The fact has been already referred to that the principal monopolies
which existed previous to the present century were those created by
government. In the days when governments were less strong than now, and
less able to raise money by such taxes as they chose to assess, it was a
very convenient way to replenish the king's exchequer to sell the
monopoly of a certain trade to some rich merchant. Nor was the
establishment of these monopolies entirely without just reason. In those
days of scarce and timid capital, inducements had to be held out to
encourage the establishment of new enterprises. An instance of this,
familiar to every one, was the grant to the owners of the first
steamboat of the sole right to navigate the Hudson River by steam for a
term of years. In the early history of the nation and in colonial days,
government grants to establish local monopolies were very common. In
this, however, we only followed the example of the mother country, which
had long granted limited monopolies in trade and transportation as a
means of encouraging new enterprises and the investment of capital.
The monopolies of the present day which are properly considered as
government monopolies are of two classes. The essential principle on
which all are based is that their establishment is for the common
benefit, real or supposed; but the first class--to which belong the
patents and copyrights--are also justified on the ground that the brain
worker should be protected in his right to reap the just profits from
his labor.
The effect of a copyright is simply to make it possible for an author to
receive some recompense from his work. He can only do this by selling it
in printed form to those who may wish to buy; but if there were no
copyright, any printer might sell duplicates of the book as soon as it
was issued, and could sell them at a much less price than the original
edition, as the book would have cost him nothing to prepare. The
practical result would thus be that few could afford to spend study and
research in writing books, and the volumes which would be printed would
be apt to be only those of so cheap and worthless a sort that no one
would take the trouble to copy them. The monopoly produced by a
copyright takes nothing from the public which it previously enjoyed. The
writer of a book creates something which did not before exist; and if
people do not wish to buy that which he has created, they are at perfect
liberty not to do so. The monopoly relates only to the production and
sale of that particular book. Others are at liberty to write similar
books upon the same subject, which will compete with the first; and the
same information may be given in different words without infringing the
copyright.
It seems clear enough, then, that the monopoly which occurs in the use
of a copyright, is of an entirely different sort from the monopolies
which we have previously considered. Competition is not destroyed by it,
and its only effect upon the public relates to an entirely new
production, which is not a necessity, and which the public could not
have had an opportunity to enjoy if the copyright law had not made it
possible for the author to write the book with the prospect of being
repaid for his labor by the sale of the printed volume.
As already stated, the granting of patents is based on the same
principle as the granting of copyrights. A clause of the Constitution
empowers the general government to grant to authors and inventors for
limited periods the exclusive right to their respective writings and
discoveries.
If we judge the granting of patents by the aims and intentions which are
held in the theory of the law, we must conclude that it is a highly
wise, just, and beneficial act. The man who invents a new machine or
device which benefits the public by making easier or cheaper some
industrial operation, performs a valuable service to the world. But he
can receive no reward for this service, if any one is at liberty to make
and sell the new machine he has invented; and unless the patent laws
gave him the power to repay himself for the labor and expense of
planning and designing his new device, it is altogether probable that he
would not spend his time in inventing.
The wealth which a valuable patent promises has been a great incentive
to the work of inventors, and has undoubtedly been a chief cause of the
great mechanical advancement of the last half century. But the state of
mechanical science has greatly changed from what it was when the clause
of the Constitution was penned which speaks of inventions as
"discoveries." The trained mechanical designer now perfects a machine to
do a given work, with almost the same certainty that it will be
successful in its operation that he would feel if the machine were an
old and familiar one. The successful inventor is no longer an alchemist
groping in the dark. His task is simply to accomplish certain results
with certain known means at his disposal and certain well-understood
scientific principles to guide him in his work. But this statement, too,
must be qualified. There are still inventions made which are the result
of a happy inspiration as well as of direct design. Not all the
principles of mechanical science and the modes of reaching desired ends
are yet known or appreciated by even the best mechanical engineers.
