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Title: Monopolies and the People
Author: Charles Whiting Baker
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Language: English
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MONOPOLIES AND THE PEOPLE
BY CHARLES WHITING BAKER, C. E.
ASSOCIATE EDITOR OF "THE ENGINEERING NEWS"
NEW YORK & LONDON
G. P. PUTNAM'S SONS
The Knickerbocker Press
1889
COPYRIGHT BY
G. P. PUTNAM'S SONS
1889
The Knickerbocker Press
Electrotyped and Printed by
G. P. Putnam's Sons
TO ALL THOSE WHO LOVE TRUTH AND JUSTICE AND EQUITY, WHO
VALUE OUR HERITAGE OF LIBERTY AND PEACEFUL FRATERNITY,
AND WHO ARE WILLING TO UNITE IN UPHOLDING
AND DEFENDING THE COMMONWEALTH--THAT
PRESERVER AND PROTECTOR OF THE RIGHTS
OF THE WHOLE PEOPLE--THE AUTHOR
DEDICATES THIS WORK.
PREFACE.
In the following pages it has been my endeavor to present, first, the
results of a careful and impartial investigation into the present and
prospective status of the monopolies in every industry; and, second, to
discuss in all fairness the questions in regard to these
monopolies--their cause, growth, future prospects, evils, and
remedies--which every thinking man is to-day asking.
The first part of this task, the presentation of facts with regard to
existing monopolies, may seem to the well informed reader to be
imperfectly done, because of the host of powerful and important
monopolies of every sort that are not so much as mentioned. But I have
deemed it most important that the broad facts concerning monopolies
should be widely known; and I have, therefore, aimed to present these
facts in a readable and concise way, although, in so doing, only a few
of the important monopolies in each industry could be even mentioned. It
is to be hoped that no one will underrate the importance of the problem
of monopoly, or question the conclusions which I have reached, because
of these omissions. To any such readers who may not be satisfied from
the facts hereafter given that monopolies are the salient feature of our
present industrial situation, and, moreover, that they have come to
stay, I would recommend a careful perusal of the financial and trade
journals for a few months.
Wherever possible I have presented actual statistics bearing on the
question at issue; but as regards trusts, monopolies in trade, mining,
labor, and in fact nearly all monopolies, there are no statistics to be
had. Nor can any be obtained, for it would be absurd for the government
to collect statistics of the operation of that which it pronounces
illegal but makes no effort to punish.
It may increase the respect of some readers for the conclusions I have
reached, to know that it was a practical acquaintance with monopolies
rather than any study of economic theories which led me to undertake the
present work; that, at the time I undertook it, I was wholly undecided
as to the proper remedies for monopolies, and was quite willing to
believe, if the facts had proved it to me, that they were destined to
work their own cure; and that the rapid growth and increase of
monopolies in very many industries, in the few months since these
chapters were written, have furnished fresh evidence that my conclusions
have not been amiss.
Finally, I wish to place all emphasis on the fact that all the great
movements toward genuine reform must go hand in hand. The cause of the
people is one cause, and those who work for honest officers in our
government, pure elections, the suppression of crime and pauperism, the
mental and moral elevation of men and women, are striking harder blows
at monopolies than they may realize. But if they desire to hasten the
day of their success, they must bring the great masses of the people to
comprehend that these movements aim at nothing less than their complete
deliverance; and that the reformers who labor so earnestly to make our
government purer and its people nobler, heartily desire also to cure the
evils of monopoly, and to serve the cause of the people in its every
form.
CHARLES WHITING BAKER.
TRIBUNE BUILDING, New York City.
June, 1889.
TABLE OF CONTENTS.
I. THE PROBLEM PRESENTED 1
A new use for the word "Trust," 1
The people's knowledge of trusts, 2
Remedies for trusts, 2, 3
Trusts a species of monopoly, 3
The problems which monopoly presents, 4
An impartial investigation necessary, 4
The question to be discussed from different standpoints, 5
A scientific method for solving the problem, 5.
II. TRUSTS AND MONOPOLIES IN MANUFACTURING INDUSTRIES 7
Definition of a trust, 7
The first trusts and their successors, 8
Description of the organization of the linseed-oil trust
by one of its founders, 9
The action of trust-makers perfectly natural, 14
Actual effect of trusts upon the public, 15
Profits of the linseed-oil trust, 16
Decreased market for goods controlled by trusts, 17
Control of the labor market by trusts, 17
The causes which have produced trusts, 18
Production on a large scale the most economical, 20
The Standard Oil Trust's defence of its work, 21
Its profits, and the cause of its low prices, 22
Industries in which trusts have been formed, 23
Andrew Carnegie's views of trusts, 24
The trust at once a benefit and a curse, 25.
III. MONOPOLIES OF MINERAL WEALTH 26
Mining, the first monopolized industry, 26
Monopolies in iron-ore production, 27
Monopolies in other metals, 28
The French Copper Syndicate, 29
The effect of its action on consumers of copper, 31
Profits of the richest copper mines, 32
Anthracite-coal production, 33
The anthracite-coal pool, 34
Coal monopolies in the West and South, 36
Monopolies in petroleum and natural gas, 40
Other monopolies of this class, 41.
IV. MONOPOLIES OF TRANSPORTATION AND COMMUNICATION 42
Transportation only a necessity in modern times, 42
The importance of railway traffic, 43
Railway transportation a vital necessity, 43
Shipping points where competition exists very few, 44
Consolidation and its benefits, 45
Intensity of competition in railway traffic on trunk lines, 47
Its inevitable effect, 48
The necessity of pools or traffic agreements, 49
Their history, 50
The Interstate Commerce law, 51
The effect of stimulating competition, 52
The evils charged to railway monopolies, 52
Evils due to wasteful competition, 53
Monopolies in other forms of transportation, 54
Monopolies on natural highways, 56
Monopolies of bridges, 56
The telegraph monopoly, 56.
V. MUNICIPAL MONOPOLIES 59
City dwellers dependent upon monopolies, 59
Suburban passenger traffic, 59
Street-railway monopolies, 60
Water-supply monopolies, 61
Competition and monopoly in gas supply, 62
T. M. Cooley on municipal monopolies, 64
Prices, cost, and profits of gas supply, 64
Monopolies in electric lighting and in telegraph, telephone,
and messenger service, 66
Other monopolies beneath city pavements, 67
Monopolies in railway terminals, 68
Monopoly in real estate, 69.
VI. MONOPOLIES IN TRADE 71
Absolute control not essential to a monopoly, 71
History of trade monopolies, 72
Monopolies in country retail trade, 73
In city retail trade, 74
In wholesale trade, 75
Co-operation of trusts and trade monopolies, 75
Monopolies in the grocery trade, 76
Monopolies in meat, 77
A general view, 78
Monopolies among purchasers, 78
"Corners" and monopolies, 80
Commercial exchanges and speculation, 82
Warehouse monopolies, 82
Insurance monopolies, 83
Trade monopolies artificial, 84
Their unjust acts, 85
VII. MONOPOLIES DEPENDING ON THE GOVERNMENT 87
Government monopolies in ancient times, 87
Government monopolies established for the benefit of the
people, 88
Copyrights, 88
Patents, 89
Evils arising from the patent system, 90
Monopolies based on patents, 91
The Bell telephone monopoly, 92
Government subsidies, 94
Relation of the tariff to monopolies, 95
Origin of the protective tariff, 96
The tariff a secondary cause of trusts, 98
Reductions in the tariff as a remedy for trusts, 99
Monopolies carried on directly by Government, 100.
VIII. MONOPOLIES IN THE LABOR MARKET 102
Classes of labor considered, 102
Monopolies of capital and monopolies of labor compared, 103
Locomotive engineers' strike on the Chicago, Burlington, and
Quincy Railway, 105
Effect of labor monopolies upon the people, 105
The history of labor, 107
The first trade-unions, 108
Laws against them, 109
Labor organizations from the laborer's standpoint, 110
"An injury to one the concern of all," 110
Preserving the self-respect of the laborer, 111
Repeal of unjust laws, 113
A defence for the action of labor monopolies, 114
The underlying cause of labor monopolies, 116
Limits to the power of labor monopolies, 118.
IX. MONOPOLIES AND COMPETITION IN OTHER INDUSTRIES 119
Occupations of the people, 119
Proportion of the people in any way benefited by monopolies 120
Proportion deriving the principal profits from monopolies, 122
Monopolies in the professions, 123
Monopolies among the servant classes, 124
Agricultural industry, 125
Can monopolies be established there? 126
A proposed farmers' trust, 127
The Grange and the Farmers' Alliance, 128
Killing the competition of oleomargarine, 129
Monopolies among agricultural laborers, 130
Proportion of the people benefited and proportion injured by
monopolies, 130
Monopolies in the use of capital impossible, 131.
X. THE THEORY OF UNIVERSAL COMPETITION 133
The general effect of monopolies, 133
Two sorts of remedies suggested, 134
Study of the laws of competition necessary, 135
The growth of civilized society outlined, 136
The interdependence of modern society, 137
The theory of civilized industry, 137
Supply and demand and the unequal rewards of men's
industry, 138
The theoretical perfection of our social system, 141
"Competition the life of trade," 142
The orthodox school of political economy, 143.
XI. THE LAWS OF MODERN COMPETITION 145
Competition defined, 145
Competition in corn-raising, 146
In paper-making, 147
In railway traffic, 149
The laws governing competition deduced, 150
Monopoly defined, 155
Natural agents in production, 156
Different classes of competition, 157
The three salient causes of monopoly, 159
The proper remedy for monopoly, 160.
XII. THE EVILS DUE TO MONOPOLY AND INTENSE COMPETITION 162
The theoretical perfection of human industry, 162
Over-production not a fault of production, 163
The ideal distribution of wealth, 164
The law of supply and demand, 165
Evils due to monopoly: the congestion of wealth, 166
How great fortunes are made, 168
Monopolized industries and speculation, 169
How monopolies reduce the income of small capitalists, 170
Monopolies the cause of over-production, 171
Monopolies and poverty, 173
The Church and the laboring classes, 173
Intemperance, 174
Reforms must go hand in hand, 174
How monopolies keep men in idleness, 175
The waste of competition, 176
Waste due to parallel railway lines, 177
The waste of competition and financial crises, 178
Wasteful competition in other industries, 179
Waste by strikes of labor monopolies, 180
False remedies for the disease, 181.
XIII. AMELIORATING INFLUENCES 183
Two classes of palliatives to the evils of monopoly, 183
Reduction in price to increase demand, 184
The influence of Christianity, 185
Its promise as a remedy, 186
A social system based on nobler attributes than selfishness, 187
The tendency of modern society, 188
The possibilities of altruism, 189
Direct and indirect charities, 189
The benevolent spirit in business enterprises, 190
The proper attitude of the Church toward monopolies, 191
The fraternal spirit opposed to competition, 192
Monopolists to be judged charitably, 193
Unjust judgment of labor monopolies, 194
Enmity toward monopolists no cure for monopoly, 195.
XIV. REMEDIES FOR THE EVILS OF MONOPOLY 196
Schemes for bettering society, 196
The doctrine of individualism, 197
The doctrine of societism, 198
The defects of each when unmodified by the other, 199
Societism a necessary accompaniment of civilization, 200
The interdependence of mankind, 201
Does societism threaten liberty? 201
Government for the benefit of the whole people, 202
The dangers of government action to aid special classes, 202
Remedies for monopoly: the creation of new competitors, 204
Its practical result, 205
Remedies by prohibiting consolidations, 205
Their inevitable effect, 206
Government the only agent to prevent monopoly, 207
Why direct action by the government is impossible, 208
Indirect action and its probable results, 208
The Interstate Commerce law as an example, 209
The proper remedy for monopoly not abolition, but control, 210
The relative advantages of government and private management
of industry, 211.
XV. THE SOVEREIGN RIGHTS OF THE PEOPLE AND OF THEIR
REPRESENTATIVE, THE GOVERNMENT 213
Questions brought up by the preceding conclusion, 213
The rights of property holders, 214
Property in the products of labor an inherent right, 215
Property in natural agents and public franchises a matter of
expediency, 216
Eminent domain over natural agents still held by the public, 217
The laws of competition applicable to determine when this
right should be exercised, 220
Absolutely perfect equity impossible, 221
Does private ownership of land work injustice? 222
Fundamental difficulties in dealing with monopolies not
dependent on natural agents, 223
Why a remedy for their evils is essential, 224
The basis of the people's authority over these monopolies, 225
Government regulation with private management the only
feasible plan, 225.
XVI. PRACTICAL PLANS FOR THE CONTROL OF MONOPOLIES 227
Economists should unite on the principles already propounded, 227
Practical details a matter of opinion, 227
A plan for the equitable and permanent adjustment of the
railway problem, 228
The ownership and operation of the railways, 229
Their securities as investments and for use in connection
with the currency, 230
Readjustment of outstanding securities, 231
Lending the government's credit to private corporations, 232
How rates of fare and freight should be fixed, 233
How the incentive to economy is retained, 234
How to avoid strikes, 237
Principles to be observed in establishing government control
of monopolies, 238
Plans for the control of mineral monopolies, 238
State ownership with private operation, 239
Plans for controlling municipal monopolies, 240
The control of other monopolies, 244
The dangers of special legislation, 244
Government control of manufacturing enterprises not feasible, 245
Taking trusts within the pale of the law, 247
Enforcing publicity, 247
Enforcing non-discrimination, 248
Direct action to prevent extortion by the monopoly, 251
Potential competition to prevent extortion, 252
Reform of corporation laws, 254
The contrast between this plan for controlling trusts and
existing law, 255
Reductions in the tariff as a remedy for trusts, 256
Plans for the control of labor monopolies, 257
Strikes an injury to labor, 258
Removal of other monopolies as a cure, 258
What shall fix the rate of wages? 259
Cooperative ownership, 260
Fraternal benevolence most needed here, 261
A definite relation between monopolies and the people, 262
Conclusion, 263.
MONOPOLIES AND THE PEOPLE
I.
THE PROBLEM PRESENTED.
The word "trust," standing for one of the noblest faculties of the
heart, has always held an honorable place in our language. It is one of
the strange occurrences by which languages become indelible records of
great facts in the history of the world, that this word has recently
acquired a new meaning, which, to the popular ear at least, is as
hateful as the old meaning is pleasant and gratifying.
Some future generation may yet be interested in searching out the fact
that back in the nineteenth century the word "trust" was used to signify
an obnoxious combination to restrict competition among those engaged in
the same business; and that it was so called because the various members
of the combination entrusted the control of their projects and business
to some of their number selected as trustees. We of the present day,
however, are vitally interested in a question far more important to us
than the examination of a curiosity of philology. We are all of us
directly affected to-day by the operation of trusts; in some cases so
that we feel the effect and rebel under it; in other cases, so that we
are unconscious of their influence and pay little heed to their working.
It is but a few months since public attention was directed to the
subject of trusts; but, thanks to the widespread educational influence
of the political campaign, at the present day the great proportion of
the voters of the country have at least heard of the existence of
trusts, and have probably some idea of their working and their effect
upon the public at large. They have been pointed out as a great and
growing evil; and few speakers or writers have ventured to defend them
farther than to claim that their evil effects were exaggerated, and
predict their early disappearance through natural causes; but while
remedy after remedy has been suggested for the evil so generally
acknowledged, none seems to have met with widespread and hearty
approval, and practically the only effect thus far of the popular
agitation has been to warn the trust makers and trust owners that the
public is awakening to the results of their work and is likely to call
them to account.
The truth is, as we shall see later, that it is a difficult matter to
apply an effective remedy of any sort to the trusts by legislation,
without running counter to many established precedents of law and
custom, and without serious interference with what are generally
regarded as inalienable rights. Yet we are making the attempt. Already
legislative and congressional committees have made their tours of
investigation, and bills have been introduced in the legislatures of
many of the States, and in Congress, looking to the restriction or
abolition of trust monopolies.
It is the wise surgeon, however, who, before he takes the knife to cut
out a troublesome growth, carefully diagnoses its origin and cause,
determines whether it is purely local, or whether it springs from the
general state of the whole body, and whether it is the herald of an
organic disease or merely the result of repressed energies or
wrongly-trained organs. So we, in our treatment of the body politic,
will do well to examine most carefully the actual nature of the diseases
which we seek to cure, and discern, if we can, the causes which have
brought them on and tend to perpetuate them. If we can discover these,
we shall, perhaps, be able to cure permanently by removing the ultimate
cause. At any rate, our remedies will be apt to reach the disease far
more effectually than if they were sought out in a haphazard way.
The crudest thinker, at the first attempt to increase his knowledge of
the general nature of trusts, discovers that the problem has a close
connection with others which have long puzzled workers for the public
good. Trusts ally themselves at once in his mind with monopolies, in
whichever form he is most familiar with them, and are apt to be classed
at once, without further consideration, as simply a new device for the
oppression of the laborer by the capitalist. But the man of judicious
and candid mind is not content with any such conclusion; he finds at
once, indeed, that a trust is a combination to suppress competition
among producers of manufactured goods, and he calls to mind the fact
that other combinations to suppress competition exist in various other
lines of industry. Surely when the governing motives are so similar, the
proper remedies, if remedies are needed, cannot be greatly unlike. And
though, taking the country as a whole, trusts have occupied more
attention lately than any other form of monopoly, the problem of
railroad monopoly is still all-absorbing in the West; in every city
there is clamor against the burdens of taxation levied by gas,
electric-light, street-railway, and kindred monopolies; while strikes in
every industry testify to the strength of those who would shut out
competition from the labor market. These and similar social and
industrial problems are quite as important as the problem of trusts, and
their solution is becoming every day more urgent and necessary. If we
neglect them too long, or carelessly adopt some unsuitable or unjust
remedy, who knows the price we may pay for our folly in blood and
treasure?
The problem before us, then, as we see it from our present standpoint,
is the problem of monopoly. What is it? Whence comes it? What are its
effects? And, most important of all, what ought we to do about it?
Surely questions whose correct answer is of such importance to the
welfare of each person and to the very existence of society demand the
careful consideration of every thinking man.
Let us then take up this problem and give it the fairest and most candid
investigation possible. In order to do this, let us remember that _the
truth_ is the object of our search, and that it will be necessary, if
the conclusions from our investigation are to be of value, that we
divest ourselves, so far as possible, of all preconceived opinions
founded, perhaps unconsciously, on the statements or evidence of
incompetent authorities, and also of all prejudices. Let us, in
searching for facts and principles, examine with impartiality the
evidence and arguments which each side presents, and judge with candor
between them.
The author wishes to make an earnest personal request to the reader who
is minded to follow the discussion through the following pages, that he
will in good faith attempt to do this thing: that he will lay aside for
the present his opinions already formed, as the author himself has
conscientiously aimed to do while pursuing this investigation, and give
a fair hearing to both sides of the question. A complicated machine can
only be understood when it is viewed from different standpoints. So,
here, in order to find the truth, we must examine trusts from the
standpoint of the trust maker as well as from that of the consumer; and
trade unions, from the standpoint of their members as well as from the
ground of employers and of the public at large. We shall indeed meet
much error by this method of study, but is it not proverbial that there
are two sides to every question? It will be our task to study these
opposing views and sift from them the truths for which we seek.
In taking up now the problem before us, let us adopt the true scientific
method for its solution. We must first find out as fully as possible the
actual facts with regard to monopolies of every sort and the competition
which monopoly replaces. Next, by discussing and comparing the evidence
obtained, we may be able to discover the natural laws by which
competition and monopoly are controlled; and finally, with our knowledge
of these, we will try to discover both the source of the evils which vex
us and the proper methods for ameliorating, curing, or preventing them,
whichever may be found possible.
Such is the outline of the investigation before us, which it may as well
be said here could easily be extended and amplified to fill many
volumes. The author has preferred to prepare the present volume without
such amplification, believing that the busy men of affairs, to whom a
practical knowledge of the subjects herein treated is most essential,
have, as a rule, no leisure for the extended study which the volumes
into which the present one might easily be expanded would require. He
trusts, however, that brevity will not be found wholly incompatible with
thoroughness; and that the fact that much which might have properly been
included in the book is omitted, will not be taken as a necessary
indication that the conclusions arrived at are without value.
II.
TRUSTS AND MONOPOLIES IN MANUFACTURING INDUSTRIES.
In common use the word "trust" is at present rather loosely used to
denote any combination formed for the purpose of restricting or killing
competition. Properly speaking, however, a trust is a combination to
restrain competition among producers, formed by placing the various
producing properties (mills, factories, etc.) in the hands of a board of
trustees, who are empowered to direct the operations of production and
sale, as if the properties were all under a single ownership and
management.
The novel characteristic of the trust is not the fact that it is a
monopoly, but that it is a monopoly formed by combining several
competitors according to a new plan. The process of placing property in
the hands of trustees is familiar to every business man. In the
formation of a trust the different firms or companies who have been
competing with each other in the production and sale of goods agree to
place the management of all their several properties in the hands of a
board of trustees. The powers of this board and its relation to the
owners of the various properties are ingeniously devised to evade the
common law, which declares that contracts in restraint of competition
are against public policy, and illegal.
The first of the modern trusts was the Standard Oil Trust, which was a
combination formed among several of the refiners of crude petroleum in
the States of Pennsylvania and Ohio in the year 1869. The original
combination grew out of the control of certain important patents
connected with the process of refining. It pursued its course for a
number of years without attracting much attention outside of the centre
of its operations; but of late years so much has been published in
regard to it that the very word "Standard" has come to be almost a
synonym for monopoly. It is probable that certain branches of the iron
and steel trade were the next to be combined by means of a trust, but as
these were arrangements between private firms, not much information as
to the time of their origin has reached the public. The second great
trust to attract general public attention was the American Cotton Oil
Trust, in which some of the same men who have so successfully engineered
the Standard Oil combination are heavily interested. These two great
trusts, the Cotton Oil and the Standard, have attracted widespread
attention, and, to a certain extent, the public has become familiar with
their organization and plan of operation; but popular feeling on the
subject was not fully aroused until 1887, when the newspapers of the
country made generally known the fact that the trust principle of
combination was being rapidly adopted by the manufacturers of a large
number of important lines of goods. The effect which these monopolies
were believed to have upon the public welfare was pointed out by writers
and speakers, and Congress and the State Legislatures were besought to
investigate these combinations and seek to suppress them. Meanwhile it
seems to be true that the popular agitation has had no effect in
lessening the number of trusts, or checking their formation and growth;
and they continue to increase and to gather their profits, while the
public impotently wonders what it is going to do about it. Let us be
careful, however, to make no assumption that the trust is injurious to
the public at large. That is a matter which is before us for
investigation.
It is safe to assume that the reader is somewhat familiar with the
general charges which have been brought against the trusts; but even if
this side of the story has not been heard, it is not unfair to look at
them first from the standpoint of the men who make and manage them. In
order to do this, suppose we select some particular trust which will
serve as a type, and imagine that some frank, candid manufacturer, who
is a member of this trust, comes before us to give an account of its
formation and operations. This man comes, we suppose, not as an
unwilling informant, or as one on trial. He is frank, honest, and
plain-spoken. He talks as man to man, and gives us, not the specious
argument of an eloquent pleader in defence of trusts, but just that view
of his trust and its work that his own conscience impels him to take.
Certainly, then, he deserves an impartial hearing.
A number of years ago the principal manufacturers of linseed oil in
the United States formed an association. It was started largely for
social ends, and was very successful. Business men are generally
most interested in their own plans and operations; and those who
are familiar with the same topics and have similar interests and
purposes are apt to make agreeable companions for each other. We
discussed many points connected with the management of our business
at the meetings, and by interchanging with each other our views
and experiences with different devices, methods of management,
etc., we were able to get much valuable information, as well as
social pleasure, from meeting one another.
Now within the past few years things have been going from bad to
worse with the manufacturers of linseed oil. The long and short of
it all was that the margin between the cost of the raw seed and
running our mills, and what we could get for the oil cake and the
linseed oil in the market, has grown exceedingly narrow. It's hard
to tell just what has caused it. They say over-production; but what
has caused the over-production? One thing that may have had
something to do with it is the new mills they have been putting up
in the Northwest. Many of the Eastern mills used to get large
quantities of seed from Iowa; but they are building cities out
there now, as well as raising flax-seed, and when they were booming
some of those cities they would raise heavy bonuses in aid of new
enterprises. Among these were some great linseed oil mills, which
have loaded up the market pretty heavily of late years; so that not
only has the price sagged down, but we have all had to work to get
rid of our stocks. The firms which had the best mills and
machinery, and were in a position to get their seed reasonably and
put their goods on the market with least expense for
transportation, etc., have been making a small profit over and
above their expenses. But some of the works which had to bring
their seed a long way, and which haven't quite as good machinery as
can be had now, were in a bad way. There were some of the oldest
houses in the trade among them, too, and with fine men at their
head. It was too bad to have them go under. They tried to cut down
expenses, but strikes and trouble with their men prevented their
saving much in that way. Then there was one item of expense which
they had to increase instead of cutting down: that was the cost of
marketing. Competition was so fierce, that, in order to keep up
their trade, they had to spend more on salaries of expensive
salesmen, and in advertising and pushing their goods, than they
would dream of ordinarily.
It seemed too bad to cut each other's throats in that way, for that
was what it amounted to, and when the association met,--or what was
left of it, for the business rivalries had grown so bitter that
many of the former personal friendships between the members had
become strained and one after the other had dropped out,--the
situation was discussed by the few members who met together. It
was discussed earnestly, too, by men who felt an interest in what
they said, because unless some remedy could be devised, they had
got to sit still and watch the savings of a lifetime slip through
their fingers. One thing was very clear to all. Though competition
was as sharp as any one could possibly wish, the public was not
getting such a wonderful benefit after all. Prices were not so very
much lower for oil, nor higher for seed. It was the selling expense
which had run up to a ruinous figure; and on one point all the
members were unanimous,--that if all the firms in the trade could
only work together in harmony in marketing their goods, they could
save enough in salesmen's salaries, etc., to make a great
difference in the profit-and-loss account without affecting the
selling prices in the market one penny.
Another very important matter, which we had to handle pretty
tenderly in our discussions, was that of adulteration. I must
confess that a good many firms in the trade, who used to be above
any thing of the sort, have been marketing some goods in the past
few years which were not exactly the "pure linseed oil" which they
were labelled. It's a mean business--adulteration,--but not many of
our customers ever test their purchases. The one thing they are apt
to look at is price, for they are buying to sell again; and when
rivals are selling a cheaper oil that seems just as good until it
is laid on as the pure linseed that you are obliged to ask a higher
price for, the temptation to meet them at their own game, rather
than lose your old customers, is a very strong one. Certainly, when
competition took this form, it hurt the public even more than it
hurt us. When people wish to buy pure linseed oil they ought to
have some prospect of getting it, instead of getting an adulterated
mixture of various substances; but at the rate competition was
running, there seemed to be small prospect that there would be any
really pure linseed oil put on the market in a short time. We have
often discussed the possibility of stopping these adulterations,
but it was a hard matter to cure by mere mutual agreement. How do I
know what my competitor in a city a hundred miles away, does with
the vats in his cellar after working hours, even if he has solemnly
agreed not to adulterate his goods? For I must confess that there
are a few men in our trade who are as tricky as horse jockeys.
Quite a number of improvements have been patented in linseed oil
machinery in the past twenty years. Nothing wonderful, but things
that effect little economies in the manufacture. We could have done
without them; but when a few firms took them up, of course the rest
had to follow suit, or fall behind in the race of competition. We
have had to pay a heavy royalty on some of these machines, and it
has been rather galling to count out our hard-earned dollars to the
company which has bought up most of the patents, and is making 100
per cent. a year on what it paid for them, with no risk, and
without doing a stroke of work. Now if we manufacturers could work
in harmony, we could make this company come down from their high
horse, and they would have to ask a reasonable price for their
machines. But we could do more than this. It stands to reason that
a good many improvements will be made in our machinery in the
future. We don't object to paying a fair price to any inventor who
will work out these new ideas for us; but it does seem unjust for
him to go and sell them to some outside company for a song, and
have that company bleed the users of the improvement for every
ounce they will stand. Now, by working together, we can refuse to
pay royalties on any thing new which comes up; but require,
instead, that any new patent in our line be submitted to a
committee, who will examine and test it; and if they find it to be
of value, will purchase it for the use of all members of the
association.
Some of the members thought this was as far as we ought to go. They
were opposed to "trusts" on principle. But the great majority saw
so clearly where we could continue to better ourselves that they
became enthusiastic over it.
Some speculators, in years of short crops, have occasionally tried
to "corner" flax-seed in a small way. We could refuse to buy except
directly from the growers, and that branch of speculation would be
a thing of the past. We have sent out some pretty sharp men as
buyers, and sometimes they have bought flax-seed in some of the
backwoods districts at very low rates. At other times, two buyers
from rival firms have run counter to each other, and paid prices
larger than their employers could really afford. But with our
combination, we cannot only fix uniform prices for seed, but we can
send out only enough buyers to cover the territory; and the work of
buying is reduced to simply inspecting and weighing the seed.
Now another thing: Of course, not every manufacturer in the
business owns his mills. It is a fact that since the close times of
the past few years the majority of the firms are carrying mortgages
on their mills; and some of them in the West are paying as high as
eight or ten per cent. interest. But with the combined capital of
all the firms in the trade at our back, we can change all that.
Either by a guaranty, or by assuming the obligations, we can bring
the interest charges on every mill in the association down to four
or five per cent. at most.
We have been paying enormous rates to fire insurance companies.
They are not as familiar with our business as we are ourselves, and
they don't know just how much risk there really is; so they charge
us a rate which they make sure is high enough. We can combine
together and insure ourselves on the mutual plan; and by
stipulating that each firm shall establish and keep up such
precautions against fire as an expert may direct, we can not only
reduce the cost of our insurance to that of our actual losses, but
we can make these a very small amount.
It may be said that we might have done all these things without
forming any trust to control prices. But the practical fact was
that we could not. There was so much "bad blood" between some of
the different firms in the business, from the rivalry and the sharp
competition for trade, that as long as that was kept up it was
impossible to get them to have any thing to do with each other in a
business way. It was no small task to get these old feuds patched
up; but some of the best and squarest men in the business went
right into the work, and at meetings of the association, and
privately, exerted all their influence to forward this coming
together for mutual aid and protection. They did it
conscientiously, too, I think, believing that it was necessary to
save many of us from financial ruin; and that we were not bound,
under any circumstances, to sacrifice ourselves for the sake of the
public. The trust has been formed, as every one knows, and many of
the things we planned to do have been already accomplished. We have
stopped adulterations on all goods made by members of the trust;
and the improvement in the quality of linseed oil which has been
effected is an important benefit to the public. We are managing all
the works in the trust as if it were all a single property,
controlled by different managers; and the saving in expense, over
the old plan of cut-throat competition, when everybody was striving
to save himself and sink his rivals, is an enormous one.
One thing which has caused much hue and cry, is the fact that we
have closed half a dozen mills or so. But the matter stood in this
way: these mills were not favorably situated for doing business,
all things considered; and all the mills in the country cannot run
all the time, because there are more mills in existence than are
needed to supply the market. These mills must have been closed
soon, if the trust had not commenced operations, because they could
not be run under the old regime and pay expenses. We knew we could
make the oil at a less cost in our other mills, so we concluded to
buy out the owners of these at a fair price, and shut up the works.
Prices of linseed oil have been raised somewhat, we confess; but we
claim that they had been forced down much too low, by the excessive
competition which has prevailed for a few years past. Of course
some of the most hot-headed and grasping among us, were anxious to
force prices away up, when they once realized that we had an
absolute monopoly of the linseed oil trade of the country; but the
great majority were practically unanimous in a demand for just
prices only, and the adoption of the policy of live and let live;
for trust-makers are not entirely selfish.
We claim, moreover, that we are breaking no legal or moral law by
this action. We are, for the most part, private parties or
firms--but few corporations,--hence the attempt to abolish trusts
on the ground that the corporations composing trusts have exceeded
the power given by their charters will fail to reach our case. We
have certainly done this: we have killed competition in the linseed
oil trade; but we submit that with so many other interests and
trades organized to protect themselves from outside competition,
and control the prices at which their products are sold to the
public, we were, in self-defence and for our own preservation,
obliged to take this step.[1]
[1] It should be explained that the above is not given as a
_bona-fide_ statement of facts concerning this especial trust,
but as a vivid description of the organization and plans of a
typical trust, from the standpoint of its owners and managers.
Probably, too, few or no existing trusts have tried to benefit
themselves in so many different ways as we have supposed this
imaginary trust to have done. But to shorten our investigation,
the author has purposely extended the scope of this trust's
action, to bring out clearly the variety and importance of the
methods by which a trust reaps profits, aside from any advance in
the price of its product.
If we omit the references to the especial trade, the above view of a
trust from the trust-makers' standpoint will do for almost any of the
many combinations which have been formed by different manufacturers for
the purpose of controlling production and prices. One thing is clearly
indicated in the above, and will certainly be conceded: That the men who
have formed these trusts are animated by the same motives as those that
govern humanity in general. They have, in some cases at least, known
what it was to be crowded close to the wall by severe competition. They
all at once saw a way opening by which they could be freed from the
worries and losses which had been making their business one of small and
uncertain profits, and would be set squarely on their feet with a sure
prospect for large and steady gains. It is using a common expression to
say that they would have been more than human if they had refused to
improve this opportunity. Certainly, then, in examining further the
trusts, we shall do so with no feeling of personal prejudice toward the
men who originated them and carry them on.
As we have given a hearing to the case from the trust-makers'
standpoint, it is only fair that we should hear at equal length from the
public who oppose the trusts; but to abbreviate the investigation, let
us suppose that we are already familiar with the various charges which
are brought against the trust monopolies, and let us proceed at once to
consider the actual effect of the trusts upon the public.
Since we have heard so much in defence of the linseed oil trust, it will
be well for us to inquire concerning the results, in which the public is
interested, which have followed its organization. During the year 1887
(the trust was formed in January of that year) the price per gallon of
linseed oil rose from thirty-eight cents to fifty-two cents; and this
price was kept up or exceeded during 1888. That is to say, every
purchaser of linseed oil, or every one who had occasion to have
painting done, pays to the members of this trust, for every gallon of
oil that he uses, about fourteen cents _over and above_ the sum which he
would pay if competition were allowed to do its usual work in keeping
down prices.
What profits are the members of this trust making? Let us suppose that
they were just able, at the old price of thirty-eight cents per gallon,
to pay all their running expenses and four per cent. on the capital
invested, making nothing for profits beyond a fair salary to the
managers of the business. Then the gain of fifteen cents a gallon in the
selling price is _clear profit_ to them. Now add to this the fact, which
was plainly brought out in the foregoing supposed statement by a member
of the trust, that it is possible by means of the trust to greatly
reduce expenses in many directions as well as to increase receipts, and
we begin to form some conception of the profits which this trust is
harvesting. If we wish to put the statement in figures, suppose we take
the annual consumption of linseed oil in the country at thirty million
gallons. Then the profits of the trust from the increased prices alone
will amount to four and one half million dollars per annum.
There is another way in which trusts directly affect the public, which
has received very much less attention than it deserves. Besides the
people who use the linseed oil and pay the trust an extra fourteen cents
a gallon for the privilege, there are a great number of people who would
have used oil if the price had not advanced, but who cannot afford to do
so at the advanced price. It is a well-known fact that every increase in
the price of any article decreases the demand, and the advance in the
price of linseed oil has undoubtedly had a great effect in decreasing
the consumption of oil. So while it is undoubtedly true that _at the
trust's prices_ there are more linseed-oil mills in the country than are
needed to supply its wants, yet if the prices were lowered to the point
which free competition would fix, there would probably be demand enough
to keep all the mills running. To the trust, then, must be ascribed the
final responsibility for the stoppage of the mills and the loss of
employment by the workmen. Nor does the effect upon the labor market
stop there. From the fact that less people can afford to paint their
houses, because of the higher price of the oil, it is certain that there
will be less employment for painters; and as less paint is used, all
those interested in and employed in the paint trade are sufferers. It is
to be remembered that we are speaking of the linseed oil trust only to
make the case more vivid. The principle is general and applies equally
well to other trusts, as for instance to the loss of employment by
thousands of men working in refineries controlled by the sugar trust, in
the fall of 1888. Still another effect of this trust's action is to be
especially noted: the fact that the diminished production of oil lessens
the demand for seed; and also that in the purchase of seed, as well as
in the sale of oil, the trust has killed competition. The trust may, if
it chooses, fix uniform prices for the seed which it purchases; and the
farmer can take the prices they offer or keep his seed. Fortunately the
farmer can raise other products instead of flax-seed, and will do so if
the price is lowered by any large amount.
One other possible mode of profit for the trusts, which, however, they
are hardly likely to engage in--from their fear of public opinion, if
for no other reason--lies in the power which they possess over the labor
market. It will probably be conceded at once that the rate of wages in
any occupation depends, among other things, upon the competition of the
various workmen who seek employment in that occupation, and also upon
the competition among those who wish to hire men to work at that
occupation. It is plain that when the competition among employers to
secure men is active, wages will rise; and when this competition falls
off, wages will fall. Now the trust is more than a combination for
selling purposes only. It is a combination of all the properties
concerned under practically a single ownership. Clearly, then, as the
various mills belonging to a single owner will not compete with each
other in the employment of labor, the mills belonging to a trust will be
no more likely to do so. Thus if it were not for the fact that the
workmen are able to take up some other employment if their wages are too
low, they would be absolutely obliged to take what wages, great or
small, the trust chose to give, and would be as dependent for their food
and clothing upon the trust as was the slave upon his master.
The question is often asked why trusts have not been formed before, and
what the causes are which have started them up so rapidly in such varied
lines of industry. There is certainly room for much honest difference of
opinion in reference to these causes; but one cause concerning whose
influence there can be no dispute is the culmination of the change from
the ancient system of manufacturing to the modern. Let us briefly trace
the manner in which this branch of civilization has grown: In the most
primitive state of existence, each man procures and prepares for himself
the few things which he requires. With the first increase in
intelligence those of most skill in making weapons and preparing skins
make more than they require for themselves, which they exchange with
others for the products of the chase. The next step is to teach to
others the special skill required, and to employ them to aid the chief
workman. Conditions analogous to these existed down to the end of the
last century. The great bulk of all manufacturing was done in small
shops, each employing only a few workmen; and the manufacturer or master
workman labored at the side of his journeymen and apprentices. The
products of these little workshops were sold in the country immediately
adjacent. Of course the number of these scattered shops was so great
that the possibility of uniting all the manufacturers in any one trade
into a single organization to prevent competition among them, was beyond
the thoughts of the most visionary.
