commercial field, to the holding company of a public utility corporation, you find a very definite and marked distinction. This distinction is not born of a difference in corporate powers or purposes. It is born of the inherent difference between the subsidiaries owned, that is, between a public utility corporation on the one hand, and a railroad or commercial corporation on the other hand." *

The holding company differs from the trust proper as ownership differs from trusteeship. In the trust form of control the agreement makes the trustees custodians of the stockholders' property, whereas the holding company purchases outright the controlled corporations or exchanges its own securities for those of the controlled companies. Hence the substitution of ownership in subsidiaries for trusteeship of the original trust member-corporations is the essential feature in passing from the trust form to the holding-company form of consolidation.

Holding companies among public utilities cannot be said to control competing companies. There can be no competition between two electric lighting plants in Indianapolis and Denver owned by the same holding corporation; but there may be much gain by common and comparative management.

Yet these utility holding concerns are not without their meed of criticism. It has been justly

*The Public, the Investor, and the Holding Company.

claimed, in instances at least, that they are a means of excessive over-capitalization; that the public is likely to be misled by the character of the holding company's securities, because of the facility with which their intangible values are carried into security or book worth; that by acquiring a majority of the stock of subsidiaries they place the minority stockholders at a disadvantage; that manufacturers of equipment and supplies by means of such companies tend to control much of the field in their own behalf through stock payments for equipment supplies; that management of local companies through a distant holding company prevents the responsible officials from being promptly responsive to the needs of the local situation.

Holding companies are most vulnerable in the industrial and commercial branches of business. The trend of legislation and economic criticism is against them and they are destined to go, so far as they evade legal responsibility and defeat the course of fair competition. Wherever they promote monopoly in private enterprise they are a source of dis-service and retard progress. Where they limit their services to developing cooperation, as in the municipal realm they may readily justify their right to exist.

* Public Policies as to Municipal Utilities, Annals of Am. Academy, &c., Philada., January, 1915.

CHAPTER V

TRADE RESTRAINTS IN

COMMERCIAL PRACTICE

RUSTS derive most of their powers to exploit the market from two sources - from their charters or from outside contracts. Their charters embody their most basic legal asset, and the law regards the corporation as entitled to do what its charter enumerates as among its powers. Outside of these it is debatable ground. But the general right to enter into agreements with other corporations in such a way as to enhance original powers much beyond those enumerated in charters has enabled the trusts to develop a dominion unique alike in the realm of law and economics.

1. Cooperative Trade Agreements

These intercorporate agreements in one sense constitute the nervous system of the trust problem. At them the best efforts of governmental attack have been aimed. So vital do these compacts seem to be to business confidence, so essential have they apparently been in the structure of corporate life and so long have they been a part of the commercial system of this and other nations, that to some it would seem like economic suicide to attempt to eliminate rather than to regulate them.

How extensive these agreements have been in the course of our industrial evolution is not always appreciated by those who would reform our corporate system. Charles G. Dawes, in advocating a governmental tribunal to pass on these agreements, declared: "The United States Consular reports state that in 1905 there were 385 cartels or agreements in restraint of trade in existence in Germany, where they are encouraged in behalf of the general public and have no political opposition. I believe it no exaggeration to state that in the United States we have five cartels to every one in Germany. When the agreements among local retailers, district wholesalers, local and district manufacturers, publishers, labor unions, contractors, employers, and employes are considered, existing as they do, throughout almost the entire country, some reasonable in their nature and some unreasonable, an idea may be gained of how far the business interests of this country have already adopted the new order of cooperation as against the old one of unrestricted competition."

In different countries these agreements are known by different names. The cartel in Germany corresponds with the amalgamation in England, the syndicate in France, and with pools, associations, and trusts in America in a general way. But in America the pooling association has had its most varied and longest history. *New York Times, November 7, 1911.

Prof. Wm. S. Stevens's instructive analysis of this type of industrial combination* indicates the scope of their efforts. He finds that they assumed the following seven different forms according to their purpose: (1) To divide output or traffic; (2) To curtail productions; (3) To apportion territory; (4) To provide for sales through a common agent; (5) To fix and control prices; (6) To serve as clearinghouse for dividing profits; (7) To preserve "legitimate" trading among manufacturers, wholesalers, and retailers. Of the last-named type are the lumber, the grocery, and the plumbing organizations representing different portions of the country. Their scope is as wide as the nation, so that they are practically all interstate agreements. Federal court decrees have dissolved several of these, but it is believed that there are still many in actual operation.

2. Pooling for Fixing Prices

Among the earlier methods of cooperation to mitigate the severity of competition, without surrender of financial and legal independence by the parties to these understandings, were the pooling organizations. These played their larger rôle in the period of about thirty years prior to the era of trust formation, from 1893 to 1898. There were many different varieties in existence

* The American Economic Review, September, 1913.