organization in March, 1898, of a combination, the American Steel and Wire Company of Illinois. The next year (January) the combination united with most of the remaining wire concerns to form the American Steel and Wire Company of New Jersey. This company produced mainly wire nails, plain wire, barbed wire, and wire fencing; and according to the brief for the government in its suit against the United States Steel Corporation it secured an almost complete monopoly of barbed wire and woven wire, and controlled about four-fifths of the nails and the wire fencing produced in the United States.2 The American Steel and Wire Company was well integrated, possessing, either at its organization or shortly thereafter, large ore deposits, a big reserve of coking coal, a large fleet of Lake vessels, and facilities for producing a limited amount of pig iron and crude steel.

The National Tube Company-the tube trust. The National Tube Company was incorporated in June, 1899, to monopolize the tubing industry, and incidentally to enable its promoters to make a profit through its organization (one-quarter of its $80,000,000 stock issue was given to the promoters). Its principal product was iron and steel wrought tubing, and the company stated in 1900 that its yearly capacity was 1,000,000 tons, or 90 per cent of the total capacity of the country. While this may have been an exaggeration of the extent of its control, nevertheless the company did produce nearly three-fourths of the country's output of wrought tubing. The National Tube Company, though rated as a Morgan concern, was largely dependent, because of the location of its plants, on the Carnegie Company for the semi-finished steel that constituted its raw material. Subsequently it proposed to produce itself most of its raw material, with consequences soon to be described.

1

4

The American Steel Hoop Company. This company was

Report of the Commissioner of Corporations, part I, p. 92.

2 Brief for the United States (no. 6214), part I, p. 50.

3 Ibid., (no. 481), vol. II, p. 222.

4 See Report of the Commissioner of Corporations, part I, p. 92; Brief for the United States (no. 6214), part I, p. 53; and 223 Fed. Rep. 167.

formed in April, 1899. It united nine concerns producing mainly iron and steel bars, hoops and bands, cotton ties, and iron skelp. It was primarily a combination of erstwhile competitive concerns, and, according to the Commissioner of Corporations, a desire to limit competition and afford a large profit to the promoters was undoubtedly the ruling motive in its organization.1 The promoters received for their services $5,000,000 of the $33,000,000 stock issued by the company, or over 15 per cent of its total capitalization.2

The American Sheet Steel Company-the sheet steel trust. This company was organized in March, 1900, to consolidate the properties of the principal manufacturers of sheet steel. Like the American Tin Plate Company it was formed to unite competing concerns; and it secured control upon its organization of about 70 per cent of the country's capacity of sheet steel, the only important product made by it.3

The American Bridge Company. This company, like most of those already described, was organized (April, 1900), not to secure the advantages of integration, but the profits arising from a curbing of competition. Its main business was the erection of bridges and of steel construction for buildings, and it was entirely dependent on the large steel manufacturers for its raw material. The American Bridge Company, like the Federal Steel Company and the National Tube Company, had close affiliations with the firm of J. P. Morgan and Company.

The Shelby Steel Tube Company-the seamless tube trust. This company, incorporated in February, 1900, combined practically all the concerns in the country manufacturing seamless tubing. It claimed 90 per cent of the country's output, and there is no doubt that it did have a substantial monopoly of its special product until its field was invaded by the National Tube Company. The motive in its organization was the establish

1 Report of the Commissioner of Corporations, part I, p. 91.

2 Cf. p. 287.

3 Report of the Commissioner of Corporations, part I, p. 91. 4 Ibid.,p. 93.

ment of a trust; the element of integration was distinctly lacking.

The Lake Superior Consolidated Iron Mines. The combinations and trusts just described were all organized between 1898 and 1900, and each of them became a part of the United States Steel Corporation. One other concern, organized somewhat earlier, deserves mention. The Lake Superior Consolidated Iron Mines, largely owned by Standard Oil interests, was organized in 1893. It manufactured no iron or steel; it was simply an ore producer and a transportation company. It had vast reserves of iron ore, and it owned an important iron ore railroad, the Duluth, Missabe and Northern. Affiliated with it was the Bessemer Steamship Company, the largest owner of ore vessels on the Great Lakes. The Lake Superior Consolidated Iron Mines, both because of its property and its financial backers, was a very important concern, and its acquisition by the United States Steel Corporation in 1901 greatly strengthened the latter's position.