There is still room for inventors whose rights should be protected. The
interpreters of our patent laws have always held the theory that the use
of a natural agent or principle could not be the subject of a patent.
This is undoubtedly wise and just. The distinction should always be
sharply drawn between those existing forces of nature which are as truly
common property as air and sunlight, and the tool or device invented to
aid in their use.
Again, it is a notorious fact that the great multiplicity of inventions
has made the search to determine the novelty of any article submitted
for a patent for the most part a farce. No one is competent nowadays to
say surely of any ordinary mechanical device that it is absolutely new.
The bulky volumes of Patent-Office reports are for the most part a
hodge-podge of crude ideas, repeated over and over again under different
names, with just enough valuable matter, in the shape of the inventions
of practical mechanical designers and educated inventors, to save the
volumes from being an entire waste of paper and ink. Space, however,
will not permit us to discuss at length the faults of our patent system.
The important point for us to notice is that the patent system
establishes certain monopolies, and that these monopolies are not
always harmless. Patents are given to "promote the useful arts," but the
inventor whom they are supposed to encourage reaps but a small share of
the profits of his inventions. Valuable improvements soon fall into the
hands of large companies, who are able to defend them in the courts, and
reap all possible profits by their use.
Again, patents sometimes aid in the formation of trusts and
combinations. Two or three firms may control all the valuable patents in
connection with some important industry. If they agree to combine their
interests and work in harmony, they are far stronger than an ordinary
trust, because the patents they hold prevent outside competition. It was
pointed out in the opening chapter how the control of patents was
sometimes a feature helping to induce the formation of trusts. The
Standard Oil Trust had its origin in the superiority which one firm
gained over its competitors through the control of an important patent.
The envelope trust, which, at this date, has raised the price of
envelopes about twenty per cent., owes its chief strength to its control
of patents on the machines for making the envelopes. Instances
innumerable could be given where a few manufacturers, who by their
ownership of patents controlled the whole field, have ended a fierce
competition by consolidating or agreeing to work together harmoniously
in the matter of selling-prices. Very many of these are monopolies in
trade or monopolies in manufacturing, and as such have already been
considered in the preceding chapters; but it is proper here to point out
the part which our patent system has taken in their formation, and the
fact that it is due to their control of patents that many of the
existing combinations owe their security against outside competition.
Probably the public was never so forcibly reminded of the defects of our
patent system by any other means as it has been by the operation of the
Bell Telephone monopoly. The purpose in granting patents is to aid in
the establishment of new lines of industrial activity, secure to the
inventor the right to reap a reward for his work, and encourage other
inventors to persevere in their search for new improvements. All these
things are effected by the monopoly which is held by the Bell Telephone
Company; but they are effected at a cost to the users of the telephone
under which they have grown very restive. Passing by the statement that
the patents which the Bell company holds were illegally procured in the
first place, through the inventor having had access to the secret
records in the Patent Office of other inventions for which a patent had
been asked at about the same time as his own, it is an undisputed fact
that the Bell company holds the monopoly of communication by electric
telephone in this country. They have managed this monopoly with great
skill. While the instrument was yet in its introductory stage, and when
every smart town felt obliged to start a telephone exchange or fall
behind the times, prices were kept low; but when once the telephone
became a business necessity and its benefits were well known, rates of
rental were advanced to the point where the greatest possible profits
would accrue to the Bell company's stockholders. This was excellent
generalship. The same principle is applied in many other lines of
business; and it was only because the company held a monopoly of a most
valuable industry, that it proved so immensely profitable here. But
other acts of the company, it is alleged, while within the letter of
the law, are yet clearly infringements on the just rights of the public.
It is charged that the company has purposely refrained from putting into
practical use any of the many improvements which have been made in the
telephone during the past few years, but at the same time has quietly
secured their control. By skilfully managing "interferences" of one
patent against another, and by amending and altering the various
specifications, it contrives to delay as long as possible the issue of
the patents upon these inventions. By means of these improvements, which
it purposes to introduce as its present patents expire, it proposes to
continue its monopoly for many years to come. It is very likely that
this attempt will succeed.