The present century has seen three great economic wonders accomplished:
the invention of labor-saving machinery, greatly multiplying the
efficiency of labor in every art and trade; the application of steam
power to the propulsion of that machinery; and the extension over all
civilized lands of a network of railway lines, furnishing a rapid, safe,
and miraculously cheap means of transportation to every part of the
civilized world. In order to realize the greatest benefit from these
devices, it has become necessary to concentrate our manufacturing
operations in enormous factories; to collect under one roof a thousand
workmen, increase their efficiency tenfold by the use of modern
machinery, and distribute the products of their labor to the markets of
the civilized world. The agency which has acted to bring about this
result is competition. The large workshops were able to make goods so
much cheaper than the small workshops that the latter disappeared. Then
one by one the large workshops were built up into factories, or were
shut up because the factories could make goods at less cost. So the
growth has gone on, and each advance in carrying on production on a
larger scale has resulted in lessening the cost of the finished goods.
Competition, too, which at first was merely an unseen force among the
scattered workshops, is now a fierce rivalry; each great firm strives
for the lion's share of the market. Under these conditions it is quite
natural that attempts should be made to check the reduction of profits
by some form of agreement to limit competition. Many plans have been
tried which attempted to effect this by mere agreements and contracts,
methods which left each property to the control of its special owners;
but none have been permanently successful. By the trust plan of
combination, the properties are practically consolidated; and the
failure of the combination through withdrawal of its members is avoided.
It offers to manufacturers, close crowded by competition, a means of
swelling their profits and ensuring against loss; and encouraged by the
phenomenal success of the Standard Oil combination, they have not been
slow to accept it.
The point to which we need to pay especial attention, in the foregoing
consideration of the causes which have produced trusts, is the fact that
the cost of production is continually being cheapened as it is carried
on on a larger and larger scale. And because the cheaper mode of
production must always displace the mode which is more expensive: as
Prof. Richard Ely expresses it, "Production on the largest possible
scale will be the only practical mode of production in the near future."
We need not stop to prove the statement that the cost of production by
the modern factory system is a small fraction of that by the old
workshop system. The fact that the former has beaten the latter in the
race of competition would prove it, if it were not evident to the most
careless observer. But it is also a fact that the trust, apart from its
character as a monopoly, is actually a means of cheapening production
over the system by independent factories, for it carries it on on a
larger scale than it has ever before been conducted. Our review of the
trust from the trust makers' standpoint showed this most forcibly; and
we shall see more of it as we study further the methods by which the
monopoly gains an advantage over the independent producer in dispensing
with what we may call the waste of competition. In the argument
presented by the Standard Oil Trust before the House Committee on
Manufactures in the summer of 1888, occurs the following statement of
the work which that monopoly has done in cheapening production:
"The Standard Oil Trust offers to prove by various witnesses,
including Messrs. Flagler and Rockefeller, that the disastrous
condition of the refining business and the numerous failures of
refiners prior to 1875 arose from imperfect methods of refining,
want of co-operation among refiners, the prevalence of speculative
methods in the purchase and sale of both crude and refined
petroleum, sudden and great reductions in prices of crude, and
excessive rates of freight; that these disasters led to
co-operation and association among the refiners, and that such
association and co-operation, resulting eventually in the Standard
Oil Trust, has enabled the refiners so co-operating to reduce the
price of petroleum products and thus benefit the public to a very
marked degree and that this has been accomplished:
"1. By cheapening transportation, both local and to the seaboard,
through perfecting and extending the pipe-line system, by
constructing and supplying cars with which oil can be shipped in
bulk at less cost than in packages, and the cost of packages also
be saved; by building tanks for the storage of oil in bulk; by
purchasing and perfecting terminal facilities for receiving,
handling, and reshipping oils; by purchasing or building steam tugs
and lighters for seaboard or river service, and by building
wharves, docks, and warehouses for home and foreign shipments.
"2. That by uniting the knowledge, experience, and skill, and by
building manufactories on a more perfect and extensive scale, with
approved machinery and appliances, they have been enabled to and do
manufacture a better quality of illuminating oil at less cost, the
actual cost of manufacturing having been thereby reduced about 66
per cent.
"3. That by the same methods, the cost of manufacture in barrels,
tin cans, and wooden cases has been reduced from 50 to 60 per cent.
"4. That as a result of these savings in cost, the price of refined
oils has been reduced since co-operation began, about 9 cents per
gallon, after making allowance for reduction in the price of crude
oil, amounting to a saving to the public of about $100,000,000 per
annum."
Certainly it would seem that this is a strong defence of the trust's
character as a public benefactor; but it is well to note that while it
has been making these expenditures and reducing the price of oil to the
consumer, it has also been making some money for itself. The profits of
this trust in 1887, according to the report of the committee appointed
to investigate the subject of trusts by the New York Legislature, were
$20,000,000. The nominal capital of the trust is but $90,000,000, a
large portion of which is confessedly water. In answer to the statement
that the price of oil has been reduced steadily by the operations of the
trust, it is charged that no thanks is due to the trust for this
benefit. The trust has always wished to put up the price, but the
continual increase in the production of the oil fields has obliged the
trust to make low prices in order to dispose of its stock. There are
also about one hundred independent refineries competing with the trust,
and their competition may have had some influence in keeping prices
down. It is undoubtedly true that the economy in the storage,
transportation, and distribution of oil by the systematic methods of the
Standard Oil Trust has made it possible to deliver oil to the consumer
at a small fraction of its cost a decade ago. But it is also true that a
good part of the reduction in the price of oil is due to the abundant
production of the petroleum wells, which have furnished us so lavish a
supply. The principal charges against this trust, made by those who were
conversant with its operations, have never been that it was particularly
oppressive to consumers of oil; but that, in the attempt to crush out
its competitors, it has not hesitated to use, in ways fair and foul, its
enormous strength and influence to ruin those who dared to compete with
it.
In a later chapter we shall be able to study these more intricate
questions regarding trusts with a better understanding of our problem.
Let us pay some attention now to the growth of the trusts and of
combinations in general for the purpose of limiting competition among
manufacturers, which has taken place within the past few years.
According to the little book entitled "Trusts," by Mr. Wm. W. Cook, the
production of the following articles was, in February, 1888, more or
less completely in the hands of trusts: petroleum, cotton-seed oil and
cake, sugar, oatmeal, pearl barley, coal, straw-board, castor oil,
linseed oil, lard, school slates, oil cloth, gas, whiskey, rubber,
steel, steel rails, steel and iron beams, nails, wrought-iron pipe, iron
nuts, stoves, lead, copper, envelopes, paper bags, paving pitch,
cordage, coke, reaping and binding and mowing machines, threshing
machines, ploughs, and glass--a long and somewhat jumbled list, to
which, however, at the present time, there should probably be added:
white lead, jute bagging, lumber, shingles, friction matches, beef,
felt, lead pencils, cartridges and cartridge-shells, watches and watch
cases, clothes-wringers, carpets, coffins and undertakers' supplies,
dental tools, lager beer, wall paper, sandstone, marble, milk, salt,
patent leather, flour, and bread. It should be said that, as regards
most of these combinations, the public is ignorant beyond its knowledge
that some form of combination for the purpose of restricting competition
has been formed. For the purpose of our present investigation it makes
little difference just what this combination may be.
The salient facts for us to note are, that among the manufacturers of
this country there has arisen a widespread movement to partially or
wholly avoid competition in the production and sale of their goods; that
in a very great number of manufacturing industries these combinations
have progressed so far that their managers have been able to advance
prices and check production; that some of these combinations have taken
the form of trusts, and by this means have every prospect of maintaining
their stability and reaping their enormous profits with the same
permanency and safety as has their predecessor, the Standard Oil Trust;
and, finally, that with this prospect before them, our manufacturers, as
a class, would lose their reputation as shrewd business men if they did
not follow out the path marked out for them, and combine every
manufacturing industry in which combination is possible upon the plan of
the trust.
In conclusion, it may be well to examine the statement attributed to Mr.
Andrew Carnegie, that, "there is no possibility of maintaining a trust.
If successful for a time, and undue profits accrue, competition is
courted which must be bought out; and this leads to fresh competition,
and so on until the bubble bursts. I have never known an attempt to
defeat the law of competition to be permanently successful. The public
may regard trusts or combinations with serene confidence."
Surely if this statement is true, we have little need for further
examination of this subject. We have now knowledge enough of our subject
to enable us to determine its truth or falsity. We have found in the
actual trusts that we have examined none which have shown signs of
succumbing to outside competition. More than this, however, we have seen
that it is possible for a trust to carry on business and deliver goods
to the consumer at much less cost than an independent manufacturer can.
And as surely as this law holds that production on the largest scale is
the cheapest production, so surely will the trust triumph over the
independent manufacturer wherever they come into competition. If the
trust were always content when its competitors were disposed of, to make
only the profits which it could secure by selling at such prices as the
independent manufacturers could afford, there would be less outcry
against it. But with the consumers wholly dependent upon it for
supplies, the prices are in the trust's hands; and the tendency is to
reap not only the profits due to its lessened cost of production, but
also all it can secure by raising the selling price without arousing too
much the enmity of the public.
Clearly the trust is at once a benefit and a curse. Can we by any means
secure the benefit which it gives of reduction in cost without placing
ourselves at the mercy of a monopoly? This is the question which must
occur to every thoughtful man. Before we can answer it, however, we must
examine the effects of competition and monopoly in other industries.
III.
MONOPOLIES OF MINERAL WEALTH.
It is a well known historical fact that the extraction of metals and
minerals from the earth has been more subject to monopoly than almost
any other business. It was, and in a large part of the civilized world
still is, esteemed a prerogative of the sovereign. Agricultural products
have always been gathered from a wide area; manufactures were formerly
the product of mean and scattered workshops; but in the working of a
rich mine, there was a constant income more princely than was to be
obtained from any other single source. Again, with all due respect to
the traditions of former generations, it seems to have been thought that
any thing to which no one else had a valid title belonged to the crown;
and as no one was able to assert any stronger claim to the ownership of
mineral wealth than that they had stumbled upon it, it was natural for
the sovereign to claim it as his. We see thus the recognition at an
early date of the inherent difference between natural wealth and that
created by labor.
But coming down to the present time, it is evident that the business of
extracting some of the rarer metals from the earth is peculiarly liable
to become a monopoly. It is one of the new laws of trade, whose force
and importance we are just finding out, that the ease of restricting
competition varies with the number of competing units which must be
combined. Our most valuable metal, iron, is so widely distributed that
any attempt to control the whole available supply could not long be
successful. But it is one of the peculiarities of modern industry that
by its specialization it furnishes constant opportunities for the
establishment of new forms of monopoly, whose power is not generally
understood. In the manufacture of Bessemer steel, which has now largely
displaced wrought iron in the arts, it is necessary to use an iron ore
of peculiar chemical composition. This ore is found most abundantly and
of best quality in the mines of the Vermilion range, lying about one
hundred miles north of Duluth, Minn., and in the mines of the Marquette
Gogebic, and Menominee regions in the north Michigan peninsula.
According to good authorities, a combination more or less effective has
been formed among the owners of all these mines; and the highest price
is charged for the ore which can be obtained without driving the
customer to more distant markets for his supply. Among the mines of this
district, competition, if not entirely stopped, is greatly checked, and
is likely soon to be entirely a thing of the past. It is an interesting
fact that among the members of the syndicate which owns the principal
mines in the Vermilion regions are some of the trustees of the Standard
Oil Trust. It is stated that some of these mines have paid 90 per cent.
per annum on their capital stock, which, it is to be noted, represents a
much greater sum than the amount invested in the plant of the mine.
It is thus apparent that the mining of the raw ore from which iron is
made, abundant and scattered though it is, is not free from monopoly.
The combinations to restrict competition among the makers of cast iron
and of steel belong properly under the head of monopolies in
manufactures. We need only refer here to the fact that they are supposed
to exist and have more or less control of the market.
Fortunately for the stability of our system of currency and of finance,
the precious metals, through the small ratio which their current
production bears to the world's stock, and the fact that this stock is
scattered among an enormous number of holders, are safe from any
attempts to establish a monopoly to control their price through the
control of their production. Other metals, however, which are like
silver and gold in being found in workable deposits at but a few points
on the globe but are there found in abundance, are peculiarly adapted to
facilitate the schemes of monopolists. Of lead, copper, zinc, and tin,
we require a steady supply for use in the various arts; and the
statement has been made that the supply of each one of these is in the
hands of a trust. To see the effect which these combinations have had on
prices, let us examine the prices which have prevailed for two years
past on these four articles, as shown in the following table:
Table of wholesale prices (cents per lb.) in New York City of copper,
lead, tin, and zinc during 1886, 1887, and 1888:
+--------------+-------+------+-------+------+
| |Copper | Lead | Tin | Zinc |
| +-------+------+-------+------+
| 1885 Dec. 31 | 11.50 | 4.60 | - | 5.35 |
| 1886 Apr. 3 | 11.45 | 4.90 | - | 5.50 |
| 1886 July 3 | 10.00 | 4.90 | - | 5.60 |
| 1886 Oct. 7 | 11.00 | 4.35 | - | 5.60 |
| 1887 Jan. 5 | 12.25 | 4.75 | 24.50 | 6.42 |
| 1887 Apr. 6 | 11.00 | 4.75 | 24.50 | 6.50 |
| 1887 July 6 | 10.50 | 4.92 | 25.00 | 7.00 |
| 1887 Oct. 6 | 11.00 | 4.45 | 23.30 | 6.75 |
| 1887 Dec. 29 | 17.75 | 5.00 | 37.00 | 6.00 |
| 1888 Mar. 29 | 17.50 | 5.50 | 39.50 | 6.75 |
| 1888 July 3 | 17.25 | 4.25 | 22.00 | 6.50 |
| 1888 Oct. 4 | 18.50 | 5.75 | 26.00 | 6.75 |
| 1889 Jan. 3 | 17.50 | 3.85 | 22.00 | 5.50 |
| 1889 Apr. 29 | 16.50 | 4.25 | 23.00 | 6.50 |
+--------------+-------+------+-------+------+
Taking the evidence of this table, we conclude that the combination
which is said to control the zinc and lead markets is probably not a
trust, but a "Producer's syndicate" or corner. The prices of lead show
no such firm tendency to advance as would be expected if the production
was in the hands of a single combination.
The prices of zinc, however, show a decided advance in the past two
years over the prices for the three years preceding, the average price
for 1886 being but 5.50, while for 1887-8 it is 6.58. This is a rise of
no small importance, and the way it is maintained seems to give evidence
of restriction of competition among producers.
But the striking fact in the above table is the evidence it presents of
the work which has been done by that most gigantic and daring
combination for the suppression of competition ever organized, the
French Copper Syndicate or _La Société Industrielle Commerciale des
Metaux_. This syndicate of French capitalists began operations in 1887,
with the intention of "cornering" the tin supply of the world. The rise
in price which was due to their operations is shown in the above table.
But before completing their scheme they relinquished it for a grander
enterprise, which would embrace the copper production of the world. They
made contracts with the copper-mining companies in every country of the
globe, by which they agreed to purchase all the copper which should be
produced by the mines for three years to come at the fixed price of 13
cents per pound, and a bonus of half the profit which the syndicate was
able to make from its sales to consumers. In effect this move killed the
competition in the copper trade of the world, and placed every consumer
at the mercy of this Paris syndicate. The advance in tin was of short
duration, and those who suffered by it were speculators rather than
consumers; but the advance in copper, as shown by our table, is still
firmly maintained, and its effect on the industries using copper has
been seriously felt all through 1888. In October, 1888, the _Société_
extended its contracts with several mining companies to cover a period
of twelve years, and advanced its price to the producers to 13½ cents
per pounds. At the same time, to avoid the accumulation of stock, which
the diminished consumption consequent upon the increased price had
caused, and which it had been generally predicted would finally be the
cause of the _Société's_ downfall, they arranged for the restriction of
the production of the mines. If the _Société_, which is backed by the
heaviest capital, and managed by the shrewdest business skill of France,
does what it intends to do, and its tributary producers are faithful to
their contracts, for ten years to come, yes, for all years to come--for
it is not likely that an enterprise of such golden returns will ever be
abandoned if it can once profitably be carried out,--the world must pay
for its copper whatever these monopolists demand.
Probably the argument against the private ownership and control of the
wealth which nature has stored up for the whole world's use was never
brought home to men's minds so forcibly as it has been by the acts of
these French speculators. Copper is a necessity to the industries of
civilized society; and the mind of every unprejudiced person protests
against the injustice of placing in the hands of any single firm or
combination the power to exact such prices as they choose for the great
staples of human consumption. This increase of price of about 7 cents
per pound is a tax which affects, directly or indirectly, every person
in the civilized world. Let us inquire what becomes of this tax. Perhaps
2 cents per pound will go into the pockets of the Frenchmen who have
engineered the combination, a sum which will give them, if we set the
annual consumption of copper at 400,000,000 pounds, a comfortable net
income of about $8,000,000 per annum. The lion's share of the profits is
taken by the producers, however; who, if 10 cents is the price at which
copper would sell if free competition were in force, are receiving under
the present contract with the _Société_ about 5 cents per pound as a
reward for their co-operation in its monopolistic scheme.[2]
[2] Since the above was written the collapse of the copper
syndicate has taken place. The causes which brought this about were
the failure to complete the contracts for restriction of
production, and lack of funds to meet the current liabilities. The
reason for both these must be largely ascribed to the fact that it
had come to be generally realized how great and how obnoxious the
monopoly was; and capitalists rightly feared that government
interference would be interposed to check the monopoly's
operations. If the syndicate had made its long-time contracts at
the start, or if it had been bold and shrewd enough to have
inveigled speculators on the bear side of the market into operating
against it, M. Secretan and his associates might have won as many
millions as they could have wished. It is a significant fact that
the downfall of the syndicate was not followed by the
reëstablishment of free competition. Instead there was at once talk
of another syndicate being formed to hold the copper stored up by
the _Société_, and keep the price up as long as possible. On this
side of the water the question was at once canvassed whether a
combination could be formed among the different American companies
to prevent competition and support the price. Evidently the failure
of this scheme has not discouraged the makers of monopolies.
It is appropriate here, too, to make reference to the enormous profits
which the owners of the copper mines of the country are receiving, apart
from the special influence of this great syndicate. The richest and most
valuable copper mines in the world lie on the southern shore of Lake
Superior. The Calumet and Hecla Company, which works one of the richest
deposits of native copper ever found, has a capital stock of $2,500,000,
on which it has paid, since 1870, $30,000,000 in dividends. The reports
of these companies to their stockholders show that the present cost of
refined copper at the mines is as low as 4 cents per pound, and its
cost, delivered in the New York market, is only 5¾ cents. Probably the
officers of these companies are right in their belief that in no other
mines of the world can copper be produced so cheaply. But the question
that comes with force to every thinking man is: If the wealth of the ore
in these mines is so much greater than that in any other that it can be
produced at so much less cost, does there not exist here a natural
monopoly, of which the owners of these mines are getting the sole
benefit? And, again, by what right does the chief benefit from this rich
deposit accrue to the few men who own the mines, rather than to the many
men in all parts of the world who wish to use their product?
Great and important as is the copper monopoly, of far greater importance
to us than any and all the combinations in the metal industries are the
monopolies which control the price of coal. We do not often realize how
intimately connected is our nineteenth-century civilization with the
store of fuel laid up for us in distant geologic ages. And in this
country, with our severe climate, coal is all-important as a factor of
domestic economy, as well as a necessity to manufacturing and
metallurgical industries. The total cost to the consumers of the coal
used in the United States every year (about 120,000,000 tons), calling
the average retail price $4.00 per ton, is nearly $500,000,000, or over
$8.00 per annum for every man, woman, and child in the country. Surely,
then, the statement which we make at the outset, that the coal trade of
the United States is in the hands of monopolists; and that competition,
where not killed, is almost impotent to keep down prices, is one which
merits earnest attention.
The United States possesses coal fields of enormous extent and richness.
The mineral is widely distributed, too, productive mines being now in
operation in 27 of the States and Territories. Anthracite coal, however,
which is by far the best adapted to domestic use, only occurs in a
limited area in the State of Pennsylvania; but here the deposit is of
phenomenal richness. The total area of the Pennsylvania anthracite field
is about 300,000 acres. Of this area nearly 200,000 acres is owned by
seven railway corporations. These companies, either directly or through
subsidiary companies controlled in the same interest, carry on mining
operations, carry the coal to market, and sell it. The following
figures[3] exhibit the receipts of each of these companies from sales of
coal from their mines during the year 1887:
+-----------------------------------------+-----------+------------+
| COMPANY. | TONS. | RECEIPTS. |
+-----------------------------------------+-----------+------------+
| Philadelphia and Reading R. R. Co. | 7,555,252 |$18,856,550 |
| Central R. R. Co. of N. J. | 4,852,859 | 12,132,146 |
| Lehigh Valley R. R. Co. | 5,784,450 | 14,461,125 |
| Del., Lackawanna, and Western R. R. Co. | 6,220,793 | 19,044,803 |
| Delaware and Hudson Canal Co. | 4,048,340 | 10,100,118 |
| Pennsylvania R. R. Co. | 3,818,143 | 8,820,718 |
| New York, Lake Erie, and Western R'y Co.| 2,363,290 | 6,846,342 |
| +-----------+------------+
| Total |34,643,127 |$90,261,805 |
+-----------------------------------------+-----------+------------+
[3] Compiled from "The Coal Trade," 1888, (H. E. Saward), and
"Poor's Manual of Railroads," and partially estimated.
Thus these seven corporations alone produced from their own mines,
carried to market, and sold, over 34,000,000 tons of coal during the
year, for which they received about $90,000,000. Of the magnitude of the
operations carried on by these great corporations we now have some idea.
Let us next inquire to what extent competition is allowed to act between
them to keep down prices.
Many years ago these seven companies formed the famous anthracite-coal
pool. This was an agreement by which all the companies concerned agreed
to maintain a uniform selling price for coal at all important
distributing points where two or more of the companies came into
competition. Some of the prices which were fixed by the pool were
extremely arbitrary. Cities in Pennsylvania within an hour's ride of the
coal fields had to pay nearly as high a price for coal as those 500
miles or more distant. Rates of transportation on coal mined by
individual operators were made such that the latter could not afford to
sell below the prices fixed by the pool, even if they had been so
disposed. At the present time the situation has been modified by the
long and short-haul clause of the Interstate Commerce law, by which the
railroad is obliged to make its transportation rates somewhat
proportionate to distance, and also by the passage of a law in the State
of Pennsylvania, by which the acts of the anthracite-coal pool were
declared illegal and punishable. Nominally, therefore, the pool is a
thing of the past; but the practical fact is, that by secret or tacit
agreement the various companies are not competing with each other any
more now than in the days of the pool, and at points like New York or
Buffalo, where two or more roads meet, the same prices are quoted by
each different company.
Nor are the charges against the pool comprehended in its autocratic
determination of the price of coal. To make production correspond with
price, it was necessary at times to close collieries entirely, throwing
the miners out of employment. The individual operators, too, have no
love for the combination. Their profit depends more than any thing else
on the rate of transportation, and thus whether they shall make or lose
depends on the railroad companies. They claim that the railways base
their rates for carrying coal upon the principle of "charging what the
traffic will bear." This is a matter, however, which we can better
discuss in the next chapter.
It is thus evident beyond dispute that the production of anthracite coal
in this country is an industry uncontrolled by competition. To sum up:
these seven great corporations own more than two thirds of the area in
which workable anthracite coal is found: they mine and market directly
the great bulk of the total production; the individual operators are
dependent on the railways for getting their coal to a market; and the
price at which they can afford to sell it depends on the railroad
rates. Finally, consider that these seven companies work in harmony,
both as to traffic rates and prices for the sale of coal, and the
conclusion is irresistible that competition in anthracite-coal
production in the United States is practically dead.
Let it be noted, for the benefit of those who may conceive that the
above statement is unfair to the railway companies, that no charge is
here made that the prices fixed by the companies for the coal are at the
present time extortionate or unjust. That is a separate matter; in
which, doubtless, there would be plenty to affirm on the one hand that
the prices charged were no more than a just compensation, while their
opponents would declare that the prices adopted by the pool favor some
points to the prejudice of others, and that the statement that they were
on the whole exorbitant was proven by the fact that the railway lines in
the coal regions, where honestly managed, have paid great dividends on
the actual capital invested.
Compared with the production of Pennsylvania anthracite, the coal
production of any other single section seems small. But it is only so by
comparison, for the Western coals, while inferior in quality, are
abundant and easily mined, and must remain the staple for general
consumption throughout the region west of the Mississippi, as well as
for large sections further east.
As is well known, the people of the Western and Northwestern plains are
wholly dependent upon the railroads for their supplies of every
description, except the raw products of the soil. The railways
themselves are great consumers of coal, and have bought up large tracts
of coal lands and opened mines. In the desire to develop traffic and
ensure a supply of coal to the settlers on their lines--we will even say
of cheap coal,--the railway companies have entered the coal trade
themselves, either directly or through subsidiary companies. Thus it
comes about that hundreds of thousands of people of the West and
Northwest must pay for coal, which is an absolute necessity of life
during several months of the year, whatever price the managers of a
single railway corporation may demand. Let it be understood that no
charges are here made of injustice or extortion on the part of the
railway companies. It is only wished to bring out the fact that
competition is here wholly absent. It is believed that, in some cases at
least, an honest attempt has been made to mine and sell the coal at
merely a fair profit. But in days to come it will not be so directly for
the interest of the railways to deal liberally with their patrons as at
present. Other men of less breadth and principle and more ready to grasp
at a chance for enormous profits may control the company's affairs; and
if that happens, the opportunity to take advantage of the absence of
competition and raise the price of coal will be utilized.
A brief review of the actual status of the coal production of the West
and South will help us to a clear appreciation of the case. The Missouri
Pacific Railway Company, through subsidiary companies, extracted from
its mines in Missouri and the Indian Territory, during 1887, 1,618,605
tons of coal. Through its control of transportation rates, private
operators have been compelled to sell coal at the company's prices in
the market. The company has recently purchased large tracts of coal
lands in Colorado, on which it is opening mines. The Atchison, Topeka,
and Santa Fé, the Chicago, Burlington, and Quincy, the Denver and New
Orleans, the Union Pacific, and the Denver and Rio Grande Railway
companies are also heavily interested in the Colorado coal mines. The
last company has long held a bonanza in the monopoly of the coal mining
and transportation for the Colorado silver-mining and smelting
districts. Though the other companies, to which the Rock Island should
probably be added, come in as competitors, there can be no doubt that
their active competition will be of short duration. The Wyoming coal
fields are being worked by the Union Pacific and the Chicago and
Northwestern companies, while the Chicago, Burlington, and Quincy and a
company supposed to be closely connected with the Northern Pacific are
preparing to take the field at an early date. On the Pacific coast the
coal trade has long been a monopoly in the hands of the Oregon Railway
and Navigation Company, who have kept the prices in San Francisco just
below the point at which it becomes profitable to import Australian
coal. Other railways are now preparing to reach the coal fields, but can
we doubt that the competition to which the coal consumers are looking
with eager anticipation will prove evanescent? Returning to the East, we
find the coal mines of northern Illinois all held by a single company,
which has full control of the traffic; while the mines of southern
Illinois, on which the St. Louis consumers depend, are united as the
Consolidated Coal Company. This latter corporation has "wrecked" many of
its mines for the purpose of limiting the supply and raising the price;
and has bought many mines of competing companies and closed them for the
same purpose. The Attorney-General of Illinois has been requested to
bring suit against this "trust" for the forfeiture of its charter.
In the Hocking Valley coal fields in Ohio, the Columbus, Hocking Valley
and Toledo Railway Company owns 10,000 acres of coal lands, and mined,
in 1887, 1,870,416 tons of coal. The coal in western Virginia is coming
into the hands of the Norfolk and Western Railroad Company, while the
coal of Alabama, of which so much has been noised abroad, has been
quietly gathered in by the Louisville and Nashville corporation. The
Tennessee Coal and Iron Company, which owns 76,000 acres of coal lands,
and mined 1,145,000 tons in 1882, is owned by parties largely interested
in the East Tennessee, Virginia and Georgia Railroad system. West
Virginia has probably the most valuable untouched coal deposits of any
State in the Union, but these also are rapidly being gathered up by
railway corporations.
To sum up, in the words of one of the best informed authorities, the
coal business of the country is at the mercy of the railroads.
It is to be noted, however, that this is simply the result of natural
causes. Railway managers, in seeking to develop and place on a sound
basis the mineral properties which could furnish a heavy and profitable
traffic to their lines, have only done what they regarded as their duty
to the owners of their roads. And that this policy has effected a rapid
development of our resources is beyond question.
The combinations to restrict competition among bituminous coal producers
have been of a very different sort from those in force among the
anthracite producers. The soft-coal fields are so widely scattered that
it has never been possible to combine all the producers so as to control
prices by a single authority. Local combinations, however, controlling
all the fields of a single locality, have long been an important
feature of the trade, and have been able to control prices pretty
absolutely within their respective localities. The fact that the
principal item in the cost of coal is transportation, enables a
combination covering all the producers of a certain field to raise
prices very notably before competitors can afford to ship from other
coal-producing districts.
It would seem that our fuel is especially liable to be subjected to
monopoly, for, as we have already seen in the preceding chapter, the
control over the petroleum trade is held by the Standard Oil Trust. How
much of the production of crude petroleum is in the hands of the trust
it is hard to say. This much is certain, that there is a "Petroleum
Producers' Association," which has a compact enough organization to be
able to make contracts with the Standard Oil Company regarding the
limitation of production. It is even stated that the Standard Oil Trust
itself controls to a considerable extent the oil-producing territory;
but this is hardly probable.
Our newest and most wonderful fuel, natural gas, has already come under
the control of a few great corporations, who own the wells and the pipes
for conveying and distributing it to the consumers. A striking instance
of the arbitrary nature of prices when under a monopoly's control was
shown at Pittsburgh a few months ago. As is well known, upon the
introduction of natural gas to that city a great number of the
manufactories, as well as the private houses, discarded coal, and at
considerable expense fitted up boilers, furnaces, etc., to use the new
fuel. After the use of the gas had become general and its value had come
to be thoroughly understood, the company furnishing the supply advanced
the rates 100 per cent., without previous notice; and despite the
remonstrance of indignant consumers, the advanced rate had to be paid or
the use of the gas discontinued, the latter alternative involving the
loss of the money invested in piping, burners, etc.
Of the minor products of mines and quarries, marble, sandstone, borax,
salt, and asphalt are all known to be more or less thoroughly under the
control of monopolies, which, though less important and powerful, show
the same tendency toward the destruction of competition.
Great as is the extent to which the monopoly of the mineral wealth of
the world has gone, we can scarcely doubt that if the movement is
unchecked it will go much farther. In one sense the only absolute
necessaries of life are food and clothing. But to the civilization of
to-day the metals and minerals are no less indispensable; and these
cannot be made anywhere, like manufactured goods; or grown on wide
areas, like the products of the soil. We are absolutely at the mercy of
the men who own our deposits of coal and copper and lead, and it is only
to be expected that they will take greater advantage of their legal
industrial advantage. The combinations that exist will be made stronger
and more binding, and new ones will be formed. The French copper
"corner" has taught men that under the broad protection of International
law their schemes of industrial conquest may embrace the world; and it
is not to be doubted that the temporary "corner" will yet result in a
strong permanent combination; and that the precedent set by this
successful monopoly will be eagerly followed by those who wish to secure
like profits by the control of some other form of mineral wealth.
IV.
MONOPOLIES OF TRANSPORTATION AND COMMUNICATION.
We have already alluded to the fact that the concentration of
manufacturing in large mills at great commercial centres has been made
possible by the development of railway transportation, and that the
rapid settlement of our Western prairies is due to the same agency; but
it is worth while to note more fully the difference between ancient and
modern conditions in the business of transportation.
In the first place, it is plain that no more than a century ago the
world had comparatively very little need for railways. Each community
produced from its farms and shops most of the things which it needed;
and the interchange of goods between different sections, while
considerable in the aggregate, was as nothing in comparison with modern
domestic commerce. The king's highways were open to every one, and
though monopolies for coach lines were sometimes granted and toll roads
were quite common, there was no possibility for any really harmful
monopoly in transportation to arise, because the necessity of
transportation was so small. Some writer has ascribed all the evils of
modern railway monopolies to the fact that in their establishment the
old principle of English common law that the king's highway is open to
every man, was disregarded. But if we sift down this ancient maxim of
law to its essential principle, we find it to be, _there must be no
monopoly in transportation_; and the problem of obtaining the advantages
of modern railway transportation and keeping up, at the same time, the
free competition that exists in transportation on a highway is seen to
be as far from solution as before.
The importance of our railway traffic is proven by statistics. Of the
total wealth annually produced in this country, it is probably a fair
estimate to say that ten per cent. is paid for transportation of the raw
material and finished goods in their various journeys between producers,
dealers, and consumers, and for transportation of passengers whose
journeys directly or indirectly contribute to the nation's industry.
That is to say, the gross yearly earnings of all the railroads and
transportation lines of the country is about one tenth of the total
value of all the year's products. The average is brought down by the
amount of sustenance still consumed in the locality where it is
produced, and by the amount of valuable merchandise. But of the bulky
products like coal and grain, the greater part of the cost to the remote
consumer is due to the cost of carriage.
It is also necessary to a proper appreciation of the problem, that we
understand that railway transportation is now as absolutely necessary as
is the production of food and clothing. Annihilate the railway
communications of any of our great cities, and thousands would perish by
starvation before they could scatter to agricultural regions. There was
great suffering in many small communities in Minnesota and Dakota in
the severe winter of 1887-8, because the heavy storms blockaded the
railroads and prevented them from bringing in a supply of coal and
provisions. But it is not taking the question in its broadest sense to
consider whether we could eke out an existence without railway
communication. The fact is that under modern conditions every man
obtains all the things which he desires, not by producing them himself,
but by producing some one thing which others desire. The interchange
between each producer and each consumer must, broadly speaking, be all
made by means of the railway; and without that, stores, factories,
mills, mines, and farms, would have to cease operation.
Remembering now the importance and necessity of transportation, let us
inquire how the price at which it is sold to the public, the rate of
fare and freight, is fixed. Is it or can it be generally fixed by
competition?
There are now in the United States about 37,000 railway stations where
freight and passengers are received for transportation. Now, from the
nature of the case, not more than ten per cent. of these are or can be
at the junction of two or more lines of railway. (By actual count, on
January 1, 1887, eight per cent. of existing stations were junction
points.) Therefore the shippers and buyers of goods at nine-tenths of
the shipping points of the country must always be dependent on the
facilities and rates offered by a single railway. Such rates of
transportation as are fixed, be they high or low, must be paid, if
business is carried on at all. And when we consider the ten per cent. of
railway stations which are, or may be, junction points, we find that at
least three-fourths of them are merely the junction of two lines owned
by the same company. Consolidation of railway lines has gone on very
rapidly within the past few years and is undoubtedly destined to go much
further. Of the 158,000 miles of railway in the country, about eighty
per cent. is included in systems 500 miles or more in extent; and a
dozen corporations control nearly half of the total mileage. The
benefits which the public receive from this consolidation are so vast
and so necessary that no one who is familiar with railway affairs would
dream of making the suggestion that further consolidations be stopped or
that past ones be undone.
There is a great tendency on the part of the public, however, to look
with fear and disfavor on further railway consolidation. And because
this is so, it is greatly to be desired that the beneficial effects of
consolidation should be better understood. The most important benefits
are included under one head, the saving in expense and the avoidance of
waste, and this is effected in very many different ways. Suppose a great
system like the Pennsylvania or the Chicago & Northwestern were cut up
into fifty or sixty independent roads, each with its own complete staff
of officers. Each road would have to pay its president, directors, and
heads of operating departments, would have to maintain its own
repair-shops, general offices, etc., and conduct in general all the
business necessary to the profitable operation of a railway corporation.
A car of wheat or a passenger in going from Chicago to New York would
have to be transferred from one road to another at perhaps twenty
different points, and the freight or fare paid would be divided among
twenty different companies, with corresponding clerical labor. The
modern conveniences of through tickets, through baggage-checks, and
through freight shipments, would be difficult, if not impossible.
Further, consolidation tends to produce vastly better service and
greater safety. The large systems can and do employ the highest grade of
talent to direct their work. Every thing is systematized and managed
with a view to producing the best results in efficiency and safety with
the least waste of material and labor. And while the improvement in
safety and convenience is all for the benefit of the public, a large
part of the saving in expense effected by consolidation has likewise
come back to the patrons of the roads in the form of reduced rates of
fare and freight.
It is difficult, however, for any one not familiar with the technical
details of the railway business to fully appreciate the importance and
necessity of the consolidations which have been effected, and the grave
results that would follow the realization of the mad proposition to set
us back a half century by cutting up our railroad systems into short
local lines. It must be plain to every one, however, that while the loss
of all the benefits of consolidation would be certain, the gain in
competition could affect only the few junction points; and as we shall
now see, the effect even on them would be small.
Assuming that the total number of railway junction points in the United
States is 3,000, we find, on examination, that at about two-thirds only
two lines meet, and at more than half the remainder only three lines
meet. It is plain that in the vast majority of cases where two roads
intersect, and in many cases where three or four come together, the
lines meet perhaps at right angles and diverge to entirely different
localities. The shipper bringing goods to the station, then, may choose
whether he will send his goods north or east perhaps; but only in the
few cases where two lines run to the same point does he really have the
choice of two rates for getting his produce to market. Practically,
then, there are not, and never can be, more than a few hundred places in
the country where shippers will be able to choose different routes for
sending their goods to market. We say there never can be, because the
building of a line of railway to parallel an existing line able to carry
all the traffic is an absolute loss to the world of the capital spent in
its construction, and a constant drain after it is built in the cost of
its operation. This fact is now, fortunately, generally appreciated.
But what of the competitive traffic which exists between commercial
centres, like the trunk-line traffic between Chicago and the cities on
the seaboard, or between the former city and the collecting centres
farther west like St. Paul, Omaha, and Kansas City? Here, indeed, there
is competition; and it is of great importance because of the enormous
bulk of the traffic which traverses these few routes.
