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making pig-iron may come to grief, while the purchase of a blast furnace by an open-hearth company in order to get its raw material to better advantage may be a very sound proposition, the motives are fundamentally different, results in the latter case may be quite accurately estimated and forecast, while in the former they are largely guess-work, a gamble on the question whether a company organized to make and sell pig-iron can make and sell steel successfully.

To make the point clearer, a blast furnace might very naturally buy a coal mine to get the coal and coke it needs, but there is no more reason why a coal company should buy a blast furnace than why it should buy a railroad or the business of any other large customer.

It is one thing for a given industry to buy a plant from which it must get raw material, it is a fundamentally different thing for an industry to buy a plant to which it sells its finished product. A railroad company may buy a coal mine to get the coal it burns, but a coal mine should not buy a railroad in order to sell it the coal it uses as an economic proposition the first purchase may be entirely sound, the second is unsound; the first might lead to abuses, the second would be sure to.

VI

In response to these incentives to combine and consolidate in the vertical line-integration—a number of large steel companies in this country own all the factors from and including A to E.

While only a comparatively few large companies own all the factors from A to E a great many companies own or control two or more of the factors. The tendency in the iron and steel world—as in every other well-organized industry-is so strong for a company to protect itself by se

curing control of the source of its raw material that few stand entirely alone.

So far as the U. S. Steel Corporation is concerned it simply does on a larger scale what other companies do on a lesser.

To carry the argument a step farther let us make another diagram:

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Line A would be extended to the number of mines in operation; line B to the number of blast furnaces; and so on; each horizontal line being carried out to include all the mines, furnaces, mills and fabricators in active operation.

The number varies from time to time. The sign of division is used between units on the horizontal lines because each is normally more or less antagonistic to the others; there is no necessary interdependence as in the vertical line; all combinations are more or less forced and artificial.

In schematizing any particular industry the divisions in the vertical line-the letters-are necessarily limited by the state of the art to the number of process-steps from first raw material to last finished product.

In every industry there is a stage of refinement in some last product that calls for the coöperation of the maximum number of preceding processes.

These successive steps, each calling for a highly organized industry in itself, may be four or six, or even eight or ten, but, whatever the number it is limited by the state of the art.

Whether steel is made in one country or another the processes from ore to a given finished product are substantially the same in number, and they remain the same whether one large company operates them all or whether each is operated as an independent factor.

While, therefore, a few letters suffice to mark the process steps in any given industry from nature to the last and most highly finished product, varying only with advances in the art, the numerals, representing the number of units in operation at the moment the table is compiled, vary with conditions that affect demand.

VIII

The perpendicular is the line of normal combination, the horizontal is the line of normal competition.

A mine does not compete with a blast furnace but with all other mines that are trying to sell ore to the same furnaces.

Many of these propositions may read like truisms but they are essential to the argument.

Generally speaking, combinations in the perpendicular line are natural and some inevitable, while those along the horizontal are artificial; the one is for the purpose of controlling costs, the other for the purpose of controlling prices-both may fail of their objects.

Combinations in the perpendicular line are made to en

failures with liabilities amounting to over $201,000,000. The assets probably did not realize more than a small percentage of that gross amount.

On the face of the reports it appears that the losses due to wasteful business methods almost equal losses due to fires; as a matter of fact they are far greater, for of the men who lose in business and who are driven out by competition, comparatively few publicly acknowledge their failures and plead bankruptcy. By far the larger number manage to pay their debts and retire quietly, but because they "pocket their losses" and say nothing the effect upon the wealth of the community is not changed.

The pedler who buys a clock for $10.00 and at the end of the week sells it for what he paid for it, is out a week's time and his support for that period, and the community is out the same.

When a man inherits $100,000 and invests it in a farm or manufacturing business he invests what is nominally and legally his, but what is in reality part of the accumulated capital of the community, capital created by the preceding generation; if he loses it all he is no poorer than he was when he inherited it, but the community is poorer by the hundred thousand plus the waste of time and plus, what is of greater consideration, losses due to demoralization of the particular business caused by the ignorant and inefficient efforts of the man who failed.

In a sentimental way the interest of the community in the welfare of its citizens is recognized and asserted oratorically and rhetorically, but the time is speedily coming when this interest will be asserted practically. For a long time the community has maintained expensive fire departments to prevent or minimize losses by fire; in time it will see the wisdom of maintaining departments to prevent or minimize losses by failures. As it is now this country does its best to aggravate the conditions that produce failures; laws

are framed that forbid men doing the things that prevent failures; recklessness, wastefulness, inefficiency in business are encouraged, and when failure results, as result it must, an easy way of escape from individual responsibility is provided by the bankruptcy law, which says to the man who has lost his own and his creditors' money and who, by his reckless methods, has caused far greater loss to men trying to do business on a sound basis, "You need not pay your debts, you are free to find other creditors and start in all over, to fail again—and as often as you please."

The time will come when the community will take at least as much care to prevent failures as fires, and when a failure does come it will sift to the bottom the question of responsibility.

It may yet be made a crime to sell goods below cost.

XIX

As a matter of law now, officers of corporations who knowingly sell the products of their company below cost run two risks.

I. In those states that have statutes against selling goods below cost to injure a competitor, they run the risk of prosecution.

So far, little attention has been paid to these statutes. It is such a common practice for one competitor to sell his goods at or below cost, even give away substantial quantities, to secure trade-especially in localities where some competitor has a foothold-that the average business man learns with surprise there is any law against so doing. But these laws may come to life; they may be invoked any day by a competitor who feels aggrieved, and when invoked they are apt to be enforced.

2. But there is a far wider and entirely different liability for selling goods below cost. It is the common

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