Concerning Trusts And Corporations
( Originally Published Early 1900's )
Trusts, as such, are virtually things of the past. Those who are fighting them now are merely battling against the wind, for the so-called trusts have nearly all been reorganized as corporations, and as such are now presumably perfectly legal, if they ever were otherwise; for investigating committees created for the purpose of finding causes or excuses to dismember, dislocate, aid otherwise maltreat these institutions, have been thus far powerless to accomplish their purposes. What they have achieved in the way of side issues, I do not know; but it would be unfortunate if all their arduous labor and patriotic exertions to protect the people from some imaginary foe should have been spent in vain. When now they clutch ferociously at a trust, as Macbeth grappled desperately for the dagger in the air, behold, it has vanished, and become metamorphosed into another thing, called a corporation, which the law expressly allows, and which, instead of being in restraint of trade, has been wisely designed for the promotion of prosperity and general business, in which the entire community will share; and instead, therefore, of the trust being " against public policy," the corporation is right in the line of that policy, and calculated to confer the greatest good on the greatest number. These important changes in the programmes of the trusts might wisely have been discovered before the special committee of New York was appointed on this subject, thus saving money to the treasury of this State; but that is a question between the people and their representatives. If the former want information in this expensive manner and are willing to be taxed to pay for it, that is their right; but I cannot help thinking that if we had the Swiss referendum, and the people were fully informed thereby as to what their money was being spent for, they would be likely to object. In the formation of a corporation men have a right to combine or unite their capital, skill, knowledge, and experience for the purpose of engaging in the manufacture or sale of any article of commerce that the community may require, and which is not injurious to the health, happiness, and general comfort of the people. These business institutions may be organized in any State, without violating the law or infringing the rights, of any citizen. There need be no conspiracy about the operation unless the parties to the agreement prefer plotting and doing things in secret which can just as well be transacted openly; hut it is hardly likely that Catilines would be found in great abundance among men whose chief desire is to form a kind of partnership for doing a legitimate business. As a matter of fact and of history, the combinations called "trusts," wherever backed by large capital, expert skill, and great business ability, have conferred material benefit on the community at large and almost invariably insured the promotion of prosperity on a durable basis. They have furnished the people with many of the commodities of civilized existence at much lower prices than formerly, not only without decreasing the wages of labor, but in many instances increasing them, and eventually extending the field for a larger number of employ6s. Sugar, india-rubber goods, tobacco, leather, and a great variety of other commodities are cheaper than at any former period of the country's existence, and wages are higher here today than ever they have been except in war times; in fact, almost double those paid in any other country. As long as these corporations, combinations, trusts, or whatever people may choose to call them, furnish the community with goods cheaper than they can be obtained elsewhere, and do so within the lines of the law, they not only may be endured, but instead of being a curse to society, as some people seem to regard them, can be safely looked upon as a great blessing. It may happen that a few people will at first be incommoded by their methods of doing business, but it is difficult to effect any change or improvement for the good of the many which will not cause temporary inconvenience, and, in some instances, suffering, to a few. Now, it is easy to discern that the young and ambitious man with moderate or perhaps small capital who aspires to go into business for himself finds his way barred by these corporations. He cannot compete with them. The only resource for young men of some capital who contemplate business careers is to get together and form combinations of their own. Nothing can compete successfully with combinations except new combinations, and these will put new life and energy into the general cooperative movement. Co6peration needs no socialistic impetus. It can start on the present foundation which civilization, however imperfect thus far, has laid, and go on building up with the best materials it can command. Brain is as important as capital, and those who serve the people best will win. If, then, secure in their monopoly, their service deteriorates, new rivals will not be lacking to displace them. This point is generally overlooked by those who pose as anti-monopolists: that when the so-called monopoly begins to advance the price, it immediately invites competition for which the brains and the capital will be ready as soon as the profits of the business are large enough to arouse cupidity. Of course the corporations already in the field, composed of a few members, or which combine now or shall combine in the future with comparatively few members, have some advantage over the new cooperationists with presumably smaller capital; but it has been demonstrated in Great Britain that such cooperation can be made to compete with most of the big moneyed concerns in existence. Similar conditions prevail in farming as those adverted to in the case of corporations. A young man going West would be foolish if he undertook alone to cope with established methods. He would find at the end of his first harvest that the sale of his crops had not come near to covering the expense of production, and probably that the very necessities which the farm and the garden had supplied to his own table had cost him about twice the amount for which he could have bought them in the next market town. The mammoth appliances made necessary by the latest