the people, however, had not forgotten the whiskey-ring scandal, and consequently Congress did not dare legislate in favor of distillers, even if such legislation should injure no one.

a

This first pool lasted till May, 1882; then, some members refusing to pay their assessments, it broke up. The distillers had been able to keep prices somewhat higher by its means; but after the breaking of the pool, they ran at low profits, many of them at a loss, or else shut down during the summer proceeding which in itself involved of course a decided loss. In September, 1882, they organized again for one year on a similar plan; but it was found necessary to make an attempt to limit the output of the distilleries to a small percentage of their capacity, in addition to the relief of the market by exporting.

It soon became evident that it was cheaper to limit production by paying some distilleries to suspend production entirely, permitting the others to work at more nearly their full capacity, than to limit all to a fixed percentage of their normal production. Though the Kentucky product is of a different kind from that manufactured by members of the pool, it of course came into competition with the latter when it had aged enough to be put upon the market. The law allowing distillers to keep their product in bond for three years before paying the tax had led to a heavy overstocking in Kentucky, and when this stored product first began to come upon the market, the situation became still more trying.

From 1883 till 1887 the pool continued for a year at a time, with a suspension as often as once each year. Sometimes the better plan seemed to be to limit the output of the distilleries, leaving each distiller to attend to the marketing of the product himself; sometimes for the officers of the pool themselves to provide for the export of any surplus, assessing the individual distillers the amount required to pay any loss on the export. the articles of organization of the pool of 1884, we read:

In

Only 28 per cent of the full capacity shall be operated, and no stocking up beyond this amount allowed under any circumstances. Any member operating his house and producing any kind of distilled spirits

must take care of them himself. The association is debarred from paying any member for maintaining any market, exporting goods, or warehouseing them.

In spite of the small percentage of capacity run during this year, the pool suspended in the spring of 1885, though it reorganized again in October of the same year. At the organization of this pool (in 1885) a committee reported:

It is the sense of this committee that no distillery shall be allowed to run beyond 40 per cent. The basis for market price should be fixed at the lowest possible figure, it being recognized by all that high prices are detrimental and difficult to maintain.

Section 12 of their articles of agreement, differing from those of the preceding year, provides for exportation as follows:

To maintain prices at all times, the officers shall cause to be exported at any time without the United States any surplus that may at any time appear, allowing and paying therefor [such] a bonus as will equal the quotation prices, and [shall] report all such exports, the quantity shipped, the bonus paid, etc.

Section 13 further provided that the president should cause a suspension of the association for the following causes :

If a distiller runs more than he is entitled to run; if a distiller refuses to exhibit his government book to an authorized agent; if a distiller refuses or neglects to make his monthly report or refuses to accept his draft or pay his monthly assessments; if a distiller resumes his capacity and operates his distillery having once sold it; in case exported goods are re-imported and placed upon the domestic market; in case closed houses are not paid in full, and in one payment, for each month, before the close of said month.

A resolution was also passed providing that the association be suspended when any new distillery should be built and start to run. Provisions were also made for the examination of the government books of each distiller by the officers of the pool, in order to prevent deception and cutting of rates on the part of any distiller; but in spite of these precautions, and in spite of the high prices they were able to maintain for their goods in the pool, it was found that the temptations to secure sales by

the cutting of prices were so great that members would violate the terms of the agreement. Within two months after its formation, in calling a meeting of the distillers whose houses were running, in order to determine the amount of assessments, prices of goods, etc., the president of the pool expresses clearly the state of the trade. It should be remembered, in considering his words, that they were written not to influence legislation or public opinion, but that they were addressed to men directly concerned, who knew the circumstances. Among other things, he says with reference to over-production and the proper policy of the pool:

