some weaker competitor, if one
exists. There is no evil effect from the monopoly upon the community,
unless it takes advantage of its power to charge a sum greater than
their real worth for the services it renders, or uses it to discriminate
to the injury of special persons or places.
In closing our discussion of the monopolies in trade, there is an
important point to be noted. In the lines of industry considered in the
preceding chapter, the monopoly was easy of maintenance because it held
full control of the source of production, or of some necessary channel
through which commerce must pass. No gift of nature assists to maintain
a monopoly in trade. It must be wholly artificial, and it relies for its
strength simply on the adherence of its members to their agreement to
maintain prices. Its degree of power can never be great, compared with
monopolies which control the original sources of production; for if it
is attempted to put up prices inordinately, competition will start up
outside of the combination, or the consumer will be led to deal directly
with the producer.
Because of this weakness, the temptation is great for these monopolies
to strengthen themselves in ways quite indefensible on any score. The
alliance of trade monopolies with trusts, in order to strengthen
themselves, we have already considered. But the trust which makes such
an alliance must plead guilty to the charge of _discrimination_ as well
as _monopoly_. It is bad enough to raise the prices of the necessaries
of life, and force the whole community to pay the tax; but it is worse
to add to this the crime of discrimination against certain persons in
the community, at the instance of a minor monopoly.
But the trade monopoly does not confine its sins to tempting the
stronger monopoly to practise discriminations. It practises
discrimination itself in some very ugly forms. A combination among
manufacturers of railway car-springs, which wished to ruin an
independent competitor, not only agreed with the American Steel
Association that the independent company should be charged $10 per ton
more for steel than the members of the combine, but raised a fund to be
used as follows: When the independent company made a bid on a contract
for springs, one of the members of the trust was authorized to underbid
at a price which would incur a loss, which was to be paid for out of the
fund. In this way the competing company was to be driven out of
business. It is often argued that combinations to advance prices can
never exist long, because of the premium which the advanced price puts
upon the entrance to the field of new competitors; but the weapons which
this trust used to ruin an old and strong competitor are even more
effectual against a new-comer; and the knowledge that they are to meet
such a warfare is apt to deter new competitors from entering the field.
The boycott was once deemed rather a degrading weapon of warfare; but
now the term has grown to be a familiar one in trade circles. Even the
great railway companies do not scruple to use the boycott in fighting
their battles. One might imagine that both the thing and the name filled
a long felt want.