It is a peculiar feature of the railway business which we have now to
consider, and one which is not generally understood. We have already
perceived the principle that competition cannot permanently exceed a
certain intensity; and the proof of this principle in the case of the
railway is remarkably plain. Suppose two roads are competing for the
traffic between Omaha and Chicago. A shipper at the former city who
wishes to send a few tons of freight to Chicago may go to one company
and ask their rates, then to the other and induce them to give him a
lower rate, and then back to the first again, until he secures rates low
enough to suit him. Now it is a fact that either company can afford to
carry this especial freight for less than the actual cost of carrying
it better than it can afford to lose the shipment. This is because it
costs the company practically _no more_ to carry the goods than if they
were not shipped by its line; and hence whatever is received for the
freight is so much profit. Stated in the form of a principle, this fact
is expressed thus: _Receipts from additional traffic are almost clear
profit_. Nor is this all. The practical impossibility of distinguishing
_additional_ traffic from other traffic, and the enactment of State and
National laws requiring uniform rates to be charged, places all traffic
on a common basis; and the same cause which makes it more profitable to
carry additional traffic for a song than to lose it, makes it better for
a railroad to carry traffic, temporarily at least, for less than the
actual running expenses of the road, rather than to lose it. The train
and station service, the general office and shop expenses, must all be
kept up, though the freight and passengers carried dwindle to almost
nothing; and the capital invested in the road is a total loss, unless
the line is kept in operation and earns some income, even though it be
small. This last influence, as we shall see later, is a most important
and far-reaching one in its effect on industrial competition.
The cause of the intensity of competition in railway traffic is now
evident. And from what we have seen, it follows that two railway lines
competing freely with each other cannot possibly do business at a
profit. Let us see what are the actual results of this law of practical
railway management. Evidently the managers of two competing railway
lines have but two possible courses open. They may, by tacit or formal
agreement, unite in fixing common rates on both the roads, or they _may_
attempt to do business with free competition. But we have already
proven that the latter course must result in reducing the income of the
road certainly below the amount necessary to pay the operating expenses
and the interest on the bonds, and probably it will be insufficient to
pay the running expenses alone. The inevitable result, then, is the
bankruptcy of the weaker road, the appointment of a receiver, and its
sale, in all probability to its stronger competitor. This is the chain
of cause and effect which has wrought the consolidation of competing
parallel roads in scores of cases, and which, if free competition is
allowed to act, is sure to do so.
We can now appreciate the _necessity_ which managers of competing lines
are under to agree upon uniform rates for traffic over their roads, and
at the same time the difficulty of doing this. The strange paradox is
true that while it is _necessary_ to the continued solvent existence of
the competing corporations that such an agreement be made, it is also
greatly to their advantage to break it secretly and secure additional
traffic. It is necessary, therefore, that the parties to the agreement
be strongly bound to maintain it inviolate; and to effect this, "pools"
were established. In pooling traffic, each company paid either the whole
or a percentage of their traffic receipts into a common fund, which was
divided among the companies forming the pool, according to an agreed
ratio. Under this method it is evident that all incentive to secret
cutting of rates and dishonest methods for stealing additional traffic
from another road was taken away.
How widespread and universal is the restraint of competition by railway
corporations may be seen by the following pithy words, penned by Charles
Francis Adams, President of the Union Pacific Railway:
"Irresponsive and secret combinations among railways always have
existed, and, so long as the railroad system continues as it now
is, they unquestionably always will exist. No law can make two
corporations, any more than two individuals, actively undersell
each other in any market, if they do not wish to do so. But they
can only cease doing so by agreeing, in public or private, on a
price below which neither will sell. If they cannot do this
publicly, they will assuredly do it secretly. This is what, with
alternations of conflict, the railroad companies have done in one
way or another; and this is what they are now doing and must always
continue to do, until complete change of conditions is brought
about. Against this practice, the moment it begins to assume any
character of responsibility or permanence, statutes innumerable
have been aimed, and clauses strictly interdicting it have of late
been incorporated into several State constitutions. The experience
of the last few years, if it has proved nothing else, has
conclusively demonstrated how utterly impotent and futile such
enactments and provisions necessarily are."
Disregarding for the present the latter part of the above quotation,
consider the statement that during the whole history of railway
corporations, agreements to restrain competition have been the rule.
This the slightest research proves to be an historical fact, and it is
in perfect accord with our preceding statement, that such agreements
were necessary to the solvent existence of railway corporations. The
records also show that invariably when these agreements have been broken
and competition has been allowed to have full play, the revenues of the
roads have been rapidly reduced to a point where, unless a peace was
effected, bankruptcy ensued.
Mr. Adams said, with truth, that no law had proven of any effect in
preventing these competition-killing agreements between railways; but
since the above extract was written, the Interstate Commerce law has
been enacted. Let us pay some attention to its working and results. It
is a curious fact that the framers of railway legislation in this
country, almost down to the present time, have concentrated all their
energies on the endeavor to keep up free competition; and the Interstate
law is no exception to this rule. The plan of the Interstate law was
about as follows: "Here are a few dozen great commercial centres where
the railway lines of different systems meet. We will first prohibit the
pooling by which they have restricted competition at these points. Then,
in order that the thousands of other shipping points shall receive an
equal benefit, we will enact a 'long and short haul clause,' obliging
the rates charged to be in some degree proportionate to the distance.
Thus competition at the great centres will bring rates down everywhere,
and the public will be benefited."
For a year after the enactment of the law its effects were not
prominent. Pooling was abolished, but the agreements to maintain rates
were still kept up and were fairly observed. But in 1888, the second
year of the law's working, it came to be realized that the pool was the
vital strength of the agreement to maintain rates, and that this
agreement might now be easily broken. Then ensued a remarkable season of
rate cutting, which, at the present writing, has reduced many strong
companies to the verge of bankruptcy. It is plain enough that if this is
allowed to go on, the various stages of receivership, sale, and
consolidation will follow in regular order. To avoid this too sudden
revolution and the general financial disaster which all sudden
revolutions entail, the principal companies in the West are now striving
to combine in an association for the maintenance of rates by a plan
which will bind them more closely together than any other ever before
adopted. Thus to quote Mr. Adams again: "The Interstate Commerce law has
given a new impetus to the process of gravitation and consolidation,
and it is now going on much more rapidly than ever before. It is at this
moment rapidly driving us forward toward some grand railroad-trust
scheme."
It is a fact which we shall do well to ponder over, that this
legislation intended to stimulate competition has finally had just the
opposite effect from that which its makers desired. They did increase
the intensity of the competition, and have thereby nearly brought about
a permanent end to all competition in railway traffic.
It must now be clear that the railway is essentially a monopoly, not, be
it noted, because of any especial wickedness of its managers or owners,
but because competition is _impossible_ as regards the greater part of
its business, and because wherever competition is possible, its effect,
as the managers well know, would be to annihilate all profits from the
operation of the road.
Let us consider now some of the evils with which this monopoly is
charged. The first of these is _discrimination_ between persons and
between places. A favored shipper has been enabled to ruin his
competitors because he could obtain special rates, while they, perhaps,
were charged an extra amount. The strong monopolies have in this way
been able to strengthen their hands for the purpose of throttling their
weak competitors. Passenger rates, too, have been low to one class and
high to another; and the system of free passes has led to great abuses.
Discrimination between towns and cities and States has been hardly less
serious; and while the railways were permitted to make high local rates
and low through rates, a great stimulus was given to the city at the
expense of the country. The second class of evils is that rates in
themselves have been too high. The railways have been wastefully built
and then capitalized at double their actual cost, and it has been
attempted to pay dividends of 6 to 10 per cent. on these securities. In
some cases the principle of charging "what the traffic will bear" has
been so applied that industries have been ruined through the absorption
of their profits by unjust transportation charges. But our space will
not permit a comprehensive review of the many abuses of railway
management. They are already familiar to the public. We needed only to
refer to them sufficiently to carry on our argument by showing that the
railroad monopoly is not by any means a harmless monopoly if left to
work its own pleasure.
There are two evils of our present railway system, however, which are
not chargeable to monopoly, but to the _attempt to defeat monopoly_, and
which are important to our discussion. The first is the waste of
competition in railway traffic; the second, the waste of competition by
the construction and _threatened_ construction of competing lines where
present facilities are ample for the traffic. Of the first it need only
be said that in advertising, "drumming," and soliciting patronage the
railways spend many millions of dollars every year, which comes out of
the pockets of the public. The second is most serious, for it involves a
far greater waste. It is a conservative estimate to say that 5 per cent.
of the railways of the country were only built to divide the profits of
older roads, and that their owners would be delighted to-day to have
their money back in their possession and the railroad wiped out. The
millions these roads have cost, the millions required every year to
maintain and operate them, the millions spent on proposed roads that
never reached completion, and the millions squandered in fighting
proposed roads by every means short of actual bloodshed,--these are
some of the wastes which we have made in our endeavor to create
competition in railway transportation. And with all our efforts, and
notwithstanding the fact that until within a short time the public
sentiment and the railway managers have been united in the belief that
free competition was the only mode of regulating railroad rates, we are
farther removed from free competition now than ever before.
And now consider in addition to all this the fact that every railway
company must first of all secure from the State a right to exercise the
sovereign power of Eminent Domain, and that it may and does choose and
take every advantage of the favorable locations where its road can be
built most cheaply; which natural highways, mountain passes, and the
like, are gifts of Nature, the right to whose use equitably belongs to
the general public, and not to private parties exclusively. Taking these
facts also into consideration, it seems needless to offer further proof
of the fact that the business of railway transportation is essentially a
monopoly, and that the attempt to regulate it by competition must always
prove a failure in the future, as it always has in the past.
Necessarily we have limited our discussion to the most salient points,
and have not touched at all many of the complicated details of the
railway problem. In a later chapter we can study farther the evils due
to railway monopolies, and the proper remedies therefor. At present we
have accomplished our purpose in finding out the fact that railways are
monopolies, and that they are so by their inherent nature.
Of monopolies in other forms of internal transportation, but little need
be said. Our once busy canals and great rivers seem destined, with the
constant rapid improvement and cheapening in the carriage of goods by
rail, to lose all their former importance. The monopolies small and
great that once held sway there have all vanished before their strong
rival, the railway.
The use of steam in the vessels that navigate the ocean has had an
effect very similar to the replacing of stage-coaches and freight wagons
by the locomotive. Where hundreds of sailing vessels plied their slow
and uncertain trade, steamer lines now make trips only less regular than
the railway itself. The only cause for the existence of a monopoly in
ocean traffic by steam is the greatly increased capital required for a
rival steamship line as compared with that needed for the old sailing
vessels. We find this, the requirement of a large capital, to be a
feature of more or less importance in nearly every monopoly of the
present day. In this case, however, unless there is an artificial
monopoly in the shape of government aid or authorization, the strength
of its capital is the only power the monopoly has.
We may reach a clear idea of the essential nature of all the monopolies
considered in this chapter by considering an especial class of
monopolies of communication, namely, mountain passes, bridges, and ship
canals. If a person or a railway corporation could secure sole control
of the only pass through a high mountain range separating two wealthy
and populous districts producing goods of different sorts, they might
exact a princely yearly revenue for its use, equal to the interest on
the capital required to secure an equally favorable passage by
tunnelling, or the annual cost of sending goods over some longer and
more expensive route. But under the law no private person would be
allowed to do this; and if the pass were a very important and necessary
one, probably no one railway company would be allowed to do so. The law
recognizes to some extent, and should recognize much more than it does,
the fact that the benefit of this natural pathway is not the property of
any one man or set of men, but equitably belongs equally to every person
who needs to use it directly or remotely.
A very large and expensive bridge is like an important mountain pass,
differing only in that one is the gift of Nature, while the other is
wholly the work of man. But because the latter is the work of man, it
does not follow that it is not a monopoly. The great bridge across the
Mississippi River at St. Louis is owned by a private company which
levies tolls for the teams and trains passing over it. These are deemed
excessive, as they are sufficient to pay an exorbitant interest on the
cost of the bridge. Yet for many years no one has cared to invest money
in the erection of a new bridge, for they saw that there was no more
traffic than one bridge could readily carry, and they knew that if a new
bridge were erected, in the rivalry in tolls which would ensue, the
old-established company would probably bankrupt its rival. It is thus
plainly seen how an important bridge may become a monopoly, and a most
powerful and onerous one.
We have still one important monopoly of communication to describe, the
telegraph. Viewed from a narrow standpoint it may be thought that there
should be no monopoly in the telegraph. A telegraph line is not
expensive to erect and maintain, and it gets no monopoly from taking
advantage of the most favorable route through difficult country as a
railway does. But the economy effected by combination and the effect of
sharp competition in bringing about bankruptcy and then consolidation
are exactly similar to the case of the railway, which we have just
described. In the early history of telegraph companies, many short
competing lines struggled and fought for supremacy. In 1859 the Western
Union Telegraph Company was formed with the avowed intention of
combining these warring companies and making the telegraph business
profitable. It has exceeded the most sanguine dreams of its promoters by
swallowing up its rivals until the entire system of telegraph
communication of the country is practically in its hands. The effects of
this consolidation have been of two sorts. On the one hand we have the
telegraph service of the country performed with the least possible work;
there is nothing wasted in the maintenance of two or more rival offices
in small towns where one is sufficient, nor in operating two lines of
wire where a single one would serve as well. All expense of "drumming
up" business in various ways is avoided, and also the cost of keeping
the complicated books necessary when the receipts of a single message
must be divided among several companies. On the other hand it is plain
that the public is wholly at the mercy of the monopoly in the matter of
rates, and must pay for the use of the telegraph exactly what the
corporation asks. There is a weak and foolish argument which is often
used in an attempt to show that this particular monopoly is not hurtful.
It is that the telegraph is a luxury which only wealthy people use, and
hence whether its rates are high or low is of little account. The
fallacy of this statement is easily seen. A principal use of the
telegraph is to aid the prosecution of business; hence to unduly raise
rates is to cause an additional tax on business,--on the carrying on of
the processes of production. This tax will certainly have its effect,
either in decreased profits, decreased wages, or an increased price for
the product. Another large class of telegrams are those which are sent
with little thought of the cost, in time of sickness, death, or sudden
emergency, yet by people whose purse feels severely the tax.
What to do with this vast monopoly is one of the questions of the day,
but we will content ourselves at present with this investigation of its
character, reserving its proper treatment for later consideration.
V.
MUNICIPAL MONOPOLIES.
The people who live in cities are far more dependent on monopolies than
the resident of the country. The farmer can still, on necessity, return
to the custom of primitive times, and supply himself with food,
clothing, fuel, and shelter without aid from the outside world; but the
city dweller must supply all his wants by purchasing, and is absolutely
dependent on his fellow-men for the actual necessaries, as well as the
luxuries of life. From the peculiar circumstances of city life, many
monopolies arise in production and transportation which occur nowhere
else. One of these is the carriage of passengers on street and suburban
railways. There is no better instance, perhaps, of the great power which
is placed in the hands of railway managers than this matter of suburban
passenger traffic. One example must suffice to show this. Let us suppose
that the managers of a railway, which has hitherto not been run with a
view to the development of suburban traffic, secure control of several
choice tracts of land on the line of their road near a growing city, and
establish low rates of commutation and frequent and convenient train
service. The land which they purchased is sold out in building-lots for
many times its cost, and a number of thriving villages become
established there, inhabited chiefly by people whose business is in the
city and who are obliged to go back and forth on the trains. After a
number of years the growth of the towns becomes more sluggish, and the
managers find that the commutation traffic is not after all extremely
profitable; therefore they lessen their train service and increase the
rates of fare. Perhaps they may abolish commutation rates altogether. It
is a well known fact that the value of suburban real estate depends
almost entirely on the convenience and cheapness of access to the city.
By the removal and forced sale, which many of these people will be
obliged to make, it may easily happen that they may lose their entire
property. It is not stated that such flagrant cases of autocracy on the
part of railway managers are common. Indeed, it is a high compliment to
the uprightness and probity of these men that such occurrences are so
infrequent, and that the temptation, so constantly presented, of
enriching one's self at the expense of the owners of the road and the
public is yielded to so seldom. But there have been cases where railway
managers have secured excellent train service and low rates of fare to
benefit places where they held an interest in real estate, while other
and competing places were given poor service and high rates. And the
entire abolition of long-established commutation rates has happened more
than once.
But turning now to the city railways proper, those carrying passengers
through the streets, it is evident at first sight that we have another
case where competition is a factor of little account. The power of this
monopoly for harm is greatly intensified by the fact that its use is
largely a necessity. In all our great cities the business sections are
far removed from the residence sections, and the great mass of the
industrial population is _obliged_ to ride at least twice each day in
going to and returning from work. In nine cases out of ten there is one
route so much more convenient than any other as to overbalance any
slight difference of fare. Thus, even on the supposition that every
different line was run in competition with every other line, the amount
of really competitive business would be but a trifle. But besides this,
as is well known, in a great many cities consolidation has gone on as
rapidly among street-railway companies as among the great trunk-line
railways. The three lines of New York elevated roads were originally
projected by rival companies; but they were not long in coming together
under one management. A Philadelphia syndicate has secured control of
most of the street railways of that city, and in addition has purchased
a number of the lines in Boston, Chicago, Pittsburg, and St. Louis.
Although the benefit in economy by consolidation is much less in the
case of street railways than in the case of steam roads, yet
considerable is gained, and the competition which is killed by the
consolidation is, as we have just seen, of no great importance to the
public. The so-called street-railway trust, then, is really of no great
moment. The monopoly in street-railway traffic arises from the nature of
the business rather than from any especial effort of capitalists to kill
competition.
But the railway companies are not the only monopolies which have the use
of our city streets. Water, gas, and steam pipes beneath the pavements,
and wires, either in subways or strung overhead, carrying electricity
for street and domestic lighting, telegraph, telephone, and messenger
service, are all necessities to our modern civilization.
The absolute necessity of a public water supply, and the practical
impossibility in most cases that any competition in the furnishing
thereof can be established and maintained, have led, in the case of most
of our large cities, to the work of water supply being undertaken by the
municipal authorities. But many of our smaller cities have entrusted to
private companies the work of furnishing a water supply. While this is a
case of real monopoly, yet under the conditions which may be enforced,
most of the power for harm is taken away. According to the best plan in
vogue, the city sells the franchise for constructing the works to the
company who bids to furnish water at the lowest rates under definitely
specified conditions, the franchise being sometimes perpetual, but
oftener granting to the city at some future date an option for the
purchase of the works. It is to be particularly noticed that this is a
case in which the administration of an absolute monopoly has been
entrusted to private enterprise with excellent results; a fact which may
be of use to us in our later investigation.
While the fact was early appreciated that a water supply when once
introduced became an absolute necessity, it was not recognized when
illuminating gas was first brought into use how important it was to
become. Franchises, or more properly permits, for erecting works and
laying mains for supplying consumers were given away to hastily formed
companies; and even at the present time there are but a few cities (only
five in the United States) which own their works and mains for supplying
gas. As a matter of course the gas companies saw their advantage.
Knowing that gas once introduced was a necessity at almost any price,
they made no move toward lowering rates as new and cheaper methods came
into vogue and their output and profits increased. The stocks of our
gas companies have been swollen by enormous amounts of water, and upon
this fictitious capital they have continually paid enormous dividends.
At one time there was a great call for competition in the gas business.
The public demanded it, and as usual the demand was supplied. Rival
companies were organized, and the city authorities made haste to grant
them permits for laying their mains in the city streets. A war of rates
of course ensued, and lasted till one company gave up the fight and sold
out to its rival. The consolidated company promptly increased its stock
by at least the amount which had been spent in purchasing and laying
this extra and entirely needless set of gas mains. The public has to pay
interest on this sum, and suffer besides the damage done to the
pavements by tearing up and re-laying.
In at least twenty cities of the United States has this farce been
repeated, and in every case with the same result. It is now generally
acknowledged that the attempt to regulate the price of gas by
competition is unwise and harmful. Prof. E. J. James, of the University
of Pennsylvania, in a monograph entitled "The Relation of the Modern
Municipality to the Gas Supply," has treated this subject most fully. He
describes the experience of cities in England, France, and Germany,
where competition has been tried and abandoned, it being found by dear
experience that the gas business is necessarily a monopoly. A
Congressional Committee, who reported on the application of a rival gas
company which proposed to lay mains in the city of Washington, declared
that "it is bad policy to permit more than one gas company in the same
part of the city." One of the best informed men in the gas business
says: "The business is almost outside of the domain of rules governing
other enterprises. Competition is so deadly to it that it is impossible
for rival companies to occupy the same street without ruin to both, or
without consolidation with its attendant double investment, and cheap
light is thus rendered an impossibility."
Hon. T. M. Cooley says:
"The supply of public conveniences to a city is usually a monopoly,
and the protection of the public against excessive charges is to be
found first in the municipal power of control. Except in the very
large cities, public policy requires that for supplying light and
water there should be but one corporation, because one can perform
the service at lower rates than two or more, and in the long run
will be sure to do so. In some kinds of business competition will
keep corporations within bounds in their charges; in others it will
not. When it will not, it may become necessary to legislate upon
profits."
Considering it determined, therefore, that the gas industry is a
monopoly, let us inquire something of the manner in which this monopoly
regulates the prices for its service. According to recent statistics,
collected from 683 gas companies in the United States, 148 companies
charge $2 per thousand cubic feet, and 145 companies charge $2.50 per
thousand. It is thus seen that rates have been fixed to make "even
figures," something which does not occur when margins of profit are
reduced by competition. The complete table shows this fact more fully as
follows:
7 companies charge $1.00 per thousand cubic feet.
32 " " 1.50 " " " "
24 " " 1.75 " " " "
148 " " 2.00 " " " "
57 " " 2.25 " " " "
145 " " 2.50 " " " "
20 companies charge 2.75 per thousand cubic feet.
86 " " 3.00 " " " "
25 " " 3.50 " " " "
19 " " 4.00 " " " "
120 companies charge various other prices per thousand cubic feet.
According to the same authority these companies in 1886 produced
23,050,706,000 cubic feet of gas, for which they received $40,744,673,
an average price per M. of $1.76-71/100. According to the statement of
good authorities, gas can be manufactured at a cost of 50 to 75 cents
per M. in this country. Prof. James, in his work before quoted, says:
"In England at the present time gas is manufactured at a net cost of 30
cents per thousand feet; some works in New England now manufacture it
for 38 cents per thousand feet to the holder." The President of the
American Gas-Light Association is quoted as stating in an address before
the Association that the cost of the gas delivered to consumers by the
South Metropolitan Company of London in 1883 was 39.65 cents per
thousand, and figuring by the relative cost of coal and labor there and
here, he stated that gas could be delivered in New York at a cost of 65
cents per thousand. In Germany the price of gas to consumers varies from
61 cents in Cologne to $1.02 in Berlin. Very recent improvements in
processes have greatly cheapened the cost of manufacture. Mr. Henry
Woodall, the engineer of the Leeds, England, gas-works, states that
coal-gas costs in the holder 22 cents per thousand. Of nineteen
companies doing business in principal English cities, the average rate
charged consumers is 52½ cents, and the average cost of manufacture
is 37-1/3 cents.
The history of the gas monopoly is repeating itself in the matter of
electric lighting. The smaller cities of the country, in their haste to
"boom," are ready to grant a liberal franchise to the first firm or
company which offers to supply an electric-lighting system, trusting to
future competition to regulate prices, a resource that must prove of no
avail. Nor are the men in power in our larger cities any wiser. The city
of New York is taking every means to encourage the operation of rival
electric-light companies, and is letting yearly contracts for
street-lighting to the lowest bidder. It is true that competition is
active just now, but it requires no far-seeing eye to discern the
inevitable combination and consolidation among the companies.
Again, not only is competition of this sort sure to fail, but the
attempt to establish it is very harmful. To say nothing of the expense
and waste of wealth which is involved when rival companies are allowed
to stretch their wires and establish their extensive central stations in
the same district, it is everywhere acknowledged that the multiplication
of wires overhead is a crying evil and danger. Are we to double and
treble it, then, by permitting rival companies to place their wires
wherever they please? It is evident that the temporary rivalry which we
obtain in this way is bought at much too great a cost. What is true of
electric street light wires is equally true of the vastly greater
multitude of wires which belong to our rapidly growing system of
domestic lighting, and the telegraph, telephone, and messenger service.
Surely no man knoweth the beginning or the end of the network which is
woven over our heads, and which, besides all the useful wires already
enumerated, is full of "dead" wires, many of them strung by defunct or
irresponsible companies, who would never have been allowed to obstruct
the streets if they had not been "competing" for the business. Can there
be any doubt that it is the height of folly to continue this work, and
that the only rational way of entrusting electric service to
incorporated companies is to permit but a single company to operate in a
district and control prices by some other means than competition?
We have the beginnings of other monopolies in our city economies which
are destined to become much more important, but to which we need only
refer.
Steam for supplying heat and power is beginning to be distributed from
great central stations, through mains laid underground, to all parts of
the surrounding district. The necessity for frequent repairs and
stoppage of leaks renders it necessary to break the pavement and dig
down to the mains much oftener than is required for any other of our
underground furniture. Nothing would seem more evident than that the
number of these pipes to be laid should be the fewest consistent with
the proper supply of the district, yet it is a fact that for a time two
competing steam companies were permitted to run riot in the streets of
lower New York, until the weaker one succumbed "to over-pressure." Yet
it is scarcely to be doubted, that if another rival company were to ask
for a permit to operate in the district now monopolized by the New York
Steam Company, public opinion would tend to favor the granting of the
permit "because it would give more competition." It is to be hoped that
before these great systems for the distribution from central stations of
various necessities reach much greater proportions, the public will
become educated enough to perceive the folly of attempting to regulate
them by competition.
The necessity for this will be more, rather than less, apparent with the
use of underground instead of overhead wires. The cost of placing wires
in subways is far beyond the cost of stringing them on poles, and if we
are obliged to build our subways large enough to accommodate all the
rival wires which may be offered, we have a herculean task upon our
hands.
The great question of the monopoly of land can be merely touched in this
connection. While the fact that land is natural wealth must be freely
acknowledged, it is only where population is most dense that any great
monopoly appears in its ownership. The principle is well established,
indeed, that private ownership of land cannot stand in the way of the
public good. When a railway is to be built, any man who refuses to sell
right of way to the railway company at a reasonable price may have it
judicially condemned and taken from him. We have already noted in the
chapter on railway monopolies the injustice of permitting a single
person or corporation to control and own any especially necessary means
of communication, as a mountain pass or a long and expensive bridge, and
the same principle is apparent in connection with the railway terminals
in our large cities. The enormous expense attendant upon securing right
of way for an entrance to the heart of the city, makes it a very
difficult matter for any new company to obtain a terminus there, except
by securing running rights over the tracks of an older company. To give
to any single corporation the sole control of the entrance to a city
_and permit it to charge what toll it pleases_ for trains that pass
through it, evidently places the city at the mercy of a monopoly.
Practically the case is not so bad as this, as most large cities have
means of water communication, and the railroads are run to the heart of
the city through the public streets. But the time is fast approaching
when these city grade crossings will be done away with, and in every
city of importance the railways will enter the city on elevated viaducts
terminating in a single union depot. Evidently it is contrary to the
public welfare to sink more capital in these expensive structures than
is necessary; and in general, several companies will use a single
structure for entrance and exit. It is evident that the control of these
terminals, if vested in a single company, may give rise to just the
abuse we have set forth; and that the city itself should retain enough
control over its railway terminals and freight-transfer lines to ensure
that no single carrier or combination shall monopolize them.
In the last analysis it is evident that the monopoly of entrance to a
city is really a monopoly in land, or, we might more properly say, in
space. We are fortunate in this country in having millions of acres of
land still awaiting cultivation; and while it is not intended here to
defend the policy of _giving away_ the estate of the public which our
government has pursued, there is no danger for a long time to come that
an actual monopoly will exist in agricultural lands. The price of land
used for business purposes in a city, however, depends almost wholly
upon its location. The price at which a single block of land near Wall
Street, in New York City, was recently sold was so great that, at the
same price, the value of a square mile would be equal to half the whole
estimated wealth of every sort in the United States.
Now the question must occur to every thinking man, by what right does
the owner of this property receive this enormous wealth? To make the
case of those who advocate the public control of the gifts of Nature
more clear, let us consider a special case. Suppose a man in an Eastern
city chanced to come into possession two-score years ago of a tract of
land in what is now Kansas City. We may suppose that he got it by
inheritance, or through some chance, and that, except to pay the taxes
upon it, he has never given farther attention to it. During all the
years of the city's rapid growth he pays no attention to his land and
takes no part in furthering the growth of the city. At last, at the
height of the real-estate boom, he sells the land, and, whereas it cost
him in the first instance a merely nominal sum, perhaps $100, he sells
it now for $100,000. This value it has, not because of itself, as is the
case with farming lands, but because of its situation in reference to
the community around it. In other words, practically the whole value of
this land has been given it by the people who have come and built this
city around it. It is their labor that has given this property its
value, and, in equity, the value should be theirs. A more detailed
statement of the arguments for the public control of land incomes cannot
be given here. What we are concerned with here is the extent to which
land is subject to a monopoly. It appears too evident to require further
discussion that, as a general rule, agricultural lands in every section
of the country are competing to a greater or less extent with lands in
every other section, and that the lands used for business purposes in
the cities compete likewise, each city with others neighboring and of
similar size, while lands in the same city similarly situated compete
with each other.
VI.
MONOPOLIES IN TRADE.
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.
VII.
MONOPOLIES DEPENDING ON THE GOVERNMENT.
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.
VIII.
MONOPOLIES IN THE LABOR MARKET.
It should be said at the outset of this chapter that, in a very true
sense, practically all men are laborers. That into which a man puts his
energy and by which he earns his living, is his labor, whether it be
work of the hand or the head. But the labor we are to consider in this
chapter is that of the men who work for wages; and we will also make the
arbitrary distinction that it is that of the men who work for wages in
some branch of manufacturing, mining, trade, or transportation, the
great divisions of modern industry which we have thus far considered.
Almost all these monopolies employ large amounts of capital in carrying
on their business; and in the popular speech, "monopolist" and
"capitalist" are often used interchangeably. It is a very common belief
that monopolies are confined to the capitalized industries of
production, transportation, and trade, which we have already considered;
but we are now confronted by the fact that the wage-workers in the
various trades of the country are engaged in exactly the same
monopolistic schemes, in which they have exactly the same ends in view
as have the monopolists who combine millions of dollars' worth of
capital to effect their purposes. On the one hand we have the Standard
Oil Trust and the Railroad pools and the hundreds of other capitalistic
combinations striving to benefit the producer at the expense of the
consumer; while among those whose only capital is their strength and
skill, we find the workers in all the various trades, and even some of
the lower grades of laborers firmly banded together with the avowed
purpose of raising their wages above those which they would receive if
competition alone determined the rate. And they are successful, too.
Notwithstanding the fact that they deal with tens of thousands of
producing units where the combiner of capitalized interests deals with
tens, the success achieved by the combinations of labor is quite
comparable with that reached by combinations of capital. It speaks
volumes for the intelligence and ability of the wage-workers of the
present day--yes, and for the growth of the spirit of fraternity; that
in the advancement of what they deem a just and righteous cause, they
should voluntarily put themselves under discipline and endure patiently
the untold hardships of uncounted strikes, often brought on in the
unselfish work of aiding their brother laborers against what they deem a
common enemy.
The modes in which the combinations of skilled laborers attain their
desired ends are akin to those which obtain in a well organized
manufacturers' trust. The former allow only a certain number of
apprentices to learn their trade. The latter permit the establishment of
only such additional mills as shall not unduly increase the market
supply. The former fix a standard scale of wages below which no member
of the union shall work; the latter fix a minimum price for the goods
sold in the market. If there are more laborers in the union than can be
employed at the advanced rate of wages, some must be idle. If there are
more mills in the trust than the lessened demand for the goods will keep
busy, some must be shut down. The trade-union boycotts competing workmen
outside its ranks, and stigmatizes them as "scabs." The trusts endeavor
to punish every outside manufacturer, sometimes by forcing upon him such
a competition as shall cause his ruin; sometimes by means as illegal and
criminal as are the riotous acts of a mob of hungry workmen, and far
less defensible. But let us not yet bring up the question of relative
blame. The main point which must impress every candid observer is that
the means employed for the monopolies of capital and the monopolies of
labor are identical in principle and motive. Nor are we confined to
manufacturers' trusts to show that the spirit of rule or ruin
characterizes capital as well as labor. Railroad monopolies, in the
words of the president of one of the greatest corporations of the
country, "strive eagerly to protect themselves while entirely
indifferent as to what shall befall their rivals." How many weak
corporations have been deliberately ruined by the cut rates of stronger
competitors? If the laborer has "scab" in his vocabulary, has not the
railroad manager his "scalper" and "guerilla"?
The close relationship, viewed in many different aspects, of the
monopolies of labor and the monopolies in production generally has
hardly received the notice its importance deserves. Still, it is an
evidence that people are thinking of and discussing the matter when such
a writer as W. D. Howells, who is popularly supposed to cater to the
tastes of those who have very little in common with the laboring
classes, puts into the mouth of one of his characters a defence of
workingmen for executing a boycott on a non-union workingman, on the
ground that they "did only once just what the big manufacturing trusts
do every day."
Perhaps it was never so forcibly realized how thoroughly effective these
labor combinations have become, and how completely they hold the country
at their mercy, as in the strike of the locomotive engineers on the
Chicago, Burlington and Quincy Railroad system in March, 1888. Here
were, perhaps two thirds of the men in the country qualified for the
responsible and onerous work of running a locomotive engine, firmly
banded together to advance their own interests and secure assent to
their demands. Granted the will, the courage, the discipline, and it was
possible, yes, easy, for them to have obliged the railroads to raise the
wages of every engineer in the brotherhood to $10.00 per day, for on a
refusal they could have enforced the extreme penalty of bringing down a
total paralysis upon the business of the country. It speaks volumes for
the good sense, the honesty and moderation of the men and their leaders,
that, notwithstanding the fact that their demands were not immoderate,
and that the failure which came permanently deprived of a remunerative
position a thousand members of their brotherhood, they refrained from
the extreme to which they might easily have gone, and permitted
themselves to be defeated, when they had the power to have forced a
different result.
Organized workers in many trades have the power to force wages much
higher than they have done. Would that the Sugar Refineries Company, and
some other monopolies of production, were as moderate in their demands
upon the public as are the workingmen. But though their demands are in
one sense moderate, it is yet true that in so far as they exceed the
amount which the laborer would receive when the market for labor is
open to free competition, they are the direct result of the artificial
monopoly which the laborers have created by their combination, and, in
effect, levy a tax upon the community. To illustrate: let us suppose
that if every man were permitted to follow the trade of bricklaying who
wished to do so, the equilibrium between supply and demand would be
found at a rate of wages of $3.00 per day. At that rate, if the price
rose, more men would wish to follow the trade and at the same time less
people could afford to build houses, thus raising the supply above the
demand. If the price fell, some of the men would prefer to work at some
other trade and more people would conclude they could afford to build
houses. But when the rate, which, without prejudice, we call the natural
rate, is at $3.00 per day, suppose the men belonging to the trade form a
union and resolve to charge $5.00 a day for their work. Then it is very
evident that the cost of building is increased, and every one has to pay
more for construction and ask a higher rent to repay himself afterward.
Evidently, then, by this action of the bricklayers every man in the
trade receives $2.00 more per day for each day's work, which must be
paid, directly by their employers, but indirectly by the whole
community. It would be easy to prove that the tax on the community when
the wages are raised in any trade, affects the whole public as well as
those directly employing the workers in that trade; but it seems too
plain to require proof. The main point we now wish to show, is that any
increase in the wages of labor over that received under ordinary
competition must be paid by the community, just as much as any increase
in the price of coal, iron, copper, wood, wheat, or any other commodity
must be paid by consumers at large. Nor does the injury to the
community stop here, by any means. We saw that the advance of prices by
the linseed oil trust was an injury to all those who, on that account,
were obliged to forego painting; and that it thus caused a further
injury to painters, paint-makers, and even those employed in the
building trade. But the increase in the price of the bricklayers' work
has results no less important. Not only is injury done to those who
build and have to pay more for their buildings, but many are prevented
from building on account of the increased cost. If we argue according to
a prevalent method, we may say that this reduced activity in the
building trade will cause stagnation among allied trades with
corresponding loss of employment. Again, as a less number of houses are
built, and those which are built are more expensive, rents are certain
to rise, which means that the poor man must pay out a still greater part
of his earnings for his shelter, or else must put up with poorer and
meaner quarters.
It is a strange thing to trace, in connection with this, the history of
labor, and see how recent it is that the natural right of a man to sell
his services for such a price as he could obtain has been acknowledged.
History shows that until modern times, compulsory personal servitude has
been in every age and country the lot of a large part of the human race.
And when wages began to be paid for service, conditions were not much
improved. In England, in the fourteenth century, in the reign of Edward
III., a pestilence seriously depopulated the country, and reduced the
supply of laborers so much that it was not equal to the demand for
labor, and wages began to rise. Laws were therefore enacted that each
able-bodied man and woman in the realm, not over three score, "not
living in merchandise, nor exercising any craft, nor having of his own
whereof to live, nor land about whose tillage he might employ himself,
nor serving any other," should be bound to serve at the wages accustomed
to be given five years previously. No persons were allowed to pay an
advance on these wages, on pain of forfeiting to the Crown double what
they had paid. Previous to the fifteenth century, workmen in various
occupations were impressed into the service of the king at wages
regardless of their will as to the terms and place of employment.
Indeed, all through the fifteenth and sixteenth centuries, there were
continual attempts to fix the rate of wages arbitrarily by law, and also
the hours of labor. These, by one old statute, were decreed to last from
5 A.M. to 7 or 8 P.M.
These acts, and others of similar nature, were intended for the
subjugation of laborers and the benefit of the employers of labor. It is
only since the era of popular government that legislation for an
opposite purpose has come in vogue. Gradually the right of the
workingman to have the price of his labor fixed as is the price of other
commodities, by the law of supply and demand, came to be recognized,
although the progress was pitifully slow. The old ideas of the relation
between "master" and "servant" were very tenacious of life, and the
substitution of the terms "workman" and "employer" is a change which has
taken place in England during the present generation.
It was the petty tyranny and the grinding extortion which the laborers
had begun to feel, even though they were far better paid and better
treated than their fathers, that caused the formation of the original
trade unions. Laborers saw that each was helpless alone, but that
combined they were a power which their employers need not despise. The
old craft guilds furnished them an example of effective combination
among those engaged in the same trade; and as men everywhere in every
age, when a common danger or misfortune has confronted them, have come
together for mutual help and defence, these ignorant laborers, in
violation of stringent statutes, but following blindly their human
instincts of self-defence, came together and organized the first trade
unions.
