Even in the absence of important economies, however, a trust might hold its own, could it avail itself of certain props to maintain its position. The Standard Oil Company, as we have seen, found its main strength in certain objectionable features, such as rebates, control of pipe-lines, and unfair selling methods. Had the Corporation in any of its plants. (Ibid., p. 868.) Mr. Schwab, president of the Bethlehem Steel Company and formerly president of the Corporation itself, testified that the mill cost of the Corporation at Pittsburg or Gary did not differ materially from the mill cost at Bethlehem; that the limit of metallurgical and mechanical possibilities had been reached, and that the conversion cost in all mills throughout the United States was practically uniform. (Ibid., p. 868.) Mr. Corey, formerly president of the Corporation, declared that the cost of production at the Carnegie works was never materially less after the formation of the Corporation than it had been in 1901, at the time the Carnegie works were acquired. (Ibid., p. 869.) Mr. Farrell, then president of the Corporation, enumerated fourteen different steel companies which the Corporation could not put out of business without committing financial suicide. (Ibid., p. 859.) (Whatever may be the verdict with respect to the leading independent concerns, it is much to be doubted, Mr. Farrell to the contrary notwithstanding, whether some of these fourteen companies, such as the Wheeling Steel and Iron Company-with a steel ingot output of less than 1 per cent of that of the Corporation-produced on a large enough scale to compete effectively with the Corporation.) On the other hand, Mr. Campbell, president of the Youngstown Sheet and Tube Company, when asked whether, taking into account the extent of the ore holdings of the Corporation, its ownership of railroads, the extent of its capitalization, the character of men interested in it and their relations to banking circles and railroads, the Corporation had the power to put its competitors out of business, replied, "I think they would have the power; yes, sir... I think if Judge Gary would happen to die to-night that there would be a good many steel people that would lie awake until his successor was appointed. (Ibid., pp. 850-851.) Mr. Schwab testified that it cost his company more to make steel rails than it did the Corporation, because his company did not transport its own ore. (Ibid., p. 868.) Judge Gary, the real head of the Steel Corporation, testified in 1908 that the Corporation could produce pig iron cheaper than its competitors; that although the mill costs of production were about the same for the Corporation as for some of the other companies, yet by reason of the control of the best ores the Corporation could undersell them. (Ibid., p. 868.) The conclusion would seem to be that the Corporation by virtue of its ownership of the cream of the ore and coking coal lands and of the iron ore railroads (not to mention its financial connections) had an advantage over its competitors, but that this advantage did not demonstrate the superior economy of the trust form of organization. Rather

the officials of the Steel Corporation been so minded, or did the nature of the business permit, the Steel Corporation might have followed a similar policy. But such has not been the case. In the first place, the Steel Corporation was not the recipient of rebates from the railroads. Mr. James R. Garfield testified in the steel dissolution case that he made an investigation of the relations of the railways to the Steel Corporation similar to the investigation made into the oil business, and he found no evidence of the Steel Corporation having received any rebates.1 Judge Woolley, of the District Court, stated that there was nothing in the evidence that suggested that the Steel Corporation used its power as a means of securing rebates; on the contrary it appeared that early in its history the Corporation promulgated a rule against soliciting and accepting rebates.2 The contrast in this respect with the Standard Oil Company is noteworthy. The Steel Corporation, with its iron ore railroads, has not, it is true, lived up to its obligations as a common carrier, but the iron ore railroads cut by no means the same figure in this industry as do the crude oil pipe-lines in the oil industry. Moreover, the Steel Corporation did not endeavor to coerce dealers or consumers into dealing with it exclusively.

Neither did

it resort to local price cutting as a means of restraining competitive business. Whether it would have done so had circumstances permitted can not be said; the conditions, as a matter of fact, did not permit. On this point the Circuit Court said: "Under conditions incident to the steel trade the power of a large company to carry on a ruinous trade war against any particular competitor does not exist in the iron and steel industry. The customers of the great steel companies are large jobbers and the purchasing agents of other companies, who are in the closest it demonstrated the many-sidedness of the trust problem and the inability to achieve results in the way of restoring competition except by the adoption of a legislative policy that takes into account the many favoring favors that lie at the basis of the apparent success achieved by some trusts.

1 Brief for the Steel Corporation (no. 481), p. 119.

2 223 Fed. Rep. 171. See also Brief for the Steel Corporation (no. 481), pp. 119-120.

