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maintained it (1) by taking advantage of the insolvency of the smaller refineries; (2) by securing discriminating freight rates in other ways; and (3) by welding together six western and eastern companies into the Standard "Alliance" (1872), officially known as the Central Association of Refineries, of which John D. Rockefeller was president. This so-called "Alliance" formed the basis of the Standard ten years later, when it definitely took the form of the trust. It was a sort of cooperative understanding among leading stockholders. The companies represented ceased to be competitive with one another in the sense of striving to undersell one another. They continued to be competitors in the sense that each strove to show at the end of the year the best results in making the best product at low cost. From time to time new persons and additional capital were taken into this association. Whenever and wherever a man showed himself skillful and useful in any branch of the business, he was sought after. As business increased, new corporations were formed in various states in the same interest, some as trading companies, some as manufacturing companies. This, in bare but lucid outline, is the rise of one of the pioneer trusts in the great American group, as portrayed by one of its ablest exponents.
Here was business genius: (1) Competition was brought within fruitful limits, as among members of the "Alliance;" (2) Productive
efficiency was the criterion of success; (3) Special ability was everywhere recognized and encouraged; (4) Self-extension over new territory enabled the small group of loyal coworkers each to push business into new fields without losing any ground in the old.
With the advent of pipe lines the Standard Oil "Alliance" found a new instrument of forcing home its primacy. They were the most potent means of private monopoly until declared common carriers in 1914. These lines originally connected producing wells with the railroads at the nearest stations. They were thus short freight feeders to the railways. Such control of freight resulted in a contract whereby the Standard's united lines secured a rebate of twenty-two cents in 1874 on oil delivered. After three years the Standard, through its United Pipe Line Company, had secured, in the contract of October 17, 1877, with the Pennsylvania Railroad, a monopoly of the production and transportation of oil in the United States.
3. Legitimate Aims in Trust Policy
The wastes of destructive competition no doubt drove most of the industrial trusts to seek a more rational form of organization. The problem confronting business managers in manufacturing was that of putting limits to expenditures in some directions in order to insure solv
In a large
ency and development in others. number of cases it was a question of the exhausted capital being restored and increased by consolidating into one strong organization a number of smaller plants, some of which were not strong financially or even industrially. Such was the state of the shipbuilding industry when the ill-fated United States Shipbuilding Company was formed. However defective its financing, the broad-gauged principles which impelled its public-spirited promoters are typical of the aims that led to some of these combinations. As stated by Rear-Admiral F. T. Bowles in the official report they were as follows:
(1) Each concern builds that for which it is best fitted and equipped, or that which its character, location, and labor can accomplish most economically.
(2) Structural materials, steel, iron, timber, etc., can be purchased at the lowest rates, a prompt supply secured at points where it is most needed.
(3) The technical knowledge of design, which comes from experience, records, and data of each concern, will be combined, thus giving confidence to customers that the results contracted for shall be attained.
(4) The healthy professional rivalry of the various yards can be utilized to produce the best result in design, construction and administra
* The Truth About the Trusts: Part III, p. 337.
tion, without the disastrous and narrowing devices of destructive competition.
(5) The standardization of the numberless details of ship fittings, auxiliaries and appliances, which are now almost as various and incongruous in design as they are in number, and their production in quantity by those best qualified, would produce enormous economies.
(6) It will be possible to effect great economies by the separation of warships and merchant construction into different establishments, thus avoiding the difficulties of organization and increased cost of radically different types of construction upon adjoining ships.
(7) The better organization and management of the individual concerns would be a necessity and direct result of this incorporation.
4. The Equilibrium of Business
One of the most difficult problems in the business world is to prevent by legitimate means those wide fluctuations of prices which work havoc to trade and industry. To maintain some degree of normality in trade conditions so as to insure average profits for average abilities and opportunities, some degree of foresight and common knowledge of conditions are necessary. Wherever the law is strict in its application to restraints of trade and monopoly, the methods of limiting these injurious price swings are necessarily few. Whatever policy might be adopted
must work itself out within rather narrow legal and equitable limitations. How the United States Steel Corporation, with fifty per cent of the domestic steel business of the country, steered its way within these limits was stated by Judge Elbert H. Gary before the House Committee in the steel investigation. The company was confronted, he said, with two propositions. "It had no right to endeavor to prevent reductions in prices, or, in other words, to maintain the equilibrium of business and maintain prices substantially level, or at least free from sudden and violent fluctuations, by means of any sort of an agreement, express or implied. We had no lawful right, as I understand, to make any agreement, express or implied, directly or indirectly, with our competitors in business to maintain prices, notwithstanding we were receiving letters daily from the jobbers all over the country, begging us, if possible, to prevent demoralization and to prevent decrease in prices which should mark down their inventories and in many cases subject them to the risk of bankruptcy. On the other hand, considering this same question of sustaining, so far as practicable, the equilibrium of trade, we believed we had no moral or legal right to become involved in a bitter and destructive competition, such as used to follow any kind of depression in business among the iron and steel manufacturers, for the reason that if we should go into competition of that kind it