The history of combinations in the past is full of efforts to make them more binding, more cohesive, to prevent more effectively the internal competition that would ever break forth. Agreements as to prices were found ineffective without systematic measures for dividing output or profits. Agreements for such pooling of business or profits broke down unless there was efficient machinery for enforcing them, backed by heavy penalties. Despite even such vigorous methods, many of the pools were not strong enough to prevent competition among their own members. It was largely for this reason that the original trust form of organization, and later the corporate combination, became popular. The difficulties which the railroads in the earlier days encountered in their efforts to suppress competition among themselves are well known; and this despite the fact that their managers knew the peculiar risk of heavy losses from rate wars. The conditions which made competition so disastrous, which offered such an incentive to combination, themselves rendered the prevention of competition peculiarly difficult. No doubt, a large majority of business men would prefer to combine with one another in order to exact high prices from the public. It has already been suggested that if combination were freely permitted, competition would very likely be eliminated in large degree. But combination under the ban of the law is a very different thing from combination with its sanction.

Those who hold that it is impossible to maintain competition as a general basis of business are called on to explain the fact that competition does exist today in a large proportion of the field of production and trade. Many as are the more formal combinations,

perhaps even more numerous the informal understandings among business concerns, there are wide fields in which real competition exists. Can any one deny, for example, that the mining of bituminous coal, or the manufacture of cotton goods, of boots and shoes, of automobiles, is conducted under essentially competitive conditions? Is not the same true of a large part of the wholesale and retail merchandizing? The advantages of combination to its members are so well known that we should expect to find competition practically eliminated everywhere, were it not for the real difficulties of eliminating it.

There is, therefore, no occasion for despair as to the suppression of trusts and pools. Monopoly is not inevitable. Competition in manufacturing and mercantile business is not so destructive as to force combination. The failure of some of the so-called trust dissolutions to restore competition is no proof that more rational and more vigorous methods of enforcing the law would also fail to do so. Competition has been restored in some cases where monopoly once reigned. In many important industries competition has never succumbed.

Hence we can consider on their merits the relative advantages of trust prohibition and trust regulation. Our choice is not foreclosed by the impracticability of the former. Is a trust régime superior from the standpoint of efficiency to a régime of competition? Is it possible effectively to regulate the prices and profits of trusts? What would be the ultimate consequences of a policy of regulation? These questions remain to be discussed.

CHAPTER III

DIFFICULTIES OF REGULATING COMBINATIONS

In the preceding lectures we have undertaken to show that it is necessary either to prohibit and destroy the trusts and pools or to regulate their prices and profits. Merely to prohibit unfair competitive methods and to deprive combinations of special privileges would not, in all probability, remove their power to extort monopoly prices. We further sought to show that it is possible to prevent the formation of combinations having effective monopoly power, and possible also in large measure to break up such combinations as already exist. The American people, therefore, are in a position to choose between the policy of regulating permitted trusts and pools, and the policy of prohibiting and destroying them. In making this choice they must

first consider what would be the difficulties and what the probable results of a policy of regulation. They must then consider whether the advantages of combina-/ tions from the standpoint of efficiency and economy are great enough to justify permitting them to exist despite the difficulties of regulating them.

Few of those who have advocated the policy of permitting combinations to exist subject to regulation by the government seem to have given much thought to the magnitude of such a task, its difficulties, or its ultimate outcome. They have had in mind the comparatively few closely knit trusts of the present time, or possibly only a part of those trusts. They have had

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ad particularly the so-called "good" trusts with alleged superior efficiency and their more or less ren ble policy toward the public.

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In the first place, it would be difficult to limit the number of trusts under such a policy. It is, of course, conceivable that the government should undertake to suppress combinations in general, while permitting a few particular trusts to exist. A limited number of trusts might be tolerated, not because of the good motives or exceptional ability of their managers, but because of special economic characteristics of the industries concerned which tended to make combination particularly economical or to make the maintenance of competition peculiarly difficult. Such a plan would not necessarily lead to unreasonable discrimination between individuals and classes, tho to determine what were the extraordinary conditions justifying the existence of a trust would be extremely hard. If, however, the people once concede the right of a monopolistic combination to exist, independently of extraordinary conditions, a sense of justice should apparently compel them to permit combinations ad libitum. What is sauce for the goose is sauce for the gander. Under no theory of justice could all the trusts heretofore organized be permitted to continue without granting permission to organize trusts in every other field. Moreover, if the government permitted trusts freely to organize, it would have to permit pools also, at least until it was demonstrated that the trusts had material economies and other advantages and that the pools had no such advantages.

In the second place, it would seem that if combinations having power to restrain trade are to be permitted

at all, they must be permitted to become as comprehensive as they desire. Why should a combination not be allowed to take over 100 per cent of the business in its field quite as readily as 90 or 80 or 70 per cent ? Very few persons desire to prohibit combinations which control only a small proportion of a given industry and which possess no possible monopoly power; but if we permit that limit to be overstepped at all, there is no limit.

One can only speculate how numerous and how comprehensive the trusts and pools would become if the policy were adopted of permitting them freely but subjecting them to regulation. Presumably the disinclination to submit themselves to government regulation would prevent business men from forming combinations as universally as they would if combinations were permitted without regulation. It is quite possible that the field of combination would become immensely great. In all probability it would become far greater than at present. Beyond question, moreover, every combination, unless prevented by the government, would take in just as large a proportion of the trade as could be persuaded to enter it. In many cases this would mean the entire trade.

If combinations were freely permitted and no limit placed upon their magnitude, neither actual nor potential competition would be an adequate check upon prices and charges for service. This was, I think, sufficiently demonstrated in the first lecture. Government regulation would unquestionably be necessary.

Some have suggested that regulation would be comparatively simple. Good trusts would be left alone and only bad trusts interfered with, and the fear of