T what did the pioneers in the creation of this new instrument of industrial and commercial power really aim? They felt and saw that something was essentially lacking in that economic order which more or less regularly threw the commercial system into crises, panics, and depressions. Must the nations go on forever running the bases of prosperity, decline, depression, and recovery? Or was there some expedient by which a more durable equilibrium could be attained as a persistent feature of business policy? If so, then billions of built-up values might be saved and the worst curse of modern commerce eliminated. This was preeminently the economic peril of America. And a task of such proportions was worthy of the best spirit and purpose to be found in the leadership of business and the statesmanship of politics. And whoever might find a cure would be entitled to the gratitude of mankind.

1. Consolidation for Price Control

This was in fact the main purpose in the formation of the many price-controlling consolidations by which the country's industries

increased in capitalization and productive output while diminishing the number and the size of the industrial units. For their own salvation it became necessary to set up some system by which to prevent healthy competition from degenerating into predatory rivalry, with all its waste of wealth and impairment of investing confidence. It is true that, in the effort to escape one evil, occasion might be given to bring on another. Consolidation into larger units bore with it the seeds of monopoly. But for the time being the cure was all-important, not the remoter consequences. After the panic of 1893 it was not so much a question of law as one of life for the majority of business corporations. Salvation lay in agreeing by common consent not to do certain things, such as cutting one another's throats, commercially speaking. In their distress there was practically no enforcement of the anti-trust law. In fact, the tendency to mitigate the evils of an undermining rivalry dates much farther back.

Concentration on the part of leading industries had become evident after the panic and depression of 1873. The census of 1880 showed that in the manufacture of textiles the number of establishments was at its maximum in 1870, remained about stationary between 1880 and 1890, while the total of employes and value of products increased rapidly. Cotton mills numbered exactly one hundred less in 1890 than in

1880. Woolen mills were nine hundred and sixty-seven less in 1890 than in 1870, although their product had meanwhile increased over fifty per cent and the number of employes nearly the same. Within this same period, in which all textile establishments decreased seven hundred and seventy-six in number, the average number of employes in each establishment had risen from 57.4 in 1870 to 124.4 persons in 1890. In 1880 the iron and steel mills numbered 1,005, against 645 in 1890, a decrease of 360 establishments in a decade, or thirty-six per cent, while the average number of employes per establishment rose sixty-eight per cent. In the making of agricultural implements, 1,943 plants were in existence in 1880, but only 910, or less than half, a decade later; yet the average output of each establishment nearly trebled in this period.

The form which these consolidations took, it is well known, was at first only that of a largersized establishment. That was soon followed by the manufacturing industry, as in the iron and steel trade, bringing under one management its raw material, supplies, and transportation; or, by retailing their own product, as in the boot and shoe industry. Neither of these forms really embodied the "trust" idea. That came with the era of agreements between different establishments in the same industry to operate their plants as one enterprise, or under some common control under which the different units were

placed in the hands of a trustee or group of trustees in exchange for certificates in proportion to their general interest in the consolidation. It was this divorcing of corporate control from ownership by surrender of voting power to more or less monopolistic hands that made of the "trust" form of concentration a unique problem in America's industrial evolution.


There was often a measure of compulsion in this surrender a compulsion born of fear of ruin by cut-throat competition then so common. A threat to duplicate or bankrupt the plant of the reluctant proprietor introduced a species of terrorism. "Founders of trusts [wrote Prof. W. F. Willoughby at the time] have not been content with the advantages which the superior organization of a large establishment ensures, but have sought to increase them by arbitrarily fixing prices, not as dictated by the cost of production and competitive influence, but by what the public can be made to pay. Thus, while the formation of trusts is undoubtedly dictated by the desire to cheapen production, the chief object in view is to regulate the prices that will be obtained for their products by establishing a monopoly and controlling the market." *

2. Combination by Rate Control

How largely railway rate discriminations laid the foundation for some of the best known trusts *The Yale Review, May, 1898.

is clearly disclosed in the public records of the Standard Oil Company. Chiefly by advantageous freight rates, among other causes, between 1870 and 1877, when its pipe lines rendered it practically independent of the railroads, the Standard enhanced its proportion of the country's oil business from four to ninety-five per cent of the total. The completeness of its mastery of the freight rate situation is revealed in nothing more fully than in its famous South Improvement Company's contract of January 18, 1872, with the Pennsylvania, the New York Central, and the Erie railroad companies.

Those were the days of chaos in both railway rates and oil prices, and it was the cut-throat rivalry among carriers that made possible that pooling contract. By its terms the South Improvement Company of Pennsylvania was to get rebates on all of its own oils or oil products shipped, while the railroads were to collect full rates from other shippers, paying the difference to the South Improvement Company. The contract was not in effect a full month before the railroads publicly cancelled it in response to an irresistible storm of business protest. The Pennsylvania legislature summarily revoked the oil company's charter within less than a year from the date of incorporation.

Yet the conditions were there which gave the largest of the oil industries its opportunity for ascendency. It secured and to a great extent

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