We have already seen the folly of establishing competing electric light
companies, and the attempt to establish rival telephone exchanges is
just as sure to result ultimately in a heavy additional tax on the
public. Then, too, the monopoly has grown so wealthy and powerful
through its enormous profits that it will be very loth to release its
hold, even when it is no longer protected by patents. Rival companies
which may be established then, it will seek to crush by a fierce
competition; and it will be quite likely to succeed. But in so far as it
is not protected by patents, it is properly to be considered with other
municipal monopolies, in which class we have already referred to it.
The course pursued by the Bell Telephone Company has at least proved
that our whole patent system demands a thorough and radical revision.
The inventor should certainly be protected, but not to the public hurt.
The second class of monopolies which the government establishes or aids
in establishing because it is deemed to be for the public welfare that
they exist, are, first, those private industries which receive aid from
the government, either directly by subsidies or indirectly by the
taxation of the goods of foreign competitors; and second, those branches
of industry which are carried on by the government itself.
The question concerning the granting of subsidies is principally a past
issue. A century ago many new enterprises in all lines of industry
looked to the government for aid. In those days, when capital was scarce
and when investors hesitated at risk, it was perhaps wise to grant the
help of the public treasury to aid the establishment of young
industries; but nowadays, when millions of capital are ready to seize
every opportunity for profitable investment, it is recognized that
subsidies by the general government are no longer needed. The days of
subsidy granting ended none too soon. The people of the United States
gave away millions of acres of their fertile lands and other millions of
hard-earned dollars to aid in the building of the railroad lines of the
West; and a great part of the wealth thus lavished has been gathered
into the coffers of a few dozen men. The monopolies created by these
subsidies have been largely shorn of their power; but while they reigned
supreme, their profits were gathered with no halting hand.
There is only one direction in which we still hear the granting of
subsidies by the general government strongly advocated; that is in the
direction of establishing steamship lines to foreign ports. It would be
apart from the scope of our subject to discuss the wisdom or folly of
such a proceeding farther than to note the fact that it establishes a
monopoly.
Take, let us say, the case of a steamer line between New York and Buenos
Ayres. It is plain in the first place that the government aid will only
be granted if there is not business enough to induce private parties to
take up the enterprise. But as we suppose that there was not business
enough in the first place to support one steamer line unaided, it is
certain that none will undertake to establish a rival line to compete
with that already sure of profits by reason of the government aid. Hence
this line will have a monopoly of the trade; and unless some proper
restrictions as to rates accompany the subsidy, the monopoly may lay an
extortionate tax on the public who patronize it.
The relation of the tariff to monopolies is one which deserves the
careful attention of every thinking man. Let us, in discussing this
question, lay aside all prejudice and preconceived ideas for or against
the protective tariff system and consider candidly what are the actual
facts of the case. It is evident, in the first place, that the purpose
of the tariff tax which the government levies on goods imported from
abroad is to _keep out foreign competition from our markets_. The
imported goods cost more by the amount of the tariff than they otherwise
would; and the American producer, if he makes equally desirable goods
and does not raise his selling price above that at which imported goods
can be bought, is secure against foreign competition. But we have
already learned that monopoly is simply the absence of competition; and
inasmuch as the tariff checks or shuts out foreign competition, it has a
_tendency_ toward the establishment of monopoly. But this tendency may
not result in the establishment of any monopoly. There is a tariff on
potatoes, but there is no monopoly in their production. Evidently the
tariff cannot create a monopoly; it only makes its establishment more
easy by narrowing the field of competition to the producers of this
single country. If we turn back over the list of monopolies we have
studied, to find those which the tariff has any effect in aiding to
establish, we shall find none till we reach the first two chapters. The
monopolies in mineral products and manufactured goods, known generally
by the name of trusts, it is self-evident are largely dependent upon the
tariff. If they raise their price above a certain point, people will buy
goods of foreign production instead. This point--the price at which
foreign goods can be profitably sold--depends on the rate of the tariff,
on the cost of production in foreign countries, and the cost of their
carriage here.
