included in making the earlier calculation, the result might have been different.

It is apparent that by either method of calculation the earnings of the International Company were moderate.1 And even more moderate were the dividends actually disbursed to stockholders. The rate of dividend was 3 per cent in 1903, and 4 per cent in 1904, 1905, and 1906. In the latter year the stock was divided into $60,000,000 preferred and $60,000,000 common. On the preferred a rate of 7 per cent was begun in June, 1907, and this rate was regularly paid thereafter. No dividend was paid on the common stock during 1907-1909. In 1910 a 33 1/3 per cent common stock dividend was declared, and a quarterly dividend of 1 per cent inaugurated. In 1911 the rate was increased to 1 1/4 per cent quarterly.

It is worth noting, in closing this subject, that the rate of profit obtained by the International Company was much greater for its highly monopolized lines-that is, harvesting machines— than for the newer lines, such as wagons and spreaders.2 In other words, the influence of monopoly on prices and profits is somewhat obscured by the fact that the figures given are for the total profits of the International Company rather than for its profits in those branches that were monopolized.

1 Some tables showing the earnings of the International Company from 1913-1918 may be found in the Report of the Federal Trade Commission on the Causes of High Prices of Farm Implements, pp. 90-95.

* Report on the International Harvester Company, p. 240.

CHAPTER XI

THE EFFECT OF TRUSTS ON PRICES

Having surveyed the trust movement and having studied in detail a number of representative trusts, we may now turn to an examination of the underlying causes of the trust movement. An understanding of the reasons for forming trusts will enable the reader more readily to comprehend the popular attitude toward them as evidenced in legislative enactments and judicial proceedings; and will greatly assist him in determining what the public policy with respect to them should be.

The primary explanation of the trust movement, notably that characterizing the period from 1898 to 1903, would appear to be the desire of the manufacturers to restrict or eliminate competition, and thus to establish monopoly prices. Whether this competition that it was desired to eliminate was " ruinous" in its nature is a question we have analyzed elsewhere at considerable length, the conclusion being that competition can not properly be regarded as ruinous, except possibly in a quite limited range of industries.A secondary influence was the hope of achieving the economies of the trust form of organization, a topic that will receive consideration in chapter XIX. 3Third, though of less importance, was the lure of large profits for the trust promoters, men who conceived the idea of a trust in a given industry, or, if they did not conceive it, at least carried it through to a successful consummation. There were other incentives, to be sure, such as the ambition of certain individuals to become Napoleons of industry, but undoubtedly these were the three principal motives. First, then, as to the trust and prices.

The evidence as to the effect of trusts on prices has been presented for a number of trusts; and may be briefly summarized at this point. In making this summary and throughout the sub1 Quarterly Journal of Economics, 34, pp. 473-519 (1920).

sequent discussion the endeavor will be made of course to avoid a dogmatic presentation; the difficulty of speaking with positiveness on this perplexing matter is fully realized. It is easy to show that on innumerable occasions the organization of a trust or the tightening of monopoly control has been accompanied by higher prices, yet one can not always be certain that prices would not also have advanced under competitive conditions. Despite the difficulties, however, it is believed that both history and general reasoning establish the tendency of the trusts to increase prices. First, as to the teachings of experience.

One of the earliest and most powerful trusts was the Standard Oil Company. The prices charged for oil by this company formed the subject of an unusually elaborate study by the Bureau of Corporations, as the result of which the Bureau was able to speak with confidence and authority concerning the effect of the oil trust on prices. The Standard Oil Company, so the Bureau noted, had repeatedly claimed that it had reduced the price of oil; that it had been a benefit to the consumer; and that only a great combination like the Standard could have furnished oil at the prices that had prevailed. "Each one of these claims," said the Bureau, "is disproved by this report." With regard to the period to 1897, though the price statistics for these early years were by no means complete, yet making all the necessary allowances "they demonstrate the falsity of the historic claim of the Standard Oil Company that by reason of its extraordinary efficiency it has brought prices to a point lower than would have been reached had business remained under normal competitive conditions and in the hands of a number of comparatively smaller concerns."1 For the period following 1897 and down to 1905 the statistics were very full, having been collected by the Bureau directly from thousands of retail dealers throughout the country. A careful analysis of these figures establishes, said the Bureau, that "the Standard had consistently used its power to raise the price of oil during the last ten years, not only absolutely but also relatively to the cost of crude oil." 2 The Bureau as1 Report on the Petroleum Industry, part II, p. XXXIII. 2 Ibid., p. XXX.