3 Brief for the Steel Corporation (no. 481), p. 126.

touch with every fluctuation of the steel market. The result is that any effort on the part of any one of these great steel companies to inaugurate a trade war by ruinously underselling a competitor would at once, owing to the sensitiveness and interrelated character of the steel market, result in forcing the company that was thus ruinously selling in any particular market or locality to in the same way ruinously lower its prices in every other community." The Steel Corporation therefore could not wage a localized warfare against its competitors! It could, of course, have reduced the prices of articles made by certain competitors without reducing the prices of the articles not made by these competitors, and in this way have subjected these particular competitors to cutthroat competition. But this policy was not followed. It could also have cut prices to the bone everywhere, yet according to the president of the Cambria Steel Company this would have amounted to an act of suicide. The testimony is ample that the competition of the Steel Corporation, though vigorous, was fair, and conspicuously free from the brutality of which some other trusts have been found guilty.2 The tariff, it is true, played its part. The iron and steel industry has been a notable recipient of tariff favors, and the combinations and trusts in this industry (notably the tin plate trust)/ have profited thereby. In fact, some of the trusts of the late nineties would perhaps never have been formed had it not been for the tariff wall, well-nigh insurmountable to foreign competitors. But certainly the tariff was not the mother of the steel trust of 1901; by that time the duty had become nominal. After the removal of the duties from iron and steel products by the Simmons-Underwood bill of 1913, the Steel Corporation for the most part stood on its own feet, unsupported by legislative props,3 save, of course, such artificial support as was involved in the 223 Fed. Rep. 77.

1

2 On this point, see the testimony of competitors abstracted in the Brief for the Steel Corporation (no. 481), pp. 122-124.

3 Not all iron and steel products were placed on the free list. Thus, the duty on tubes and pipes was made 20 per cent ad valorem; on tin plate 15 per cent; and on structural shapes 10 per cent. Taussig, Tariff History of the United States (6th edition), p. 441.

failure of the government to prevent the Corporation from acquiring a semi-monopoly of the best iron ore deposits, and from utilizing its iron ore railroads to the detriment of its competitors, -subjects to which we now turn.

In view of the fact that the Steel Corporation was losing its hold on the industry, one might have concluded that the wise public policy would have been that of "watchful waiting," that the steel trust in time would disintegrate by virtue of its very unwieldiness. This may prove to be the outcome, yet it must be remembered that the Steel Corporation is unusually well intrenched in the matter of the essential natural resources. The important elements which go into the manufacture of pig iron (the foundation of the steel manufacture) are iron ore, coking coal, and limestone. Of these the iron ore is the most important and the Steel Corporation in 1911, when the Report of he Commissioner of Corporations was published, held approximately 75 per cent of all the commercially available iron ore of the Lake Superior district, the ore of this district being the basis of the iron and steel industry of the country. (About 85 per cent of the country's output of iron ore came at that time from the Lake Superior district.) In addition, the Steel Corporation owned immense deposits of iron ore in the South and in other sections, even including deposits in Cuba. Mr. Gary, the chairman of the Steel Corporation, admitted in his testimony before the House Ways and Means Committee in 1908 that the Corporation practically controlled the ultimate ore supply of the country.2

The testimony of Mr. Schwab before the Stanley Committee is also significant. Mr. Schwab gave it as his opinion that there would not be any great development in the iron and steel business by new enterprises, because of the difficulty of securing a sufficiently large supply of raw material. Only a concern possessing a large reserve of ore could afford to make the large investment required to produce iron and steel economically, and the

1 Report of the Commissioner of Corporations, part I, p. 59. 2 House Document no. 1505, 60th Cong., 2nd Sess., p. 1752.

greater part of the ore on this continent was already owned or leased by existing companies.1

The dominating position of the Steel Corporation in the ore industry was heightened through its ownership of iron ore railroads. The Steel Corporation owned the Duluth and Iron Range, and the Duluth, Missabe and Northern, the two most important ore roads in the Lake Superior region.2 The freight rates charged by these roads were very high, their operating expenses were very low (the operating ratio in 1910 was 36.5 per cent for one and below 30 per cent for the other, against an average of 66 per cent for the whole country); and as a result these ore roads were immensely profitable. In 1911 a considerable reduction in the rates on iron ore was made by the carriers, but, according to the Commissioner of Corporations, they were still excessive. These high rates not only contributed greatly to the enormous earnings of the Steel Corporation, but they imposed a burden on such of its competitors as were obliged to ship their ore over these roads,-for none of the competitors of the Corporation owned any railroads carrying iron ore from the ore fields to the Lake ports. This situation would seem to have called for the application of the principle of the commodity clause; the interests of the public would seem to have required that the Steel Corporation divest itself of its iron ore railroads, and thus remove the inducement which they had to restrain the independent operations by means of excessive freight rates and discrimination in service.

4

After the report of the Bureau of Corporations was published, the Steel Corporation cancelled the lease it held of the valuable ore lands of the Great Northern Railway system. This lease had been made in 1907 in order to prevent any one else making use of these ore lands (the unusually high rate of royalty leads to 1 Brief for the United States (no. 6214), part I, p. 390.

2 These two roads handled about two-thirds of the total ore traffic of the Lake Superior district. Brief for the United States (no. 481), vol. I, pp. 161-162.

* Report of the Commissioner of Corporations, part I, pp. 374-375. 'Ibid., part III, p. 506. A further reduction was ordered in 1915 by the Interstate Commerce Commission. 33 I. C. C. Reports 541.