after enter the directorate of either the American Tobacco Company or the Continental Tobacco Company, and they became thenceforth very important factors in the control of the whole Tobacco Combination. With the acquisition of Liggett and Myers the Continental Tobacco Company produced 56.3 per cent of the country's output of plug tobacco; and thus attained a considerable degree of monopoly control, a control later much increased.1 From the outset the Continental Tobacco Company was dominated by the American Tobacco Company interests, though the American Tobacco Company itself held only about one-third of the company's stock.2 Such stock as it held it had received in exchange for the plug business which it had developed, and which it had turned over to the Continental Tobacco Company.

The formation of the Continental Tobacco Company, dominated as it was by the American Tobacco Company, added greatly to the Combination's control of the smoking tobacco business. From the very beginning the American Tobacco Company had produced some smoking tobacco; it had inherited this business from its constituent concerns, each of which manufactured several brands of smoking tobacco. In 1891 two additional smoking tobacco concerns were acquired. As the result of these purchases the American Tobacco Company produced in 1891, 18 per cent of the country's output of smoking tobacco. During the next few years, the plug business especially was being developed; and by 1897 the American Tobacco Company, despite several acquisitions, had increased its proportion of the smoking tobacco business to only 22.7 per cent. However, several of the companies acquired by the Continental Tobacco Company in 1898 and 1899 produced smoking tobacco as well as plug, and the result was that by 1900 the combined production of the American Tobacco Company and the Continental Tobacco Company amounted to 59.2 per cent of the total output. This

1 Report on the Tobacco Industry, part I, p. 365. For an account of the acquisitions of the Continental Tobacco Company from 1899-1904, see Report on the Tobacco Industry, part I, pp. 103–113.

2 Ibid., p. 102.

gave the Tobacco Combination a very strong hold on this branch, a hold which was subsequently extended.

Another branch in which the Combination increased its business was the production of fine-cut tobacco, a form of tobacco used for chewing. From 1890 to 1898 the production of fine-cut tobacco by the Combination was very small; it never exceeded 6 per cent of the total. But with the organization of the Continental Tobacco Company, several of whose constituent companies produced considerable amounts of fine-cut tobacco, and with several minor acquisitions about the same time by the American Tobacco Company, the Combination's percentage of the business had increased by 1900 to 50.5 per cent, a percentage greatly increased subsequently.

Shortly after the organization of the Continental Tobacco Company, the dominant interests in the cigarette and plug trusts organized a snuff trust. Since 1891 the American Tobacco Company had produced a small quantity of snuff, and in 1899 it purchased some additional snuff concerns. The Continental in 1898 had acquired the large snuff business of P. Lorillard and Company. The American and Continental companies between them sold in 1899 about 32 per cent of all the snuff sold in the country. This, however, was well under the sales of the Atlantic Snuff Company, a combination in 1898 of four concerns producing among them 46.5 per cent of the total output of snuff.3 To get control of the snuff business, therefore, it was necessary to wage a competitive campaign against the snuff combination. In 1899, then, the American and Continental Companies greatly reduced the price on some of the leading brands of snuff, in the face of a doubling of the internal revenue tax; and they also gave away large quantities of snuff to prospective customers. The snuff combination followed suit, and until early in 1900 competition was quite vigorous. A combination was then decided upon. On March 12, 1900, the American Snuff Company was incorporated in the state of New Jersey. It took over the snuff busi

1 Report on the Tobacco Industry, part I, p. 408.

2 Ibid., part III, p. 138.

3 Ibid., part I, p. 141.

ness of the Atlantic Snuff Company, the American Tobacco Company, the Continental Tobacco Company, and the George W. Helme Company. The output of the American Snuff Company in 1901, its first full year's business, amounted to 80.2 per cent of the total output of snuff. It thus secured a monopolistic position in the industry, an accomplishment that was facilitated because of the fact that the greater part of the business was already concentrated in the hands of a few concerns. Over 43 per cent of the stock of the American Snuff Company at its organization was given to the American Tobacco Company and to the Continental Tobacco Company in exchange for their snuff business. This was only a minority, but in view of the fact that large stockholders of the American Tobacco Company also held stock in the American Snuff Company it amounted to control.

By 1900, therefore, the Tobacco Combination had reached a dominant position in the manufacture of all the important branches of tobacco except cigars. It produced 92.7 per cent of the output of cigarettes; 62 per cent of the plug tobacco; 59.2 per cent of the smoking tobacco; 50.5 per cent of the finecut tobacco; and 78.0 per cent of the snuff (80.2 per cent in 1901).