The common law has always held trade unions to be "illegal combinations
in restraint of trade." Between the reigns of Edward I. and George IV.,
the common law was affirmed and made more effective by the passage of
over thirty acts of Parliament, all intended to abolish the trade
unions. In 1800 a stringent law was passed, by which all persons
combining to advance their wages or decrease the quantity of their work,
or in any way affect or control those who carried on the business in
which they were employed, might be committed to jail by a justice for
not more than three months, or to work in the house of correction for
not more than two months. Not till 1824 was an act passed slightly
ameliorating this stringent law, and even then the trade unions remained
for the most part secret organizations. At last, in 1871 and 1876, laws
were passed under which no person can be prosecuted for conspiracy to
commit an act which would not be criminal if committed by him singly;
and the trade unions, thus legalized, were taken in common with other
benefit societies under the protection of the law.
We have already pointed out the main fact that the chief end and aim of
the trade unions is the advancement of wages by securing a monopoly of
the supply of labor in some particular trade. It is now fair to explain,
as we have for other monopolies, the labor monopoly from the standpoint
of the laborer himself.
It is a sound axiom of business that a forced sale is apt to be an
unprofitable one to the seller; and that when a man's needs are so great
that he is absolutely obliged to sell at any price, he is quite certain
not to get the full worth of his goods. Now it is an undeniable fact
that the condition of many of the wage-workers of the country
approximates to this: They must have food, shelter, and clothing for
themselves and their families, and the only thing they can offer in
exchange for it is their labor. Suppose an honest and industrious man
has some misfortune, as an accident, or illness, and loses employment.
When once more able to work, he finds his old place filled and new
places hard to find; but at last he finds a mercenary employer who
agrees to give him half wages. Disheartened at his prospects, he thinks
half a loaf is better than no bread, especially when those dearest to
him are hungry, and so takes the place. But his employer takes care that
his constant work shall leave him no time to hunt for a better position.
Indeed, by a few judicious threats from his employer, the man may be put
in terror of losing the pittance he already has, and seeing those
dependent on him in absolute starvation. Such cases are amply provided
for by the trade union. Ill treatment of any one of its members may be
avenged by the organization as a whole, on the principle, whose spirit
of fraternity and self-sacrifice all must admire, that "an injury to one
is the concern of all." More than this, by means of the benefit feature
of the fraternity, the member unfortunate, or in distress, is properly
cared for. No member is obliged to feel, when seeking for employment,
that his food or shelter is at stake if his attempts fail, and he need
never be at the mercy of employers who drive sharp bargains.
It is often charged as an evil of trade-unions interfering with wages,
that they tend to bring all their members to the same level, and are
opposed to the payment of wages in proportion to the varying abilities
of the men working at the same employment. But with unorganized labor,
and employers who were none too just in their ideas, it was not uncommon
to see the necessity of the laborer, or his inability to drive a good
bargain, taken advantage of. Thus the workmen whose necessities were
greatest, and who were the most docile and obedient, received lower
wages than the men who were not particular whether they were busy or
idle, and were inclined to pay more attention to their own rights and
prerogatives than to the work for which they were hired. While the
tendency toward non-recognition of the varying abilities and ambitions
of workmen by the trade unions must be deprecated, it has largely grown
from the reform of this worse abuse.
There is another benefit which the organization of labor has effected
which may, perhaps, be thought an evil by some, but which every broad
and generous man must gratefully recognize as a gain to the whole
community; and in a self-governed nation like our own, it is a benefit
whose importance it is difficult to over-estimate. This is the
maintenance of the laborer's dignity and self-respect. We have but to
look back to the times we have already mentioned, to see the laborer
hardly better than a dog, a cringing dependent, kicked and beaten on
slight pretext, and with almost every vestige of manhood worked and
bullied out of him. We have come upon far happier times to-day, and
there are few corners of the civilized world where conditions so evil
prevail now. But without the organization of labor, the status of
workingmen would be much farther removed from what is just and right
than it now is. Every employer who is wise and honest, and who has the
true spirit of a gentleman, will see that his workmen are treated with
the respect that is their just due. Discipline there must be, but it is
a wrong view of discipline that makes it consist of oaths and brutal
insults delivered according to the prevalent good temper or ugliness of
the overseer. Unfortunately, not every man who is placed in authority is
wise, honest, and a gentleman. Bodily violence is no longer permitted by
law, but too often the curses and insults which are heaped on men with
no due cause are a violence which is more severe to many a man than
actual cuffs and kicks. No man can take such treatment without
resentment, and maintain his dignity and self-respect. Yet in how many
places is petty tyranny of this sort still active, and its victims are
cowed into submission for fear of taking the bread from their children's
mouths.
But the member of a strong labor organization need not be cowed or
tamely accept insult. He has the right to resent it, and has the power
of his fraternity to support him. He knows this, and his employer knows
it. Overseers, big with their importance, and inclined to show it by
attacking the self-respect of the men under them are no longer in
demand.
It is very unfortunate that many people misconstrue this result of the
organization of labor as a move toward the abolition of all social ranks
and grades. It is nothing of the kind. Social gradations cannot be
created or brushed away by any legislative enactment, or the acts of
any single class. The combination of the workmen to secure their right
to protect themselves from insult is indeed a movement toward making
them better and nobler men, just as the abolition of slavery in all its
forms was a move in this direction. But no man is truly free if he is
not secure in his right to immunity from personal insult as well as from
bodily violence. It is not strange, however, that the workman, conscious
of the strength of the fraternity behind him, sometimes grows arrogant
and insolent toward those who must necessarily be in authority over him.
Unaccustomed for generations past to other government than fear of one
sort or other, he is all unused to self-control. But it is hardly
possible that this should be a great evil. The body of workmen will,
eventually, if not now, refuse to sanction and defend their members in
any thing which their innate sense of justice must teach them is wrong.
Few workingmen will causelessly ask their brotherhood to undertake the
hardships and loss of prestige which accompany a strike. And even when
insolence is shown toward employers or overseers, they have at least
equal power to resent it, and are not, as was the laborer of a
half-century ago, forced to submit to insults with outward humility.
We have already noticed the condition of the laws in reference to the
laborer in former times: but the repeal of the laws oppressing the
workman, and making him a servant to a master instead of a workman for
an employer, has been largely due to the organized efforts of the trade
unions. To them, also, we owe the passage of many acts like those for
the guarding of machinery in factories, the restrictions upon the
employment of child labor, and the proper care for the health, comfort,
and convenience of employés in general. It cannot be said that the
labor interests have always shown great wisdom in all their advocacy of
new legislation, and too many acts, like those in reference to the
employment of convict labor, show a lamentable retrogression. On the
whole, however, there is every reason to believe that the general course
of justice has been aided by the influence of the trade
unions--something which can be said of very few special interests for
whose benefit our legislatures have enacted laws.
All the above facts we must admit in defence of the organizations which
have, to a large degree, killed competition in the labor market. But in
defence of the especial action of the labor monopolists in forcing wages
up to a point above that which competition alone would determine, there
is also much to be said. Those who are unwilling to concede that there
is any justice in the claim of the wage-workers that full justice is not
yet awarded them, are accustomed to expand on the theme of the improved
condition of the laborer over that in which he was a century ago. How
this can be taken for argument is a mystery. No one thinks of disputing
or diminifying the well-known fact that many workmen of to-day have more
comforts than the princes of the Middle Ages. The single point in
dispute is this: Of the total wealth which is being produced in the
world to-day, is the laborer receiving his fair share? There are not
wanting men of judgment and ability who answer this question with a
decided No. And the greater share of the blame for this injustice they
lay upon the monopolies which we have been discussing. They charge, and
they verify their charge with ample and sound testimony, that of the
wealth which the united brains, and strength, and skill of the world
daily produces, the lion's share is taken by men who render the world no
proportionate service. This is partly due to existing laws, which the
public is not yet wise enough to better; partly to the inertia of public
opinion, which is still prone to cling in many points to the idea of
past generations that the workman was necessarily a slave; and partly to
the narrow selfishness and grasping ambition of many men in the business
world. This is not arguing for the reduction of all to a dead level, as
is so often absurdly claimed. It is arguing that the inequalities which
exist at the present day are not held securely in place by agreement
with the inflexible laws of justice and right. Instead they are abrupt
and uneven, and contrary to these laws; and there is great danger that
the readjustment, which must inevitably take place to bring them in
accord with these laws, will come, not as a gradual change, but as a
series of terrible social catastrophes, involving us in a wreck which
will require a century of civilization to repair.
Only fanatics preach absolute equality. As men differ in their ability
and their power to serve the world, so is it just that the reward which
the world metes out to them should differ in like proportion. But if we
stretch to the utmost the benefit which we conceive the world to derive
from the life of many of its men who reap the richest harvest from its
production, we cannot in any way make out that their services are so
valuable as to deserve such munificent reward. Indeed, it is not very
far from the truth to say of some of our most wealthy men that their
wealth was won instead of earned; and many place a much worse term in
the place of "won."
The workman sums up his case with the argument that as he is confessedly
not getting his just share of the results of his work, he is only
getting his due, or part of it, if by combination with his fellows to
crush out competition, he is able to put up the price of his labor above
the natural rate. Finally, as a last defence for the labor monopolies,
he calls attention to the trusts and pools and monopolies which are
taxing him at every hand for the necessaries of life, and declares that
if he, working on the same principle as the wealthy capitalists, is able
to combine his tens of thousands of fellows into an effective monopoly,
surely he should not be condemned for following the example of the men
who are, or are supposed to be, his social, moral, and intellectual
superiors.
Such is the strong case which the labor organizations present in defence
of the unions which they have formed to kill competition in the labor
market. The investigation we have pursued in the preceding chapters
enables us to add to this a statement of the case more comprehensive and
striking even, than the narrower views which have preceded. In the
chapter on the monopolies in trade, reference was made to the fact that
the competition among purchasers tends to keep prices up, just as
competition among sellers tends to keep them down. Now labor is a
commodity whose price in the market is governed by the same laws of
supply and demand that regulate the prices of all other things that are
bought and sold. But it has this peculiar difference, that the _sellers_
of labor are many, while the _purchasers_ are few, as compared with the
relative proportion of sellers and buyers of goods in general. Then,
wherever there is little competition among purchasers of labor, we shall
expect to find low wages; and where competition to secure workmen is
active, high wages will be the rule. This is so obviously true, in the
light of every one's experience, that we need not stop to prove it.
Now, in the days when manufacturing was carried on in small workshops,
there was a great number of purchasers of labor. The concentration of
manufacturing in great establishments where thousands of workmen are
employed has lessened the number of employers greatly; has it not also
lessened competition among them? It is a well-known fact that in many
great industries, as, for instance, the mining of coal or the
manufacture of iron, there is one rate of wages paid all through one
district, and the employers fix that rate through their associations.
The makers of trusts have sometimes defended them, on the ground that
they enabled the employer to pay his laborers higher wages; but it is
plain that when all the firms in a trade are united in one combination,
there can be no competition between them for the employment of labor.
They will pay them only such wages as they choose; and the bulk of
evidence seems to show that, notwithstanding the vast profits which the
monopolies are reaping, they have been far from showing any general
disposition to share their profits with their employés. It seems almost
unquestionable that we have here the real reason for the extraordinary
increase of labor monopolies within the past quarter century. This
period has witnessed a rapid growth of consolidation and combination in
all our industries, lessening thus the number of employers of labor. The
wage-worker found himself confronted with the fact that he was soon to
lose entirely the benefit of competition for the purchase of his work,
and felt that his only salvation from practical slavery was to prevent
the competition between himself and his comrades from forcing his wages
down to the starvation point. He met the monopoly that threatened to
lower his wages by forming another monopoly that could meet the first on
equal terms.
We have given little space in this chapter to the consideration of the
limit of the power of labor monopolies; but it is obvious that this is
very clearly defined. In the first place, while there are certain
attempts at combination among unskilled laborers, and those not working
at trades, these attempts cannot, as a general rule, be at all
successful. Any man out of employment may be a competitor for the work
which they do, and it seems practically impossible that any organization
can combine, under effective discipline, even a majority of the
workingmen of the country not skilled in a trade. The only ways in which
attempts to kill competition in unskilled labor can be successful, then,
are by the use of force or the boycott, or similar means, and these can
never come into vogue as permanent agents in the world's industry. The
labor monopolies which exist, and which promise, if let alone, to enjoy
continued success, are principally combinations of the workers in
skilled trades, and certain of those employed in manufacturing, mining,
trade, and transportation.
IX.
MONOPOLIES AND COMPETITION IN OTHER INDUSTRIES.
As we take a look back over the long list of monopolies which we have
investigated in the preceding chapters, the natural thought is that we
have considered now the greater part of the industries of the country.
Certainly these occupations of manufacturing and trade and
transportation, are generally considered as our important industries,
and a pretty good share of our legislation and public agitation concerns
itself with the welfare of these industries and with the men who are
employed in them. But certain questions will naturally arise in the
curious mind. Just what proportion of our total working population are
employed in these industries; and of that number how many are reaping
the profits of the monopoly? What are the remaining occupations of our
people, and are the workers in them doing any thing to destroy
competition? To the investigation of these matters we will devote the
present chapter.
The United States Census Bureau classes the gainful occupations of the
people in four great divisions: (1) Agriculture. (2) Professional and
Personal Service. (3) Trade and Transportation. (4) Manufacturing,
Mining, and Mechanical Industries. The monopolies which we have studied
in the preceding chapters are all included in the last two classes. The
total number of persons engaged in trade and transportation in the
country in 1880 is given as 1,810,256, and the total engaged in
manufacturing, mechanical, and mining operations is 3,837,112, or a
total of 5,647,368 in all these occupations among which we have found
monopolies to exist. Of course the great proportion of the persons
included in the above number have no direct interest in the profits of
the industries in whose operation they aid. It is, indeed, argued that
the manufacturer, miner, or merchant who is making enormous profits,
pays, therefore, larger and more generous wages; but it is urged on the
other side that while this is true in isolated cases, the general rule
holds good that the price of labor is governed by the law of supply and
demand; and that, as already pointed out, monopoly among producers means
a monopoly among purchasers of labor. Let us now, however, leave out
this indirect benefit which may, or may not, accrue to the workmen in
these various occupations, and find as nearly as we can the number which
are, or can possibly be, directly benefited by the operation of
monopolies. Let us deduct from the total of 5,647,368, such classes of
persons as it is evident cannot have a direct share in the results of a
monopoly and are not engaged as skilled workmen in a trade which has
been organized to control competition.
We may certainly deduct the following items from the total:
+---------------------------------------------------------+----------+
| Agents | 18,523 |
| Clerks, salesmen, and accountants in stores | 445,513 |
| Commercial travellers, hucksters, and peddlers | 81,649 |
| Draymen, hackmen, teamsters, etc. | 177,586 |
| Sailors, steamboat-men, canal-men, pilots, and watermen | 100,902 |
| Apprentices | 44,170 |
| Blacksmiths | 172,726 |
| Fishermen and oystermen | 41,352 |
| Lumbermen, raftsmen, and wood-choppers | 43,382 |
| Photographers | 9,990 |
| Saw-mill operatives | 77,050 |
| Tailors, tailoresses, milliners, and dressmakers | 419,157 |
| +----------+
| Total |1,632,000 |
+---------------------------------------------------------+----------+
There are a great many other occupations in the list[4] from which these
items are taken which might properly be included in the above, as the
combination which does or can exist in them it is almost certain is of
no practical importance. On the other hand, however, our total of
5,647,368 takes no account of the persons interested in trade,
transportation, or manufacturing through holding the shares or bonds of
incorporated companies; also the errors and omissions of the census are
so great in any event that only broad and general statements can be
based upon them. Deducting, then, from the total of 5,647,368 the
1,632,000, which we found to be surely not interested in monopolies, we
have about four million persons as the utmost number who are benefited
by the profits of the monopolies which we have thus far considered. But
let us look into this a little farther. As we have already stated, the
monopolies of trade are generally unable to raise prices far above their
normal rate. In retail trade, especially, competition shows great
tenacity of life. Also with regard to labor monopolies, it is true, as
we have already stated, that the limits of their operation are pretty
closely defined; even the men in the highest grades of skilled labor
cannot secure for each workman by any combination more than two or
three dollars per day over what he would receive under the freest
competition. Let us, therefore, deduct from the preceding four millions
the persons engaged in retail trade, and all skilled laborers in the
various trades which we formerly included because we conceived that they
might be connected with some form of labor organization, and might also
obtain some benefit through the profits of their employers. But when we
make these deductions we find that we have only a hundred thousand or so
of our four millions left. Briefly summed up, therefore, the fact is,
that the strong monopolies in manufacturing, mining, trade, and
transportation are owned by a very small portion of the population. Just
what this number is, it is impossible to say, for the stock and bonds of
railroad companies, mining companies, and manufacturing companies are
changing hands continually, and no public record is taken of their
distribution and ownership. It may possibly be true, however, that one
million different persons own an interest in some of the various
monopolies which we have studied, excluding the monopolies in trade and
labor. But even if this estimate is correct, it is a well-known fact
that a few hundred immensely wealthy men hold a large share of the stock
of these very profitable monopolies.
[4] From the "Compendium of the Tenth Census of the United States,"
Part II., pp. 1378 and 1384.
Leaving the questions which this statement opens up, for later
consideration, let us consider the other classes of occupations in which
men engage for the purpose of gain, and see if this far-reaching
movement towards the destruction of competition has infected them, and
whether it has proved, or can prove, so successful there as it has in
the industries considered in preceding chapters.
The third great class of occupations, rendering professional or personal
service, gives employment to over four million persons (4,074,328), and
includes in its members those in widely separated ranks of society.
It is, of course, true that the competition in the professions is far
more a competition of ability, real or supposed, than it is a
competition of price; and the former is a competition which is never
likely to be done away with. Yet in all occupations, to a greater or
less degree, there tends to arise more or less competition in relation
to price, and the professions are not entirely exempt. Lawyers, indeed,
seem never to have felt the necessity of fixing any minimum tariff of
fees; and so far as is known, clergymen have never combined to advance
their salaries. But the medical profession has its well known code of
ethics which debars its members from "pushing their business," and has,
in certain places and times at least, prescribed a minimum tariff of
fees. It should be clearly understood, however, that this is not cited
with the intention of putting any aspersion upon the medical profession
in any way. The services which are freely rendered to the poor, and the
disgusting indecencies and insults which are thrust upon the public by
some who choose to ignore this code of medical ethics, would make us
ready to forgive very much worse things than a possible tendency among
members of the profession to refrain from "cutting under each other" in
the matter of fees.
But while the three older professions have evidently little need or
disposition to combine for the purpose of increasing their income from
the community, some of the newer professions occupy different ground.
Architecture is coming to be a profession of no small importance. The
principal architects' society, the Association of American Architects,
has a regular schedule of minimum commissions below which its members
are forbidden to go. Another singular case of professional combination
is the Musical Protective Union, a combination of professional musicians
in New York City, which fixes minimum prices that its members may charge
for their services. On the whole, however, it must be said that the
limitation of competition in the professional and intellectual
occupations is in this country still in its infancy. In England the
fixing of prices of professional service by usage is very much more
common, and in many professions the check to competition thus effected
is of no small importance. To the careful observer there are indications
of a tendency in a similar direction in this country. Is it not more and
more common in professional circles to see a slur cast on the man who
will work cheaply? There is hardly an occupation or specialty which has
not its Associations and its periodicals; and what is more natural than
that an association for mutual benefit should come to adopt that certain
method of securing mutual benefit at the expense of the public, the
restraint of competition?
Examining the remaining occupations in this division, we find that those
engaged in them form a large percentage of the whole population. There
are of laborers whose occupation is not more definitely specified,
1,859,223. Then there are 1,075,655 domestic servants, 121,942
launderers, 77,413 hotel and restaurant employés, 24,000 soldiers,
14,000 messengers, and enough in other occupations similar to the above,
in that very many persons can engage in them without special training,
to make it certain that at least three fourths of the members of this
division, or a little over three million persons, belong to the class of
unskilled workers, among whom, as we have already seen, the attempt to
limit competition and force up wages has not, and cannot possibly have,
more than a limited and doubtful success. Nevertheless, to a very great
extent, the unskilled laborers of the country as well as those working
at minor trades are organized for mutual help and protection; and while
they cannot increase much the rate of their wages without drawing a host
of competitors, they can do much in the way of protecting themselves
from injustice and extortion, as we have pointed out in the preceding
chapter. It may be possible, indeed, that certain changes in the future,
as the requirement of greater skill and efficiency in all kinds of
labor, may make combinations in this class of occupations easier and
more effective. Our domestic affairs, for instance, are constantly
growing more complex, and require greater skill in their operation.
Housekeepers are prone to think the "servant girl" problem serious and
perplexing enough already. It remains to be seen what they would say if
a "Cooks' Protective Union," a "Chambermaids' Sisterhood," or a
"Laundresses' Amalgamated Association," should assume control of the
wages and hours of labor of their domestics.
To sum up, we find that as a whole the 4,000,000 persons engaged in
rendering professional and personal services are in general not
increasing the cost to the public of their services by combining
together to limit competition; and that so far as we can determine, it
is not probable that many of them can do so in the future, even if they
are so disposed.
There remains yet one important class of the community to be considered:
those engaged in agriculture. Can the farmers of the country fall into
line behind the manufacturers and miners and railroad owners, and force
up the price of their products by killing competition, to correspond
with the increased prices which are demanded in many other lines of
industry? They have one thing in their favor in that the principal
products of the soil are necessaries of life, which the community cannot
do without whether the price be great or small, although an increase in
price is sure to result in a decreased consumption.
We may best determine this question by inquiring exactly how the prices
are forced up by monopolies. There can be but one way. The laws of
supply and demand hold good, and it is out of the power of the producer
to greatly affect the demand. It is only the supply of which he has
control. From the manufacturers' trust to the laborers' union, the only
way in which prices can be controlled is through a reduction in the
supply of goods made or men allowed to work; and if the price were to be
arbitrarily raised, the result would be the same; there would be a
surplus of goods, or some unemployed workmen. In order to raise the
price of his products, then, the farmer must do one of two things, which
will bring in the end the same result. He must send less of his products
to market--lessen the supply--or refuse to sell any thing at less than
the increased price which he desires. In either case, if he plants the
same acreage and gets the same yield as before, he will have a part of
his crop left on his hands.
The query then comes, can it be possible for the farmers all over the
country to form so perfect and well-disciplined an organization that
every member shall diminish his remittances to market of grain, wool,
meat, hay, or what not, enough to raise prices; or that he shall refrain
from selling all these articles below a certain defined price? It must
be plain to every intelligent person that it would be a practical
impossibility to effect such a thing. It would be possible to bring only
a small percentage of the farmers in an area 3,000 miles in length and
1,500 in width into a single organization; and it would be essential to
the success of this, as of every other scheme, that no outside
competition should be permitted to exist.
It may be argued that the Knights of Labor succeeded to a degree in
gathering into one organization a large proportion of the workingmen in
all the various trades in the country; but their members were mostly in
cities, many worked together in great factories, and as regards ease of
combination, they were far more easily handled than the widely scattered
farmers of the country could hope to be. Besides, the Knights of Labor
organization appears to be too unwieldy and cumbrous to be long
successful, and internal dissension seems to have already brought it
near its end. It is plain that the farmers are powerless to effect a
reduction of the competition among themselves. Nor is this condition at
all likely to change. Farming is unlike other modern productive
industries in that the cost of production does not decrease as it is
conducted on a larger scale. The most profitable farms are, and perhaps
will always be, the small ones, where the details of the tillage come
directly under the eye of the owner.
Such are the facts with respect to the prospect of making a monopoly of
agriculture, and it would seem that they are so simple and so easily
understood that no attempt would ever be made to restrict competition
among farmers. It is to be recorded, however, that such attempts are
being seriously made. Prominent farmers of the West in the spring of
1888 took the preliminary steps towards the formation of a farmers'
trust. Conventions were held and resolutions adopted reciting that the
operation of trusts in manufacturing industries and of monopolies in
trade and transportation laid serious burdens on the farmers of the
country; and that in order not to be left behind in the struggle for
existence the farmers must combine for their own protection. Committees
were appointed to work out the details of a plan of organization; but
the movement seems to have lost vitality when its projectors came to
study it in detail. The preceding argument fully explains the reason.
It should be said, however, that coöperative associations among the
farmers are growing at a rapid pace. The Grange and the Farmers'
Alliance are primarily coöperative associations for the purpose of
benefiting their members in the purchase of goods and in various other
directions, and they are fast increasing in numbers and influence. The
attempts made to benefit their members in the sale of their produce have
been generally confined to protection against the "middle men." The only
movement of which the author is aware for restricting production to
increase price, has been in certain sections of the South, where
recently a general attempt has been made to restrict the acreage planted
in tobacco in the hope of raising the price.
It is a matter worthy of note here that the combined influence of the
farmers of the country has recently been successful in securing
legislation to defeat an important outside competitor. A few years ago
some chemists found out that from a cheap substance known as beef suet,
an imitation butter could be made, which was in composition and
appearance the same as butter made by the ordinary process, and was
exactly as nourishing a food. There has been much talk of the halcyon
days to come when the progress of science will be so great that food
will be made in the laboratory. Well, here was an important practical
step in that direction. A cheap product worth three or four cents a
pound could be easily converted by a chemical treatment into a valuable
food worth three times as much, and the great profit in the business
brought this substitute for butter rapidly into use. But at once an
indignant protest went up from the farmers of the land. They were being
ruined by the competition of the "grease butter" as they disrespectfully
called it. There was something suggested about the idea that if just as
good butter could be made out of the fat of the cow as out of her milk,
and at half the expense, that it would be a benefit to everybody in the
country who had butter to buy. But the weak protest for the protection
of the general interests of the whole people was not heeded, and
Congress passed a bill laying a tax on the new butter sufficient to stop
the sale. Here was an evident case of killing competition for the sake
of the farming interests, and the force of their unorganized sentiment
alone was sufficient to secure the desired legislation. But when the
farmers attempt to form a trust, they will have to kill competition
among themselves instead of outside competition; and that is a different
and far harder matter.
To agricultural laborers the same rule applies which we have found to
govern other unskilled labor, viz.: that combination cannot effect much
in raising wages. Added to this is the fact that they are widely
scattered, and that a great proportion do not follow this as a steady
occupation. In England, indeed, there is an agricultural laborers'
union, and we may possibly come to that here. But our circumstances are
widely different. The fact that in many sections the agricultural
laborer is not a "hand," or an "employé," or "servant," but a "hired
man," is an important one, for the difference in terms denote a vast
difference in conditions. It is hardly likely that an organization of
any sort is to be expected among those in this occupation.
This last division of occupations contains the most members of any of
the four divisions. The farmers of the country number 4,225,945 and the
farm laborers number 3,323,876. Other minor occupations of the division,
as gardener, florist, etc., bring up the total engaged in agriculture to
7,670,493.
We can now make some interesting comparisons. The evident effect of
monopoly is, in general, to tax the community at large for the benefit
of those who own the monopoly. Let us see what proportion exists between
the two classes:
+-----------------------------------------------------+------------+
| Total number of persons engaged in manufacturing, | |
| mining, trade, and transportation (occupations more | |
| or less monopolized) | 5,647,368 |
| | |
| Total number of persons engaged in agriculture and | |
| in furnishing professional and personal services | |
| (occupations not monopolized) | 11,744,821 |
+-----------------------------------------------------+------------+
Thus at the greatest estimate we can make of the number benefited by
monopolies, for each man who is gaining by them, two are having their
income reduced. If we take the estimate previously made, that the utmost
number of persons who can possibly be reaping benefit by ownership of
the especially profitable monopolies, trusts, transportation lines,
mines, etc., is one million, we have opposed over sixteen millions of
the community who are being taxed by their operation. Let a sharp
distinction be drawn at this point, however. The above comparison is to
be confined to the things between which it is made, and not confused
with others to which it has no reference. It is not a comparison of the
sort which social agitators are fond of making between the great numbers
of the working classes and the relative scarcity of the wealthy. Except
so far as the operation of profitable monopolies by the few tends to
bring about this unequal distribution of wealth, that is a matter with
which we have nothing now to do.
There is one point in this connection, however, which it is well to make
plain, as it concerns a class of people which is not included in either
of the four divisions that we have already described--those who live on
the income of their property.
We have before alluded to the fact that in the popular speech
"capitalist" and "monopolist" are often used interchangeably. If we
carefully consider the real status of the capitalist, however, we find
that of the three requisites of production--labor, capital, and natural
agents--capital is the requisite which is most perfectly secured from
the control of monopoly. The rate of interest for the use of capital is
regulated so perfectly by the law of supply and demand, that all the
anti-usury laws which have ever been enacted have been able to
accomplish but little in enabling the borrower to secure loans at a less
rate than that prescribed by competition. The reason for this is plain
on consideration. The total supply of accumulated wealth of the whole
civilized world is engaged in this competition, and the millions of
wealth which are added every day are new contestants in the market.
Competition in other products is held in local bounds by the cost of
shipment over long distances; but wealth in the form of value can be
transferred quickly and easily to any part of the civilized world where
a market awaits it. Every person who earns money or owns property is a
potential competitor, in that he can be made to lend his capital for
great enough inducements. Under the pressure of this competition, the
price for the use of capital--the rate of interest--has steadily fallen;
and the enormous production of wealth of which our industrial resources
are now capable is such that the fall is certain to continue, and a very
few years will see loans at 2 per cent. as common as those at 4 per
cent. are to-day. Combination to restrict competition among those who
loan capital for investment is an utter impossibility. The number of
people with money to loan, or with property on which they can raise
money for that purpose, if they wish, is too large a proportion of the
population to be ever brought into a combination to restrict
competition. The stringency which sometimes occurs in the money market
need not be cited as a contradiction of this statement. That is a matter
which has only to do with the currency. The broad fact, and it is a most
important one, is that capital, a necessary agent of production, can
never be monopolized.
X.
THE THEORY OF UNIVERSAL COMPETITION.
We have now examined all the important occupations in which men engage
for the purpose of gain; and we have found that while certain large
classes of men still have the returns for their industry fixed by the
laws of competition, other large and important classes have been able to
check and limit competition, so that their returns from their work are
constantly increased; while others still, are in possession of certain
agents, so necessary to the community and so rare, that a price can be
exacted for their use greatly in excess of the original cost to their
owners. Some of the effects of this state of affairs it is easy to
perceive. We have, indeed, pointed out for each monopoly described some
of the especial abuses to which it gives rise; and it is plain enough
that the general tendency is, first, to greatly enrich the possessors of
the strongest monopolies at the expense of all other men; second, to
give a certain degree of advantage to the possessors of minor
monopolies,--as, for instance, monopolies in articles which are
luxuries, and can easily be dispensed with; and third, to seriously
injure all those engaged in occupations in which the price of the
product is still fixed by competition.
Every one will agree that this is an evil state of affairs. It is not
just that my neighbor, who owns a mine or a railroad, should ask me
what he pleases for coal, or for carriage of my produce to market; while
I, being a farmer, must sell the products of my labor at a price
determined by competition with the products of ten thousand other farms.
No one can deny at this day that it is contrary to the principles of
justice to give to the men in any one occupation or calling an advantage
over those in any other, except in just the degree that one occupation
is more beneficial to the world than another. The question then arises,
how may we best remedy this state of affairs? Shall our panacea be to do
away with all monopolies, and put every industry back upon the
competitive system? If so, by what means are we to apply this remedy? Or
shall we go to the other extreme and adopt the antipodal doctrine to the
foregoing, that competition is an evil which ought to be done away with;
and then proceed to abolish competition in every trade and occupation
where it still exists, if we can find any possible means of
accomplishing such a task.
The investigation we have already pursued gives us no answer to these
questions. We have thus far studied facts, and made little attempt to
deduce from them general truths. We are now informed as to the
widespread growth of monopoly; and we have paid some attention to the
injustice and wrong to which it gives rise, in order that we may
understand the urgent necessity for finding the right remedies, and
finding them at once. Our study is henceforth to be devoted to this end.
How shall we go about it? In the first place, it is evident that we
might make a far wider and more detailed investigation of existing
monopolies, and still be no nearer our desired end. We might study the
facts concerning each especial railroad monopoly in the country, for
instance, without reaching any valuable conclusion with regard to the
proper method of restricting railroad monopolies in general. But if we
were to take the monopoly exercised by a single railroad company, and
study the principles on which it is founded and the laws by which it is
governed, we might then be able to state something of value in reference
to proper methods for its control. Evidently, then, principles rather
than facts are to be the chief subjects of our future discussion,
although, of course, we can only discover these principles by
investigating the facts already found, together with others which may
come to our notice.
Our very first and most obvious generalization from the facts which we
have studied is, that in all the monopolies we have considered, the
inherent principle is the same, and the effect on the community is of
the same sort. Therefore, instead of hunting for separate remedies for
railroad monopolies and trusts and labor monopolies, we will see what
the general problem of monopoly is, and what is the general nature of
the remedy that should be applied; the details applicable to each case
will, of course, be different; but the underlying principle must be the
same.
But if we examine our problem a little more closely we see that the word
_monopoly_ seems to be only a negative, expressing the fact that
_competition_ is absent. We will therefore direct our studies to
competition itself, and will consider first its action as the basis of
our social system.
In the most primitive condition of man which we can imagine, each person
provided for his or her own need. The competition which then existed was
not competition, in the sense which we use the word in this volume, but
was a struggle for existence and a gratification of the baser desires,
of the same sort as that which now prevails in the brute creation,
resulting in a "survival of the fittest." With the introduction of the
family relation, the principle of the "division of labor" was utilized,
the female doing the hard and menial work, while the male devoted
himself to hunting and fishing, or subsisting on the results of his
helpmate's industry. As men's wants increased and they became more
industrious in supplying them, this division of labor was extended. The
man most skilful in fishing neglected the use of the bow and spear, and
his surplus of fish he exchanged with his neighbor for the fruit of the
chase. The very same principle applied to different tribes brought about
the first commerce. A pastoral tribe, with large flocks and herds,
exchanged their surplus products with less civilized tribes who
continued to live by the chase, or with a more civilized people who had
begun to till the soil.
It is plain that these were first steps in civilization. Man, so long as
he supplies only such of his wants as he can supply with the labor of
his unaided hands, must remain in a half-fed, half-clothed, and untaught
condition, because his strength and skill, when diverted in the many
directions which his wants require, are not enough to enable him, even
when he spends all his time at work, to supply himself with more than
the barest necessaries of life. It would be interesting to trace the
development of this principle of action through its various stages down
to the present time, when we see men everywhere working at various
trades and occupations, and always to supply some want of their
fellow-men. Every person in the community is absolutely dependent upon a
multitude of others, most of whom he knows nothing of, for the supply
of almost all his wants. Human society is thus growing more and more
interwoven and interdependent. The motto of the Knights of Labor is a
true one, apart from the altruism involved in it. "An injury to one _is_
the concern of all," because the mass of humanity is connected and woven
together by such strong ties of self-interest, as well as fraternity,
that a calamity to any class or country is felt in some degree
throughout the civilized world. This is vastly more true now than it was
a half-century ago. Under such conditions as existed then, the doctrine
of _laissez-faire_, that the government should confine itself to the
prevention of violence and crime and the maintenance of national honor
and integrity, letting alone the industries of the country to develop
and operate according to natural laws, was not liable to do harm. But
the conditions now are wholly changed. The interdependence of the
community involves a moral inter-responsibility, and the time has come
when we must recognize this by making it a legal responsibility as well.
We are now ready to consider in detail this inter-relationship of
society, and to examine the natural laws which govern it. We have
already stated the fact that, broadly speaking, each man is engaged in
supplying the wants of his fellow men, because in that way better than
in any other he can supply his own wants. We shall find this an easy
matter to understand if we conceive that every man puts the products of
his labor, of whatever sort it be, into a common public stock (offers it
for sale), and takes out of this common stock (buys) the various
articles which he wants. He does the first simply that he may do the
second, not because he desires to benefit his fellow-men. The money
which he receives (as we do not propose to consider here any questions
regarding the currency) we may regard as simply a certificate that he
has done a certain amount of work for the world, the measure of which is
the number of dollars he receives; and on presentation of that
certificate, he can obtain other articles which he desires.
We have next to consider the fact that there is a great variation in the
amount which a man can take out from this common stock. One man is able
to provide himself from the common stock with a host of luxuries, while
another may only take out a scant supply of the barest necessaries of
life. If this distribution operated with perfect equity, a man would be
permitted to take out of this common stock exactly in proportion to the
benefit which the world at large received from that which he put in. No
human judgment, however, is competent to fix, with even an approach to
precision, the relative actual benefit which each member of society
renders to his fellow-men as a whole. But our social system effects that
for us better than it could be fixed by any arbitrary human judgment.
This it does by a law known as the law of supply and demand. Instead of
the actual benefit, this law takes what people choose to consider as
benefit, which is the granting of their desires, whether they desire
things hurtful or beneficial. It is these desires for things which
others can produce which constitute demand. It is to be borne in mind
that this is a broad term, and includes not only desires for food,
clothing, and actual things, but for service of every sort, in short,
demand is the desire for any thing whatever for which people are willing
to pay money. But when there is this demand--this willingness to pay
money for any article--people begin at once to supply it, because the
money they receive allows them to take goods which they wish from the
common stock. Evidently, if there is an unlimited supply of any thing,
people will not pay money for it. People will not pay money for fresh
air to breathe when they are out-of-doors, and the supply is unlimited;
but when indoors, the supply may be limited, and they will spend money
to have ventilators and air-pipes built to supply them with fresh air.
Or take the contrary case: The supply of some commodity, say flour,
falls very short. Evidently less flour must be used by the world than
was used in the years of a more plentiful wheat harvest. But no one will
wish to be the one to go without, and most people will pay a little more
rather than do so. Therefore the price rises.
The competition which we have chiefly considered is the rivalry which
exists between the men who supply the same sort of goods; but there is a
rivalry among buyers as well. Speaking generally, every buyer is trying
to purchase for as little as possible, and every seller is trying to
dispose of his goods or services to the world for as much as possible,
which each has a perfect right to do.
We have already seen that prices vary with the relative proportion
between supply and demand, rising as demand rises or supply fails, and
falling as supply increases or demand falls off. But to complete the
wonderful perfection of the mechanism, the reciprocal relation is
introduced, so that supply and demand vary with price. If the price
rises, fewer people can afford to buy and more will be anxious to sell;
while if the price falls, more people will wish to buy and fewer people
will be willing to sell.
We can now easily see why some men are able to take out from the world's
common stock of product so large an amount, while most men can take but
a meagre allowance. By the law of supply and demand the price is far
higher for the service which one man renders to the world than another.