inventions in the art of agriculture have rendered individual enterprise with small capital almost futile, and such attempts at competition ridiculous. Without the means of keeping abreast of the times in the art of invention and being able to procure the latest labor-saving machinery, competition is out of the question in farming as in many other pursuits. So the advice of Horace Greeley, " Go West, young man," has no longer the significance it possessed when that veteran journalist and philosopher was in the habit of imparting it. Railroads afford the most conspicuous example of the formation of big corporations with which no individual power can compete; and even where governments in Europe have tried to compete they have failed to make money. It is to be hoped that the experiment will never be tried here, as there is no necessity for taxing the people to invest their money in enterprises that would be almost certain to leave the taxation a permanent burden on the country. One of the most significant examples of change of heart as to the morale of railroad corporations and combinations was afforded in the testimony of Mr. F. B. Thurber before the Lexow committee. About a dozen years ago he was a leader among anti-monopolists, and spent about $100,000 in printer's ink, paper, and otherwise, in addition to much valuable time in opposing trusts, monopolies, combinations, and corporations. After the experiment had cost him a vast deal, he discovered that many of the combinations which he had been so strenuously opposing, while working in their own selfish interests, were also doing great work for the benefit of the whole community. They had builded much better than either they or Mr. Thurber knew, though their building was all the result of efforts for self-aggrandizement. This is an important illustration of the principle, that in the aggregation of wealth devoted to the promotion and development of great enterprises for the purpose of enriching its members and with little or no desire on their part to benefit the many, the latter have one of the best guaranties possible that they will be taken care of. Wealth cannot possibly combine and go into any business that will largely increase its returns without conferring much greater benefits upon the community than if the wealth in question had remained in its isolated fragments where it would in all probability have been spent without any extensive distribution. The aggregate is likely to be directed by chosen brain power, skill, and experience, and is almost certain to increase and multiply by the innate power and conditions of its very existence and employment. Apropos of this benign and universal principle, which seems to work about as independently of the purposes and desires of interested individuals as the law of gravitation, I here introduce the testimony of Mr. Thurber in corroboration of this and other matters of interest on the point at issue. It must be regarded as disinterested in view of his former attitude, and he is a man of great intelligence, well versed in politics and economics, of thorough practical capacity, an expert accountant, and possessed of extraordinary executive ability in business, so that his conclusions, based on his protracted experience and irrefragable statistics, can hardly be erroneous. When on the stand he referred to the fact that the consolidation of railroad organizations was the most conspicuous example of the working of the so-called trusts. Explaining the success of this experiment, and the former fears excited by it, Mr. Thurber said: — " There was a fear in the public mind, in which I shared, that these combinations and consolidations would result in exorbitant rates for transportation and to the detriment of the public interest. What the result has been is shown by the following extract from a report adopted by the National Board of Trade at its annual convention in I896: ' The average charge for sending a ton of freight one mile on thirteen of the most important railroads in the United States during 1865 was 3.08 cents; in 1870, 1.80 cents; in 1875, 1.36 cents; in 1880, 1.01 cents; in 1885, 0.83 cents; in 1890, 0.77 cents; in 1893, 0.76 cents; in 1894, 0.746 cents, and, in 1895, 0.720 cents. These railroads performed one-third of the entire transportation of 1893, and, from the figures given, it appears that 0.72 cents would pay for as much transportation over their lines in 1895 as could have been obtained for 3.08 cents thirty years earlier.'" The witness produced a tabular statement showing the influence of the Standard Oil combination on the prices of refined illuminating oils, per gallon, exported from the United States, 1871 to 1896. On the general principles of aggregation, as he has found them, Mr. Thurber testified: - " A combination of capital in any line temporarily exacts a liberal profit; immediately capital flows into that channel, another combination is formed, and competition ensues on a scale and operates with an intensity far beyond anything that is possible on a smaller scale, resulting in the breaking down of the combination and the decline of profits to a minimum. The only trusts which have succeeded for any length of time have been those which have been conducted on a far-sighted basis of moderate margins of profit, relying upon a large turnover, and the economies resulting from the command of large capital intelligently administered. The truth of this is illustrated by innumerable failures in trust organizations, recent illustrations of which are the Strawboard Trust, the Starch Trust, the Wire Nail Trust, and the Steel Trust. There are trusts so-called in nearly every branch of business, and there are good and bad in all, but the good so far predominates that such aggregations of capital should be encouraged accompanied by safeguards against abuses. The only additional safeguards needed are for stockholders and investors, whose interests are often sacrificed through lack of publicity. So far as the interest of consumers is concerned, it is amply protected now; first, by competition, as I have shown, and, second, by the common law, which, if invoked, will nullify any contract in restraint of trade, and under existing statutes any unreasonable combination is subject to indictment for conspiracy. "The popular hostility to trusts