CAL THE TRUST PROBLEM IN THE UNITED STATES CHAPTER I INTRODUCTORY The term "trust" in everyday speech is quite loosely used, and it consequently conveys a different idea to different people. It is thus essential at the outset to indicate clearly the sense in which the word is used in this book. The trust, as the term is here employed, means industrial monopoly. It does not include monopolies (whether railroad or other) in the so-called public service industries. Nor does it include pools, trade associations, and other organizations which, though they may temporarily possess some power over prices, do not interfere with the substantial independence of the concerns involved. Yet neither is the term limited to the earlier and narrower concept of monopoly as an exclusive legislative or executive grant. A trust (industrial monopoly) may be said to exist when a person, corporation, or combination owns or controls enough of the plants producing a certain article to be able for all practical purposes to fix its price. Control over the price is the fundamental test of monopoly; it is its essential and characteristic feature. Just what percentage of the business must be handled by a trust in order that it may be able to determine the price of a given article can not be stated with precision, yet it seems fairly certain that as a general rule the production of from 70 to 80 per cent of the national supply, and possibly even less, is quite ample for price control. As was said by Mr. H. O. Havemeyer, long the head of the sugar trust: "It goes without saying that a man who produces 80 per cent. of an article can control the price by not producing; the price must advance if he does not produce; and it must decline if he does produce, if he produces more than the market will take." The term trust or industrial monopoly, therefore, is not identical with complete monopoly;2 for without an exclusive grant of privileges a complete monopoly is not likely to exist, unless it be based upon the sole possession of a limited natural resource. The concept of industrial monopoly here defined has been clearly described by the Supreme Court of the United States. In National Cotton Oil v. Texas, the Court said: "The idea of monopoly is not now confined to a grant of privileges. It is understood to include a 'condition produced by the acts of mere individuals'. Its dominant thought now is, to quote another, 'the notion of exclusiveness or unity'; in other words, the suppression of competition by the unification of interest or management, or it may be through agreement and concert of action. And the purpose is so definitely the control of prices that monopoly has been defined to be 'unified tactics with regard to prices.' It is the power to control prices which makes the inducement of combinations and their profit."4 3 Just what is meant in this book by a trust may be made clearer perhaps by differentiating it from other forms of industrial organization. While there are many types of manufacturing organization, for the purpose of clarifying the idea of the trust we need distinguish but four: first, small-scale production; second, large-scale production; third, production by a group of plants united in a combination; and, fourth, production by a trust. In the manufacture of many commodities, as is well known, small-scale operations still prevail. The following industries 1 Lexow Report (New York), 1897, p. 111. 2 In Patterson v. United States, 222 Fed. Rep. 619, the Circuit Court said: "To monopolize trade or commerce, or a part thereof, is to exclude persons therefrom. It is not, however, to exclude all persons." Were all persons to be excluded, the result would be a perfect monopoly, which in experience has arisen only from a sovereign grant (p. 619). 3 The suppression of competition through agreement merely does not come within the author's definition of a trust. 4 197 U. S. 129. will serve as examples: cigar, beet sugar, brick, gunpowder, bread, butter, cheese, ice cream, and fruit and vegetable canning. In the manufacture of a large number of other commodities, the size of the plant unit has greatly increased. As examples may be cited the following: oil, iron and steel, hard coal, soft coal, cane sugar, cigarettes, shoes, textiles, automobiles, harvesters, cash registers, shoe machinery, and meat. Experience has clearly proven that the articles mentioned, as well as many others, can be produced more economically in large factories than in small ones. It should be borne in mind, however, that what is considered a large factory in one industry would be a small unit in another industry. A $6,000,000 cotton mill, for example, would be regarded as a large plant, whereas a $6,000,ooo steel mill would be a small-scale operation. It The combination frequently represents a third stage. A number of factories, each of which may have already increased the size of its plant to the most economical unit from the standpoint of production, may combine in order to secure the economies of large-scale management, in addition to the economies of largescale production. This combination may be of two sorts. may be a combination horizontally (so to speak) or a combination vertically. A horizontal combination is one that brings together under a single management several plants producing the same article, as, for example, a combination of fertilizer plants. ✔A vertical combination is one that brings together a number of plants, each of which concerns itself with a separate stage in the production of the finished product. This is what is known as the integration of industry. As an illustration, a combination of a coal mine, an iron ore mine, a blast furnace, a steel mill, and a steel rail mill, is a vertical combination. Such a combination has its advantages, as it assures the manufacturer of steel rails an ample supply of raw materials at a reasonable price. The combination horizontally also has its advantages, as, for example, a saving in freight rates. A company with one plant at New York and another at Chicago can supply the intervening market from that plant which is nearest the point of consumption. Because of the obvious advantages of combination in certain lines of in |