What is the explanation of this remarkable movement toward combination in the iron and steel industry? The advantages which these combinations might have expected to gain were three-fold: (1) the restriction of competition; (2) a greater degree of integration; (3) stock market profits for the promoters.

The large profits that the manufacturers hoped to gain were realized. Aided by the favorable industrial situation, these combinations and trusts were able to put prices up to very high figures. The price of Bessemer pig iron, which had averaged $10.32 per gross ton in 1898, went up to $18.88 per ton in 1899, and to $24.72 in March, 1900. The price of steel billets had been $15.18 per gross ton in 1898; it rose to $29.81 per ton in 1899, and to $33.00 in March, 1900. The price of steel rails averaged $17.63 per gross ton in 1898, $28.13 in 1899, and $35.00 in March, 1900. The price of tin plate averaged $64.08 per gross ton in 1898; the next year it went to $95.48. Prior to the formation of the tube trust the price of tubes had been $30.00 per ton. During 1899 (the year of its formation) the price rose to $67 per

gross ton, and early in 1900 reached its maximum at $89.1 Further details may be had by consulting the table. It is not meant to imply, of course, that all of these price advances were the result of the formation of combinations and trusts; but it is safe to say that they took full advantage of the favorable industrial situation.3

The desire to restrict or eliminate competition was, according to the Commissioner of Corporations, undoubtedly the main reason for the formation of these combinations. Taken as a whole, the iron and steel manufacturers had been very prosperous, but the severe industrial depression which began in 1893 and lasted until 1897 had cut into their profits heavily. The manufacturers were anxious to restore the palmy days, and therefore turned to combination and monopoly as likely to prove 223 Fed. Rep. 168.

2 AVERAGE PRICES OF CERTAIN IRON AND STEEL PRODUCTS IN 1898, 1899, AND MARCH AND OCTOBER, 1900

*

*Brief for the United States (no. 481), vol. I, pp. 39, 48.

† F. o. b. Pittsburg.

‡ F. o. b. Pennsylvania manufacturing plants.

§ F. o. b. New York.

3 For a further discussion, see p. 263.

The competition between the steel manufacturers was not "ruinous."

See Jones, Quarterly Journal of Economics, 34, pp. 497–502.

more effective than pools, which were not only industrially unstable, but illegal as well.

A second advantage in combination lay in the possibilities of integration. A company which combined under one management the successive stages in the productive process was able to effect certain economies that were not open to a nonintegrated concern. These economies included a saving in fuel costs (those connected with the reheating of the metal), a saving in the labor and time involved in moving the materials, and the utilization of by-products, especially blast furnace gas. These particular economies, of course, could be availed of only by a vertical combination (an integrated concern); a horizontal combination (a combination of plants making substantially the same product) must justify itself, if at all, on other grounds; must point to other economies than those mentioned. On this phase of the matter more will be said later,1 but we may note at this point the necessity of keeping clearly in mind the distinction between the economies in producing and selling that were attainable by such of these combinations as did not possess monopolistic power (the Carnegie Company, the Federal Steel Company, and the National Steel Company, for example), and the additional economies that might be secured through the organization of a trust (with monopolistic power), as, for example, the American Tin Plate Company, the American Steel and Wire Company, and the National Tube Company. The economies permitted by integration were notable, and no doubt combinations formed to realize them were in the public interest. Yet, as we have seen, a number of these early steel combinations were not vertical combinations, but horizontal combinations. They were not organized for the purpose of securing the advantages of integration, but the profits of monopoly. As the Circuit Court said: "Properties were assembled and combined with less regard to their importance as integral parts of an integral whole than to the advantages expected from the elimination of the competition which theretofore existed between them." 2

1 See ch. 19.

2 223 Fed. Rep. 167.