is due principally to lack of knowledge of their economic effects, and these are gradually becoming better known. There were just enough abuses attending them to give an excuse for sensational journalistic denunciation, and this has caused undue prejudice. A great politico-economic question like this should be considered dispassionately and all sides of it carefully investigated before conclusions are reached. The result of my many years' study of it has been to modify materially the views I entertained in the beginning. "While within the limits of a hearing like this it is impossible to discuss exhaustively all the varying phases of so large a subject, I have endeavored to present to your committee the thoughts which have come to me in a somewhat extended observation and study of the phenomena attending the great economic revolution now in process of development, with the hope that they may have suggested some points which are worthy of further consideration and which may aid your committee in arriving at wise conclusions." Senator Lexow wished to know whether the witness favored legislative supervision of prices. In answer to questions, Mr. Thurber said that he believed that competition against the American Sugar Company was increasing and would continue to increase. Mr. Thurber did some sums in arithmetic to show that the price of granulated sugar was 6.77 cents per pound for five years preceding the Trust, and for the first five years subsequent it was 5.97. "Do not the large dividends," asked the Assemblyman Mazet, "prove that the consumer does not get the whole benefit?" "Certainly," was the reply. "In my own business," he said, " I would never again incorporate if it could be carried on individually." He admitted that speculation in stocks was possible when they were listed, but added that thousands of corporations did not list their stocks. He cited the Standard Oil Company as a conspicuous example of a company whose stock was not used for speculation. One of the most important points in the testimony of Mr. Searles, the Secretary of the American Sugar Refining Company, in favor of the plan of combination, was that which he gave regarding the way in which consumers were benefited by the competition of the company against London speculators. He was very positive as to the evil arising from the attempt of legislation to drive capital from the State, and contended that combinations were more helpful than injurious to the interests of labor. He said: - " Our prices are controlled largely by the London market, which is distinctly a speculative market. The speculators there speculate against the needs of the world. They say that the American Sugar Refining Company will have to have so much sugar. We will hold this sugar until we make them pay our price. This is speculation against our country's need for the commodity. Now, with our vast capital, we have been able to go to other markets; we have been able to go to the uttermost parts of the earth, and to purchase our supply before it got into the hands of this speculative market. In that way we have time and time again beaten that market out, and the price of sugar has thus been kept low. If in place of this great combination of ours, this aggregation of capital, there had been fifteen or twenty smaller concerns, no one of them would have been able to go to the lengths that we were able to go, and they would all have been held up by the London speculators. This is one of the most important of the benefits that the consumer has received." He was asked whether he thought that his organization was a philanthropic organization, and answered: - " I have distinctly stated to you that we are in no wise a philanthropic organization. We are an organization in business for the purpose of making money. We find that the greatest profit is in the reduction of the price of our commodity to the lowest possible point, because that very largely increases the consumption. Where we make less a pound we make more pounds and more profit. In telling you the advantages of this combination, however, I have omitted to tell you one of the most important things of all-that is, the value of the combination of technical knowledge and the ability of the people who conducted the business when it was cut up. At the time that the trust was organized each concern had appliances that were considered secret. All of them were of considerable value. When the trust was organized, and the heads of the various concerns came together, all of these valuable appliances were combined, and their use was extended to all the plants. There was a combination of all the knowledge and the technical skill, and it was all utilized for the common good." When asked if combinations of capital made labor suffer, he replied: - "They certainly do not. There is a law, let me tell you, sir, higher than the State of New York. That is the law of supply and demand. No trust has ever been yet organized, no corporation has ever been created, and there never has been any combination of capital of any sort big enough to violate that law. As I told you, hundreds of millions of dollars are in New York waiting to be put into industrial pursuits; but if all the hundreds of millions were put in one industry, the violation of the law of supply and demand would bring about the destruction of all the wealth. The consumer is amply protected by the operation of this law, just as the combination of capital is held in check by it." I think the best and strongest side of the so-called " trusts " is very ably and clearly stated in these two citations. It may be said that Mr. Searles is an interested party, but the same criticism will not hold good in the case of Mr. Thurber; for while admitting the success of the principle of combination and its soundness in theory, he still seems to adhere inwardly to his old love of individual independence in doing business. This would seem to amount to the fact that he does not love his share of the combination profits less, but his individuality more, and does not in any respect shake the force of his opinion and arguments in favor of the combination scheme of doing business. The prices to which the products of these corporations have been reduced in a comparatively short time, leave the opponents of the consolidation methods without