The British-American Tobacco Company is distinguished from the others by being confined to export business and to the manufacture and sale of tobacco in foreign countries.

The American Tobacco Company holds considerably more than a majority of the capital stock of the American Cigar and BritishAmerican companies and over 40 per cent of the stock of the American Snuff Company. By reason of the fact of certain large individual stockholders in the American Snuff Company, and by reason of the identity of purposes, the American Snuff Company may properly be considered as controlled by the American Tobacco Company.

Aside from these four principal companies, there are 82 other companies in the Combination which do business in the United States, Porto Rico, and Cuba, besides a considerable number controlled by the British-American Tobacco Company, which do business in other countries. In practically every one of these 82 companies, a majority of the stock is held either by one of the four principal companies or by some company subsidiary to them. In a large number of cases the entire stock of these subsidiary companies is thus held. The Combination in buying stocks has apparently sought control even more than investment.

The American Tobacco Company itself controls directly or indirectly 47 of these subsidiary companies aside from controlling the 3 principal subsidiary combinations. The American Snuff Company controls 6 other companies, the American Cigar Company 26, and the British-American Tobacco Company 3, as well as many subsidiary companies operating in other countries.

The American Tobacco Company, therefore, stands in a controlling position over the entire Tobacco Combination with its 86 companies operating in the United States, Porto Rico, and Cuba. The control of the American Tobacco Company itself rests in a very few hands. That company had at the end of 1906 a total capitalization of a little over 235 millions, including bonds, but of this capitalization only about one-sixth-namely, the common stock, amounting to a little over 40 millions-has voting power for the election of directors for the ordinary management of the business. The great bulk of the common stock is held by members of the directorate of the American Tobacco Company and their intimate associates. The 28 directors and 4 other stockholders together own 77 per cent of this stock. Indeed, the 10 largest stockholders, 7 of whom are directors, together hold over 60 per cent, and these 10 alone can

therefore readily dominate the entire Combination. They are J. B. Duke (president of the company), A. N. Brady, O. H. Payne, P. A. B. Widener, Thomas F. Ryan, B. N. Duke, G. B. Schley, the banking and brokerage firm of Moore and Schley (chiefly as agents for clients), and the estates of W. C. Whitney and W. L. Elkins.

The total capitalization of all the 86 companies making up the Combination in the United States, Porto Rico, and Cuba amounted at the end of 1906 to $450,395,890, consisting of about 130 millions of preferred stock, about 183 millions of common stock, and about 137 millions of bonds.

C. Other Instruments of Concentration

284. FORMS OF COMBINATION1

An outline classification of combinations, then, would run somewhat as the following:

I. Simple Combinations:

1. Association (direct combination of natural persons as in partnerships). II. Compound Combinations:

1. Association (the loosest agreements directly between individual members of different associations: trade "associations," some simple "agreements," etc.).

2. Federation (combination of organizations which remain separate and retain considerable autonomy: most simple "agreements" and pools). 3. Consolidation (combination of organizations in which, while members may remain nominally separate, direction of business is fused). a) Partial consolidation:

(1) Securities holding (direction of business organizations consolidated through stock ownership, with separate existence formally maintained).

b) Complete consolidation:

(1) Merger (complete consolidation, members of one business. organization absorbed by another).

(2) Amalgamation (complete consolidation, members of two or more organizations coalesce to form a new organization).

From a more strictly economic point of view, all combinations may be classed as trade-combinations and industry-combinations. The trade-combination is a horizontal or parallel combination, as it were, for it reaches out and unites organizations which are competing on the same plane, or in the same trade, or which are in the same

Adapted by permission from L. H. Haney, Business Organization and Combination, pp. 131-32. (The Macmillan Co., 1914.)

general line of business. This has been the most frequent type of combination and the one most inveighed against by the public. On the other hand, an industry-combination is a vertical or sequence combination in that it unites organizations which are on different planes and which represent the successive stages or "trades" within an industry.

285. A CLASSIFICATION OF AGREEMENTS1

To facilitate an understanding of agreements the following attempts at classification are presented:

A. As to scope and membership:

I. LOCAL.

1. Trade Conditions.

a) Sellers (with or without sales agency).

(i) Manufacturers, growers, etc.

(2) Wholesalers or jobbers.

(3) Retailers.

