# Popular Science Monthly/Volume 44/April 1894/Trusts their Own Corrective

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* TRUSTS THEIR OWN CORRECTIVE.
By GEORGE A. RICH.
THE test of a theory is to predict what will happen. When the cry was first raised a few years ago against the so-called trusts, and legislation of one kind and another was proposed, there were those who declared that if these combinations were left alone they would prove their own worst enemies. In other words, there were inherent weaknesses in the trust mode of doing business which, so far as the public was concerned, took all the teeth out of it. But the politicians and legislators brushed this contention aside as so much "rubbish" and "mere theory," and proceeded to attempt by statutory enactment what an early pope had tried by bull—that is, to stay the operation of a natural law. As to how well they succeeded, the failure of the Government to enforce the anti-trust law, and the rapid increase of these combinations in the face of popular opposition, constitute a sufficient answer. In the meantime the prediction, which they so curtly rejected, is receiving its verification in the developments now taking place among those great organizations of capital and industry.
The most effective of these corrective agencies are the unequal conditions brought about by the union of weak establishments with strong ones and the certainty of competition. The original object of the combination was to prevent disastrous competition. To be sure, the apparent success of some of the chief ones has dazzled the minds of business men and led to the formation of others for the sole purpose of realizing larger profits at the expense of the public. But an examination of the history of most of them will show that they grew out of bitter contests which threatened disaster and ruin to those engaged in the industry. This movement toward consolidation dates in this country from the close of the civil war. The return of capital to the normal channels of industry following that led to an overstimulation in many branches. Up to that time the productive capacity of the country had not been equal to its capacity of consumption. With manufacturers it had been a race for possession. But that point had been passed. Possible production was in excess of possible consumption, and it became with many a question of divide or fight. From the point of the manufacturers the preliminary combinations which followed were open to two serious objections: They could not be established by contract, because the common law treated such agreements as against public policy, while the statute law made it a misdemeanor to enter into them. Furthermore, where the law was evaded and such agreements ​were entered into, they proved in nearly every case inoperative, from the fact that there was no power to enforce their conditions. The consolidation of competing interests or the principle of "division," therefore, seemed the only thing possible. This was notably the position of the Michigan salt manufacturers, whose association was the outgrowth of competition so fierce that many of them went to the wall. It is likewise true of the whisky trust. When the United States Government, near the beginning of the civil war, raised the internal revenue tax on whisky by successive stages from twenty cents to two dollars per gallon, with a considerable interval intervening between the several advances, an extraordinary stimulus was given to the manufacture. 'Distilleries without number sprang into existence. The result was that the output was far beyond the necessities of the market and it was a ruinous fight for life. In less degree this was the case with the cordage, cotton-oil, and bagging trusts.
Now, it is evident that combinations so formed stand in an anomalous position. Made up of both strong and weak establishments, the resulting corporation may be more powerful than some of its constituent members, but it is far from being equal to its prosperous ones. It is loaded down with old factories and antiquated machinery; it is capitalized at three or four times its actual value; and its managers are obliged, if they do what is expected of them, to support this rubbish and pay a profit besides. Were these combinations protected in the full control of their market, and were their products such that the public could not do without them or find a substitute for them, they might count on something like success. But capital is always on the outlook for prizes. It is always ready to make daring ventures in the hope of large returns. The fact that any one of these combinations can make eight or ten per cent on an inflated capital is clear evidence that the return for legitimate investment might be much greater. So the independent operator enters the field. The inevitable war of prices has been delayed a little, but the delay has permitted the growth of new and powerful organizations against the old concerns.
This point has been admirably illustrated in the experiences of the lead trust. It was not long ago that the annual meeting of the stockholders of that enterprise was held, and in the report of the president appeared this significant statement: "There has been, and always will be, competition in each class of goods manufactured by this company. It does not aim to obtain monopoly." The facts are, however, that at the beginning of 1892 the trust had control of all the lead-works in this country with the exception of two small establishments, one in Boston and one in Philadelphia; and even these were bound to it by ironclad ​contracts. It was as full a control of an industry as could be had. Of course, large profits were possible; but capital was attracted to the field. As a result, new plants were started until there are at the present time works enough outside the trust to equal its output. But there is this striking difference between the trust and the independent manufacturers: the plants of the trust are capitalized for thirty million dollars; the independent plants, equal in capacity, represent an investment of only two million dollars.