Of the various trusts, it is evident that only those would be effected
by the removal or reduction of the tariff whose products are now covered
by it. Thus the Standard Oil Trust and the Cotton-Seed Oil Trust would
not be injured by any reduction in the tariff. As a matter of fact,
however, nearly all of the trusts have to do with manufactured goods
which are covered by the tariff, and the two exceptions already named
are about the only ones.
The trusts in manufactured products, broadly speaking, then, are all
dependent on the tariff. Here is a strange condition of affairs. In the
early history of this nation, the people of this country, represented by
their popular government, were appealed to by the men engaged in
manufacturing after this fashion: "We cannot make the things you need as
cheaply as the manufacturers in foreign countries. They are wealthy and
we are poor. They have their mills already in operation, we have ours to
build. The capital we borrow bears a rate of interest double that which
the foreign mill-owner has to pay. The labor we must employ is not yet
trained as is theirs, and it must receive far higher wages. Therefore we
ask that you aid us in establishing our industries by paying us higher
prices for our goods than those for which you could purchase the same
goods of foreign manufacture. In order that every one shall be obliged
to do this, and that all may contribute equally to our support, we ask
you to pass laws laying a tax on all imported goods which compete with
ours, whereby none shall be able to buy them at a cheaper price than we
can afford to sell our own goods."
And the people replied: "While we recognize the fact that we must pay an
increased price for your goods compared with that which is asked for
goods from foreign mills, and are thus taxing ourselves for your
benefit, yet we see how desirable it is that our industries should be
diversified and that we should not be dependent on foreign nations for
the necessaries and comforts of life. Thus _for a season_ we will grant
your petition and tax ourselves to establish you in your business."
Such was the spirit of the movement that inaugurated the protective
tariff. One other great argument for its establishment, which was
believed by the people and was assented to by the manufacturers, was as
follows: "Our natural advantages for engaging in manufacturing are
beyond those of any other nation. Our workmen are more skillful,
intelligent, and ingenious; our capitalists are more enterprising. At
the same time there are many difficulties to be overcome in establishing
a manufacturing business in a new country. Some assistance is needed at
the outset to tide it past the critical period. Now, if we can give our
manufacturers a start and enable them to establish themselves, they
will improve all these natural advantages which we possess; and with the
abundance of raw material in our mines and farms and forests, with our
ingenuity and Yankee enterprise and skill, who can doubt that our
manufacturers, once established, can produce goods more cheaply than
they could ever be brought across from foreign countries? This
protection from foreign competition will be a great incentive to the
establishment of manufacturing enterprises. Everywhere mills and
factories will spring up; a brisk home competition will be created; and
that will finally reduce prices lower than they could ever go if we
remained dependent on foreign countries for our manufactured goods."
It was a wise and well-founded plan, and only as to its final result did
it fail. The protective tariff did make manufacturing more profitable
than any other business, and mills and factories of every sort have
sprung up in all parts of the country. But the expected extreme
competition which was to reduce manufacturers' profits and the price of
manufactured goods to a basis in accordance with the profits in
agricultural and other branches of industry has been long delayed. The
wonderful development of the country has kept up prices and profits, and
has furnished a market for our manufacturers which has long kept in
advance of their capacity to supply it. At last, however, the result
which was expected by the founders of the protective tariff has come to
pass. Our domestic mills and factories have a capacity beyond the
present demand for their products. The home competition which was
predicted has come; and if it had operated to reduce prices as was
expected, there would now be employment for all our mills, for it is an
axiom that every reduction in price increases the demand.