That we shall over-produce after the holidays we all know-we knew it when we organized in Chicago and for that very reason made the assessment 12 cents on 40 per cent to create an export fund. That we have already over-produced, figures will show. . . . A few more days running without a pool would have wound you up, and this overproduction we are not trying to get rid of by exportation. You want to look these figures square in the face; and if it takes more money to do our exporting than you thought, it is occasioned by your own folly in over-producing so heavily in September and October. As long as we have funds to export the surplus there will be no difficulty in maintaining prices. When goods accumulate without any outlet, then is the time when cutting commences. . . . It will not do to make the price of goods too high, for as we raise the price we must raise the bonus on exports correspondingly. . . . There are but two things left for us to do; either provide sufficient means to keep our warehouses clear of the surplus by exportation, or let the market go to pieces of its own weight. I am well convinced there is cutting going on secretly now, and unless provision is made at once to arrest it, it will be done openly, until there is nothing left of the market. Situated as we are, the question is no longer as to making a great amount of money, but to prevent our suffering great losses. This is the problem for you to solve, and the meeting is called thus early as an imperative necessity, and all running houses should be present. Distillers, when they have an accumulation of goods on hand, will not hesitate to cut prices one cent a gallon to make a sale, when they will hesitate to pay one-half cent a gallon to make cutting unnecessary, even if double the amount is placed in their hands. Right

1 That is to say, 12 cents for each bushel of capacity run, when the houses were running at 40 per cent of their full capacity. The capacity of a distillery is measured by the number of bushels of grain consumed per day.

here I will repeat what I have so often stated before, that the amoun of the assessment does not come out of the distiller, but out of the consumer, the same as the government tax, and he [the distiller] is merely the agent to collect and pay it over, of course with the qualification that prices are maintained.

He closes a series of statistics (regarding the output in competing states) with the words:

I have been particular in giving you all the information possible, so you can act intelligently at the next meeting. The only way to maintain prices is to get rid of the surplus by exportation. You can fly in the face of Providence if you see fit, but it will bring its own punishment with it.

TABLE II

POOL ASSESSMENTS, SEPTEMBER, 1884, TO APRIL, 1887, INCLUSIVE

1 Assessment for September, 1886, was 2 cents per gallon produced (equal to 9 cents per bushel), and also an assessment of 2 cents per bushel; making a total of II cents per bushel. By multiplying the assessment per gallon by 41, the amount per bushel will be obtained nearly. About 41 gallons of spirits are made per bushel corn.

A pool seemed a necessity; but the experience of this and of the following year seemed to show that a pool could not be maintained. The competition, there can be no doubt, was for many ruinous, though those best situated could live and make profits. The difficulty in maintaining the pool, together with the effect of the pool on prices, may be seen in the fluctuating figures of Table III (page 37). The same movements are illustrated graphically in the Diagram (pages 42, 43), and there the changes may be more readily noted. Table II shows the extent of the assessments from September, 1884, to the time of the formation of the trust. It has not been possible to obtain the earlier assessments.

In consequence of the competition, and in order that a closer organization might be established, it was determined by the leading distillers, in the spring of 1887, to organize a trust, formed upon the model of the Standard Oil Trust. The "trust agreement," published in the examination of the president of the trust before the congressional committee in 1888, provides that the trust created shall be vested in nine trustees; that these trustees, under bonds of $100,000 each, shall, in accordance with section II:

...

.. exercise supervision, so far as their ownership of stocks enables them to do, over the several corporations or associations whose stock is held by said trustees. As stockholders of said corporations they shall elect or endeavor to elect honest and competent men as directors and officers thereof, who shall be paid a reasonable compensation for their services. They may elect themselves as such directors and officers, and shall endeavor to secure such judicious and efficient management of such corporations as shall be most conducive to the interests of the holders of trust certificates.

No distillery was to be allowed to join this trust except the members of the former pool; but any member of the former pool, if a corporation, might join upon the assignment of a majority of stock by the individual stockholders to these trustees. For the stock thus assigned, the trustees prepared stock certificates, which showed the interests of each beneficiary in said trust. The certificates were divided into shares of the par

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