any solid ground to stand upon. The chief argument used from time immemorial has been the danger of the corporations charging exorbitant prices when they are able to control the situation; but except in a few isolated instances, which are the exceptions that only prove the rule, they do not succeed in controlling the situation, and the foregoing statistics of constantly declining prices are the best answers to all such objections and fallacious arguments. Would any of the objectors to railroad consolidation wish to go back thirty years and pay three cents per ton per mile instead of three quarters of a cent, for the sake of having the corporation system changed into the old plan of individual ownership and competition? To state this question clearly is to answer it. Would anybody, except a few people on Staten Island, who have been born there, lived to a ripe old age, and expect to die there, as some of their ancestors have done, without ever seeing New York, agree to go back to the old passenger rates, with all the inconvenience attending the system? No. People who are in the habit of using railroads do not wish to go back to the conditions which prevailed thirty years ago, and which, without corporations, would doubtless prevail still to a very considerable degree. People in general, in all lines of business, are better off now than then. If the changes at first threw some out of employment, the improvement and extension in almost every sphere of human energy and industry have ultimately given employment to many times more than suffered any deprivation from the change which brought general prosperity. Some people, it is true, may have suffered temporarily from this very prosperity, which included in its capacious scope the cheapening of all products by improved machinery. The farmers have occasionally been complaining as sufferers from this cause, and under the bad advice of selfish politicians and ignorant legislators have been instrumental in causing much mischief and seriously retarding the growth and advancement of some of the western and northwestern States; but the malcontents, in this province of industry, are now reduced to a few impotent and harmless grumblers, who have not been able to take advantage of the progress and discovery of the age, and think that the march of intellect and invention should wait until they get sufficiently animated to join the procession. Such processions, however, do not wait on laggards. They are on forced marches to wider and more promising fields of discovery, and the laggards must take care of themselves as best they can, or suffer the consequences. Surely the farmer is better off to-day with wheat 70 cents a bushel in Chicago than he or his predecessor was during the period prior to the war, say from 1855 to 1860 inclusive, when the average price for six years was $1.69, and the highest in I855, $2.432. When he takes into account the reduction in transportation charges, the facilities for much larger production, and the cheaper rates at which he can buy everything he needs (under a Republican administration, at least), he is in a much better position than his father or his grandfather was in ante-bellum times when, not "George IV. was king," but General Jackson; or at more recent dates which we could name. Farmers are better off and more independent, viewed as a confraternity or brotherhood, than any other secular denomination of our citizens; and this applies, of course, in especial degree to those who have kept abreast of the times in making use of modern inventions. Let us take a cursory glance at the cotton planter, for instance. He is better off now than when " cotton was king." Cotton was formerly sold at 9 to Io cents a pound. In 1833 -1842 inclusive, the average price was 12 cents; in 1843-1846, it fell to 6, but again, in 1855-1860, it rose to 10. Now it is around 6 and 7 cents, and occasionally higher or lower. But the immense increase in production through machinery, and the utilization of portions of the product that were formerly discarded as refuse, such as cottonseed oil, coke, etc., by which means the producer is enabled to realize about a cent and a half per pound, brings the net return to the producer up to about the old standard. It seems to me, so far as the corporations are concerned with the investigating committees of this State, that the latter are too zealous in explaining with exactitude the letter rather than the spirit of the law. Section 7, relating to "combinations," for instance, reads as follows: - " No stock corporation shall combine with any other corporation or person for the creation of a monopoly or the unlawful restraint of trade or for the prevention of competition in any necessary of life." There is a foot-note to this section in the statutes which reads thus: " This section is not intended to prevent the consolidation of corporations engaged in the same business. "Cameron v. N. Y. & M. V. Water Company, 62 Hun., 269. " 6 N. Y. Supp., 757. "42 N. Y. St. Rep., 912." Now, the sugar corporation and others similarly organized contend that they have rendered full compliance with the terms of this section and in accordance with the decisions herein cited. They allege that the field is open for competition, and show, as in the case of the London speculators in sugar and the perpetual formation of competing sugar corporations, that they themselves do not control the trade, and that, so far from aiming at higher prices, they have consistently held to the principle in theory and demonstrated it in practice that they have been constantly aiming at and actually reaching lower prices, and that in the success of this operation they have found their highest profits. Now, where do the objections come in, if these conclusions are demonstrable? It is for the reader to see whether the so-called trusts or the investigators have made out their case. I' have presented their best arguments as plainly as I know how, and I leave the inference to the reader. One thing appears pretty clear. There is no wrong which these corporations are capable of inflicting for which either the common or the statute law, or both, do not provide a remedy, a sufficiency of the latter for this purpose being already on the statute books. Then why require more laws until these are tried and found wanting?