But the manufacturers who had been making enormous profits of ten,
twenty, and thirty per cent. on their capital for these many years, were
far from willing to accept calmly the situation and reduce their profits
to a reasonable figure. They have tried combinations of many sorts to
keep up prices, and at last have found in the trust a strong and
effective means of killing home competition and keeping up their
profits, if they choose, to the highest point which the tariff permits.
It is not to be argued that the manufacturers were especially worse than
the general run of men in taking this action. It is the most natural
thing in the world that a man who has all his life been used to making
enormous profits in his business should come to think that he had an
inalienable right to make them; and that when competition became so
sharp that he had to lower his prices, it was due to an unnatural
condition of affairs glibly designated as "over-production," for which
the trust was an appropriate and wise remedy.
It is thus plain how, in a secondary way, the tariff is a cause of the
trusts. The fat profits which the former gave have made men covetous
enough to engage in the latter.
We are, perhaps, not yet prepared to discuss the question of the proper
remedies for trusts; but it is too obvious to call for comment that an
easy and most effective remedy is to cut away the protection from
foreign competition, under which they flourish, and let them sink or
swim as they best can. At the least it will be wise to reduce their
protection to a point where any attempt to tax the nation of consumers
and reap exorbitant profits by putting up prices so that profits of
twenty-five per cent. or more can be reaped, will be counteracted by
foreign competition.
It is only fair to point out at the same time that this remedy is far
from being a panacea against all trusts and monopolies. The monopolies
in the peculiar products of this country will be unaffected by it, and
the combinations which embrace the whole globe in their plan of
operations are quite beyond its power. The copper syndicate and the salt
trust, and according to Mr. Carnegie a steel rail trust, are the only
actual examples of international combinations which have ever been
attempted, and it will probably be many years yet before the constant
movement towards Tennyson's "Federation of the World" permits the
general formation of effective industrial combinations which shall
embrace all commercial nations.
We have finally to consider the monopolies carried on directly by the
government. The carriage of the mails is the most important monopoly
carried on by the government, and we may find some facts of interest by
enquiring the reasons why it is for the public welfare that it should be
so conducted rather than by private enterprise. In the first place, if
it were left to private enterprise to furnish us with postal facilities,
the postal service would be much more limited than now; many places of
small importance being left without postal facilities or charged a much
higher rate for service than now. On the other hand--and this is an
important point--there would, perhaps, be in and between the large
cities competition between different companies; in which case there
would be duplicate sets of postal facilities, including buildings,
mail-boxes, furniture, and employees of every grade. It is plain that
all this would be a waste. One set of facilities is better for the
public than two or three or more, and is ample to carry all the mails.
To put another set of men at the work that others are already able to
do, is to waste just so much of the working force of the world, as well
as the capital necessary to furnish tools and buildings for its use. The
matter of rates, too, would vary with the competition. One could never
be sure what his postage bill for the coming year was to be. The
receipts of the companies would be uncertain, and they would be obliged
to pay a high rate of interest on the capital invested in their plant,
thus making it necessary for them to charge high rates for their
service. The intense competition between rival companies would lead to
the bankruptcy of the weaker, and the final result would be the
establishment of a single corporation in the control of the whole
system. Rates would then be put up to the point where the greatest
profit would accrue to the corporation.
Under the existing system, then, we save in cost of service over
competing systems under private direction, in that the existing
facilities are all made use of. There is no waste by setting two men to
do the work of one, or by renting two offices to do the business which
one could accommodate, neither is any energy wasted in soliciting
business. The capital invested by the government in its plant for
carrying on the postal service would bear interest, if the money were
borrowed, of not more than two or three per cent. But if a private
company borrowed money to carry a similar business, they would have to
pay five to seven per cent., which they would have to make up for by
charging a higher rate of postage.
Other monopolies which have been carried on by the government are the
business of transportation, and the provision of roads, bridges, and
canals therefor; monopolies in mining; and in the case of municipal
governments, as already noted, the supply of water, gas, and electric
service, and street railway transportation.