Let us take the operation of a large machine shop, for instance. Only
one superintendent is needed, and he should be a man who has devoted
much time to mastering all the details of the business, and is
experienced and competent to so govern the work that a large product
will be turned out at a small expense. There is a demand in the country,
let us say, for 5,000 such men; but out of the 5,000 who are filling
such places, there are perhaps 50 who seem almost faultless in their
skill and industry, there are 500 who are with one or two exceptional
faults, almost equally efficient, there are 3,000 who are fairly good
men, and the rest may be classed as those who hold their positions
because better men for the place cannot be had. So with the skilled
machinists, the relation of supply and demand is such that the price of
their labor is kept up to perhaps $4.00 per day. But of common laborers
the supply is so related to demand that the price of their work is very
low. Thus the three classes take very unequal amounts from the common
stock. The superintendent, perhaps, is able to take five thousand
dollars' worth of goods each year. The skilled workman can spend perhaps
one thousand five hundred dollars, while the laborer can spend but five
or six hundred dollars. Thus the men who secure the greatest amount of
wealth in return for their services to the world, secure it because
people are willing to pay it rather than pay less for men of less
ability. This is not the same as rewarding a man according to the actual
benefit which he does to the community, but it is an approach to it; and
it seems to be as close an approach as is possible by human methods.
This social system is not the creation of any man or set of men, but has
grown of itself out of the tendency among men to secure the things they
wish for with the least exertion. And its theoretical working is
marvellously perfect. Any thing which men desire sufficiently to exert
themselves to secure it, can be bought with a small part of the time and
labor, measured in money, which would be required if each made it for
himself. Not only this, but the aim of every man is to do the greatest
service to the world and best meet its desires, thus securing in return
the greatest rewards for himself. Rivalry among purchasers constantly
tends to increase the rewards of the producers, while competition among
the latter tends toward the furnishing of a better article at a smaller
price. These two forces hold each other in stable equilibrium, for a
variation tends always to bring things back to their normal condition.
Let us look more closely at the theory of the competition among
producers. We see that, speaking broadly, all occupations are competing
with each other. If changes in the supply or demand raise the rewards in
any calling, men will leave other work to engage in it. Men by the
pressure of competition are forced to seek out the easiest and most
direct methods, and to learn how to secure the greatest results with the
least expenditure of labor and material.
It is this principle which lies at the very root of our industrial
development. Men have so striven to meet each other's competition and
outstrip each other in the production of superior goods at low prices,
that the cost of the staple articles of consumption, measuring by the
labor required to produce them now and the labor required by the clumsy
tools and hand work of a century ago, is from a tenth to a hundredth of
the cost in those days. It must be remembered, too, that this system of
competition is in accordance with the sense of inalienable personal
rights which is implanted in the breast of every man. The work of my
hands and brain are my own. In disposing of it for a price, I have a
right which none may deny to obtain such a sum as I can induce any one
to pay me. If I choose to sell it for less than my neighbor, it is my
right. In short, the open market is open to all; and every man has a
right to sell there his labor, his skill, or his goods, of whatever sort
he can produce, at such a price as he can obtain. The same is true of
the buyer. I have a _right_ to go into the open market and secure such
goods as any one wishes to sell me at the lowest price for which he will
part with them. A curious illustration of this sense of personal right
is the custom duties on imported goods. It is an evidence of this
inherent feeling of a natural right that both public opinion and the law
hold that it is a much less serious crime to smuggle than to steal.
There are a dozen people who would smuggle, if tempted to do so, to one
who would steal. Another illustration is the opposition shown to
sumptuary laws on the same grounds.
It is to be said that the fact that competition lies at the foundation
of our industrial civilization, tersely expressed in the saying,
"Competition is the life of trade," has long been known, and, to a
certain extent, appreciated. The common law, based on the decisions of
men most eminent for wise insight and sound judgment, has always held
that combinations to restrict competition and establish a monopoly were
contrary to public policy, and the protection of the law has invariably
been refused, whether they were combinations of labor or of capitalized
industries. The establishment of labor combinations, indeed, was long a
criminal offence, as we have pointed out more fully in the chapter
devoted to that subject. It must be said, too, that the principle has
come to be generally, though rather blindly, understood by the masses of
men. It is recognized, though perhaps not very clearly, that competition
lowers the prices of goods, and that this benefits every consumer. Let a
proposition to build a competing railroad line, or a competing
electric-light plant be submitted to popular approval, and, under the
impression that they are benefiting themselves, hard-working men will
cheerfully assume heavy burdens of taxation to aid the new enterprise.
So blind and unreasoning indeed, is this popular abiding faith in the
merits of competition, that it has been responsible for some of the
greatest wastes of wealth in unproductive enterprises that have ever
been known.
We have now examined the theory of universal competition as commonly
accepted at the present day, and it is rightly considered a fundamental
principle of society. It is the practice of most economic writers of the
orthodox school to lay great stress on the importance of this
fundamental principle, and enlarge upon its various manifestations. The
many attempts to limit and destroy competition, which we have studied,
they consider merely as abnormal manifestations which are opposed to
law, and so not worth while considering very fully. But we have seen
clearly to what extent the destruction of competition has gone on; and,
with this knowledge, the question almost inevitably occurs to us: Is not
this decay and death of competition, this attempt to suppress it under
certain conditions, too wide and general a movement to be treated as
merely a troublesome excrescence? Is it not likely that there are
certain fixed laws regarding competition which determine its action and
operation, and sometimes its death? If this be so, it is of the highest
importance that we find and study these laws; and to that purpose we
will devote the following chapter.
XI.
THE LAWS OF MODERN COMPETITION.
Thus far in our study, we have assumed that we knew what competition
was. Now, however, as we are to study it scientifically, we are in need
of an exact definition, that we may know just what the term includes.
Prof. Sturtevant, in his "Economics," says: "_Competition is that law of
human nature by which every man who makes an exchange will seek to
obtain as much as he can of the wealth of another for a given amount of
his own wealth._" Simmer this down to its essence, and we have simply:
_Competition is selfishness._ To the other evident faults of the
definition we need not allude. It is a much more satisfactory definition
which Webster's Dictionary gives us, for it includes the idea that
competition necessitates two or more parties to exercise it:
"_Competition is the act of seeking the same object that another is
seeking._" But this is too broad a definition for our purpose. It takes
in competitions for fame, social standing, etc., with which we have
nothing to do.
Failing to find a satisfactory definition, let us make one, as follows:
_Competition is that force of rivalry between buyers or between sellers
which tends to make the former give a greater price for the commodity
they wish to secure, and tends to make the latter offer better
commodities for a less price._
That competition _is_ a force, even in the popular estimation, is
evidenced by such common expressions as "the pressure of competition,"
"a strong competition," and indeed, "the force of competition." But
these very expressions show us as well, what we have already found to be
true in the preceding chapters, that it is not a constant force but a
variable one. What, then, are the laws of its variation?
Let us see what we can learn by a study of three typical examples of the
force of competition. Let us take first the business of growing corn.
There are perhaps three million farmers in the United States engaged in
producing corn, and each one of these competes with all the others. Is
this doubted? We have defined competition as a rivalry that tends to
make the sellers offer better goods for a less price. Now at first sight
it may seem that there is no rivalry at all. Neighboring farmers work
together in all harmony; and no man thinks that because his neighbors
have raised a large crop of corn, he is in any way injured. And yet this
_tendency_ to give better goods and lower prices exists and is plainly
felt. Suppose a new and superior variety of corn were introduced, which
buyers preferred. Some farmers would at once begin to raise it, so that
they might be more sure of a market and perhaps of a better price, and
other farmers would be obliged to follow suit to meet the competition.
Again, consider that the supply and demand adjust themselves to each
other through competition. For suppose, at the ruling price, the demand
to be less than the supply; then to increase the demand, the price must
fall; and the cause of the fall in price is simply that the farmers
compete with each other for the market, and lower their prices in order
to secure a sale for their crops. Note, however, that the rivalry in
this case never becomes a personal one. Each farmer recognizes that an
increased supply lessens the price for his goods; but his neighbor's
extra acreage is such a drop in the bucket, that he never thinks of it
as being really a rival of his own crop.
Take as a second example, the wholesale paper trade. Here are perhaps
three hundred men, each knowing personally many of his competitors and
probably hating some of them cordially. Each striving to secure for
himself all the trade possible, and to gain, if he can, his rivals'
customers. He sends out his salesmen with instructions to, "Sell goods!
For the best prices you can get, but sell them, anyhow." These
"drummers" are sharp, active business men, they might well be employed
in directing some productive process; but they go out and spend their
time in inducing customers by all the means in their power to buy their
goods. They spend money in various "treats" to secure the
good-fellowship of the man with whom it is desired to trade, and use his
time as well as their own. Another item of expense is for advertising
and for keeping the firm name prominently before the purchasing public.
All these things cost money, as any wholesale merchant engaged in a
business where there is sharp competition can testify. It may be thought
that a firm which would have the courage to do away with all these
expenses and give the money thus saved to their patrons in reduced
prices and better goods, would be able to keep its trade and even gain
over its competitors. But it is hardly so; most men are more likely to
be wheedled into taking slightly inferior goods at a slightly greater
price.
Another matter to be considered in this connection is the variation in
price. In the case of the producers of corn, we saw that prices were
practically uniform at any given place, being fixed by the ratio of
supply and demand in the chief markets of the world. But in making sales
of paper, the sharp, close-dealing buyer is generally able to secure a
better price than a buyer not posted in regard to the condition of the
paper trade.
As competition becomes more intense, its burdens become more heavy to
carry. Perhaps two of the largest houses in the trade, who are able to
force prices lowest, come to a sort of tacit understanding that their
salesmen "will respect each others rights a little and not force prices
down beyond all reason." It is plain that _here_ the foundation is laid
for the establishment of a monopoly. Yet the agreement certainly seems
to be nothing more than these two firms have a right to make. Its result
is seen, however, in a slight increase in the price their customers have
to pay. Soon the tacit agreement becomes a formal one. Then other firms
are taken in. The first seed has borne fruit. The combination grows
larger and stronger. The number of producing units is growing less.
Finally it includes practically all the paper manufacturers in the
country. Whoever wants paper must buy of the combination, there is no
other source of supply. Competition is dead.
If the combination is strong enough and is managed well enough, it may
be permanent; and prices of paper will be regulated by other laws than
the law of competition. But suppose that the number of paper makers is
so great and that they are so widely scattered that the combination
proves difficult to maintain; local jealousies creep in, and charges are
made of partiality on the part of the managers. The combination finally
breaks up. Can we expect a perfect return to the old system of free
competition? When men have once reaped the enormous returns that are
yielded by the control of a monopoly, the ordinary profits of business
seem tame and dull. There will surely be attempts to form the monopoly
anew on a stronger and more permanent basis; and even if these attempts
do succeed in producing only short-lived monopolies, the effect will be
to keep the whole trade and all dependent upon it in a state of disquiet
and uncertainty. Prices will swing up and down very suddenly between
wide limits; and it is everywhere recognized that _stability in price_
is a most important element in inducing general prosperity. A perusal of
the trade journals for the years 1887 and 1888 will convince one of the
truth that when a combination is once formed, its members are loth to
try competition again. A considerable number of combinations which were
formed in 1887 were soon broken up, often from the strength of old feuds
and jealousies. But in almost every case they have been formed anew on a
stronger basis after a short experience of competition.
This matter of the variation in price is a very important one, and it
has an important influence in checking business prosperity. Men are far
less apt to engage in an enterprise, if they cannot calculate closely on
prices and profits. But the main point, after all, is the waste which is
due to competition. It is for the interest of the public at large that
the papermakers should devote all the energies which they give to their
business to making the best quality of each grade of paper with the
least possible waste of labor and material.
Take for a third example two railway lines doing business between the
same points. We have fully pointed out the practical working of this
sort of competition in the chapter devoted to railways. It is plain that
the general effect is a fluctuation of rates between wide limits, an
enormous waste of capital and labor, and ultimately, the permanent death
of competition by the consolidation of the two lines.
In comparing now the above three cases, the most noticeable difference
in the conditions is in the _number of competing units_. There were in
the first example three million competitors; in the second, three
hundred; and in the last, but two.
The first difference in the competition which existed is in intensity.
In the case of the producers of corn, competition was so mild that its
very existence was doubted. In the case of the papermakers it was vastly
more intense, so that it caused those engaged in it to take steps to
restrict and finally abolish it. In the case of the railroads it was
still more intense, so that it was not able to survive any length of
time, but had to suffer either a temporary or permanent death very soon.
Let us state, therefore, as the first law of competition, this: _In any
given industry the intensity of competition tends to vary inversely as
the number of competing units._
We also saw that among the producers of corn there was virtually no
waste of energy from competition. Among the paper makers there was a
large waste. And in the case of the railroads, the whole capital
invested in the rival railroad, as well as the expense of operating it,
was probably a total waste. Let us state, then, for a second law of
competition: _In any given industry the waste due to competition tends
to vary directly as the intensity._ As an additional example to prove
the truth of these laws, take the competition which exists between
buyers. In the case of ordinary retail trade the number of buyers is
very great, and the competition between them is so moderate that we
hardly remember that it exists. It is difficult to see how there could
be any waste from this competition among buyers, at least of any amount.
Expressed in the language of the laws we have found: The number of
competing units is so great that competition is neither intense nor
wasteful.
From these two laws and a study of the examples we have given, it is
easy to deduce a third. We have seen that when competition became very
wasteful, monopoly arose; indeed, we have noted the working of this law
all through our investigation. The principal cause assigned for the
formation of the linseed-oil trust was the waste which intense
competition had caused. The third law is, then: _In any given industry
the tendency toward the death of competition (monopoly) varies directly
with the waste due to competition._
We might now combine these three laws to deduce the fourth law, which
is: _In any given industry the tendency toward the death of competition
(monopoly) varies inversely with the number of competing units._ But
this law is also proved independently. Look back over all the monopolies
we have studied, and it will be seen that one of the most important
conditions of their success was the small number of competitors. Fifty
men could be brought together and organized, and made to bury their
feuds and rivalries, when with a thousand the combination would have
been impossible. We have seen, in the case of the farmers, how their
great number alone has prevented them from forming combinations to
restrict the competition among themselves.
It should be said that these laws, like all other laws of economics,
are not to be taken in a narrow mathematical sense. We cannot study
causes and effects dependent on the caprice of men's desires and wills
with the minute exactness with which we solve numerical problems. Taken
in the broad sense, however, the study we have made in the preceding
chapters is sufficient proof of their truth.
The common expressions of trade afford still further evidence. We often
hear the expression: "A healthy competition." But the very existence of
the phrase implies that there may be an unhealthy competition, and if
so, what is it? Is it not that competition whose intensity is so great
that it causes a large waste of capital and labor in work other than
production; whose intensity is so great that, like an animal or a
machine working under too great a load, it labors intermittently,--now
acting with great intensity and forcing prices far below their normal
plane, now pausing in a reaction, when a temporary combination is
formed, and allowing prices to spring back as far above the point
indicated by the relation of supply and demand; and finally reaching the
natural end for unhealthiness--death. In fact, a recent economic writer
declares that especially intense competition should be called war, as,
indeed, it frequently is called, rather than competition.
Looking about us for other causes of variation in the intensity of
competition we discover a fifth law: _The intensity of competition tends
to vary directly in proportion to the amount of capital required for the
operation of each competing unit, especially when the interest on the
capital invested forms a large proportion of the cost of production._
Take, for example, the case of a railway line. All the capital invested
in it is wasted unless the road is in operation. Hence it will be
better to operate the road, so long as receipts are any thing more than
the expense of operation, than to abandon it. An enterprise in which no
capital is invested will cease operations when receipts do not exceed
its expenditure and there is no prospect of betterment. But in the total
expense of operating a railroad, a large item is the interest on the
capital invested, which is as truly a part of the total cost of carrying
the traffic as is the daily labor expended in keeping the road in good
repair. (In railway bookkeeping only an arbitrary line can ever be drawn
between capital account and operating expenses.) Now, in order to pay
operating expenses and fixed charges, railways must secure traffic. We
suppose that they are doing this by competition, and that they have not
yet combined to form a monopoly. Let us suppose that this competition
cuts down receipts to a point where they are just sufficient to pay the
whole cost of carriage. In an enterprise in which no capital was
invested some of the competitors would be sure to fall out when profits
disappeared; but here there is no such chance of relief; and though the
competition keeps on until the receipts are only enough to pay the
operating expenses, still the road is not abandoned because then the
capital invested, in it would be a complete loss. Changes in productive
processes often lessen the demand for a line of goods; but the owners of
the capital invested in factories and machines for making these goods
may often cause them to be continued in operation at a loss rather than
lose all that they have invested, and because they hope for better days
and a renewal of the demand.
For the sixth law of competition we have: _In any given industry the
tendency toward the death of competition (monopoly) varies directly
with the amount of capital required for each competing unit._ This law
is proven in part by the preceding laws; for when a large capital is
required for each competing unit, the number of competitors will be
small and the tendency toward monopoly will be strong; but it may also
be proven independently. Business men, before they form a combination,
are certain to ask whether new competitors are likely to enter the field
against the combination. Now, as we have seen in very many cases in the
preceding chapters, when there is a great amount of capital required,
new competitors will be very unlikely to enter the field. If there is
but little capital required, they will be very apt to do so, being
tempted by the prospect of large profits at the monopoly's prices. But
they know that the combination will concentrate its strength to fight
them in every way; and if they must invest a great deal of money in
buildings, plant, etc., to start operations, they will be apt to think
twice before they take the field against the combination.
The seventh law of competition is: _In any given industry in which
natural agents are necessary, the tendency toward the inequality of
competition (monopoly) tends to vary directly with the scarcity of
available like natural agents._
The influence of limited natural agents in promoting the growth of
monopolies is a matter of the greatest importance. That the law is true,
is evident upon slight investigation. For if some especial gift of
Nature is a necessity to any industry, and those who are engaged in that
industry can secure all the available gifts of Nature of that sort,
there is no opportunity for new competitors to enter the field.
It is to be noted that in this seventh law we have used in apposition
with the term monopoly, the term "inequality of competition" instead of
"death of competition," as in the preceding laws. We are now in need of
a definition of the term monopoly. Webster defines it as "the sole
control over the sale of any line of goods"; Prof. Newcomb says "a
monopoly is the ownership or command by one or a limited number of
persons of some requisite of production which is not solely a product of
human labor"; Sturtevant says "a monopoly is such a control of the
supply of any desirable object as will enable the holder to determine
its price without appeal to competition." To the first definition we
object that it is both narrow and indefinite. The second seems to omit
such important classes of monopolies as the combinations to limit
competition; and Sturtevant's definition is unscientific in this: Hardly
any monopoly exists whose holders can without limit determine the price
of its product. If the price continues to rise, competition in some form
will appear. Take, for example, the business of transporting goods from
New York to San Francisco; if all the railway lines combine to form a
monopoly, the competition of ocean steamers via Panama would eventually
stop the rise in rates, if no other outside competition stopped it
before. The owners of a rich mine have a real monopoly, though they
cannot raise the price above a certain point without being undersold by
the owners of poorer mines or those more remote from market.
Consideration of these facts lead us to construct the following
definition: _A monopoly in any industry consists in the control of some
advantage over existing or possible competitors by which greater profits
can be secured than these competitors can make._ For the law of
monopolies we have: _The degree of a monopoly depends upon the amount of
advantage which is held over existing or possible competitors._ When the
advantage of the monopoly is so great that no other competitor will try
to do business in competition with it, we may rightly say that
competition is dead. The great share of the monopolies which are based
on this seventh law of competition, those due to the control of natural
agents, only restrict competition by the attainment of an advantage over
their competitors, and do not destroy it.
The principal natural agents which are necessary to production, and
whose supply may be so limited to cause an appreciable monopoly, are:
(1) Land for agricultural purposes; (2) land for purposes of manufacture
or commerce; (3) transportation routes, such as mountain passes, room
for railway tracks in a city street, or for gas-and water-pipes beneath
its surface; (4) natural deposits of minerals and metals; (5) sources of
water supply or water power. (The latter is unimportant now compared
with a score of years ago, because of the lessened cost of its
competitor, steam.)
Let us be especially careful not to confound this seventh law of
competition with a certain doctrine which is now receiving more and more
credence, which is, in brief, that the private ownership of the gifts of
Nature used in production should be abolished. The grounds in opposition
to this doctrine we will discuss in a later chapter. The law we have
stated says nothing of the right or wrong of the private ownership of
the gifts of Nature. What it does say is, that when any of these are
limited in amount, those who control them are given an advantage over
other would-be competitors, which constitutes a monopoly.
In considering the natural agents enumerated above, we can easily see
the truth of the law. Agricultural lands, the most important of natural
agents, are in this country so abundant that their rental is entirely
fixed by competition. In England, where they are so much more limited in
area, rent is fixed by custom. As regards land for purposes of
manufacture or commerce, we have already pointed out the cases in which
monopolies are prominent, as also for transportation routes. As regards
mineral wealth, deposits of iron are so numerous and widespread that no
monopoly has ever yet succeeded in controlling competition in the
manufacture of pig-iron to any great extent. But the rarer metals, like
copper, tin, nickel, and others, are largely controlled by monopolies.
Now, while this seventh law says nothing as to the right or wrong, the
expediency or inexpediency of the private ownership of natural wealth,
it does follow from it that this private ownership generally constitutes
a monopoly, as we have defined it. For of no class of natural agents is
it true that their richness and availability are absolutely equal. Those
competitors who have the richest and best natural resources to work with
have an advantage over their competitors which is essentially a
monopoly. Thus the owners of fertile lands near a large city have an
advantage over the owners of less fertile lands far removed from
markets, which is of a monopolistic nature. If any one doubts this, let
him say how this case is logically different from that of the ownership
of a mine of native copper so near to New York City that the cost of
laying it down in the market there will be half what it is from any
existing mine; or, for a second case, take the New York Central railway,
which has the control of such a valuable pathway between the Mississippi
Valley and the Atlantic seaboard that it has an advantage over all
competitors in the business of transportation between those points.
We have now to turn our attention to other variations in competition
besides the variation in intensity. We need to distinguish the different
species of competition. That competition which is in daily operation in
most branches of industry we may call _actual_ competition. That
competition which would spring up in any industry in case an increase in
profits called it out, we may call _potential_ competition. The third
class is instanced in the letting to the highest bidder a franchise for
city water or gas-works, or street-car lines. Here competition acts at a
single time to fix the price for perhaps twenty years. We may call this,
for want of a better name, _franchise_ competition. It possesses the
evident advantage that it avoids both the waste of competition and the
fluctuation of prices. It has the disadvantage that, unless the owners
of the franchise are held strictly to their contract, quality is apt to
be sacrificed; also that if the purchase is for a term of years,
cheapening in processes may result in undue profits to the franchise
holders. The discussion of this matter, however, does not properly
belong to this chapter.
Arranging in their logical order the laws of competition which we have
found, we have the following diagram:
In any given industry the tendency toward monopoly increases:
(1.) As the waste due to competition increases.
The waste of competition increases in proportion to its intensity.
(1.) The intensity of competition increases as the number of
competing units decreases.
(2.) The intensity of competition increases with the amount of
capital required for each competing unit.
(2.) As the number of competing units decreases.
(3.) As the amount of capital required for each competing unit
increases.
(4.) As the number of available natural agents decreases.
The preceding diagram sets plainly before us the three great salient
causes from which have grown the long list of monopolies under which our
civilization labors. First, the supply of natural agents of which new
competitors in any industry may avail themselves has been largely
exhausted, or has been gathered up by existing monopolies to render
their position more secure; the world has not the natural resources to
develop that she had a century ago. Second, the concentration of all the
productive industries, except agriculture, into great establishments,
while it has enormously lessened the cost of production, has so reduced
the number of competing units that a monopoly is the inevitable final
result. Last, the enormous capital required for the establishment and
maintenance of new competing units tends to fortify the monopoly in its
position and render the escape of the public from its grasp practically
impossible. These terse statements contain exactly the kernel of potent
truth for which we are seeking; MONOPOLIES OF EVERY SORT ARE AN
INEVITABLE RESULT FROM CERTAIN CONDITIONS OF MODERN CIVILIZATION.
The vital importance of this truth cannot be over-estimated. For so long
as we refuse to recognize it, so long as we attempt to stop the present
evils of monopoly by trying to add a feeble _one_ to the number of
competing units, or by trying to legislate against special monopolies,
we are only building a temporary dam to shut out a flood which can only
be controlled at the fountain head.
The facts of history testify to the truth of this law. Monopolies were
never so abundant as to-day, never so powerful, never so threatening;
and with unimportant exceptions they have all sprung up with our modern
industrial development. The last fifteen years have seen a greater
industrial advancement than did the thirty preceding, but they have also
witnessed a more than proportionate growth of monopolies. How worse than
foolish, then, is the short-sightedness that ascribes monopolies to the
personal wickedness of the men who form them. It is as foolish to decry
the wickedness of trust makers as it is to curse the schemes of labor
monopolists. Each is working unconsciously in obedience to a natural
law; and the only reason that almost every man is not engaged in forming
or maintaining a similar monopoly is that he is not placed in similar
circumstances. Away, then, with the pessimism which declares that the
prevalence of monopolies evidences the decay of the nobler aspirations
of humanity. The monopolies of to-day are a natural outgrowth of the
laws of modern competition, and they are as actually a result of the
application of steam, electricity, and machinery to the service of man,
as are our factories and railways. Great evils though they may have
become, there is naught of evil omen in them to make us fear for the
ultimate welfare of our liberties.
To the practical mind, however, the question at once occurs, what light
have we gained toward the proper method of counteracting this evil? Can
it be true that the conditions of modern civilization necessitates our
subjection to monopolies, and that all our vaunted progress in the arts
of peace only brings us nearer to an inevitable and deplorable end, in
which a few holders of the strongest monopolies shall ride rough shod
over the industrial liberties of the vast mass of humanity? Were this
true, perhaps we had better take a step backward; relinquish the factory
for the workshop, the railway for the stage-coach. "Better it is to be
of an humble spirit with the lowly, than to divide spoil with the
proud." But the law we have found commits us to no such fate. We
cannot, indeed, abolish the causes of monopolies. We cannot create new
gifts of Nature, and it would be nonsense to attempt to bring about an
increase in the number of competing units and a decrease in the
capitalization of each by exchanging our factories and works of to-day
for the workshops of our grandfathers. But while monopolies are
inevitable, our _subjection_ to them is not inevitable; and when the
public once comes to fully understand that _the remedy for the evils of
monopoly is not abolition, but control_, we shall have taken a great
step toward the settlement of our existing social evils. To discuss the
details of the remedy, so far as it can be done in a volume of this
sort, belongs properly to a later chapter. Before undertaking it,
however, it seems well to devote some further attention to the evils
which the attempt to abolish monopolies and adhere to the ideal system
of universal competition has brought upon us, and to make, also, some
further study of the general evils due to monopoly.
XII.
THE EVILS DUE TO MONOPOLY AND INTENSE COMPETITION.
It is a strange thing when we come to analyze the various social evils
which demand our attention, and which every true man longs to cure, to
find how great a proportion can be traced back to the one great evil of
faulty competition. As a preliminary to a survey of these evils, in
order that we may understand the necessity that all good men and true
should exert themselves in applying the remedy, let us see just what
conditions of our industrial society we should seek to work toward. What
is the theoretical perfection of human industry?
Probably all thinking men, whatever their belief and practice, will
acquiesce in the proposition that the end we should aim to secure is
"the largest good to the greatest number." As we are discussing here
only economic questions, this means that the end to be sought is that
the largest number of people should have secured to them the greatest
possible amount of the necessaries and comforts of life; or, more
simply, that the total of human happiness to be derived from the world's
production of wealth should be the greatest possible. Now for our
present purpose we may assume that since all men desire wealth, the
greater its production, the greater will be the number of human desires
gratified. From this it follows that our social organization should be
such as to increase to the greatest possible degree the world's stock of
wealth.
There is no easier or safer way of studying questions of economics than
to consider the community as a unit, and see what is for the interest of
the people as a whole; what conduces most to the "common wealth"; and if
we do this, whenever the question concerns production alone, the task is
simple, because the interests of the people as a whole are judged in the
same way as the interests of a single person. Whatever tends to increase
the total amount of wealth in the world, therefore, benefits the
community as a whole; and whatever diminishes the supply is an injury.
All work of every sort which tends to aid in the economical production
of wealth and its transfer to the consumer is a benefit to the
community; and any thing which destroys wealth, lessens its production,
or hinders men from exerting themselves to produce it, is an economic
injury.
What, then, are we to say of the condition known as over-production? Is
it not a fact that some lines of industry are so overdone that the
production is far in excess of the demand, and is not this an evil
rather than a benefit? Do not periods of business depression occur when
all industries stagnate for want of a market for their goods? The true
answer to this question is: Over-production is not a fault of
_production_, but of _distribution_. It is true that, in special
industries, a surplus of production sometimes occurs, due to
over-stimulation, or too rapid growth; but over-production as commonly
spoken of, refers to a general state of trade, in which demand for all
sorts of goods seems to fall far below the market supply. But this lack
of demand is not due to lack of desire. The desires of men are always
in excess of their abilities to supply them; it follows, therefore, that
the condition known as over-production consists in a lack of _ability_
to purchase goods rather than in a lack of _desire_ to purchase them.
This lack of ability has evidently to do with the distribution of wealth
rather than its production.
While it is easy to formulate laws to govern the theoretically perfect
production of wealth, to whose justice all men will consent, we cannot
go far in the details of the ideal distribution of wealth without
reaching points upon which the views of different parties are
diametrically opposed. Some foundation principles, however, let us
state, believing that in their truth the great majority of men will
concur.
In the chapter on the theory of competition we saw that, if we conceived
the results of the labor of the whole community to be placed in a common
storehouse and gave to each man the right to draw from it an amount just
equal to the benefit derived from the goods which he had placed within
it, the ideal of a perfect system of distribution of wealth would be
realized. No human judgment, however, is, or ever can be, competent to
measure the exact industrial benefits which each person confers upon the
community at large. We must inevitably permit men to measure the result
of their own work by securing for it such an amount of the results of
others' work as they can induce them to give in exchange. But while we
cannot measure exactly the benefit which each person confers, we can see
cases in which the reward received is manifestly out of all proportion
to the benefit conferred. Consider the fortunes which have been
accumulated by some of our Midases of the present decade. It is quite
certain that the benefits which Cornelius Vanderbilt, for instance,
conferred on the community by his enterprise and business sagacity, by
his work in opening new fields of industry, forming new channels for
commerce, etc., were so valuable that he honestly earned the right to
enjoy a large fortune. It is equally certain that a great part of his
gains had nothing whatever to do with any benefit conferred upon the
community, and that the fortune of $100,000,000 or so which he
accumulated was an example of inequitable distribution of the products
of the world's industry. Stating this in the form of a general
principle, we should say: _The amount of wealth which any man receives
should bear some approximate relation to the benefit which he confers
upon the world._
We have already stated that, by the law of supply and demand, the
rewards of each worker are regulated in theory even more perfectly in
accordance with our ideas of liberty than they could be on the basis of
actual benefit conferred. For it is inconceivable that people would
submit to pay for what was beneficial to them instead of what they
desired. A man who prefers to purchase wines instead of books with his
surplus money would think it a great injustice if he were prevented from
doing as he preferred with his own. But so long as every one is at
liberty to use his income in buying whatever he desires most,
_demand_--the willingness to pay money for the gratification of the
desire--will exist, and so long as demand exists it will be met by a
supply, furnished by those who are desirous of money and what it will
bring. It is inconceivable, then, that any juster arrangement than this
law of supply and demand can ever be practicable for regulating the
compensation of each individual. The man who can drive a locomotive will
receive larger wages than the man who shovels the earth to form its
pathway, because the supply of men competent to drive an engine is small
in proportion to the number of men who are wanted for that work, while
almost any man can shovel dirt. Let us state, then, for our second
principle: _The amount of wealth which any man receives should depend on
the ratio between the demand which exists for his services and the
supply of those able to render like service._ Farther than these
statements of the ideal principles governing the economical production
and equitable distribution of wealth we need not go at present.
Let us turn now to examine the result of a violation of these principles
in some of the crying evils of the present day which are wholly or in
part due to the growth of monopoly and the waste of competition.
Every candid man will acknowledge that the enormous congestion of wealth
in a few hands which exists to-day is a danger to be feared. We have had
it constantly dinned in our ears that in this free land the ups and
downs of fortune were such that the rich man of to-day was apt to be the
beggar to-morrow; also that almost invariably a rich man's sons were
reckless spendthrifts. These things, aided by the abolition of
primogeniture and entails, it was said, were to prevent the growth of a
moneyed aristocracy in this country. The propounders of this amiable
theory never explained how the community received reparation for the
destruction of wealth which the spendthrift sons were to carry on; but
so long as the theory has failed to work in practice, that does not
matter so much.
A few years ago it was a favorite occupation of newspaper paragraphers
to estimate the Gould and Vanderbilt fortunes; but lately they seem
to have given them up as beyond the limits of even their robust
guessing abilities. Some idea of the latter's fortune may be gained,
however, by realizing the fact that the Vanderbilt railway system now
has a total extent of nearly 12,000 miles, the total value of which can
hardly be less than one thousand millions of dollars. Probably not less
than half of the securities of these companies are owned by the
Vanderbilt family, and it is well known that their investments are by no
means confined to railways. The important fact is, that this fortune
grows so fast now that it is sure to increase; and will double itself
every fifteen or twenty years, because all that its owners can spend is
but a drop in the bucket toward using up their income. But this fortune,
while the largest which is still under one name, is but one of many
enormous ones. The names of Gould, Flagler, Astor, Rockefeller,
Stanford, Huntington, and a host of others follow close after the
Vanderbilts. In the days of our grandfathers, millionaires were no more
plentiful than hundred-millionaires are to-day.
We have next to show the present and prospective evils which result from
this congestion of wealth. The first and most obvious one is its injury
to the remainder of the people of the country, by the diversion from
them of wealth which they have rightfully earned and which they would
receive were it not for the tax of monopoly. It is obvious that a
certain amount of wealth is annually produced by the industry of the
country from which the whole wants of the country must be supplied. This
amount may be greater, indeed, when a Gould or a Flagler or a Crocker
directs the enterprise; but for the most part it is indisputable that
the owners of these colossal fortunes have made them, not by any
stimulus of the production of wealth by their owners, but by a
diversion of the produced wealth in the general distribution from
others' pockets to their own. In short, all other men are poorer that
these many times millionaires may be richer. To show how these fortunes
have in many cases been obtained, I cannot do better than to quote a
writer not at all likely to err by undue severity to our millionaires,
as he is himself the president of a railway system a thousand miles in
extent:
The great majority of the phenomenal fortunes of the day are the
result of what may be called lucky gambling.... Man is a gambling
animal by nature, and modern methods have enormously developed both
its facilities and its temptations and have opened large fields in
which gambling is not held to be disreputable.
Under such stimulus is it wonderful that its growth has been
phenomenal? Wall street is its head-quarters, and millions upon
millions of dollars are accumulated there to meet the wants of the
players. Railroad stocks are its favorite cards to bet upon, for
their valuation is liable to constant fluctuation on account of
weather, crops, new combinations, wars, strikes, deaths, and
legislation. They can also be easily affected by personal
manipulations.... Money makes money, and money in great masses has
its attractive power increased. The aspect of phenomenal fortunes,
therefore, is a social problem of some importance. Their manner of
growth and their manner of use are to be observed, and what
restrictions, if any, should be placed on their accumulation should
be considered.[5]
[5] "Railway Practice." By E. P. Alexander, President Central
Railroad and Banking Co. of Georgia.
The fact pointed out by General Alexander in the above quotation is one
which is far too lightly appreciated. The evils of railway management by
which the owners of the stocks and bonds of the company are victimized
to enrich stock speculators are much too complex and numerous to be
described here. The state of affairs can be briefly summed up, however,
with the statement that our present system of conducting corporate
enterprises results inevitably in the gravitation of their ownership
into the hands of the holders of large fortunes. The railways of the
country are an instance in point. Time was when the stocks and bonds of
railways were owned by people of small means all over the country. But
after many severe lessons in the shape of stocks wiped out, and bond
interest scaled down, these small holders were taught the folly of
investing their savings in business over which they had practically no
control, and thus placing them at the mercy of irresponsible corporate
officers. Broadly speaking, the railway property of the country is owned
by men worth their millions; and the small holdings are being rapidly
absorbed every day. But the case is not true of railways alone.
Telegraph lines, telephone, and electric light plants, our mines, and to
a large extent our factories, which were once held by private owners,
are now controlled by corporations whose shares are quoted on the
exchanges and are consequently subject to a forced variation, dictated
according as "bull" or "bear" has the ascendancy. And when the ownership
of a property is once brought into this channel, it is no longer a
suitable investment for the man of small means. It is the prey of men
who practically make bets as to what its future price will be, and
manipulate the price, if possible, to win their bets. If it is ever
again held for investment simply, it is when it is locked in the safe of
some modern Croesus.
We have shown now the extent to which the congestion of wealth has gone.
We have shown that other men are poorer that these men may be richer. We
have explained that these great fortunes have been made, not by
legitimate enterprise, but largely by "lucky gambling." And finally we
have seen how the transfer of each enterprise to the control of stock
speculators adds it eventually to some already overgrown fortune. The
connection with the subject of the present volume is obvious. The
cotton-seed oil mills of the South, once held by private owners, are now
in the hands of a trust whose certificates are quoted on the
stock-exchanges, and are held only by men of large capital, or by stock
gamblers. This is a typical example of the change which is everywhere
occurring. Private enterprise gives way to the stock company, and that
in turn gives way to the trust. The salient fact, then, we may express
in similar terms to those of our first law of competition, as follows:
_The congestion of wealth tends to increase inversely with the number of
competing units._
The facts we have stated make it impossible for the greater monopolies
to defend themselves, on the ground that their profits inure to the
benefit of any great number of people. But this is not an innocuous
state of affairs. It is one of serious injustice and evil. The workman
who struggles hard to save a hundred dollars a year can receive only a
paltry three dollars and a half of interest or less, if he deposits it
in a saving-bank. But the capitalist who is clearing a hundred thousand
a year may make twice or thrice that interest from his investments. In
short, the charge is: That monopoly and intense competition, with the
variation in price which they cause, have shut out the small capitalists
of the country from the ownership of the most profitable sorts of
property; and by confining them to other lines, have decreased their
possible income from their investments.