(4) Wholesalers and retailers.

(5) Manufacturers and jobbers.

(6) Manufacturers, jobbers, and retailers.

b) Buyers (as under a), but not so full).

2. Prices.

a) Sellers (as under I, a)), "Factors' Agreements" included). b) Buyers (as under I, b)).

3. Output, and Prices and Output.

II. STATE AND NATIONAL (as under I).

III. INTERNATIONAL (as under I, but perhaps not I, 1, a), (3), (4), (6)). B. As to methods:

I. MONOPOLISTIC (generally secret).

1. Gentlemen's agreement (generally voluntary).

2. Contract agreement.

a) Voluntary (with or without a sales association).
(1) Without forfeit.

b) Involuntary or compelled (with or without sales association, as

under a)).

Taken by permission from L. H. Haney, Business Organization and Combination, p. 148. (The Macmillan Co., 1914.)

II. OPEN.

1. Gentlemen's agreement (generally secret and voluntary).

2. Contract agreement (as under I, 2).

a) Secret.

b) Public.

286. THE ORIGINAL TRUST

The form of organization that has given them their name "trusts" was the one started by the Standard Oil Trust in 1882, afterward followed by the Whisky Combination-the Distillers and Cattle Feeders' Trust-and by the Sugar Trust-the American Sugar Refineries Company. The plan of that roganization was as follows: The stockholders of the different corporations entering the combination assigned their stock in trust to a board of trustees without the power of revocation. That board of trustees then held the voting power of the stocks of the different companies, and was thus enabled, through the election of directors, to control them absolutely. In place of the stock thus received the trustees issued trust certificates upon which the former holders of the stock drew their dividends, these being paid upon the certificates regardless of what disposition was made of the plants of the different corporations. Owing largely to hostile legislation and to the bitter feeling against the trusts above named, these trusts, after some adverse decisions of the courts, went out of existence, reorganizing as single corporations in most cases, and none at the present time remain.

287. POOLS

A1

American experience shows that pools and associations fall into one of two broad general classes, i.e., simple pools or mixed pools. For example, each of several manufacturers agrees to sell only a certain percentage of all the goods sold by the group, or a group of manufacturers agree among themselves that they will sell their goods only at certain prices. In either case the pool is simple or simplex according to the classification the writer has developed.

'From the Report of the Industrial Commission, 1900, I, 10.

Adapted by permission from W. S. Stevens, "A Classification of Pools and Associations Based on American Experience," American Economic Review; III (1913), 545-56.

Suppose, however, that the group of manufacturers instead of doing only one of these two things had agreed to do both. In that case the pool or association would no longer be a simple but a mixed pool. And, as it contemplates two things, i.e., dividing output and fixing prices, it may be termed a duplex pool. Add a third object and the pool, still of course a mixed pool, becomes triplex, and so on. All these mixed forms, duplex, triplex, and quadruplex pools, are merely varied combinations of the simple or simplex pool which has seven distinct type forms as follows:

I. Output or traffic division.

II. Output curtailment.

III. Territorial division.

IV. Joint sales.

V. Price.

VI. Clearing house.

VII. Legitimate trader.

I. Output or traffic division.-The earliest pools in the United States, of which there is any definite record, were those formed in the cordage industry. So far as the evidence shows, they were simplex pools for the purpose of dividing the output. The first of them was organized about 1860 and they continued a more or less intermittent existence until the formation of the National Cordage Company many years later. The manufacturers met together and divided the business of the country according to certain percentages. Each manufacturer was required to make his returns monthly to a supervisor. If he had exceeded his percentage he was required to pay to the supervisor a certain amount per pound to balance the excess. Those, on the other hand, who fell below their percentage allotment drew upon the supervisor to make up the deficiency.

II. Output curtailment. The pool curtailing output, either in. simple or the mixed form, does not seem to have been common. Its simple form is shown in the Kentucky Distillers' Agreement of 1887. This combination had its origin in the depressed condition of the trade which had been practically continuous since a period of great overproduction in the earlier eighties. Although expressly stating the right of every signatory to make as much whiskey as he chose, this document provided that it was "for the pecuniary advantage of each" to make only the amount set opposite his name, and further imposed a penalty of twenty cents per proof gallon upon all whiskey made by any signatory in excess of the stipulated amount.