The Combination next directed its attention to the cigar business, the most important of all the branches of tobacco manufacture. The American Tobacco Company had entered the cheroot branch of cigar making in 1891 by the purchase of the business of P. Whitlock, the manufacturer of "Old Virginia Cheroots"; but for some time thereafter it made no ordinary cigars. Shortly after the organization of the Continental Tobacco Company, the American Tobacco Company made plans to engage in the manufacture of cigars. As the first step in that direction, it began experimenting with cigar making machines; 1 Report on the Tobacco Industry, part I, pp. 143-144. The subsequent acquisitions of the company are shown on pp. 146-148.

2 Ibid., part III, p. 138.

* Ibid., part I, p. 143.

The value of cigars in 1904 was almost 60 per cent of the total value of all the manufactured products of tobacco. Report on the Tobacco Industry, part I, p. 50.

its control of the machines for making cigarettes had shown it the advantage of producing with the aid of machinery, and of controlling the patents on the machinery. But no particular success crowned its efforts in this direction; and even to-day machinery is not much used except in the manufacture of the cheaper grades of cigars.1 In spite of its lack of success, in this direction, however, it determined to organize a cigar company, and to go after the cigar busi-ness. Accordingly on January 12, 1901, the American Cigar Company was incorporated in the state of New Jersey.2 Over 70 per cent of its stock was subscribed to by the American Tobacco Company and the Continental Tobacco Company. The American Cigar Company took over the greater part of the cheroot and little cigar business of the American Tobacco Company, and soon purchased a number of cigar concerns, including the Havana-American Tobacco Company, itself a combination of cigar companies. These acquisitions made the American Cigar Company the largest manufacturer of cigars in the country; in 1901 it produced 10.9 per cent of the total output of cigars (not including little cigars).3 During 1901-1903 the American Cigar Company made a determined attempt to monopolize the business. Prices were reduced, cigars given away, an extensive advertising campaign carried on, and expensive retail stores fitted up. By such means the leading interests in the Tobacco Combination apparently hoped to duplicate their success in the other branches. But this campaign proved unsuccessful. Enormous losses were incurred, and though the output of the American Cigar Company was considerably increased, it manufactured only 16.4 per cent of the total output in 1903, and even less in the years that followed.5

The explanation of this failure to control the industry is not hard to find. In the manufacture of such products as cigarettes,

+

1 Report on the Tobacco Industry, part I, p. 6.

2 Ibid., p. 151.

3 See p. 144.

4 Report on the Tobacco Industry, part I, p. 420.

5 See p. 144.

plug tobacco, and smoking tobacco, machinery is extensively used. Even before a combination was formed, there was a decided concentration of the business in the hands of a few concerns; and to bring together these concerns was not particularly difficult, especially in the face of the pressure that was brought to bear on the recalcitrant. But then (as now) a very large proportion of the cigars was made by hand. Even when machinery was used, it was of much less importance than in the other branches of tobacco manufacture. Because of the fact that machinery played little part, small establishments were at no great disadvantage as compared with large ones. A cigar factory could be started with small capital, and naturally there wereand are a great many plants. For these reasons it was difficult to establish an effective cigar combination, and even if one should be established it would prove well-nigh impossible for it to maintain control of the industry. Economic conditions in this branch of the trade have thus been such as to thwart the designs of the trust promoters.

The next important combination in the tobacco industry was the Consolidated Tobacco Company, a holding company organized on June 5, 1901, to unite the American Tobacco Company and the Continental Tobacco Company, the two principal companies in the Tobacco Combination. Immediately upon its organization the Consolidated Company, promoted by some of the leading financial interests in the tobacco combinations, offered to exchange its 4 per cent bonds in equal amounts for the common stock of the Continental Tobacco Company, and at the rate of 2 to 1 for the common stock of the American Tobacco Company. This offer was generally accepted by the stockholders. The result was to give more complete control over the business to the few financiers who already rather effectively controlled the management. At the time, the exchange of their common stock for the bonds of the holding company had seemed to the stockholders to be quite profitable. The common stock of the Continental Tobacco Company had never borne a dividend, and during a considerable period had sold below $30 per share; 1 Report on the Tobacco Industry, part I, pp. 114-115.