A further evil resulting from the congestion of wealth is what is
commonly spoken of as over-production. We are confronted of late years
with the strange spectacle of factories and mills shut down for months
at a time, of markets which, at various times, are glutted with every
sort of commodity. All sorts of causes are given; all sorts of remedies
are suggested and tried. Where is the true one? With the exception of a
few special cases, the fault is not that there are no people who want
the goods. Probably ninety-nine families out of every hundred would buy
more if they had the money to buy with. In many cases the lack of money
to buy with is due to the fact that the bread-winners are out of
employment because of the glutted markets and idle mills. In this way
the evil tends to perpetuate itself and grow worse. Now combine this
fact with the fact that the holders of monopolies are in the receipt of
incomes so great that, in many cases, they are quite unable to spend
them. Also, that this income is largely locked up to wait the chance of
profitable investment, or is used in speculation. Is it not obvious,
now, that the reason why people cannot afford to purchase the goods,
with which the storehouses are glutted, is that too large a proportion
of profits has been diverted to swell fortunes already enormous? Have we
not in this way accounted for a large amount, at least, of the
over-production which is throwing out of employment thousands of
workmen, rendering useless a vast amount of valuable capital, and
affecting from time to time the business of the whole country with a
veritable paralysis?
The facts bear out this theory. For, at many times when producers in
every industry are complaining of dull times because people who buy have
no money to spend, there is an abundance of money to be had for
investment. Fortunately, the evil seen from this aspect must, to a
certain extent, be but a temporary one, and will tend to work its own
cure. For as the world's stock of invested wealth continues to grow,
there is less opportunity for its profitable investment in improving
undeveloped natural resources. The greater portion of our wealth we save
and invest, the faster will the rate of interest tend downward. But, as
this occurs, the operators of mills and mines have to pay less out of
their receipts as interest on their borrowed capital, and can,
therefore, pay more to their workmen.
There is another way in which monopoly works to cause over-production,
with its attendant evils. Suppose a trust is formed in some
manufacturing industry, where the working capacity is just equal to
supplying the demand. The first work of the trust is to raise the prices
perhaps 20, 30, or 40 per cent. Of course this causes a falling off in
the demand, and the trust has to shut down some of its mills to ward off
over-production. The true cause of over-production in this case is, that
the prices are not in equilibrium with the relation between supply and
demand. Let prices come down, and the demand will increase. The working
of this special case gives us an idea of the way in which general
over-production is caused. For it is well known that monopolies have
raised the prices and reduced the consumption not of one, but of
hundreds of articles. If the men who are made idle by the
over-production in these industries flock into other occupations to
secure work, they reduce wages there; so that, in any case, their
purchasing power is reduced, and this tends to perpetuate and increase
the evil. Of course it is not pretended to claim that all industrial
depressions have been due to over-production, or the local congestion
of the world's income. But that a large part of it may be justly laid to
this cause, seems to be beyond question.
We have shown that the congestion of wealth is very largely due to the
growth of monopoly, and we have discussed the more immediate evils that
result from this congestion of wealth. But when we attempt to describe
the evils and abuses which follow close after, as a result of the power
which monopoly has placed in the hands of a few, we may well pause at
the task. The whole array of perplexing social problems comes before us,
and we realize more and more what a curse monopoly has become. The
philanthropist tells us that poverty, and all the distresses that follow
in its wake, are largely due to the fact that our workingmen under
present conditions _must_ live from hand to mouth, _must_ rely on
charity for aid in every emergency, and _must_, therefore, decrease in
manliness and self-reliance and the ambition to better themselves, as
the practical impossibility of success is comprehended.
Good men are lamenting because the Church has, to a great degree, lost
its hold on the laboring classes, and are casting about on all sides for
a remedy. Will they ever find one as long as the wage-worker carries in
his bosom a rankling sense of injury done him? Injury which he feels
that the Church is merely seeking to drug with charity instead of
wishing to cure it with justice? There is great need that the Church,
not alone by the sermons of its most enlightened thinkers, like Dr.
Heber Newton, but by the daily practice of the rank and file of its
membership, should recognize, as it never yet has done, the great
principles of human fraternity, and move intelligently and earnestly to
remedy the great evils that menace us.
Even the evil of intemperance can be traced back to a connection with
monopoly. Who shall blame the tired laborer, if after a week with sixty
hours of unremitting toil, he takes refuge from the dreariness and
lassitude of physical exhaustion, the hopelessness of ambition-quenched
life, and perhaps the discomforts and disquiet of the place he calls
home, in a long draught of that which does, for the time, create in him
an image of exhilaration, strength, self-respect, and manhood? It is but
an image, indeed, and to all but the victim it is a caricature; but when
a man cannot hope for the reality, to only imagine for a brief hour that
he is indeed a king of men, and that care and woe and degradation are no
longer his lot, is a refuge not to be despised.
There is indeed a class of philanthropists who say, with some truth,
that the laboring classes as a whole have now more than they will spend
for their own good, and declare that higher wages means merely more
spent on sprees and debasing sports, of different sorts but universally
harmful. On the other side, the wise philanthropists who are trying to
help their fellow-men in that best of all ways, by teaching them to rely
on themselves, testify that their efforts to make men independent are
largely hampered because it is so extremely difficult for a workingman
to live in any other way than from hand to mouth, especially in our
large cities. The true solution seems to be that all these reforms must
go hand in hand. We must teach men how to make nobler uses of their
incomes and themselves, while we endeavor to bring about reforms that
shall give them greater comforts and more leisure to use for either
self-improvement or self-debasement.
Much more might be said of the indirect effects which result from the
taxation which monopolies inflict upon the community for their own
profit; but they are now so generally realized and understood that we
can devote our time more profitably to the investigation of other evils.
Under the ideal system of competition which we studied in Chapter X., we
found that all occupations were competing with each other; so that if,
from any cause, one calling became especially profitable, men would
flock to it and bring down the profits to a normal point. Monopolies
have seriously interfered with this important and beneficent law. How
often do we hear the complaint of the great difficulties that beset
young men on their first entrance to business or industrial life in
securing a situation. The monopolized industries shut out new
competitors by every means in their power. The trade-unions limit the
number of apprentices which shall be allowed to learn their trade each
year. The result is, first, a most deplorable tendency to idleness on
the part of young men just at the time when they should be most active;
and, second, a still larger increase of men in the professions and
non-monopolized callings, tending to still further increase the
competition in those callings, where returns are already inferior to
what they should be. Surely, we must begin to appreciate how vitally
important to every person in the land is this matter of competition and
monopoly.
The evils which we have thus far considered pertain to the distribution
of wealth. Let us now turn our attention to the production of wealth.
Our second law of competition stated that the waste due to competition
varied directly as its intensity. We have frequently referred to this
waste of competition; let us now inquire more fully concerning its
amount and effect. In the first place, however, let us settle the
question, once for all, that waste or destruction of wealth of any sort
is an economic injury to the community. We have, indeed, already
explained this in the first paragraphs of the chapter; but while all
authorities on economics agree on this point, the general public is
still seriously infected with the fallacy that waste, destruction, and
unprofitable enterprises are beneficial because they furnish employment
to labor. If this were merely a theory, we could afford to ignore it;
but the trouble is that it is acted upon, and works untold evil and
damage to the world. To take a typical case, people reason that damage
done by flood or fire or storm is not a total loss because employment
will be furnished to many in repairing and rebuilding after the
devastation. They do not stop to reflect that so much wealth has been
wiped out of the world, and that _instead of the destruction furnishing
so much additional employment, it has only changed the direction of the
employment_. For money nowadays is always spent, either directly, by its
owners, or by some one to whom he lends it. And wherever money is spent
it furnishes employment. Therefore, if the money which was used in
repairing and rebuilding had not been required for that work, it would
have been spent in some other direction and furnished employment to
labor there. Understanding, then, that the economic interests of the
community are best served when each one of its members exerts his
energies with the greatest result and with the least waste in producing
wealth, let us see to what extent intense competition and monopolies
have violated this law.
In his interesting book entitled "Questions of the Day," Prof. Richard
P. Ely, of Johns Hopkins University, refers to the building of two great
railways with closely paralleled roads already in operation, the Nickel
Plate, and the New York, West Shore and Buffalo, and says:
"It is estimated that the money wasted by these two single attempts
at competition amounts to $200,000,000. Let the reader reflect for
a moment what this means. It will be admitted that, taking city and
country together, comfortable homes can be constructed for an
average of $1,000 each. Two hundred thousand homes could be
constructed for the sum wasted, and two hundred thousand homes
means homes for one million people. I suppose it is a very moderate
estimate to place the amount wasted in the construction of useless
railroads at $1,000,000,000, which, on the basis of our previous
calculations, would construct homes for five millions of people.
But this is probably altogether too small an estimate of even the
direct waste resulting from the application of a faulty political
economy to practical life. When the indirect losses are added, the
result is something astounding, for the expense of a needless
number of trains and of what would otherwise be an excessively
large permanent force of employés must be added. Of course, nothing
much better than guesswork is possible, but I believe that the
total loss would be sufficient to provide a greater portion of the
people of the United States with homes."
But it seems quite possible to make a closer estimate of the wealth
wasted by the construction of unneeded railways than the general one
above. There are now, in round numbers, 158,000 miles of railway in the
United States. The two lines named above have a total extent of nearly
1,000 miles; and while they are the most flagrant examples of
paralleling in the country, there is no small number of other roads in
various parts of the country which, except for their competition with
roads already constructed, would never have been built. Considering the
fact that the paralleling has been done in regions where the traffic
was heaviest and where the cost of construction was greatest, it seems a
conservative estimate to say that 5 per cent. of the capital invested in
railways in the United States has been spent in paralleling existing
roads. But the total capital invested in the railways of the United
States is about $9,200,000,000, 5 per cent. of which is $460,000,000. It
is also to be remembered that this 7,500 miles of needless road has to
be maintained and operated at an average expense per mile per annum of
$4,381, or a total annual cost of nearly $33,000,000. Taking Prof. Ely's
estimate of $1,000 as the cost at which an average size family can be
provided with a comfortable home, and we find that the cost of these
unneeded railways would have provided 460,000 homes, sufficient to
accommodate 2,300,000 people. Say that 3 per cent. of the cost of these
homes is required annually to keep them in repair, then this could be
furnished by the $33,000,000 now paid for the operating expenses of
needless railways, and an annual margin of about $19,000,000 would be
left, or enough to provide each year homes for nearly 100,000 more
people in addition. Of course, this is merely a concrete example of what
possible benefits we have been deprived by wasting our money in building
needless railways.
As a matter of fact, the money we have spent on unprofitable railways,
as well as those totally useless, has wrought us an amount of damage far
in excess of their actual cost. It is generally agreed by financiers
that the periods of industrial depression during the past score of years
have been largely due to excessive railway building. For in a period of
active railway construction, roads are built whose only excuse for
existence is that they will encroach upon the territory of some rival.
The capital invested fails to make a return. The loss of income which
ensues decreases the purchasing power of the community; and this
combines with the sudden loss of business confidence caused by the
failure of the enterprise to bring about a general panic and crash which
affects the whole community; and by checking enterprise and industry,
damages the country ten times the amount of the original loss.
The waste of competition is by no means confined to railways. The Sugar
Refiners' trust has raised the price of sugar and thus reduced its
consumption so much that they have permanently closed several of their
factories. Yet Claus Spreckels is now building a great refinery in
Philadelphia, the output of which is to compete with the trust. All this
capital invested in that which is not needed by the community is an
injury to the public. The French Copper syndicate so raised the price of
copper that it became profitable to work old mines of poor ore, which
under ordinary circumstances could not be worked at all at a profit.
Capital was expended in opening and refitting these mines, and in
preparing them for working; while other mines, able to produce the metal
at much less cost, were reducing their output because of their contract
with the trust.
In various cities of the country, millions have been wasted in tearing
up the streets to bury the unneeded mains of competing gas companies.
The electric light competitors are stringing their wires over our heads
and beneath our feet, and by covering the same district twice or three
times, double and treble the attendant evils as well as the cost.
The waste due to intense competition in trade may be avoidable or
unavoidable; but it is certainly of enormous magnitude, although the
fact of its being a waste is still little appreciated.
The waste due to labor monopolies is much better understood. The strikes
which paralyze industry and send want and distress in ever widening
circles are universally recognized to be a waste of wealth whose annual
amount is enormous. The cost to employers and workmen of the strikes in
the State of New York in 1886 and 1887, was $8,507,449. Reckoning from
this as a basis, it is probable that the total annual cash cost of
strikes in the United States is twenty or twenty-five million dollars.
The results of these strikes in decreasing the purchasing power of
employés and thus causing overproduction, and in discouraging enterprise
and increasing the cost of capital, serve to spread their effect
throughout the whole industrial community and thus cause an actual loss
and injury many times that borne by the parties directly engaged.
It is thus evident that the waste due to the intense competition which
the concentration of productive enterprise has brought about in modern
times is a matter of startling proportions. We are wasting and
destroying wealth all the time sufficient to go a long way towards
abolishing all the poverty in our midst; and the blame for this state of
affairs we are now able to place where it belongs.
Surely with a full appreciation of these evils, every honest and
patriotic man must be willing to use every endeavor to strike at the
root of the evil. The public indeed is, and has long been, a unit in its
opposition to monopoly; but in endeavoring to defeat monopoly it has
taken just the course which could give no permanent gain. Cities have
beggared themselves to aid competing railway lines only to see them
consolidated eventually with the monopoly which it was expected to
defeat. The multitude regard Claus Spreckels as a benefactor--and will
till he forces the Sugar Trust to divide their 25 per cent. profits with
him in return for the control of his refinery.
It is no benefit to us if in steering away from the Scylla of monopoly,
we be wrecked on the Charybdis of wasteful competition. We have been
trying for a score of years now to defeat monopolies by creating
competition; but in spite of a universal public sentiment in favor of
the reform, and notwithstanding the millions of wealth which we have
poured out like water to accomplish this object, monopolies to-day are
far more numerous and powerful than ever before. The people who are
groaning under their burden of oppression are anxious for relief. The
remedy they have so long and faithfully tried to apply has but made a
bad matter worse; and it is small wonder that, despairing of other
relief, they are adopting false and injurious plans for bettering
themselves which serve merely to extend the monopoly policy into all
industrial affairs.
We are threatened with a state of society in which most of the principal
industries will be wholly given over to monopoly. Those in each
occupation will band together to secure the greatest returns for
themselves at the expense of all other men; while the few occupations
which cannot thus combine in a monopoly--farming, and the different
sorts of unskilled labor--will be filled to overflowing with those
crowded out of other callings. Those who follow them will do so only
because the monopolized occupations are closed to them. Thus will our
farming population degenerate into a peasantry more miserable than that
of Europe, and our laborers be ground down to a level lower than they
have yet known. Is there a probability that such a state of affairs will
come to pass? There might be if the public were not keenly alive to the
curse of monopoly. But as it is, the greater danger is that through
ignorance a wrong course may be adopted for the cure of our present
evils, which will aggravate instead of curing them.
XIII.
AMELIORATING INFLUENCES.
If pure selfishness were the only motive influencing the masses of
mankind, the evils which we have considered in the preceding chapter
would be wholly unbearable. All men would be waging an industrial
warfare with each other in their greed for gain, just as the barons of
feudal times fought to satisfy their thirst for power and possessions;
and as motive is the great force which determines character, we would
be, as far as moral excellence is concerned, in the same category as the
uncivilized savages.
Fortunately for the happiness of the race, there are important
influences at work counteracting, modifying and ameliorating the social
evils that threaten us. These influences are not cures for these evils,
though they are so considered by very many people. But they are very
important palliatives. They are certainly of inestimable value in the
lack of real remedies; but it is better to consider them as palliatives
merely; for necessary, as they are and always will be, to soften and
relieve the ruggedness of human laws and human administration of law, in
the present condition of humanity they cannot effect a cure of the evils
which burden us.
The first of these palliatives has a purely selfish origin. It arises
from the desire of the managers of every monopoly to make the greatest
possible profit from its operations. Let us take, for example, a street
railway monopoly which is at liberty to charge such rates of fare as it
chooses and which has no competitors. If it fixes its fare at 10 cents,
very many people will prefer to walk or take some other mode of
conveyance, who, if the fare was at 5 cents, would patronize the road.
Thus it may very likely happen that 5-cent fares will yield it the
greatest net income. It is often said that it is competition which has
brought our rates of railroad transportation down to their present low
point. While this is largely true, it is also true that the tendency to
foster the growth of traffic by making a low tariff has been a large
factor in bringing rates down to a reasonable point. Another example of
this principle's operation is in the case of monopolies protected by the
patent laws. In this case the collection of only a moderate royalty will
generally result in greater profits to the inventor than he would secure
by exacting a large fee, because of the greatly increased sales in the
former case.
It should not be understood, however, that this principle has its only
application in cases similar to the two mentioned. There is hardly an
industry, monopolized or competitive, into which it does not enter to
effect important results. It is to be noted, however, that it is least
effective where the demand for the monopolized article is least
sensitive to a variation in price. This fact should be considered by
those who are fond of arguing that this principle alone is always
sufficient to prevent monopolies from doing much harm. While it is
powerful in the case of such monopolies as we have mentioned, where the
demand for the commodity furnished varies greatly with the price, in the
case of the great copper trust or of the quinine trust or of any
monopoly controlling the great staples of human consumption, it seems
plain that it can have little effect. Nor do we need to base our proof
that this principle is not a sufficient remedy upon this ground alone.
Grant it to be true that a certain monopoly makes the greatest net
profit when its rates or prices are at a certain point; then will it not
be apt to set them slightly above that point, where they will give
nearly the same profit with a considerable decrease in the volume of
business transacted and in the corresponding labor and responsibility?
And, again, the point where it makes the greatest net profit is
considerably above the point where it is of the greatest possible
benefit to the community at large. This latter end is attained when it
uses its facilities to their full capacity for the benefit of the
public. The rates should be fixed at such a point that this full
capacity will be utilized, or as much higher as may be necessary to pay
the monopoly a fair profit on its operations.
This influence just considered has its origin in the selfishness of men.
The second, and by far the most important influence tending to
ameliorate the evils due to monopolies and intense competition arises
from that essentially noble trait of human character whose province it
is to seek the welfare of others before that of self. It is not to be
wondered at that the large benevolence of our noblest Christian thinkers
rebels against the inflexible laws of competition, or rather at their
stern application to modern conditions of life. Under our social system,
indeed, each man is striving to do his utmost to benefit his fellow-men,
but only so far as it benefits himself. Christianity goes far beyond
this. It teaches the Fraternity of Man, the Fatherhood of God, and thus
the duty of all men to care for and love their brothers' happiness and
welfare. It is in accord with the noblest and most exalted desires of
the human soul. It teaches a man to seek to benefit others for their own
sake, not for the sake of the reflex benefit on himself.
The burden of Christ's sermon on the mount was that golden rule of
action, "Whatsoever ye would that men should do to you, do ye even so to
them"; and the whole of his teachings glow with the spirit of
fraternity; the strong bearing the burdens of the weak; the rich cast
down and the poor exalted; brother sharing with brother, according to
their needs. We are accustomed to make ourselves complaisant with the
reflection that these were figurative expressions, and not meant as
literal commands. But if we consider candidly, we must confess that if
it is the spirit of its Master's commands which the Church means to
follow, it is very far, as a body, from reaching up to their full
import. The love for one's fellow-men which Christ taught was certainly
meant to be expressed in great, noble acts of brotherly kindness.
Consider the want, the suffering, the distress, the misfortune, the
inequality by which a thousand families have hard work and scanty fare
while one revels in luxury. Are these thing repugnant to the spirit of
Christianity, or not? Every one knows that they are. It is because
Christian men in these days are prone to follow their own ease in common
with the rest of the world, and are accustomed to make their Christian
code of morals to fit that which public opinion declares to be
sufficiently advanced, that Christianity as a remedy for social evils
has fallen into disrepute with the laboring classes. But men, both in
and out of the Church, who are better informed as to the grand and noble
spirit that lies at its foundation, are coming to look more and more
toward Christianity as the only deliverance from the evils that threaten
us.
Our social system, say the devout among these men, is based on the
selfish desires of men, their wish to get the most for themselves with
the least service to their fellow-men. It is inconceivable that a system
founded on any thing less than the noblest attributes of humanity can be
intended as a permanent basis for society. The system founded on
competition was adapted to the conditions of men during the formative
period of civilization: but modern inventions, processes, and methods
are revealing a strange want of elasticity in its action. It is leading
us to such grave evils that men everywhere are looking for an escape
from it. We are brought face to face with the fact that the law of
competition, the cruelly terse "survival of the fittest," was never
meant to control the wondrously intricate relations of the men of the
coming centuries. And if selfishness is not to control, it is because
unselfishness is to reign in its stead. It is because there will grow up
in the hearts of men a fraternal love, such as the world has not yet
seen, which will make them gladly share a common inheritance with each
other, as they do a common Fatherhood. Men will then labor for others'
welfare as now; but each with the thought of others' benefit, not of his
own.
Nor are these men alone in their belief. Earnest thinkers outside of the
Church, who are familiar with the evils which intense competition and
extortionate monopoly are constantly pushing into our notice, discern a
tendency in our social organism to pulsate with stronger and more rapid
beats in its convulsions of strike and boycott and commercial crisis.
And in these mighty vibrations, like the swing of a gigantic pendulum,
there is danger that it may swing so hard and so far as to break its
controlling bonds and leave humanity in chaos.
Anarchy means more than the reign of individualism. It means such a ruin
of the world's wealth, the storehouses and fields and factories which
supply its wants, that nine tenths of the population of the globe would
be swept off its face by actual starvation. Some social organism there
must be if our civilization is to continue. What can adjust the delicate
relations of man to man when the bond of selfishness which holds us
together breaks? There are many men, even now, whose greatest desire and
strongest purpose is to benefit their fellow-men; and if we can extend
and strengthen this noble principle so that it will govern the great
mass of humanity, why may we not cease to measure and bargain and weigh
with our brother men?
Such is the argument for what we may appropriately call Christian
communism. Who shall say what shall be possible with a new and nobler
generation of men? When the great mass of the race has Altruism for its
governing motive, then it may be possible to use that trait of character
as the basis of industrial society. But to-day the governing motives of
mankind are largely selfish. Society must govern men in their dealings
with each other, not by arbitrary force but by their inner motives of
action. When men at large begin to heartily desire to benefit others
more than themselves, then the system of selfish competition will begin
to disappear, and the system of fraternal devotion will arise to take
its place. This will come about naturally. It will be an effect which
can only be brought about by producing the cause. When Christianity
shall have so regenerated mankind that its governing motives are noble
and generous, then the social problems we are discussing, as well as
many others, will be forever happily solved.
Every one will say, God speed the attempt to implant such noble motives
in the breasts of men; but we recognize at the same time the vast change
which must be wrought before mankind at large will reach this high
standard; and in the centuries which will be required to effect this, we
must have other forces to govern society. Thus, while not denying the
possibility that the Christian principle of Altruism may be the final
solution of the problem of society, it seems best for us to regard it at
the present day as what it is,--an influence tending to smooth over the
inequalities and soften the asperities of our social system, and to
transform the warfare of competition into a peaceable and friendly
emulation.
It is not easy to overestimate the valuable work which this Christian
principle of human fraternity is thus doing at the present day. It is
recognized in many ways so common that we cease to think of them as what
they are--expressions of the common brotherhood of man. Our vast public
charities supported by law are an instance. It is recognized now by all
civilized countries that it is a duty for the State to care for those
who are so poor or unfortunate as to be unable to care for themselves.
Private charities, too, are as much more enormous now than they were a
century ago as private fortunes are, compared with those of that day. In
fact, beneficence has come to be recognized as an important duty of the
very wealthy; and churches, schools, hospitals, and the like bear
witness everywhere to the benevolence of wealthy men. All this public
and private benevolence has certainly accomplished wonderful results in
relieving the want and misfortune of men, and making their lot a
bearable one.
The above beneficences require outright giving; but there are many ways
in which the fraternal spirit of men works to cause men to treat each
other in business affairs more liberally than they would if competition
were the only governing motive. In very many cases of the employment of
labor, the wages paid are higher than the rate which competition alone
would fix. It is true that this is largely due to a selfish motive. The
men are more contented and industrious than when their wages are lower.
There are always plenty of applicants for any vacant position. The men
are not prone to find fault with their pay, knowing that plenty would be
glad to fill their places. At the same time, it is certainly true that
in many cases a principal motive for giving higher wages is the desire
to be liberal and generous with the workers whose labor brings income
and profits. Again it is very frequently the case that mills and mines
are kept in operation in dull times, when goods must be sold at a loss,
if sold at all, simply to keep the employees from the destitution and
suffering consequent upon idleness. Cases of especial personal
benevolence are still more common. There are tens of thousands of
working people to-day rendering service whom their employers well know
to be unprofitable servants, but who are retained because their youth or
age or incapacity renders them proper objects of assistance in this way,
a sort of charity far better than outright gift.
In business enterprises, again, the spirit of fraternity is widely
diffused. As we have seen, it has been one principal cause of the
formation of trusts and combinations to limit and restrain competition.
There are also a growing number of enterprises which are purely
philanthropic, such as the provision of cheap and healthy homes for
working men and women.
In the conduct of business, too, public opinion does not approve of the
man who exacts the utmost farthing, and weighs and measures to the
closest fraction. The most grasping creditor, who precipitates the ruin
upon the bankrupt, and the landlord or money-lender, who exacts
pitilessly and turns a deaf ear to the call of a brother for mercy, are
also condemned at the bar of public opinion.
These and many other considerations lead us to some knowledge of the
inestimable value of the principle of fraternity to correct the harsh
and inequitable working of the industrial organism. It remains only to
be said that in this sphere of action its influence is but a small
fraction of what it ought to be and what it promises to become.
It is through their conscience, as well as through their innate sense of
justice and right, that men are coming to see how the extortion by
monopolies and the waste of competition in which they have engaged are
an injury to the common weal and an expression of might rather than of
right. It is in this way that we are beginning to discern the faults and
imperfections of our present industrial system and to recognize that
progress toward better things is to be found by recognizing, not
covering, these faults, and doing all in our power to remedy them. In
this work the Christian Church should be in the lead; and a large
proportion of its pastors, accustomed to an earnest and sympathetic
appreciation of social evils, are among the foremost to second the
efforts of modern reformers. Of the rank and file of the Church,
however, it is to be regretfully said that they are eminently
conservative; and that, with very many notable exceptions, they are
certainly not in the lead in the efforts to equalize the injustices
which have grown up under the laws of competition. It is largely because
the course of Christians is in this respect so inconsistent with their
professed belief in that grand doctrine of man's divine origin and
universal brotherhood, that the Church, is losing the respect of the
laboring classes. Nor will it regain that respect until it shows by
unmistakable evidence to the men who toil with their hands that it is
alive to the questions of the day,--alive to the injustice of society
to-day; and that the love of the Church's great Master for their souls
is echoed by a longing in the hearts of his followers for their temporal
welfare.
But it should be also said that, save as they assume it, the
responsibility of those within the Church is not greater than of those
without. All men alike are brothers; and it is more, far more, than a
selfish tie that binds us together in civilized society. Legal rights
are based largely on the system of competition under which our
industries have grown up; but the moral duties of all men go far beyond
this. It is the duty of all men alike to supplement the working of the
law of selfish competition with the acts of a fraternal love for the
welfare of all men. Too much stress cannot be laid on this. There can be
little doubt that if it were not for the charity and beneficence and for
the strong spirit of humanity, which lives in a strange strength, even
in the hearts of the debased and evil-minded, the industrial warfare
which our modern competition has come to be would have wrought tenfold
more evil than it has, and would have already arrayed class against
class with other weapons than those of peaceable industry. May Heaven
grant that the time shall never come when the growth of the principle
of human fraternity shall not far outstrip and overtop the growth of
human selfishness, whatever forms the latter may take.
In concluding this chapter it seems eminently proper to call attention
to one practical application of this great principle of fraternity which
ought to go a great way towards saving us from the results of mistakes
in our attempts to remedy the evils which have grown up. The fraternal
principle should lead men to judge charitably the men who are engaged in
monopolies and in wasting the world's wealth in intense competition. The
more especially as _these evils are due, not to the malignity of any
person, but to our system of industry, which causes them to spring up_.
The investigation which we pursued in the first chapters showed very
clearly that monopolists are simply striving, like all other men, to
protect and advance their own interests by what they consider legal and
honorable means. And our study of the laws of competition has shown us
that the evils of monopoly and unhealthy competition are the natural
outgrowth of the great revolution in modern industries by which the
number of competing units has been reduced from many to few.
Unfortunately there is a great tendency to make these evils worse by
recrimination. It is very common to hear those engaged in monopolistic
enterprises, whether as owners or managers, denounced as unscrupulous
villains, double-dyed rascals, scoundrelly enemies of the people, or
perhaps in terms less blunt but more scathing. Now, what are the facts
of the case? Speaking broadly, it is a fact that the men who own and
manage our modern monopolies are as a class far more large-hearted in
their sympathies than the average of men. It is only because they do not
realize the consequences of their acts that they seem to those who do
realize them and those who suffer by them to be incomprehensibly brutal.
The same man who at a corporation meeting may do his part toward
throwing a thousand men out of employment or wasting a million dollars
of the world's wealth to effect some monster "deal," may stop as he
leaves his office to help a crippled beggar regain his feet; and when he
hears of the destitution that his own official act has helped create, he
will give with a lavish hand to relieve it. When we come to questions
between labor and its employers, more than this is true. The employers
of labor as a class are closely in sympathy with the honest desire of
their men to better themselves, and the constant increase in the
employment of arbitration to settle difficulties, the experiments in
co-operation and profit-sharing, and the furnishing of cheap and good
houses to the workers are all evidences of this fact.
The truth is, that it is circumstances, not men, which have created
monopolies. For to tell the truth, there are but very few men who, if
put in the place of the stigmatized monopolists, would not have done as
much or more, as their abilities permitted, to achieve a fortune as have
these men. All men strive in general to make as much as possible out of
their fellow-men, and to gain the most possible with the least labor.
The monopolist only goes further on this road than most other men can
go.
On the other hand, a still more common error exists with reference to
the monopolies of labor. The newspaper press seems strangely fond of
repeating the statement that all labor organizations are kept up by idle
and turbulent labor agitators, who wish to live off the proceeds of
their fellows' labor. A little candid thought and investigation will
convince any one that this is an out-and-out lie, and as such deserves
the condemnation of all honest men. Granted, indeed, that labor
monopolies are an evil, as we have fully shown, and that the men who
have charge of them are far from perfect, and make many mistakes, they
have far more to excuse them than have the men who form monopolies for
the purpose of adding to fortunes already plethoric. The truth is, that
if the men who are so incomprehensibly unjust in their estimate of the
work of labor organizations were put in the place of the laborers at the
bench or in the mill, they would be foremost in securing their own
rights by organizing their fellow workmen. It would be a great thing for
the world's peace if men would try to look at their brother's failings
through their brother's eyes. Before you criticise a man too harshly,
candidly consider whether you would do any better if you were in his
place.
We hear much said of the folly and wickedness of stirring up and
reviving the sectional animosity between the North and the South; and
all patriotic men rejoice in burying past issues and inaugurating the
era of a united nationalism. But those who, by personal attacks upon
monopolists, whether they are millionaire monopolists or hard-handed
workingmen, cultivate animosity and hatred between social classes
already too widely separated and too prone to hostility, are sowing seed
whose fruit may be reaped in a social strife far more destructive and
fatal than any sectional strife could be. In discussing remedies for the
evils we have been investigating, we should always keep the fact in mind
that our remedy should seek, not to punish, but to cure. Personal or
class enmities never yet helped the world to advance. It will be
fortunate if men can be taught to see how useless such enmities are in
this case; and how little revenge and reprisal can ever do to heal a
wrong.
XIV.
REMEDIES FOR THE EVILS OF MONOPOLY.
We have now investigated the nature of all the different classes of
monopolies and combinations for the suppression of competition. We have
studied their working and their effect upon the different classes of
society. We have discussed the foundation principles of civilized
society as seen in abstract theory and as seen in the actual practice of
to-day, with the evils which intense competition on the one hand and
extortionate monopoly on the other have brought upon us. Finally, we
have considered the influences which tend to lessen and ameliorate these
evils, and the extent to which we may rely on them to benefit the
condition of society. We are now fully prepared to consider the remedies
which are proposed for these evils, and to see in what direction our
hope lies for the improvement of the condition of mankind.
It would be a far larger task than we propose to attempt, however, to
discuss all the schemes which have been proposed for bettering the
condition of society. They have been numerous ever since the dawn of the
idea of popular liberty, have accompanied it all through its centuries
of growth, and to-day, despite the fact that the amount of the comforts
of life accessible to the masses of the people is far greater than ever
before, plans for further betterment of the condition of society, the
more economical production and equitable distribution of wealth, are
being pressed forward and advocated more strongly than ever. Nor does
this fact furnish any ground for pessimism. We shall have far more
occasion to deplore when men become so conceited over the advancement
which the race has already made,--so numb to the evils which still
oppress them,--that they will no longer take part in the agitation of
plans for further advancement.
In considering now the plans proposed at the present day by those who
wish to remedy the evils of monopoly, we shall find it profitable to
consider first two great opposing principles, which we will designate as
_individualism_ and _societism_. Upon one or the other of these
principles almost every scheme for bettering the condition of society is
based.
The doctrine of individualism has for its foundation the absolute
industrial liberty of each individual. By this is meant that every
person shall have "the free right of contract,"--that is, the right to
sell his labor or property or purchase that of others as he chooses. It
holds that in all matters where the production and distribution of
wealth is concerned, the desire of each man to advance his own interests
will, alone, in the long run, result in the highest good to the greatest
number. It asks the government to "let alone" the industrial affairs of
the country, and leave private enterprise to take its own course. Its
adherents are fond of asserting that each man knows his own wants and
can direct his own business affairs much better than any government can
direct them for him. It declares that free competition is the best
possible agent to regulate all industrial affairs, and it ascribes all
economic evils to the fact that free competition has been thwarted or
destroyed.
The opposing doctrine of societism holds that the waste in the
production of wealth and the inequities in its distribution, which
afflict mankind to-day, are due to the extreme application of the
doctrine of individualism. Its adherents analyze competition and declare
it to be but another expression of a law of savage nature, tersely
expressed as "the survival of the fittest." A system which brutally
forces the weaker to the wall, say they, is unfit to govern the
inter-relations of civilized human beings. Condemning thus the
principles and practice of their opponents, they would go to the
opposite extreme and place the control of the production and
distribution of wealth in the hands of organized society or of local and
central governments, to be by them administered for the common benefit.
The first and most obvious commentary upon these two opposing doctrines
is that either of them is impracticable; and that if either of them were
given the entire control of our industries, the whole people would unite
in condemning it. Lest there should be any mistake as to what is meant
by this, it is well to say that we now refer to neither the
individualism nor the societism which is practically advocated at the
present day, but rather to the essence of the two opposing principles.
To see most clearly the practical failure of either of these principles
when applied without modification by the other, consider our present
social system, which is based on both individualism and societism. If
the principle of individualism were to be fully applied and societism
were to be entirely abolished, a first step would be the relinquishment
by the government of all the enterprises it now carries on; and they
would be left for private enterprise to take up or leave alone as it
chose. This means, for one thing, to bring the matter plainly home, that
the whole national postal system would be wiped out, and we should
depend on some private company or companies to collect, carry, and
distribute our mails. The government would also abandon all its work in
keeping clear and safe the natural waterways of the country, as well as
all the harbors, light-houses, etc. Municipal governments would give up
all their systems of water supply to private companies, as well as their
sewerage systems, and even paving, street cleaning, etc. Indeed, the
maintenance of our whole system of highways would be given over to
private enterprise. Is this too much? It is only a legitimate
application of the principle that government should leave to private
enterprise all matters connected with commerce and industry.
Little need be said to prove that a similar application of the principle
of societism to our industrial system would result even more
disastrously. As a general thing, the necessary formality and expense of
administration when business is carried on by the government, causes the
final cost of production to be much greater than under private
management, even when conducted with all honesty. But the chief reason
why the principle of societism is impracticable and unwise for universal
application, lies in the fact that the men who administer our
governments are neither the wisest nor the most honest of men. The
competition among those engaged in private business tends by a process
of natural selection to bring the men of greatest business ability into
control of affairs. But by any form of government yet tried, popularity
rather than merit, and excellence in the arts of the politician, rather
than experience and capacity as a statesman and business man, are the
qualities which place men in positions where they can control public
affairs. Not that very many wise and good men do not now hold office,
and that many unprincipled and vicious men do achieve success in private
business. But, as a general rule, the statements just made hold good.
It seems plainly apparent, then, that neither the principle of
individualism nor the principle of societism can be taken as an
infallible guide for determining the control of our industry. It would
be as manifestly unwise to take a step toward abolishing existing
societism by placing our postal department under the control of a
private company, as it would be to make a move toward abolishing
individualism by having the government assume the management of all the
farms in the country. Both of these principles are necessary.
There is, indeed, a marked tendency toward an increased reliance on the
principle of societism as civilization progresses and our life becomes
necessarily more intense and complex. A community of plain farmers,
isolated from each other, can live their individual lives about as they
please, without any interference of the government becoming necessary to
protect the rights of each man from infringement by his neighbors. But
the resident in a large village must submit to certain restrictions for
the common good. He must not carry on any kind of business likely to
become a public nuisance. His cattle may not graze in the streets. He
must give part of his earnings toward maintaining a water supply for a
protection against fire. The citizen of a great city is subject to far
more restrictions. The government assumes the control of education,
charities, the care of the public health, the drainage of the streets,
the collection of offal, and a multitude of other duties which in a less
intense civilization each family performs for itself.
The advance in science and the arts, too, has brought about a revolution
whose effect we must recognize. A hundred years ago almost every
community, and to a large degree every family, was industrially almost
independent of every other, as we have already shown. To-day each man
relies on a million others to supply him with the commonest necessaries
of life. The armored knight was proof against all foes, save the few
antagonists similarly clad. To-day my life is dependent on the fidelity
and vigilance of ten thousand men, and every man I meet has me in his
power. Given the malignant will and fiendish cunning necessary, and one
single man can kill a thousand human beings and destroy a million
dollars at a blow. To sum up, each advance in civilization makes men
more dependent upon each other, and increases the advantage and
necessity of having industries most important to the common welfare
controlled by society as a whole instead of by individuals.
It is contended by some that from the increased interference of
government with private affairs, there is danger that the liberties of
the people will be curtailed, and that their rights will be so hedged
about by restrictions that the result will be evil instead of
beneficial. To this it must be answered that the people themselves are
the source of the government's authority and power of restriction, and
that in no case will a restriction of the government be long maintained
which does not benefit far more in conserving the rights of men than it
injures by infringing them. Apply this rule to any case of government
action in industrial matters. A city government, for instance,
constructs a system of sewerage. All taxpayers must contribute something
towards its expense, and their right to spend that money in such other
ways as they choose is abridged; but, at the same time, the more
important right of having healthy and safe drainage for their houses is
conserved. In a similar way, the government may pass laws of various
sorts to restrict and control what seems to be at first sight purely
private business, such as the sale of explosives, spirituous liquors,
poisons, drugs, and many other articles. In every instance, this is done
on the ground that the interference of government is necessary to
protect the rights of the community as a whole, even though the
liberties of certain classes are abridged.
