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dustry (of which more later), this form of organization has frequently been employed. The American Agricultural Chemical Company is an illustration of a horizontal combination; the Bethlehem Steel Company an illustration of a vertical combination. Some combinations, both horizontal and vertical, are formed without any thought of interfering substantially with the operation of competitive forces; others are resorted to expressly for that purpose. Yet even when the restriction of competition is the object of a combination, such is not always the result. The early iron and steel combinations, for example, merely intensified a competition that was already quite active.

The fourth form of organization is the trust, by which is meant a combination of a sufficient number of plants to secure practical control over the supply, and thus over the price.1 Well-known trusts are the Standard Oil Company,2 the American Tobacco Company, the United States Steel Corporation, the American Sugar Refining Company, the International Harvester Company, and the United Shoe Machinery Company. Though trusts may by definition originate through internal expansion, in fact they have come into being almost entirely through an act of combination. They are thus horizontal combinations, yet of so farreaching a character that they secure dominion over the industry. Trusts, morever, may be vertical combinations. Thus, the United States Steel Corporation is highly integrated, as are also the International Harvester Company, the Standard Oil Company, and the American Tobacco Company. Not all combinations, whether horizontal or vertical, are trusts, however; it is possible to effect combinations, both horizontal and vertical, that have no semblance of monopoly power.

1 Mr. Kales, adopting the phraseology of the Department of Justice in the International Harvester Company case (Brief for the United States in United States v. International Harvester Company, no. 56, pp. 34-101), says that a combination to be a trust must embrace units which together occupy a "preponderant" position in a given industry. Harvard Law Review, 30, p. 830.

2 The situation prior to the dissolution decrees of 1911 is here in mind. Whether the oil and tobacco trusts were effectively dissolved or not is considered in ch. 18.

The question at issue, upon which it is hoped this book will throw light, is: what public policy should be adopted toward trusts? Do trusts represent mainly an attempt to secure monopoly profits by raising prices, and should they therefore be prohibited and the endeavor be made to restore competitive conditions so far as possible? Or do trusts represent a more efficient business organization, and should they therefore be permitted to exist subject to governmental regulation of their prices and the like? Or, finally, is it difficult, if not impossible, to restore competitive conditions or to regulate satisfactorily the prices of trustcontrolled products, and should therefore the monopolized industries be socialized? It is not assumed that this book solves these crucial problems, yet it is hoped that this presentation of the facts may contribute toward their solution.

CHAPTER II

POOLS

Whether or no such was the main reason for their formation, the trusts have in fact restrained or eliminated competition in their field. Yet some time prior to the modern trust movement attempts had been made through other agencies to restrain the free play of competition. Some familiarity with these other attempts is essential to an understanding of the trust movement.

1

The pool was the first and the commonest mode of restricting competition between manufacturers. A pool was formed in the brass industry as early as 1853; 1 and one in the cordage industry in 1861.2 Yet until after the Civil War combinations among manufacturers were few in number and narrow in scope. The inadequacy of transportation facilities, and the comparatively small capital investment per firm, prevented manufacturers from reaching out to any considerable extent into the territory of their potential rivals; and there was thus less occasion for association. But with the rapid growth of business after the Civil War and the development of large-scale production, keen competition appeared. To check this competition pools were formed; and they have been numerous ever since. At the present time they are probably more numerous and varied than ever before. Even some of the leading trusts, such as the United States Steel Corporation, have had pooling agreements with the independent producers; and some pools are international in scope.

The term pool as here used is a catch-all for the various agreements and associations whereby a number of concerns, each preserving its own organization and to a large degree its own independence, adopted provisions looking toward the main1 Lathrop, The Brass Industry, p. 121.

Dewing, Corporate Promotions and Reorganizations, p. 114.

tenance or raising of the prices of the articles produced by them -the power actually to fix prices may or may not have been conferred on a governing body-or looking toward the depression of the prices of the materials and supplies required by them. The pool in the industrial world may be compared, so far as its organization is concerned, to a League of Nations in the political world. The members of the pool, like the members of the League, retain full control over certain matters, but temporarily delegate certain powers to a central organization. Upon the disbanding of the pool, as upon the dissolution of the League, the members resume complete control over their affairs.

(Pools are of numerous kinds, but six leading types1 may be distinguished: first, the gentlemen's agreement; second, the speculative pool; third, the regulation of the output pool; fourth, the division of the field pool; fifth, the selling agency; and, sixth, the patent pool.

First. The gentlemen's agreement is perhaps the loosest form of a pool. As its name implies it is simply an agreement between gentlemen looking toward the control of prices. As the agreement is between gentlemen, no formal organization is created, and no contracts or papers are signed. Under the gentlemen's agreement there is no provision for the payment of penalties in the event of a violation of the agreement; such is not assumed to be necessary, since the members are expected to abide faithfully by their informal promises. Gentlemen's agreements have been very numerous in the iron and steel industry; in fact at some time or other they have been found in every branch of the industry. They were employed also on several occasions in the

1 No claim of comprehensiveness or all-inclusiveness is made for this classification. It does not include, for example, those wholesalers' or retailers' associations which Mr. Stevens calls legitimate trader associations. See American Economic Review, 3, p. 555.

* Some authors, for example, Mr. Haney (Business Organization and Combination, 1915, p. 146), do not classify a gentlemen's agreement as a pool. This is because they give to the term pool a narrower and more restricted meaning than is employed in this text.

Report of the Commissioner of Corporations on the Steel Industry, part I, p. 75.

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anthracite industry. However, mere agreements rarely proved successful, since there was nearly always at least one "black sheep" whose infractions of the agreement led to its abandonment.

Second. The speculative pool, being organized for speculative purposes, is a temporary arrangement, which is ordinarily terminated as soon as the object of the pool has been attained. Perhaps the best illustration of this type of pool is the French Copper Syndicate, organized in October, 1887. This syndicate entered into contracts with the producers of copper in other countries for the purchase, at a figure somewhat above the market price, of all the copper produced by them. The syndicate hoped to corner the world's supply of copper, and at the time the contracts were entered into did control from 80 to 85 per cent of the total supply. The financing of these purchases was, of course, a difficult matter, particularly since the output of copper greatly increased under the stimulus of abnormally high prices. Unfortunately for the syndicate there occurred a run on the bank which was providing the funds, and as a result the syndicate speedily collapsed. Subsequently the price of copper fell much below what it had been prior to the formation of the pool.2 Because of the fact that speculative pools were temporary in nature and difficult to finance, they were not satisfactory to the manufacturers seeking some device whereby they might effectively throttle competition.

Third. A common type of pool is one which endeavors to regulate the output, and thus indirectly to regulate prices. Such a pool may take various forms. Power may be given to a central committee to order a curtailment of the output of the individual mills, as in the cotton bagging pool of 1888.3 More commonly, however, the members of the pool through a process of discussion agree upon the total output and upon the division of this output. among themselves in certain definite proportions. This was the form of agreement for many years in the anthracite coal industry,

1 See Jones, The Anthracite Coal Combination in the United States, ch. 3. 2 Andrews, Quarterly Journal of Economics, 3, pp. 508-516.

3 House Report no. 4165, 50th Cong., 2nd Sess., p. 144.

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