stage farther by becoming the consumer of the output. Hitherto the National Tube Company

the Tube Trust—had bought its billets from the Carnegie Company. By building a proposed tube mill at Conneaut Mr. Carnegie and his young lieutenant, Mr. Schwab, saw a saving of $10.00 a ton under existing conditions of transporting coke and iron ore. "It has been an unwritten law that each group should confine itself to the fabrication of its own specialties [read the National Tube Company's minutes of January 15, 1901] and should voluntarily refrain from using constant surplus of material by the production of the special product of its neighbors. If this unwritten law is to be ruthlessly disregarded by the Carnegie Company it will, of course, have a broader significance than the mere competition with our own products."

It was this threatening competition that brought the industrial leaders to the leaders of finance with the proposal to consolidate the several groups of iron and steel trusts under a centralized management in the United States Steel Corporation. Up to that time the trust movement was one of specialization and integration of each industry within its own manufacturing field. With the departure from that policy came the regime in which the single consolidation began to occupy the entire productive process beginning with the ownership of raw materials, embracing the transportation of materials and

ending with working up semi-manufactures into finished products ready for the consumer. The trust in this form became a coordinated series of specialized industries, the profits of each of which processes it hoped to turn into its central treasury. It was to do this by preventing the wastes of competition, by standardizing costs and by stabilizing prices. For the old-fashioned policy of progress by division of labor it instituted that of cooperation by centralized control.

5. The Main Causes of Trusts

We are now prepared to summarize the causes of trusts. These causes may be designated as primary and secondary. Among the primary causes are the following:

(1) Excessive and unfair competition, where✓by manufacturing capacity was duplicated, selling costs unduly enhanced and profits and credits imperiled. Unfair competition drove the morale out of business. Potential as well as actual competition were effective influences in bringing into existence the large consolidated corporations. Potential competition, as has been seen in pipe manufacturing, occasioned the formation of the United States Steel Corporation. Collier calls competition the "mother of trusts." It was no doubt the most general economic cause.

2) Railway rate discriminations. The privileges of preferential freight rates were enjoyed

more or less exclusively by larger or more powerful shippers, as in the South Improvement Company's contract with three eastern trunk lines on oil rates, and by the large meat-packing plants of the west. These discriminations were among the primary commercial causes in the creation of monopolizing combinations. These included rebates, "midnight" schedules, joint rates for industrial lines, etc. "No more powerful instrument of monopoly could be used," declared Justice Holmes of the United States Supreme Court, "than an advantage in the cost of transportation."

And again, as Professor Clark says: "The oldest and the strongest trust in the United States was built up from this beginning by virtue of rebates on freight which its competitors could not get.” *

(3) Economies of production, including distribution and general management. These embraced ownership of raw materials, use of each others' patents, reduction of marketing expenses, elimination of intermediate profits and wider supervision under a single executive management due to the multiplication and perfection of means of communication and accounting. Azel F. Hatch at the Chicago Conference on Trusts (1899) gave to the last-named the first rank among causes in this movement. These were the chief industrial inducements.

(4) Better credit and command of capital *The Problem of Monopoly.

were no doubt among the larger financial causes. The trust régine coincides, in its more active period of growth, with the fall in the rates of interest due to the increases of investment capital. These lendings to industry took the form of stocks and bonds. The builders of the trusts, says Meade, created the huge mass of industrial securities by capitalizing the country's manufacturing industry, to the sharing of the profits of which the investing public had thus been admitted. As Hadley points out, by combination local securities obtained a national market.* These issues, as collateral in borrowings at bank, became thereby of nation-wide acceptability. The fund of working capital in manufacturing was vastly increased both by issues of securities for long-term borrowing from the public, and by their use as collateral for making shortterm loans at banks. Such expansion of credit marked a new era in American finance.

(5) The necessity of greater cooperation among corporations in their effort to cope with the demands of trade unionism as a bargaining power, the belief that in combination lay the hope of better relations between capital and labor, and the desire to promote a higher type of welfare among employees. These were the main social motives among the industrial and financial leaders. In the larger economies lay the hope of higher rewards to labor.

* Scribner's Magazine, November, 1899.

(6) There was also a legal aspect to this consolidating tendency among corporations. By 1890 many states had made them illegal, but the narrower interpretation of the Federal laws by the Supreme Court led to the rise of holding companies, either by purchase of securities or by exchange for those of subsidiaries. The Federal law was taken as admitting of stock purchases of subsidiary manufacturing corporations after the Supreme Court's decision on the sugar refineries case. The rapid increase in trusts after the Knight case is proof of the purpose of corporations to conform their organization to the authorized import of existing law.

The Sugar Refineries Company's agreement is typical of impelling reasons. Its objects were officially stated to be, (1) To promote economy of administration and to reduce the cost of refining, thus enabling the price of sugar to be kept as low as is consistent with reasonable profit; (2) To give each refinery the benefit of all appliances and processes known or used by others, and useful to improve the quality and diminish the cost of refined sugar; (3) To furnish protection against unlawful combinations of labor; (4) To protect against inducements to lower the standard of refining sugar; (5) Generally to promote the interest of the parties thereto in all lawful and suitable ways.

*The United States vs. The E. C. Knight Co., 156 U. S. 1.