The study of these facts brings to our attention an important principle
of governmental action, which should always be remembered when in any
industrial matter we find that the principle of individual action is
producing unsatisfactory results, and conclude, therefore, to ask the
government to take some part in its control. This principle is as
follows: _government, as the representative of the will of the whole
people, should in general, attempt the regulation, or control, of
industrial matters only to benefit the people as a whole_.
Of course it cannot be said that all government action for the benefit
of special classes of the community is wrong. The granting of pensions
to those defenders and upholders of the government who deserve it, is a
case in point where special legislation is justifiable and proper; and
many other cases exist. Nevertheless, the shaping of legislation to
effect the interests of special classes of the community is one which is
now working the nation serious injury; and it has obtained so firm a
bold that it will take a long time for us to throw it off. It causes men
of all classes to consider the government as a paternal benefactor,
whose duty it is to aid them, either in their schemes for getting rich
or their struggles to earn a living; when its real office is to protect
all citizens in their individual rights, undertake only such industrial
enterprises as can manifestly be better and more economically conducted
by it than by private enterprise, and enforce restrictions upon industry
only as they are needed to protect personal rights or the interests of
the community as a whole. Worst of all, the use of government to advance
special interests places a premium on the efforts of those who seek to
corrupt the expression of the popular will in its every stage, from the
voters at the polls to the chief rulers in the seats of government. For
by combining to accomplish their mutual purposes, they are able to turn
aside all departments of government from their legitimate work and
occupy them with measures to advance special interests, some commendable
enough, others a mere excuse for stealing from the public treasury, but
all alike claiming attention and action, while the business of the
people goes all awry.
It has seemed necessary to thus briefly discuss these two opposing
theories of society, individualism and societism, in order to show the
impracticability of either when applied to the society of to-day without
limitation and modification by the other; and that in adopting or
rejecting any remedies that may be proposed for the industrial evils
which we have discussed, we should be guided by the facts as we find
them, and not by blind adherence to abstract principles.
Let us now gather up the salient decisions which we have reached in all
our past investigation. We have discovered that a great industrial
revolution is in progress, by which manufacturing, mining, and
transportation to a very great extent, and other industries to a
considerable extent, have been and are being concentrated in the hands
of a very few competitors. We have found that by the laws of competition
this reduction in the number of competitors greatly increases the
intensity of competition and the resulting waste and instability of
price, and finally brings monopoly into existence. This monopoly we have
determined to be a serious infringement on the rights of the people, and
we have found that the losses due to intense competition and the
fruitless attempts to defeat monopoly by adding new competing units have
wasted the wealth of the nation in uncounted millions. We are now to
consider the remedies proposed for these evils.
The most obvious remedy for monopoly, and the one which has been tried
and persevered in with the most remarkable faith, is _the creation of
new competitors_. Does a railroad monopoly oppress us? Build a competing
line. Is the gas company of our city charging us $3 per thousand for gas
which cost but 50 cents to produce and deliver? Let us start another gas
company and tear up all our pavements again to lay its mains. Has the
sugar trust put up the price of sugar two cents per pound? Well, "sugar
can be produced anywhere by the expenditure of labor and capital," the
Trust's lawyers say, and so _we_ will "trust" that some enterprising
manufacturer will take the field against the combination. But if we do
any of these things, we have added only _one_ competitor to the number
in the field. And with only _two_ competitors in the field, competition
is sure to be so _intense_ and _wasteful_ that the formation of a new
monopoly is a matter of but a short time.
This is the conclusion to which the theory brings us; and the more one
studies the history of actual attempts to create competition in this
way, the more thoroughly convinced he must be that the inevitable result
will be the same,--the tacit or formal combination between the old
monopoly and the new competitor, resulting in the re-establishment of
the absolute reign of monopoly. The author has thoroughly studied the
actual working of hundreds of schemes, in every part of the United
States, whose object was to create competition in railroad
transportation. It is a most astonishing fact to see the eagerness with
which thousands of municipalities, all over the country, which have
taken great loads of debt upon their shoulders to secure "competing
lines," and have seen these lines swallowed up by their rivals, are
still anxious to repeat the folly and assume new burdens to aid in
building new lines, which will inevitably be absorbed like those which
they preceded. If the people as a whole learn wisdom by experience, they
seem to learn with painful slowness. The first great lesson for the
people who are groaning under the burden of monopoly to learn, then, is
that when we try to defeat monopoly by creating new competing units, the
remedy is worse for the community at large than the disease, and effects
at best but a temporary relief.
Another class of remedies against monopoly seek to accomplish their
purpose by opposing the tendency to a reduction in the number of
competing units. There are not wanting people who, having gained a dim
perception that monopolies are an inevitable result of the modern
concentration of industry, conclude that, after all, "the former days
_were_ better than these," and that our wisest course is a retrograde
one. Fortunately, however, these people are comparatively few. It is a
fact so plain that even the dullest can hardly fail to perceive it, that
the consolidation and concentration of industry which have gone on
everywhere have wonderfully cheapened the cost of production,--made it
possible for us to make better goods with a less expenditure of labor
and material. The revolution in our industries could not be undone
without a more radical action toward vested property rights than could
be countenanced now; and as already seen, it would work to the detriment
of every person in the community. We cannot go back to the stage-coach,
the workshop, and the hand-loom of our ancestors; we cannot, if we
would, undo the growth of a century in civilization; and it is well that
it is so.
But while most men see the benefit which has resulted from the
consolidations already effected, there are but few who are not opposed
to further consolidations. It is argued that the reduction in the number
of competing units results in increasing the intensity of competition,
which is assumed to be a desirable end; and that it has also worked
great benefit in the reduction in cost. Having attained this, it is
proposed to stop further consolidations and prevent the establishment of
monopoly. This is what most of the present plans for giving relief from
monopoly propose to accomplish. Certainly the task is no easy one; let
us inquire if it be even possible.
We may safely assume, in the first place, that the competitors in any
industry will always be reduced to a very small number before the public
will be sufficiently aroused to make any movement for the prevention of
consolidation. So long as a monopoly is not imminent, usually, indeed,
so long as it is not in actual operation, no one cares or notices how
far consolidation and combination goes. Now by the laws of competition,
when the number of competing units is small, competition is intense and
wasteful, and acts to so reduce the returns from industry that
combination and the establishment of a monopoly are a natural sequence.
Evidently this result can only be prevented by some interference outside
the industry itself. If we allow it to take its own course, a monopoly
is certain, sooner or later, to be formed. But the only agency which has
the right and power to interfere is government. The question then is,
can government successfully interfere to prevent intense competition
from bringing about monopoly? In order to do this it must of course keep
competition in action; but it cannot do this directly. Competition is
essentially a strife. No law was ever enacted which could force two men
to fight if they were really determined to be at peace. No law was ever
enacted which could force two manufacturers or merchants to compete with
each other in price, if they really were agreed to sell at the same
price. The common-law principle that contracts in restraint of
competition are void, so often appealed to nowadays, has really but
slight power. It merely prevents the parties who make an agreement to
restrain competition, from enforcing such agreements in court. Attempts
have also been made to apply this principle to secure an annulment of
the charter of corporations which engage in monopolistic combinations.
Even if this be successful, the only result probable is that private
parties instead of corporations will carry on the monopolies in a few
cases, while in most cases the competition-destroying agreements will be
made so secretly that it will be impossible to prove their existence.
It is thus plain that the action of the government in declaring the
restriction of competition to be illegal is wholly ineffectual to check
the growth of monopoly. And, further, the fact is that it is hardly
possible for the government to take any more extreme stand in the
matter. Let us suppose that it does declare, not only that these
combinations are against public policy, but that they shall be punished.
Then would it be a punishable offence for two country grocers who had
been selling sugar below cost to agree that henceforth they would charge
a uniform price and make an eighth of a cent per pound! It is to be
remembered that _competition_ necessitates _action_. Can the government,
therefore, _compel_ a man to compete, to cut prices below his neighbors,
or to carry on his business at all, if he does not choose to do so? Such
a law would establish the government's right to regulate the conduct of
purely private business to a degree never before known. Such a law to
protect the theory of individualism would be a most flagrant
infringement of the rights of individuals. It is plain, then, that
government cannot possibly keep up competition by direct action.
Whether it is possible to do so by indirect means is a much harder
question. Monopoly results, as we have found, from the intensity of
competition. If it is possible to modify the intensity, to keep the
candle from burning itself out too quickly, so to speak, it is possible
that competition may be kept alive by legislative enactment. So far,
practically nothing has been done in this direction, and it remains yet
to be seen what remedies of this sort may accomplish.
A pertinent example of an attempt by the government to keep competition
alive is the Interstate Commerce law. Before its passage the railway
companies had a patched-up and nominally illegal species of combination
to restrict competition, known as pooling. As described by President
Charles Francis Adams of the Union Pacific Railway, "it was merely a
method through which the weaker corporations were kept alive." The
Interstate law prohibited this restriction of competition, and also, by
enactment of the long-and short-haul clause, made the competition more
widespread and injurious to the railways. As a result an astonishing
impetus has been given to the growth of the great systems and the
consolidation of the minor competing roads. More than that, however, the
great increase in the intensity of competition has done so much to drain
the resources of the companies and injure their revenues, that some
measure for uniting all the railroads of the country under one
management is now being seriously planned by many men in railroad
circles. Thus this result, which was probably inevitable, has doubtless
been hastened many years by the action of the law. The means taken to
intensify competition has operated, as might have been expected, to
hasten the complete establishment of monopoly.
We have now found that monopoly is the inevitable result of the
concentration of competition in any industry in a few hands, if events
are allowed to take their natural course; that the only agent which has
either the right or the power to interfere in the case is the
government,--National, State, or Municipal; that government cannot
punish directly those who form combinations to restrict competition,
without exercising to an unprecedented degree its right to interference
with private affairs; while its attempt to deter men from establishing
monopolies by refusing its protection to them in their contracts to
restrict competition has proved to be but a slight hindrance to the
growth of monopoly.
There are, then, but two ways of preventing monopoly from establishing
itself and laying such a tax upon the people at large for the supply of
the commodity which it controls as it chooses. The first is, action to
reduce the intensity of competition so that the weaker competitors may
maintain their independence and not be forced to consolidate with their
stronger rivals. The second is, action to permit or encourage the
establishment of monopoly, and regulate by some means other than
competition the prices which it shall charge for the products and the
quality of product which it shall supply. These two general classes of
remedies which we find to be feasible we will discuss here only in a
general way. The first, reduction in the intensity of competition, has
hardly been tried in any form, and we cannot yet say what practical
means should be taken to put it into effect. We will return to this at a
later period in our discussion.
The second remedy is the one towards whose adoption we are rapidly
working. State and Interstate Commissions have already been established
to regulate railway monopolies; and in general it is true that the
people who feel the burden of monopolies are looking to the government
for relief, and expect it to take positive action for the control of
other monopolies as it has for the control of railways. It will be seen
that we have now arrived by a study of the various possible remedies for
monopoly at the same irresistible conclusion to which we were brought
by our study of the laws of competition. _The proper remedy for monopoly
is not abolition but control._ It seemed necessary to conduct this
independent investigation in order that no blind adherence to
individualism and no thought of the possible efficacy of other remedies
might lead us to doubt this important truth.
We have next to consider the fact that the government can control
monopolies in two ways. It can either permit the monopoly to remain
under private ownership, and regulate its operations by law and by duly
appointed officers; or it can itself assume the entire ownership and
control of the monopoly. Which of these plans is the better, is a
question of public policy over which future political parties are likely
to dispute. One party will hold that when it is necessary for the
government to interfere to protect those whom it represents from the
oppression of monopoly, it should assume at once the whole ownership and
management of the monopoly. Their opponents will argue that government
should interfere only to the extent needful to maintain the rights of
the public; and that it is far better that industry should be directed
by the private individuals whose interests are at stake than by
government officials. To discuss fully the arguments for each of these
two principles of our future practice in dealing with monopolies, would
be beyond the intended scope of this volume. It can only be briefly said
that the arguments presented will certainly indicate that the conditions
surrounding each given monopoly will have great weight in determining
which policy is the most advantageous. It would be manifestly unwise,
for instance, to place our postal facilities under the direction of a
corporation, even though its operations were regulated by government.
It would be even more unwise to place the operations of the flouring
mills of the country in the hands of a department of the government. The
important factors to be considered in deciding any given case are,
first, the importance and necessity to the public of the service, and,
second, the question whether production in the given case is likely to
be carried on more economically by the government or by private
enterprise. The former has an advantage in that it can secure its
capital at a lower rate of interest. The latter, an advantage in that it
secures greater efficiency from the labor it employs. Other
circumstances being equal, it would appear wisest, then, for government
to take direct charge of those monopolies in which the greatest amount
of capital is invested and the least labor is employed, leaving to
private enterprise under government regulation the operation of
monopolies in which the opposite set of conditions prevails.
As already stated, however, the question is complicated by the social
and industrial effects which might follow a large transfer of enterprise
from private to governmental direction; and these effects we will not
now discuss.
XV.
THE SOVEREIGN RIGHTS OF THE PEOPLE AND OF THEIR REPRESENTATIVE, THE
GOVERNMENT.
We have now at last deduced the important facts, that the only remedy
for the evils of monopoly must come from the popular will, expressed in
direct action by the government; that the government may possibly keep
competition alive by checking its intensity, or can certainly allow
events to take their natural course and permit monopolies to be
established. It can then protect the public, either by assuming itself
the ownership and operation of the monopoly, or by taking the less
radical step of placing the monopoly under official supervision and
control while permitting its private ownership to continue. This
conclusion is of the utmost importance, for it marks out one single
direction as the one in which relief from the evils which vex us may be
found. If we can once make the thinking people of the country understand
the effect which monopolies have upon their welfare, and that the evil
will not cure itself and cannot be cured by attempts to create
competition or by any remedy short of direct action by the government,
we shall have made a great advance.
But with this goal reached, new questions at once present themselves.
Can the interference of the government with private industries be
defended? How shall government exercise its control, so as to protect
the people without infringing vested property rights and discouraging
private enterprise? It may be objected, too, that, while our preceding
discussion has fully proved the weakness of other methods of dealing
with monopoly, compared with that by the direct action of government, it
has not been shown that the latter is practicable, or that it would not
be likely to result in more harm than good to the people at large.
These questions are coming before the people in a thousand practical
forms. They are being fought over in courts and legislatures and
councils, and are destined to be fought over at the polls. How important
their right decision is, we have already seen. Let us make some attempt
to find what this right decision is.
In taking up first the question of the rights of private property
holders, we touch a point over which there is likely in the future to be
serious dispute. A certain faction vigorously contend that past
precedents are no ground on which to base future action, and that little
attention need be paid to the rights of private owners if the public
interest is at stake. A far stronger and more influential faction are
jealous of every thing which seems to question their right to hold and
use their property in whatever way they see fit. But certainly, if their
claims are just, they need not fear the result of that investigation
which every idea we have inherited from former generations has in these
days to receive. It would be beyond the scope of our investigation to
make any exhaustive study of this subject, but it is necessary to note
some of the important facts in connection with property rights as light
upon the question at issue.
In the first place, it must be conceded that the question is to be
decided upon its merits, and not by precedent. It is of little use for
one faction to show, as they can, that the idea of private property is
largely of modern growth; or for their opponents to prove, as they may,
that the progress of law and government has been continually toward
better protection of the rights of property. The question must be, on
what grounds of inherent right or public expediency is property held
to-day in private ownership? Distasteful as it may be, to realize that
what has been considered a fundamental principle of civilized society is
here challenged and put upon the defensive, the fact remains that the
defence must be made, and must be based only on what is just and wise
to-day, for the opposing side may properly reject arguments based on the
wholly different conditions under which past generations lived.
The question of the rights of property in the products of labor we may
pass briefly, as it is almost undisputed; and while certain thinkers
have asserted that there is no such thing as a natural right to the
ownership of property of any sort, it seems certain that this is true
only in a technical sense; and that a man's right to hold, control,
dispose of, and enjoy the fruits of his own strength or skill is as
certain as his right to "life, liberty, and the pursuit of happiness,"
and follows from that right as a natural sequence. The most radical
revolutionist hardly ventures nowadays to argue against this fact. Thus,
though it is recognized that private property even in one's own strength
and skill must, at times, be subjected to the higher law of public
necessity--as when in time of war a man may be obliged to give up his
time, strength, and even life for the public welfare--in general the
right to hold the results of labor as private property is well
established, on the grounds both of natural right and public expediency.
But when we consider the private ownership of the gifts of Nature and of
public franchises, it is apparent that we are on very different ground.
These forms of property, which constitute a great proportion of the
world's total wealth, are not created by labor. Nature's gifts were not
stored up to enrich and benefit any one man, but the whole race. It
follows, therefore, that they are always, in the first instance, public
property.
The argument presented to prove any inherent right of the private owners
to any form of natural wealth seem to be insufficient to prove the case.
The fact seems to be that the inherent right to the benefit of every one
of Nature's gifts is vested, if perfect equity were established, in the
whole human race; or, as a reasonable approach to this, in that portion
of the public to whom this gift is a direct benefit. The title which the
public holds may be transferred to private individuals, as a matter of
expediency; but the public must still retain a prior claim upon the
property. Its right to have the property used for the general welfare,
transcends the right of any private owner to direct it solely to his own
profit and the public injury.
It is thus plain that the private ownership of our natural wealth and of
all public franchises rests on the grounds of expediency alone. All the
lands and mineral wealth, all franchises for railway lines and for the
various public works discussed in the chapters on municipal monopolies
were the heritage of the whole people in the first instance, and they
have only transferred the title to private owners because it seemed
expedient so to do. On the grounds of expediency alone, then, is the
private ownership of natural wealth to be considered.
It can hardly be doubted that in the case of our own country, the
transfer to private owners of the title to our natural resources has
been in the past the wisest and only proper course. It is a fact not
often realized that the title to nearly all the natural wealth of the
country, almost all the lands and mines and forests, has been held
directly by the public within a century, and that the transfer to
private owners of a great part of it has taken place within a
generation.
The question now comes: Did the public, in transferring the title to a
private owner, relinquish all its right to the future control of these
valuable properties, as a private owner would have done? The answer must
be in the negative. Regarded simply as a matter of expediency, it is
plain that to cause the act of any public official to bind all
succeeding generations, living under dissimilar conditions and
circumstances, which were then unknown and unprophesied, might result in
unbearable evils. Necessary as it might be at the start to give away
valuable properties to meet present needs, one generation or its
representatives has no conceivable right to sell for a mess of pottage
the heritage of all succeeding ones. The fact is, then, that the natural
title to all gifts of Nature is vested in the public at large; and while
it is in duty bound to observe the contracts which it makes with private
parties, it is also not to be thought that the dishonesty or
incompetence of a public official, or the failure to foresee the future,
can work for too long a time an injury to the community.
It seems certain that, in every case where the public has transferred to
private owners the title to any gift of Nature, or has conferred any
franchise upon a corporation, under whatever conditions, the right of
supreme control still remains with the natural owner, the public; and
when the need arises, this control may be exercised. The rights of the
owners and the contract obligations into which the public has entered
should be regarded so far as possible; but when the public necessity
demands, control on its behalf can always be exercised.
This may seem like a formidable and revolutionary doctrine, but, in
reality, it is based on every-day acts of the public representatives,
with which every one is familiar. Suppose it is conceived to be for the
public interest that a certain railway shall be built. To do this it is
necessary to cross many hundred tracts of land, the title to which was
many years ago transferred by the public to private owners who have
bought and sold since then as they pleased, as if their control were
absolute. Many of the owners of these lands may be opposed to parting
with the right of way necessary for a railroad, but their private wishes
must not stop the progress of improvements necessary to the general
welfare. The State, which has the natural title, asserts its right to
supreme control; and, if necessary, will use all its power to force
these private owners to relinquish their land for the public good. This
is the commonest example of the exercise of the right of eminent domain,
but other cases frequently occur. The laying out of city streets,
building public bridges, and, in fact, highways of every class, furnish
a similar example. Provision of public water supply often requires an
exercise of this power even more positive than in the cases just cited.
By the construction of one great reservoir to store the flow of the
Croton water-shed for the supply of New York City, it is proposed to
condemn the dwellings and lands now owned and occupied by several
thousand people. It is to be noted that, in every case, the rights of
the private owners are observed, and compensation is made them for the
damage done.
Under the common law the owner of lands bordering a running stream has
certain rights to its use; and these riparian rights, as they are
called, have been established by precedent for centuries. But, in the
State of Colorado, it was found that the water in the streams was of
such value for irrigation that the old system of permitting private
ownership of these riparian rights led to grave abuses. The State
Constitution, therefore, declares that all water in running streams is
the inalienable property of the whole people, and the system providing
for its use by private parties is based on this principle.
So much for the power of the public to exercise its supreme control,
when public exigency requires, over Nature's gifts in land and water. As
an example of the supreme control of the public over the franchises
which it grants, take the case of the railway again. It is well
established that the public has the right through its legal
representatives to regulate the management and operation of the railway
in every detail; and not only that, but the rates which the railway may
charge for its services as well. Many other examples might be given, for
the necessities of the present decade have awakened men as never before
to the facts which we have just discussed. The final conclusion must
inevitably be that _the public as the sole possible holder of the
natural title to the gifts of Nature, while it may find it expedient to
transfer this ownership to private owners, retains always supreme
control, which may be exercised as the public exigency demands_.
We have next to determine in what cases the exercise by the public of
this right of supreme control over its heritage is demanded. We are
greatly aided here, however, by the thorough study we have made of the
laws of competition. It is evident at once that competition in the case
of natural agents acts according to the laws already found. Agricultural
land in this country is so abundant and its ownership is so widely
diffused that any monopoly of it is now impossible. Each farmer competes
with every other farmer, and the extension of transportation facilities
has so broadened the field of competition that in no industry is the day
when the few competing units shall replace the many, and monopoly shall
ensue, farther off than in this. In Great Britain and Ireland opposite
conditions prevail. A limited amount of land is held by a few owners,
and its rental is fixed without competition; consequently the land
question has been almost, if not quite, the chief issue in British
politics during this decade.
If we examine Nature's gifts to the world in the shape of metals, we
find iron to be so widely distributed that competition has always acted
to reduce profits, and that combinations to restrict competition in the
production of the metal have only recently become even possible. On the
other hand, the workable deposits of copper are so scarce and the number
of competitors in its production is so much smaller, that it has become
the subject of the greatest monopoly the world has ever seen.
With these examples--and any number of others might be cited--is it not
plain enough that the laws of competition are exactly applicable to aid
in solving the problem? The smaller the number of competing units, the
stronger the tendency to monopoly. Certain gifts of Nature are given to
us in profusion. The people transfer the title to private owners, and
of these there must of necessity be so many that they will compete
steadily with each other. The consequence is that the people receive the
benefit from the country's natural resources, while the private owner
gets only enough to compensate him reasonably well for the labor he
employs and the capital which he invests. Certain other gifts of Nature
are, as we have found, very scarce; the number of men who can own and
use them and compete with each other in offering their advantages to the
public is necessarily small. The inevitable result of this condition is,
first, intense competition and then monopoly.
It is thus evident that there is no necessity for the State to interfere
with the private ownership of those gifts of Nature which are so widely
distributed that competition can act for the protection of the public.
As regards those other gifts which are so limited in their extent that
their control has become a matter of monopoly, the right of the public
to exercise its control is already proven. Whether in any given case the
exigency is so great as to call for the assertion of this power, is a
question which must be decided in each case separately.
It may be objected, with truth, that nothing short of the actual
ownership of all Nature's gifts by the public is in accord with
absolutely perfect justice; but as a matter of fact every human work
carried out by human hands and brains is only an approach to perfection.
It will never be possible by any human agency to distribute the wealth
production of the world with absolute equity. A careful writer says:
"The view that the right of every human being to his share in the gifts
of Nature should be recognized is not an unreasonable one." But by no
system possible of putting into practical execution can these gifts be
equitably divided among all men. What can be done is to cause the
benefit of these gifts to be widely distributed, and to prevent them
from being monopolized for the benefit of a few.
The fact maybe alluded to, that even under widespread competition the
holders of the most favorably situated and richest lands, mines, etc.,
receive a benefit which in absolute equity should be divided among all
men. But the vastly more important matter of the monopolies which
prevent the public from obtaining the benefit of the natural resources
to which it holds an inalienable title, so overshadows such trivial
injustices that they may be neglected. So much attention has been called
of late, however, to the fact that land as a gift of Nature should, if
absolute justice were done, have the benefit from its use equally
divided among all men, that something further on this subject may be
said.
Let us first note the fact, which no one will dispute, that the title
held by the public refers only to the "site value." The value of all
improvements which are the product of labor belongs to the owner by
natural right. Now it is conceivable that of the total value of
$10,197,000,000 at which the farms of the United States were valued at
the last census, $7,000,000,000 may perhaps have been the value of the
land apart from the value of the buildings and improvements made since
the country was settled. In 1880 there were at least 3,500,000 farmers
who owned agricultural lands. It is a well-known fact that the holding
of agricultural land in large parcels is the rare exception. We may
reasonably conclude, therefore, that the "site value" held by each
farmer was about $2,000. This is the sum which in absolute equity is
said to belong to the public at large. But let us reflect that each
farmer has only received a small proportion of this $2,000 through the
increase in the value of his land. The fact is that the land which at
first was actually valueless has increased in value with each
generation, and it is this increase alone, apart from the increase due
to the betterments, after which the public has any right to inquire.
Remembering the number of sales and changes in the ownership which take
place in this country, how often the benefits which have accrued to a
single property are divided up among a number of heirs, and that each
owner represents on the average a family of three individuals, it seems
reasonable to suppose that this increase in the "site value" of each
farm may have been divided among twenty different persons. Thus, while
the statement may be made that the public has a claim upon the farms of
the country of $7,000,000,000, it must be remembered that this sum has
been divided among about 70,000,000 different people, and that this
division has been in progress for over two centuries. When the benefits
of our natural resources are so widely distributed as this, there can be
little occasion to alarm ourselves regarding injustice through the
private control of farming lands.
This, however, is somewhat apart from our argument. The main point, of
which we must not lose sight, is that the private ownership of those
gifts of Nature which are widely distributed operates to the general
benefit of the community far more than any system of public ownership
that could be devised. But, on the other hand, in the case of natural
agents limited in amount, it is practically certain that sooner or later
a monopoly will be established by their private owners, to the serious
detriment of the public at large. The sovereign right of the public in
this latter case to take such steps as are necessary for its proper
protection, is something which both _a priori_ reasoning and judicial
decisions amply prove.
The great problem of monopoly would be a far easier one to solve, both
theoretically and practically, were it as easy to regulate justly those
forms of monopoly whose strength lies in combination only, as it is
those whose power depends on the possession of gifts of Nature, which we
have just considered. In dealing with trusts, monopolies in trade, and
labor monopolies, we are in danger, on the one hand, of sanctioning
oppressive interference with private business, and on the other of
permitting a license in the conduct of private business which encourages
its managers to continue to extort unjust gains from the public. In the
face of this difficulty, which careful consideration shows to be very
serious, and in the dread of other evils, such as the government proving
incompetent to safely undertake these new and strange responsibilities,
we may well feel like trying to get along with the aid of those old
defenses against monopolies that have always, until the modern
concentration of industry was accomplished, been ample to hold them in
check.
But the one argument which prevents this is the fact that this tendency
to concentration and consolidation is still actively at work. In the
words of Prof. Ely: "Production on the largest possible scale will be
the only practical mode of production in the near future." It is for
this reason that we must not cease to look about for some better
protection against this new class of monopolies than are afforded by
merely placing stumbling-blocks in their way. We shall have need, for
many years yet, of such weapons in fighting monopoly as the public is
already familiar with; the creation of new competitors and their support
by public opinion, judicial decisions against combinations, and the
like. But before these grow absolutely useless, we ought to be prepared
to meet the new conditions of industry with something better than mere
opposition; and even now be experimenting and studying upon a permanent
and consistent policy.
In attempting to control monopolies which are not dependent on natural
agents for their strength, we are met at once by the declaration that
the government has no power or right to interfere with property which is
the product of labor; and that the owner cannot be prevented from making
such disposition of it as he chooses. The President and Counsel of the
Sugar Trust said after Judge Barrett's decision was announced: "We do
not believe that the law prevents two persons engaged in rivalry with
each other from uniting their interests." This seems indeed true; and
yet, on reflection, it appears to be absolutely certain that power must
reside in the sovereign people to protect themselves from the unjust
taxation which a monopoly may seek to enforce. Let us brush away cobwebs
and set the facts clearly before us. That competition among producers is
the sole present protection of the public against extortionate prices is
undoubted. When by combination this defense is abolished, has not the
public a right to adopt some other means of protection? There can be no
doubt that it has; the only question is, what form should that
protection take?
It must be plain that, as a general rule, it is unfitting that
government should own and operate industrial establishments. Practical
experience has indicated that this experiment is wellnigh certain to
result in failure, for reasons so evident as to require no mention here.
The only alternative remaining is government regulation with private
ownership and management. The essential features in the adoption of any
plan should be that the returns of the private owner should be in
proportion to the skill and economy which he exercises in managing his
business; that competition and its resulting waste be done away with;
and that the industry be placed on such a safe and stable basis that the
capital invested in it shall receive the lowest possible rate of
interest, thus leaving the greatest possible amount for the payment of
wages of labor and permitting sales of the product at a low price.
XVI.
PRACTICAL PLANS FOR THE CONTROL OF MONOPOLIES.
The investigation of the preceding chapters, leading up to the final
conclusion that the proper and only wise remedy for the evils of
monopoly lies in direct action of the government to protect the rights
of the people, finishes the chain of our argument and really
accomplishes the work laid out in the opening chapter. The laws which we
have found to govern competition in modern industry are so far-reaching
in their effects, and their correct apprehension by the people at large
is so important to the general welfare, that economists ought to unite
in recognizing and teaching their truth, while all who desire to work
for the alleviation of present crying evils of society should understand
these laws and be guided by them.
In the practical application of these truths, however, so many
complicated details are involved that there is ample reason for the
widest differences of opinion. To decide intelligently upon these
practical methods demands special knowledge, in order that all necessary
details may be provided for, and rare practical judgment to adapt the
method to the means at hand.
The investigations which the author has pursued in the preparation of
the preceding chapters and for certain other purposes have suggested to
him certain principles in the practical execution of plans for the
control of various monopolies, which seem to him necessary to success in
the work. Well understanding the fallibility of any one man's judgment,
especially in these matters of detail, he has determined to outline in a
brief way what seem to him the most feasible plans for the control of
each class of monopolies. These suggestions, however, are to be regarded
in an entirely different light from the general laws propounded in the
preceding chapters; and they are presented with a full knowledge of the
fact that slight variations in circumstances may necessitate wide
changes in plans and processes.
Taking up the monopolies which by their use of natural agents or their
exercise of a franchise granted by the public, are already acknowledged
to be subject to the public control, let us consider first the railway
system. The two years in which the Interstate Commerce law has been in
force have seen a great progress toward the final solution of this
problem, even though railway affairs are at present in so unsatisfactory
a condition. The important features of our future policy which now seem
to be quite generally understood are: full State and national control
over both tariff rates and facilities; the abolition of competition,
either by consolidation or by legalized agreements to that end; and
strict prohibition of the construction of parallel lines not warranted
by the traffic.
That we are working very rapidly in this direction, no one will deny who
is familiar with the progress of legislation affecting railway interests
and with the opinions of railway men. Evidently, however, government
cannot justly take so prominent a part in railway management without
becoming in some degree responsible to railway stock- and bond-holders
for the protection of their interests; and it is a difficult question to
say in what manner this responsibility should be met. It has been the
intention of the author in devising the following plan for the control
of our railway system to make this responsibility a definite one, and
not leave it as now, a vague constitutional right. For according to the
law at present, State and national legislators may make laws to vary the
receipts and expenditures of the railway companies as much as they
please, and the only redress of the railway owner is an appeal to the
courts, the judges of which must decide whether the company's revenue is
so injured that its legal rights are infringed.
Space will not permit here a full statement of the many serious evils
and abuses with which our present system of railway management is
burdened. The study which the author has made of them has convinced him
of their importance and magnitude. The following plan is designed to
permit their remedy as well as to remedy the special evils of monopoly
with which our present investigation is concerned:
Let the government acquire the title to the franchise, permanent way,
and real estate of all the railway lines in the country. Let a few
corporations be organized under government auspices; and let each, by
the terms of its charter, receive a perpetual lease of all the railway
lines built or to be built within a given territory. Let the territory
of each of these corporations be so large and so planned with regard to
its neighbors that there shall be, so far as possible, no competition
between them. For instance, one corporation would operate all lines
south of the Ohio and east of the Mississippi rivers; another all lines
east of the Hudson and of Lake Champlain, etc. Let the terms of rental
of these lines be about 3¼ per cent. on the road's actual "present
cost" (the sum of money it would cost to rebuild it entirely at present
prices of material and labor) less a due allowance for depreciation. The
corporations would be obliged to keep the property in as good condition
as when received, and would own absolutely all their rolling stock,
machinery, etc.
It is not proposed, however, that the government shall own any interest
in the railways save the legal title. Bonds would be issued to the full
amount of the appraised valuation, running twenty-five years and bearing
interest at 3 per cent., principal and interest guaranteed by the
government, and these would be sold to the highest bidder. Thus the real
ownership of the roads would be vested in the bondholders. As is well
known, there is a great and fast increasing need for investments of
absolute safety, even though they bear very low rates of interest. This
is especially desirable for the continuance of our national banking
system, in order to insure us a safe, stable, and ample currency. Such
bonds would find a market at a premium as fast as offered.
It would not even be necessary that the money to pay the interest
coupons should pass through the government's hands. The operating
company would pay it directly to the bond-holder and at the same time
the ¼ of 1 per cent. would be paid into the government treasury.
The object in making the bonds run for no longer time than twenty-five
years, when it is intended that the whole value of the road shall be
perpetually held in the form of bonds, is that at proper intervals a
revaluation may be made of the improvements to the road and the
interest charges may be readjusted to correspond with the general
change in the income from capital. When the bonds fall due, a new block
would be issued and sold to the highest bidder. The interest rate should
be set at such a point that the bonds could be sold at a premium. These
premiums, with the ¼ of 1 per cent. on the bonds, paid by the operating
company to the government, (which we may regard as a legitimate fee to
the government for its guaranty) should form a government railway fund.
This should be used, first, to defray the expenses of the government
department of railways, and second, to pay the deficit when on any line
the net receipts after operating expenses are paid are insufficient to
pay the rental. The remainder should be expended in making improvements
and additions to the railway system, such as building new bridges and
stations, and improving the line, the cost of which, however, should be
represented by additional bonds at the end of the twenty-five-year term.
The amount of income should be so regulated, by varying the rate of
interest on new bonds, that the sum remaining for the last purpose may
be about sufficient for usual needs. The whole administration of the
receipt and expenditure of this fund should be vested in the government
department of railways. In this way the danger that the whole work of
this government department might be blocked through the neglect of
Congress to make necessary appropriations, would be avoided.
The readjustment of existing stocks and bonds presents difficulties
which will be considered in very different ways by different classes of
persons. The "granger" element, for instance, would cut off the holder
of "watered stock" with a shilling. Fortunately, if we take time enough,
we can arrange this matter with no shadow of injustice. To illustrate:
The government can purchase the A. B. & C. road outright at its market
value, which, owing to inflated prices and watered securities, is
perhaps $3,000,000. It is desired to wipe out $1,000,000 of this to
place the road upon its proper basis. The government issues 3 per cent.
guaranteed ten-year bonds upon the road and leases it at an annual
rental of 6 per cent. on what it has paid. At the time the bonds are
due, the accumulation of rentals over interest is more than sufficient
to pay off $1,000,000 of the bonds, while the remainder are renewed on
the permanent basis.
The author is well aware that a very strong prejudice exists against the
lending by the government of its credit to private corporations. This
prejudice--which has perhaps already been sufficient to condemn the
plan, as thus far presented, in the mind of the reader--he believes to
be a very wise and well founded one. The assumption by the government of
any risk in connection with corporate enterprise is highly undesirable.
It is now to be noted that this objection is wholly overcome; for,
notwithstanding the fact that the government guarantees the bonds of the
railways, it is not proposed that it shall really assume any risk, as
will be seen from the further description of the powers and obligations
of the operating corporations.
These should be essentially private companies, but there should be two
or three representatives of the government on the Board of Directors.
They should be required to operate the roads in a safe, efficient, and
economical manner, and to keep accurate and simple records, open to the
inspection of the Government Commissioners, of the receipts and
expenditures on every separate line of road. The rates of fare and
freight should be, first of all, stable. When once fixed they should
neither be raised nor lowered except by the direction of the Government
Railway Commissioners. Next--and this is the cardinal feature of the
whole plan--it should be the endeavor to fix the rates of fare and
freight at such a point that the total receipts would be sufficient,
first, to pay the whole expense of operating and maintaining the road;
second, to pay the annual rental of 3¼ per cent. interest on the cost of
the road; and, third, an annual dividend to the stockholders of the
operating company of from 4 to 8 per cent. The capital stock of the
operating company should be fixed by law at about 1¼ times the actual
cost of rolling stock and machinery. The operating company should be
allowed to issue only one class of securities, and these should
represent at par the actual cash capital invested by the operating
company.
Under this plan it is evident that every community would pay its
equitable share of the cost of transportation, since the rates would be
based on the cost of service.[6] Instead of roads running along,
bankrupt for years, as now, we would have every community paying for
its transportation facilities just what it cost to furnish them. But if,
on any road, such a rule would raise the rates above a certain
prescribed maximum point, then the rate could be lowered, if necessary,
to a point where it was only great enough to pay the operating expenses;
and part or all the bond interest would be paid out of the government
railway fund.
[6] It should be explained that it is only proposed to base the
_rates as a whole_ upon the cost of service. As regards the relative
rates on different commodities, the author, in common with all who
have given careful study to the question, recognizes that the only
equitable principle for proportioning rates is the much maligned one
of "charging [in proportion to] what the traffic will bear." The
argument against this principle is so very plausible that, until he
had given the subject thorough study he held a diametrically
opposite opinion.
To make plain to the reader that this is really the only equitable
principle, the following illustration may serve: A coal-mine
operator and a sewing-machine manufacturer build together a railroad
to carry their respective products to a market. They will fix the
total rates of freight at such a point as to just pay the cost of
service; but it is required to find what relative rates each should
be equitably charged on the shipments from his works. Evidently, to
have the rates perfectly equitable, they must be in exact proportion
to the _benefit_ which each party derives from the use of the road.