serted that the Standard had used its monopolistic power to oppress the public through highly extortionate prices," and the truth of this assertion is abundantly demonstrated by the voluminous evidence presented in its report on oil prices. 1 The effect of trusts on prices is shown in illuminating fashion by the experience of the sugar trust. The story is found on pages 116-119. Briefly summarized, it appears that the margin between the price of raw sugar and of refined sugar was high during the early eighties, and declined rapidly after 1882 and until 1887 (the year in which the sugar "trust" was formed). The decline in the margin between 1882 and 1887 reflected the keen competition that prevailed, a competition so severe that only those refiners who realized the economies of large-scale production were able to operate at a profit. Many refiners, particularly those who failed to envisage the inevitable trend toward larger production units, were indeed obliged to withdraw permanently from the business. In October, 1887, the "trust agreement" became effective; and the margin rose from threequarters of a cent per pound (in 1887) to one and one-quarter cents (in 1888), an increase of approximately 65 per cent. No doubt the margin was abnormally low prior to the formation of the "trust"; and therefore it is difficult to say how much of the increase is fairly attributable to it. The high margin of 1888, however, speedily attracted new competition; and as a result the margin fell in 1890 to an even lower figure than during the eighties. In 1892 the trust, through the acquisition of a number of competitors, secured nearly a complete monopoly of the sugar refining industry; and the margin was considerably advanced once more. As before, this induced new competition, as the result of which the margin fell below the cost of refining. Upon the acquisition of several competitors in 1900, prices and margins again went up; but this led to the construction of competing refineries, and in 1904 the margin again declined. Taking therefore the first eighteen years of the life of the trust-the margin after 1905 indicates the existence of competitive conditions--it appears that sugar prices were low when competition was present, and were advanced when competition was absent or

brought under control. The conclusion seems to be justified that the trust made for high prices, and that it did little, if anything, to steady them.1

Trusts in the steel industry seem also to have made for higher prices of steel products.2 The most important of the trusts organized in the various branches of the iron and steel industry during 1898 to 1900 were the American Tin Plate Company, the American Steel and Wire Company, and the National Tube Company-the Carnegie Company, the Federal Steel Company, and the National Steel Company were mammoth combinations, the first two doing a larger business in the aggregate than any of the steel trusts, yet they did not individually monopolize any important branch of the trade. The American Tin Plate Company was organized in December, 1898, for the purpose, according to its president, "of getting together to do away with foolishness in making prices." 3 For several years prior to its formation the price of tin plates had shown a declining tendency, the average monthly price at New York per hundred pounds being $3.50 in January, 1896 (the maximum for 1896-1898), and $2.89 in December, 1898.4 From that month on it steadily increased until by September of the following year it had reached a monthly average of $4.83, or nearly $2.00 per hundred pounds higher than when the trust was formed. The price remained at this figure without deviation of more than a cent until August, 1900. By October of 1900 the price had fallen to $4.19, where it remained unchanged for two years.5

The American Steel and Wire Company of New Jersey was organized in January, 1899. During the preceding year the price of wire nails at Pittsburg had averaged $1.34 per hundred pound keg, being $1.29 in December, 1898.6 The price advanced 1 On this latter point see Jenks and Clark, The Trust Problem, pp. 138-139. See pp. 196-197, 203, 225-230.

3 Industrial Commission, I, p. 885.

Brief for the United States (no. 481), vol. II, p. 1047.

5 See Jenks, Bulletin of the Department of Labor, vol. V, no. 29, p. 735, for a table showing that the increase in the price of tin plate during 1899 was much greater than the increase in the cost of raw materials.

* Brief for the United States (no. 481), vol. II, p. 1045.