The course of the linseed-oil trust has been analogous. In 1887, when the trust was started, it controlled between sixty and seventy per cent of the output of that product. As such it had the manipulation of the market and realized handsome profits, despite the fact that it had to face the independent crushers and was hampered by watered capital. But, to do it, it raised the price of linseed oil so high that the attention of others was drawn to the industry. The president of the trust in his report for 1891 said: "It is not considered by your board of directors advisable to publish a detailed statement of the affairs of the company, for the reason that we find by the experience of the past year that our statements find their way into the public press. If made in detail, information is given to our competitors, to the detriment of this company. There is no doubt whatever that the publicity given to our last annual statement caused the building of new works and consequent increase in competition." These independent crushers, strengthened by the newcomers and unhampered by weak plants, were able to wrest the market from the trust. Some months ago the trust sought a conference with its rivals and an effort was made to come to an understanding. That, however, has proved a failure, and competition ruled in the linseed-oil market.
Furthermore, it is impossible to get control of any article in general demand. Such an attempt may temporarily succeed, but there are powerful forces which will drag it down sooner or later. As an English writer says: "It is difficult to conceive of any body of capitalists being sufficiently powerful to monopolize an article in general demand and to use their monopoly for any length of time to the serious hurt of the public. Directly prices became prohibitive there would be a formidable movement in the opposite direction and the monopoly would break down."
The fate of the copper syndicate is a striking proof of this. This scheme consisted in nothing less than forestalling the market of the whole world in copper for the period of three years. This the managers attempted to accomplish, and did accomplish for a time, by buying the output of all the copper mines in the world for that period by agreeing to pay the mine owners ​thirteen cents per pound and one half of whatever the syndicate should be able to get above that. The immediate effect of this gigantic conspiracy was that the price of copper in the United States rose from thirteen to sixteen cents per pound. But the syndicate did not take the precaution to buy up all the old scrap copper in the world, nor all the metals that could be substituted in the arts for copper. Nor did it arrange with those who had been consuming copper that they should use it in the same quantities whatever the price. The result was that the syndicate collapsed, dragging down with it one of the great banking institutions of France, ruining an untold number of individuals, and driving to suicide the man who conceived the undertaking.
The same points of weakness are apparent in the other combinations now before the public. Despite the tremendous power of the sugar trust, it has never been able to control the market for any length of time, as an examination of the prices of sugar for the years of its existence will show. The independent refiners have forced it to reduce its quotations, and later buy their plants up at a high valuation if it wished to escape competition. No sooner has that been done, however, than new refineries have been started, as is the situation at the present time. Obviously there must be an end to this procedure, even for a corporation with such resources as the American Sugar Refining Company has. The same is true of the cordage trust. So strong an opponent of trusts as the New York Commercial Bulletin said of this at the time it was at the height of apparent prosperity: "The enormous profits which the trust is now making can not but lead to the establishment of additional independent plants. These will be in as strong a position for successful competition as has been found to be the case with the independent refiners of sugar. Under these circumstances the present enormous profits made by the cordage trust will not continue." The later fate of this same cordage company is a sad but striking commentary on the weaknesses to which such enterprises are open.
It is not contended that these corrective agencies will of themselves work the downfall of the trusts. That is an impossibility under the present industrial conditions. But they will fix a limit beyond which the trust can not go. Furthermore, they will hasten the overthrow of all those combinations which seek to carry along old and worthless plants and to follow discarded processes of manufacture and wasteful methods of business. The trust mode of doing business as a means of getting large capital and realizing the economies consequent on extensive production may be a success; but as a means of practicing extortion upon the public it is doomed to failure. Natural laws, after all, are stronger than the contrivances of man.