But this benefit which each derives is _measured_ by the profits
which each makes from his business; and this profit, in turn, is the
measure of the amount each can afford to pay for the use of the
road,--that is to say, "what the traffic will bear." _Q. E. D._
"But," the objector says, "is it not true that when you limit the
profits of the companies and base rates on cost of service you take away
all incentive to economy and careful operation? The public, and not the
company, gain if the cost of service is reduced; so why should the
manager exert himself to economize? This very same principle has been
tried. Many States have chartered railway corporations, and provided
that fares and freight rates should be reduced when dividends exceeded a
certain per cent., or else that a percentage of the surplus earnings,
above the amount necessary to earn, say 10 per cent. dividends, should
be paid into the State treasury. Of course the railway corporations who
have been able to earn surplus dividends which they were not permitted
to pay, have been sharp enough to spend their surplus on their own
property instead of turning it over to the State treasury. How is it
possible, then, to base rates on cost of service and still leave the
incentive to economy, frugality, and efficiency which exists, when the
corporation is permitted to make all the profits it can?"
To discover a means of overcoming this difficulty, let us see how it is
overcome under competition. A man invents a new machine, for instance,
which effects a saving in the cost of some manufacturing process of 50
per cent. One manufacturer adopts it because it greatly increases his
profits, and one by one his competitors follow suit. The competition
between them cuts the prices lower and lower, till finally the consumers
of the goods get all the benefit from the saving effected by the new
machine, and the manufacturers' profits are no greater than they were
originally. But the important point to be noted is this, that the
benefit to the manufacturer continued long enough to repay him for
introducing the machine. So in our attempts to base railway rates upon
cost of service, we must permit the profit from the introduction of
economies, the use of improved appliances, etc., to be gathered by the
railway company long enough to induce it to work toward that end.
All we need to do to effect this end is to _somewhat delay_ the change
in rates to correspond to change in cost of service. As already stated,
it is most necessary that rates should be _stable_, and it is proposed
to make any change, either advance or reduction, only through the action
of a Government Commission. Now, suppose that some such clause as this
forms a part of our railway law: "upon the petition of any railway
corporation, or of not less than twenty-five patrons of any single
'railway district,' it shall be the duty of the Railway Commission to
investigate regarding a readjustment of rates to correspond more closely
to the cost of service. If it shall be found that in the given 'railway
district' the net receipts over the operating expenses and fixed
charges have been for one year not less than 9 per cent. on the capital
of the operating company invested in the given railway district; and
that for two successive years they have been not less than 8 per cent.;
or, if they have been for one year 8 per cent., and for two years 7 per
cent., and it shall be proven to the satisfaction of the Commission,
that any due and proper measure of economy, to which the attention of
the officers was called in writing has been wilfully neglected, or that
any uncalled for and manifestly extravagant expenditures have been
entered into during that time, then it shall be the duty of the
Commission to lower the rates. If it shall be found that for one year
the net earnings have been less than 3½ per cent., and for two years
less than 4½ per cent., unless it shall be proven that this deficit has
been fostered by neglect of due economy, or by extravagant expenditure
as aforesaid, the rates shall be raised. In all cases where rates are
readjusted, it shall be the endeavor of the Commission to set them at
such a point that the net earnings will equal 6 per cent. on the capital
stock."
The provision requiring two years of excess or deficiency before a
change, would be necessary to avoid the fluctuations which occur in
single seasons. Every piece of economy is so much gain to the
stockholders, and its benefit is received for at least two years. It
must be remembered that in any railway corporation, as at present
conducted, none but the highest of the managing officials have any
personal interest in the profit from operations. It may well be
believed, therefore, that the measure of economy and efficiency effected
would be at least as great as now. As this plan also contemplates
government representation on the Board of Directors, any action by the
higher officials to evade the law would be unlikely to occur.
The receipts of a company operating say 30,000 miles of railway and
carrying its traffic at fixed rates would vary but little from year to
year; and its stock would be so largely held by investors and would vary
so little in price that there would be very little speculation in it. To
bankrupt the company would be an impossibility, since its receipts would
always be regulated to preserve its revenue, although not so strictly
but that the company would still have every incentive to cultivate
traffic by offering good facilities, and to economize at the same time
by the introduction of improved methods.
No doubt it can be shown where every detail of the foregoing plan leaves
loop-holes for abuses to creep in. It will be much the same with any
plan whatever. The questions to be asked are, would abuses, waste and
stealing be any more likely to occur than under any other plan? Could
they be any more prevalent than they are now,--bearable only because we
are calloused to them? Of course, the foregoing is a mere outline of the
general principles of the plan. Details which readily suggest themselves
would, of course, be necessary to carry out the principle successfully.
That some attempt should be made in this connection to solve the
perplexing problem of strikes on railway lines is proven by the
memorable engineers' strike on the Chicago, Burlington, & Quincy system.
Perhaps a provision requiring every employé and officer to hold at least
a certain number of shares in the operating company in proportion to his
salary would help to solve the labor problem; and it might give the
higher officers a greater interest in their work than they always show.
The author has deemed it worth while to outline the foregoing plan for
the equitable control of railway monopolies with considerable fulness,
because, to a very great extent, the principles followed in the design
of this plan are applicable to a great number of other monopolies. These
important principles are: (1) Government protection to the owners of
fixed capital so that the public may obtain the use of it at the lowest
possible rate of interest. (2) The operation of monopolies by
corporations rather than by the government, thus securing the increased
efficiency of private over official management. (3) Securing to the
people at large the benefit of the monopoly by basing the prices for its
product on cost of service. (4) But leaving a suitable incentive for the
company's managers to maintain economy and efficiency in its operations.
(5) Government representation in the directorate controlling the
ordinary affairs of the company.
It is evident that the plan just outlined for railways would be
especially well adapted, with but slight changes, for the control of the
telegraph lines of the country.
* * * * *
We will next consider the monopolies discussed in Chapter III. It seems
too plain to need proof that our mines and quarries are certain to have
a steady increase in value as we use up the easily worked surface
deposits and have to dig deeper shafts and develop the poorer deposits
to supply the demand. In the case of any metals or minerals of which the
deposits are so abundant, easily worked, and widely scattered, that the
number of evenly matched competitors is great enough to ensure steady
competition, the public will get the benefit of the especial gift of
Nature, and its owner can receive little more than an ordinary return
for his labor and capital. But, as we have already amply shown, in the
production of a great number of minerals and metals competition has been
killed, or is heavily handicapped by the vast advantages of a few
bonanza mines, and the public is being taxed millions of dollars for
that which belongs to it by right.
How long is this condition to continue? Must all succeeding generations
pay for coal, copper, zinc, lead, nickel, marble, oil, gas, and various
other products of our mother-earth just what those who control the chief
deposits choose to ask? Because a pioneer stumbles upon a valuable mine,
shall the sole right to use the product of that mine be secured "to him,
his heirs and assigns" forever?
Suppose, now, that each of the several States were to acquire the title
to all the productive mines, quarries, and mineral wealth within its
borders, and enact laws providing that future discoverers of minerals on
land where they are not now known to exist should be liberally rewarded,
if the discovery proved valuable, but the minerals should belong to the
State and not to the owner of the land. The same principle which we
found to apply in the case of the railways would serve here in
readjusting values, viz.: the difference in the rates of interest on
safe investments and on risky ones. When acquired, the mines should be
leased to private parties for operation. In the case of coal-mines and
perhaps of iron, it would be well to copy largely from the scheme
proposed for railway operation, viz.: place all the business in the
hands of a single company, which should thus be enabled to carry on its
business on the largest possible scale; do away with wasteful
competition, and aim to regulate prices to provide a certain reasonable
steady income on its capital to the mining company.
For mines of copper, zinc, lead, and similar metals, it would be best to
pursue a different plan, and simply provide by statute that such mines
should be leased for short terms of years to the bidder who would offer
to sell his product at the lowest price per ton at the mines, all
lettings and relettings to be publicly advertised, and the successful
bidder to give bonds for the faithful performance of his contract. It is
difficult to see how, under these conditions, a combination to defeat
competition could be formed. Relettings of expired leases would be
frequent; and bidding by the _selling price_, a single competitor would
be sufficient to break any combination. Of course the lease should
specify a minimum product which the mine should furnish.
It would be advisable, too, that a manifest duty of the government,
which should be undertaken even under present conditions, should be
observed. It should be required to work the mine with due attention to
saving the greatest possible amount of ore or mineral contained in the
seam or vein.
The third class of monopolies, whose legal subjection to public control
is acknowledged, are those connected with our municipal public works.
There is already a widespread movement toward taking the control and
operation of these out of the hands of private corporations, and placing
it directly with the city government, and progress in this direction is
very rapid. The author believes, however, that the general law already
stated is applicable here. If the public works of States and of the
nation are more economically and efficiently managed when in the hands
of private parties, it is surely unwise, as a general rule, to entrust
the operation of municipal works to the average city official. While it
is in the highest degree desirable that water-works, gas, and
electric-lighting plants, street railways, and the other municipal
enterprises, discussed in Chapter V., should be _owned_ by the
municipality, their operation, in cases where the employment of
considerable labor and the carrying on of intricate business and
mechanical operations is involved, should in general be entrusted to
private companies. In every case where the financial condition of the
municipality obliges it to rely at first upon private corporations for
the construction and ownership of its public works, the franchise should
expire at the end of a short term of years, and the city should then
have the privilege of purchasing the works at their actual cost.
As regards works for water supply, there can be little doubt that almost
invariably the municipality should operate as well as own the works, for
the administration of the works requires but a small amount of labor,
and that of such a class that the city can safely carry it on. But gas
or electric-light plants, both for street and resident lighting, should
be operated by private companies.
These industries are making such rapid progress in the way of new
processes, effecting both economy and improvement, that it is somewhat
difficult to say what steps should be taken. Many are of the opinion
that gas is destined to be entirely replaced by the electric light; but
while this may eventually prove true, it will probably be a very long
time before the existing gas-works cease to supply consumers. Thus the
true solution of the problem seems to be that when a growing town
nowadays wishes to establish a new lighting plant of its own, it should
adopt electricity. But in the case of a town having gas-works already
established, the municipality is safe in assuming their ownership.
As regards the operation of lighting plants in small towns, it would
doubtless be best to lease the plant for short terms of years to the
highest bidder, making sure that the call for proposals is widely
circulated. Great cities, however, would find this policy
unsatisfactory. If a ten-year lease of the Philadelphia gas-works, for
instance, were advertised for sale to the highest bidder, there would be
but few really close bidders upon it, and the danger of "a combination
to defeat competition" would be great. It is at least worth considering
whether such a plan as we proposed for railways could not be made
feasible here. Let a corporation be chartered to operate the lighting
plant of the city, and let the charter of the corporation provide that
its rates shall be such as to pay an annual dividend upon its capital
stock (fixed by law and not changeable) equal to the legal rate of
interest in the State. Provided, that in no case should the rates be
lowered unless the net profits in one year were more than 2 per cent. in
excess of this rate, and that the excess for two consecutive years was
more than 1½ per cent. in excess of this rate. Provided also, that in no
case should the rates be raised unless the deficit exceeded 1½ per cent.
in any year, and 1 per cent. for two consecutive years, and that it
should be proven by the company that it had exercised all reasonable
diligence, care, and economy in the management and operation of its
business.
A certain proportion of the stock--less than a majority--should be held
by the city; and the mayor should appoint directors to represent the
city, at least one of whom should be personally conversant with the
industry carried on by the company.
Although not often so considered, the matter of passenger transportation
is a much more important matter in our greatest cities than either
lighting or water supply. The laboring man, who has to pay perhaps
twelve cents for the necessary ride back and forth to his work every
day, feels this tax most severely. Suppose that under such an
arrangement for street railways as we have outlined for gas and electric
lighting companies the fare would be reduced to three cents. His savings
from this source would amount to at least $18 per year. Counting the
extra rides and those which his wife and children have to take, the
annual saving would probably reach $25, a sum which to the average
laboring man with a family dependent upon him means a great deal.
Our municipal monopolies are now taxing us that they may pay swollen
dividends on millions of dollars of fictitious capital. It is quite time
that the public recovered possession of the valuable franchises which
are its rightful property, and managed them for its own benefit. The
legal difficulties in regaining the title to these franchises are
certainly not insuperable, and the readjustment of capitalization can be
made on the principle outlined in the case of steam railways. To
illustrate: The city of "Polis" purchases the works which supply it with
water from the private company owning them, paying the average market
value of the stock and bonds during five years past, which amounts,
perhaps, to one and one half times the cost of the works. The revenue
from the works has been sufficient, probably, to pay 8 per cent. on
these securities. The city issues 3 per cent. ten-year bonds to raise
funds for the purchase, and it then operates the works so as to gain a
yearly revenue of 6 per cent., or 2 per cent. less than that gained by
the private company. At the end of ten years the surplus income from the
works is enough to pay more than one third the bonded indebtedness; and,
if desired, the rest may be reissued as new bonds to run for a long
period.
The three classes of monopolies just discussed--railways, mineral
wealth, and municipal works--include practically all the monopolies
which are generally acknowledged to be subject to the public control by
virtue of their use of natural agents or the exercise of franchises
granted by the public.
We will next consider the monopolies in trade, in manufacturing, and
in the purchase and sale of labor, to see what steps should be taken
to protect them from encroaching on the rights of the people. In
exercising the right of the people at large to take control of these
purely private industries from the hands of their owners, we are
assuming a power which, like a strong medicine, may be as potent for
evil as for good. Only extreme necessity should sanction its use, and
its abuse must be carefully guarded against. It is not saying too much
to assert that the abuse of this power has already become an evil. We
have become so used to legislation for the benefit of special
industries, that legislation for their injury does not seem to be
regarded as the exercise of a dangerous prerogative. Thus we are
threatened with a flood of laws to fix the prices in various industries
now subject to monopoly, or to crush them out altogether by enacting
some restrictive measure,--legislation which, by its directness, is apt
to strike the average lawmaker very favorably, but which, it needs
little wisdom to see, is the sure forerunner of abuses. The author
trusts that nothing in this book may be construed as advocating or
defending some of the crude and ill-considered attempts at anti-monopoly
legislation already made, or that may be made in the future.
We have proven in the preceding chapters that, from the character of
modern concentrated industry, a very large number of our manufactures
must either exist as monopolies or else must engage in intense and
wasteful competition. If the monopoly can be so managed that it shall
carry on the industry economically, adopt improvements, keep up the
character of its product, and keep the prices therefor so low as to make
no more than ordinary profits, it would be for the public advantage that
monopolies rather than competition should exist. Can we regulate
monopolies to secure such results? If so, our problem will be solved.
The author has proposed for the first class of monopolies--those
obtaining the benefit of natural agents and public franchises--government
ownership of fixed capital and regulation of prices, with private
operation and general management. But he is far from believing that such
a plan would now be wise for regulating trusts. It may indeed be that,
at some time in the future, many of the great staple manufactures will
be formally established by the government as monopolies, and controlled
in a similar way to that which we have outlined for the railway system;
but it is so far in the future that we need not consider it in detail
now. Under our present political organization it would be practically
impossible for the government to undertake to regulate justly and
equitably such an industry, for instance, as the steel-rail manufacture.
We have set our State, national, and municipal governments a hard enough
task in the preceding pages of this chapter, in bringing under public
control our monopolies of transportation and communication and our
productive mines; and although it is a work possible of accomplishment,
it will need good statesmanship to carry it out. By the time that task
is accomplished, a similar plan, improved as experience will then
suggest, may perhaps be found available for the regulation of the
important manufacturing industries.
We decide, then, that it is for the public advantage at present that
both the ownership and operation of manufacturing industries and of
trade must remain in private hands. The next question is, will the
greatest advantage to the public be secured by starting a crusade to
re-establish competition and break up all existing monopolies in
manufacturing and trade; or by taking the opposite course, legalizing
monopolies and so regulating them by law that they shall be prevented
from making undue profits by laying an exorbitant tax upon the public?
Practically all the efforts made or proposed thus far for remedying the
evils of monopolies in manufacturing and trade have had for their
purpose the re-establishment of competition. The investigation to which
the first part of this book was devoted shows the wide extent of the
movement to restrict competition. Is it possible to wholly counteract
this? All our study of the laws of competition seems to show that the
tendency of modern competition is to destroy itself by its own
intensity. Certainly all the strenuous efforts to keep it alive by the
force of legal enactment and public opinion have thus far proved
unavailing. There are now, probably, at least a million persons in the
United States who are directly or indirectly interested in unlawful
contracts in restraint of competition; and among them are included many
of the best financiers and most enterprising business men of the
country. Certainly those who propose to drive these men into a renewal
of competitive strife contrary to their will have set themselves a very
difficult task.
Let us consider the opposite alternative. It cannot be a good thing to
have such a great proportion of the active business men of the country,
who bear the highest personal character, engaged in illegal contracts.
Let us therefore take them within the pale of the law. They seem to be
determined to make contracts with each other in restraint of
competition; and believe, indeed, that they are forced to do it by
modern conditions of trade. Suppose we were to legalize these contracts
and permit the establishment of monopolies. What can we then do to
protect the public from extortion in prices and adulteration in its
products on the part of the monopoly?
In the first place, now that we have legalized monopolies there is no
more excuse for secrecy. To work in darkness and privacy befits
law-breakers, but is needless for legitimate enterprises. Let the law
provide that every contract for the restriction of competition shall be
in writing, and that a copy shall be filed, as a deed for real estate is
filed now, with the proper city or town officer where the property
affected is situate, and also with the Secretary of State where the
contract is made. Certainly no honest man will object to this provision.
The contention has been made that contracts to restrict competition were
necessarily kept secret because they were "without the pale of the law."
Very well; we have legalized them. There can be no further defense of
secrecy. If any now refuse to make public their contracts to restrict
competition, the refusal is evidence that the contract is for the injury
of the public or some competitor and therefore properly punishable. We
shall now know just what monopolies exist; just what is their strength,
and for just how long a time their members are bound. Let us next see
what measures we can adopt to prevent these legalized monopolies from
practising extortion upon the public and abusing the power they have
gained by the combination.
The first important means to secure this which the author would
suggest is simply an extension of the common-law principle of
non-discrimination. A man in conducting certain sorts of business is
permitted to do as he chooses. He may sell to one person and refuse to
sell to another; he may give to one and withhold from another. But if he
enters business as the keeper of an inn or as a common carrier of
passengers or freight, he can no longer exercise partiality. He has
_elected to become a necessary servant of the public_, and as such he is
bound to serve impartially all who apply. In the same way a manufacturer
while he engages in business under the usual laws of competition, may
sell to whom he pleases and exercise such preference as he chooses. But
when he combines with all other manufacturers of the same sort in a
combination to restrict competition, he and his allies voluntarily
change their relation to the public. Is it not true that they do
actually _elect to become necessary servants of the public_--far more
necessary, indeed, than the inn-keeper or the stage-coach driver,--and
ought they not therefore to be placed under similar legal restrictions?
In every case where combination or consolidation restricts competition
in an industry, one effect produced is an increase in the power over
the public which the industry possesses. But this increased power over
the public, thus voluntarily assumed, must inevitably carry with it
increased responsibility to the public. It is the duty of the government
to see that this responsibility is legally enforced.
This first principle, then, should be embodied in a law providing, in
substance, that every person or firm entering into a contract to
restrict competition should, so long as that contract was in force, be
debarred from showing any preference in his or its purchases and sales,
by giving more or less favorable prices to any person or firm than those
quoted to any other person or firm. To enforce this requirement and
prevent its evasion it is necessary to provide also that prices shall be
public and that they shall not be altered without due notice. The
requirement of publicity might be best effected by providing that the
contract restricting competition should contain a schedule of prices,
which would usually be the case in any event.
While this may seem like quite an assumption of authority on the part of
the State, it is exactly what trusts and trade associations are striving
to effect, though with the important qualification that when occasion,
in the shape of an obnoxious competitor, requires, they wish to be at
liberty to put prices up or down at short notice and exercise their
preferences as they choose.
Let us now see what we would effect by the enforcement of this principle
of non-discrimination. We have explained in the chapter on combinations
in trade how one monopoly gains strength by alliance with another; as
when the firms belonging to the car-spring combination made a contract
with the steel combination by which that monopoly agreed to sell to
them at a reduced price and to make an extra rate to their competitors.
Under this law it would be impossible to found one monopoly upon the
favors of another in this manner.
The obnoxious trade boycott, too, which is now becoming so common, would
be effectually checked. And the scheme for crushing out a rival by
giving all his customers specially favorable rates would no longer be
practicable. The fact is that if we can stop the discriminations which
the monopolies have practised, we shall cure a large share of the evils
they have caused. It may be said that the courts will already punish
many conspiracies of this sort; but a monopoly which is already breaking
the law by its contracts of combination, finds in its methods of doing
business plenty of chances to evade the laws against conspiracy.
Certainly with a properly drawn law with reference to the publicity and
stability of prices, it should be possible to practically wipe out the
evil of discrimination by monopolies. It is also to be noted that the
requirement of non-discrimination and of public and stable prices would
bring profit in doing away with the waste of competition.
We have now to inquire what means it is possible to take to ensure that
the prices charged by the monopoly shall not only be the same to all,
but that they shall not in themselves be so exorbitant that the monopoly
will reap large profits at the public expense. How can we keep the
prices charged by the monopoly from rising far above the point where
they would stand if free competition were in force? Two methods are open
to us. We may keep down the monopoly's rates by what we will call
_potential_ competition, or we may reduce them directly by legislative
enactment.
The right of the public to take this latter course may be defended on
the ground that the monopoly has voluntarily made itself a necessary
public servant, and in that capacity offers to the public its goods.
While it is true that the people permit the monopoly to become a
necessary public servant and protect it in the contracts by which it
restricts competition, it is also true that the monopoly cannot justly
make merchandise of the necessities of the people. The public may allow
a combination to obtain control of all the sugar refineries, for
instance, and protect the combination in its formation. But suppose the
owners of the combination then say: "The people are obliged to have
sugar and we control the supply. We will set a high price on sugar,
therefore, because we know that they will pay it rather than go
without." They are then making the necessity of the public a source of
gain, and it cannot be believed that this will be permanently suffered.
The serious difficulty in fixing by direct government action the prices
which a monopoly of this sort shall charge, is that we cannot stop at
that point. When once the government steps in to do so radical a thing
as to fix the price which a monopoly shall charge, it becomes in equity
responsible to the owners of that monopoly for the maintenance of their
incomes from their capital invested. If their profits have been so
reduced by this action as to seriously injure the value of their
property, they have a legal right to claim compensation from the state
for the injury it has done them. And in almost every case they would set
up the claim that their property had been thus injured. To determine the
point at which reasonable prices and reasonable profits become
extortionate prices and unjust profits is a task requiring expert
knowledge and the most comprehensive judgment, aided by the most
accurate statistics. To impose this task on our already overburdened
courts would permanently block the wheels of justice, and would give to
the judicial department of government a work which its machinery is
wholly unsuited to carry on.
It seems evident, therefore, that when it becomes necessary for the
state to directly fix prices to be charged by monopolies, a more radical
step should be taken. The monopoly should be established on a permanent
basis, and the state should have some part in its direct control.
Discarding, therefore, direct action by the state to fix prices as
inexpedient, for the present, at least, let us see what we can effect by
means of "potential" competition, which term we will use to signify that
competition which may be established in any monopolized industry if the
inducements offered are sufficiently great. It must be remembered that
nowadays men of capital and enterprise are always on the look-out for
every opportunity to invest money and expend their industry where it
will bring the greatest returns. If any monopoly seems to be making
large returns, people are generally ready to believe that it is making
twice as great profits as it really is; and some one is quite likely to
start in as a competitor, if there is a prospect of large profits. Now
we wish to do two things. We wish to make it so easy for new competitors
to enter the field against a monopoly that its managers will keep their
profits down in order not to call in any new competitors. We also wish
to so modify the intensity of competition between the monopoly and the
new competitor that the latter may have a chance at least of being
repaid for its expenditure in entering the field. The simplest and best
of the legal provisions which we may enforce to this end is the one
already stated of non-discrimination. The monopoly can no longer reduce
its price to apply to only the limited field in which the new competitor
works, but must reduce its prices everywhere to meet those made by the
rival. In the case of monopolies in trade and all monopolies in
manufacturing in which the fixed capital required is but small, this is
all that would be needed to encourage the establishment of new
competitors and discourage the monopoly from grasping after undue
profits from the public.
In the case of those manufacturing monopolies in which a large fixed
capital must be invested at the start by any new competitor, we have a
much more difficult problem. It is true that in this case the monopoly
itself has more at stake; and this may induce the starting up of new
competitors simply to be bought out by the trust,--a sort of
blackmailing operation which is certainly repugnant in its character. It
might be possible to provide that rates charged by the monopoly must be
so stable that a competitor would have a chance to establish itself
before the monopoly could bring its own rates down. It might be possible
to force the monopoly to keep all its factories in operation, and thus
oblige it to keep down its price in order to dispose of its products;
but there are evident practical difficulties in the way of enforcing
such laws. It seems a great pity that just now, when to find some
employment of prison convicts in some manner that will not "compete with
free labor," and thus displease the labor interests, seems an
impossibility, we cannot set the convicts at work to compete with the
trusts and bring down their profits to a reasonable point. Surely the
labor party would find no fault with this use of convict competition.
There is one step, however, which we can take, and whose effect would
certainly be very great; in its desirability, apart from questions of
monopoly, all honest men are practically united. We can reform our laws
regarding corporate management. It is a mild arraignment compared to
what is deserved, to say that our present laws regarding the formation
and management of corporations, taking the country as a whole, are a
shame to the people and a disgrace to the men who made them. They seem
designed to place a premium on fraud and knavery, and to assist the
professional projector and stock manipulator in reaping gains from
innocent--generally very innocent--stockholders. Now a real reform in
our corporation laws would greatly simplify our work in controlling
monopolies. Let us have no more stock-watering of any sort at any time
in a corporation's life. Let us have no more "income bonds" which yield
no income, and "preferred stock" in which another is preferred after
all. Two classes of securities are enough for an honest corporation, and
the public interest requires the charter of no other class of companies.
Let us have done, too, with the iniquitous custom of one corporation
holding another's stock or bonds. With a few such simple reforms as
these effected, the holders of stock in our corporations would have some
idea where they stand and what their securities represent, and would
take some interest in the control of their property.
With these reforms, in the case of every corporation making a contract
to restrict competition, it would be required that the company make
public annually a full statement of its receipts, expenditures, and
profits. Every monopoly would stand before the public then in its true
position, and every one would know if it were making 50 per cent. per
annum on the actual capital invested, or only 5 per cent. With these
facts made public, if any monopoly ventured to raise its price till it
reaped unusual profits, some of the heaviest consumers of the
monopolized product would be very apt to start a factory of their own in
opposition. It is to be remembered that under the law of
_non-discrimination_ the monopolies would be prevented from currying
favor with the large consumers by giving them specially favorable
prices. It is now common to do this, as it removes the danger of
combination among these important customers to compete with the
monopoly.
To sum up, the chief features of the plan proposed for the control of
monopolies in manufacture and trade are as follows: Make contracts to
restrict competition, legal and binding, instead of illegal and void as
now. _But_; provide that every such contract shall be filed for public
inspection; that prices charged by the combination shall be public,
stable, and absolutely unvarying to all; that the affairs of the
combination shall be managed according to a consistent and stringent
corporation law; and that an annual report of the operations of the
combination be made to a public commission.
Contrast this with the existing law upon this important subject. In
Judge Barrett's decision in the Sugar Trust case he said:
"The development of judicial thought, in regard to contracts in
restraint of trade, has been especially marked. The ancient
doctrine upon that head has been weakened and modified to such a
degree that but little if any of it is left. Indeed, excessive
competition may sometimes result in actual injury to the public;
and anti-competitive contracts, to avert personal ruin, may be
perfectly reasonable. It is only when such contracts are publicly
oppressive that they become unreasonable, and are condemned as
against public policy."
This is probably the best statement of the present status of the common
law upon this subject now extant. But what a path to endless litigation
does it open! Who shall draw the line where a contract to restrain
competition ceases to be beneficial and lawful, and becomes an injury to
the public welfare? Must this be left to judge and jury? If so, the
responsibilities of our already overburdened Courts are vastly
increased.
In contrast with such a policy as this, the plan before presented
certainly promises definiteness in the place of uncertainty; and treats
all contracts in restraint of competition with impartiality. It is
believed that the effect of its enforcement would be a great reduction
in the tax now levied on us by monopolies.
There is yet one way, however, in which all these monopolies that we
have found it so difficult to devise a plan to deal with--the
manufacturers' trusts--may be quickly and certainly reduced. Our heavy
tariff on imported goods, by protecting manufacturers from foreign
competition, and thus reducing the number of possible competitors, has
undeniably been a chief reason why trusts have appeared and grown
wealthy in this country before any other. The author has purposely
refrained, as far as possible, from reference to the relation of the
tariff to monopolies; for the question has been so hotly fought over,
and the real facts concerning it have been so garbled and distorted,
that people are not yet ready to consider it in an unprejudiced way.
This much, however, no one can gainsay. We hold in our hands the means
to at any time reduce the prices and profits of practically all our
monopolies in manufacturing to a reasonable basis, by simply cutting
down the duty on the products of foreign manufactories. Now, if after
our plan just described is in force, the managers of any monopoly choose
to be so reckless as to raise its prices to a point where its published
reports will show it to be making enormous profits, thus tempting new
competitors to enter the field and breeding public hostility, all honest
protectionists and free-traders will be quite apt to unite in a demand
that the "protection" under which this monopoly is permitted to tax the
public be taken away.
If only we could find in any possible plan so excellent a solution of
the problem of labor monopolies as a reduction of the tariff offers us
in the case of trusts! The question is so complex a one that it is
hardly possible to consider it here, except very briefly. Certainly, if
we legalize combinations to restrict competition among capitalists, we
should among laborers as well. Indeed, the decay of the old common-law
principle, that such contracts were against public policy, and that such
combinations were punishable, has been more marked in the case of trade
unions than anywhere else. Besides this, as long as employers have the
right to kill competition in the purchase of labor, workmen should
certainly have the right to avoid competition in its sale. But to
prevent by force other competitors from taking the field, if they
choose, against any labor combination, is an infringement of the
personal liberty guaranteed to every man by the Constitution, and can by
no means be lawfully permitted.
If workingmen only understood how much the apparent gain when they win
in a strike is overbalanced by their loss in the higher prices which
they have to pay for the necessaries of life, and in the reduced demand
for labor, they would be as anxious to protect capital as they now
are--some of them--to injure it. The strikes make timid the men who have
capital to invest. They will not loan their money to business men,
builders, manufacturers, or any one who wishes to use it to employ
workmen, except at a higher rate of interest, to pay for the increased
risk. _Hence_, the cost of the capital used in production is greater,
and the price the public has to pay for the product must be greater.
Again, when men have to pay higher rates of interest for the money they
borrow they are slower to engage in new enterprises. Mr. A. a builder,
intended to put up a block of a dozen houses this season, which would
have tended to reduce rents; but the fear of strikes, with their
attendant damage and loss, has prevented him from borrowing money at
less than 8 per cent. interest. He concludes that, on the whole, this
will eat up so much of his profits that he will not build. Is it not too
plain to need proof that the _moral influence_ alone of the strikes has
robbed the workmen at every point? And this is one of a thousand cases
in a hundred different industries.
The plans we have discussed for the treatment of monopolies have for
their object a benefit to the people at large, by enabling them to
purchase the products of industry and of natural wealth free from the
tax now levied upon them by monopolies. If we can effect this, we shall
not have a millennium; there will still be injustice and suffering
enough in the world; but we shall have reduced the pressure upon the men
who work with their hands for their daily bread, enough so that we shall
no longer see the strange spectacle of over-production and hunger and
nakedness existing side by side. Men's desires were made by an All-wise
Creator to be always in advance of their ability to gratify them. And
the commercial supply of that ability--the supply of men willing to
work--ought always to be behind the demand for men.
It seems beyond dispute, then, that whatever will remove these
obstructions to the wheels of production will increase the demand for
labor, as well as increase the wages of labor by lowering the prices of
the necessaries of life. This the plan we have discussed promises to do,
and it also promises to benefit the whole people by lowering the cost of
monopolized articles.
The men and women who work with their hands, and those dependent on
them, form 97 per cent. of the population of the country. Instead of
combining to stop production in this shop or that factory, why not join
hands to work for reforms in the interest of the whole people? Be sure
that in so doing, organized labor will have the hearty co-operation, and
leadership if need be, of the best men in every class of society.
But while the reforms proposed promise great and important benefits to
the workers on whom the tax laid by monopoly falls most cruelly, the
question, "What shall fix the rate of wages, if competition cannot?" is
still left undecided. The best answer the author can make to this is as
follows: The monopoly formed by the trade unions in the sale of labor is
unnatural, because the number of competing units is great instead of
small. As new competitors must continually arise, the monopoly can never
be successful without the use of unlawful means. If it raises the price
of labor above what free competition would determine, it as truly lays a
tax on the whole people as did the copper monopoly. On the other hand,
we must recognize the fact that competition is now often absent in the
_purchase_ of labor, and this is a chief and sufficient cause for the
existing attempts to kill competition in its sale. But this is largely
due to the fact that the supply of labor is now in excess of the demand.
When instead of signs everywhere, "No one need apply for employment
here," we see placards, "Men wanted; high prices to good workmen," then
competition will assert itself in the purchase of labor.
In regard to the first class of industries, those utilizing natural
agents, which we proposed to place under the care of the state, it is
evident that we can permit no strikes there. Our transportation lines,
our mines, our gas-works, our water supplies, are to be operated for the
benefit of the whole people, and no labor monopoly can be permitted to
stop them. The plan that might be adopted to prevent interruptions in
these industries has been already referred to. The author would suggest
a similar plan for the benefit of labor in general. Suppose that in the
charter of a manufacturing corporation, a certain portion of the stock
in small-sized shares was set aside for the employés required to operate
the mill. Let each employé be _required_ to hold a certain number of
shares in proportion to his wages; to purchase them when he begins to
work, and to return them when he leaves the service of the corporation;
the price in all cases to be par. In case he leaves without giving a
certain notice, he should forfeit a certain proportion of his stock. If,
on the other hand, he is discharged without an equal notice, he should
receive the full amount of his stock, and a sum in addition equal to the
penalty which he would have incurred had he broken the contract. Who
will deny that such a move would be vastly to the interest of both
parties, the employer and employed. Is not a protection needed by the
workman against the power of the employer to turn him adrift at any time
without a penny?
Finally it must be said that the labor question, more than any other
connected with monopoly, needs solution through the influence of the
principles of Christian fraternity. In the last analysis, every man
sells to his brother men his service and receives his food, clothing,
and shelter in return. We may execute justice never so well, and
regulate never so nicely the wages of men by the law of supply and
demand, there will still be special cases demanding and deserving to be
treated by the rules of brotherly charity. The strong were given their
power that they might aid the feeble; and they who fall behind in the
struggle for position are not to be blotted out by the brute law of the
survival of the fittest, but cared for as the noblest instincts of
humanity prompt.
* * * * *
I am well aware that the indictment which conservative critics will be
apt to bring against the plans for the equitable control of monopolies
presented in this chapter is that they are too novel, and that they
require too much of an upheaval of existing institutions for their
accomplishment. The conservative man is invariably in favor of getting
along with things as they are. The answer to be made to this is, that no
candid man who will make a thorough study of the present status of
monopoly and of the attempts to control it can be conservative. The
present status of monopolies is just neither to their owners nor to the
public. They are plundering the public as much or as little as they
choose; and the sovereign people are submitting to it and taking their
revenge by passing retaliatory laws intended to ruin the monopolies if
possible. These legislative "strikes" are thus especially well
calculated to foster extortion on the part of the owners of monopolies,
who naturally wish to make what profits they can before some piece of
legislation is put through to destroy the industry they have built up.
In contrast to this are the plans proposed in this chapter. They offer
to establish a definite relation between the public and the monopolies,
and a permanent and stable foundation for each industry they affect in
place of the present fickle and ever changing one.
There is another class of critics who may complain that the plan
proposed leaves too much power still in the hands of the monopolists,
and gives the government too small a part in their management. The
answer to this is very evident. We have found the cardinal value of the
system of individual competition to be that it tends by a process of
natural selection to bring the men of greatest ability into the control
and management of our industries; while the vital weakness in the
management of industry by government is the fact that the sovereign
people does not choose the wisest and most honest men to control its
affairs. Men may well say that if they are to be robbed it had better be
by a corporation, where innocent stockholders will receive part of the
benefit, than by dishonest officials of government.
The ultimate remedy for the evils of monopoly, therefore, lies with the
people. When they will choose to control their affairs the men of
greatest wisdom and honor; when each man will exercise the same care in
choosing men to care for the public business that he does in caring for
his own private interests, then we can safely trust far greater
responsibilities to our government than is now prudent.
There is no more important lesson to impress on the minds of the toiling
millions who are growing restless under the burdens of monopoly than
this: The only remedy for monopoly is control; the only power that can
control is government; and to have a government fit to assume these
momentous duties, all good men and true must join hands to put only men
of wisdom and honor in places of public trust.
There is a virtue which shone in all brightness when this nation was
born, not alone in the hearts of the commander-in-chief and his brother
heroes, but in the hearts of the men and women who gave themselves to
their country's service. It glowed with all fervor when, a quarter of a
century ago, the North fought to sustain what the fathers had created,
and the rank and file of the South gave their lives and all they had for
what they deemed a righteous and noble cause. Though the robust spirit
of partisanship may seem for a time to have crowded out from men's
hearts the love of their country, surely that love still remains; and in
the days of new import which dawn upon us, in the virtue of PATRIOTISM
will be found a sufficient antidote for the vice of _monopoly_.
+--------------------------------------------------------------+
| Transcriber's Note and Errata |
| |
| Some tables have been reformatted for clarity. |
| |
| One instance of an oe ligature has been expanded to 'oe'. |
| |
| The following typographical errors have been corrected: |
| |
| |particularly |particular | |
| |1888, |1888. | |
| |succcessful |successful | |
| |ascendency |ascendancy | |
| |quenced |quenched | |
| |accomodate |accommodate | |
| |owership |ownership | |
| |
| The following words were hyphenated in varying fashion in |
| the text: |
| |
| |bond-holders (1) |bondholders (1) | |
| |midle-men (1) |middlemen (2) | |
| |over-estimate (1) |overestimate (1) | |
| |over-production (16) |overproduction (1) | |
+--------------------------------------------------------------+
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