If we omit the references to the especial trade, the above view of a trust from the trust-makers' standpoint will do for almost any of the many combinations which have been formed by different manufacturers for thepurpose of controlling production and prices. One thing is clearly indicated in the above, and will certainly be conceded: That the men who have formed these trusts are animated by the same motives as those that govern humanity in general. They have, in some cases at least, known what it was to be crowded close to the wall by severe competition. They all at once saw a way opening by which they could be freed from the worries and losses which had been making their business one of small and uncertain profits, and would be set squarely on their feet with a sure prospect for large and steady gains. It is using a common expression to say that they would have been more than human if they had refused to improve this opportunity. Certainly, then, in examining further the trusts, we shall do so with no feeling of personal prejudice toward the men who originated them and carry them on.
As we have given a hearing to the case from the trust-makers' standpoint, it is only fair that we should hear at equal length from the public who oppose the trusts; but to abbreviate the investigation, let us suppose that we are already familiar with the various charges which are brought against the trust monopolies, and let us proceed at once to consider the actual effect of the trusts upon the public.
Since we have heard so much in defence of the linseed oil trust, it will be well for us to inquire concerning the results, in which the public is interested, which have followed its organization. During the year 1887 (the trust was formed in January of that year) the price per gallon of linseed oil rose from thirty-eight cents to fifty-two cents; and this price was kept up or exceeded during 1888. That is to say, every purchaser of linseed oil, orevery one who had occasion to have painting done, pays to the members of this trust, for every gallon of oil that he uses, about fourteen centsover and abovethe sum which he would pay if competition were allowed to do its usual work in keeping down prices.
What profits are the members of this trust making? Let us suppose that they were just able, at the old price of thirty-eight cents per gallon, to pay all their running expenses and four per cent. on the capital invested, making nothing for profits beyond a fair salary to the managers of the business. Then the gain of fifteen cents a gallon in the selling price isclear profitto them. Now add to this the fact, which was plainly brought out in the foregoing supposed statement by a member of the trust, that it is possible by means of the trust to greatly reduce expenses in many directions as well as to increase receipts, and we begin to form some conception of the profits which this trust is harvesting. If we wish to put the statement in figures, suppose we take the annual consumption of linseed oil in the country at thirty million gallons. Then the profits of the trust from the increased prices alone will amount to four and one half million dollars per annum.
There is another way in which trusts directly affect the public, which has received very much less attention than it deserves. Besides the people who use the linseed oil and pay the trust an extra fourteen cents a gallon for the privilege, there are a great number of people who would have used oil if the price had not advanced, but who cannot afford to do so at the advanced price. It is a well-known fact that every increase in the price of any article decreases the demand, and the advance in the price of linseed oil has undoubtedly had a greateffect in decreasing the consumption of oil. So while it is undoubtedly true thatat the trust's pricesthere are more linseed-oil mills in the country than are needed to supply its wants, yet if the prices were lowered to the point which free competition would fix, there would probably be demand enough to keep all the mills running. To the trust, then, must be ascribed the final responsibility for the stoppage of the mills and the loss of employment by the workmen. Nor does the effect upon the labor market stop there. From the fact that less people can afford to paint their houses, because of the higher price of the oil, it is certain that there will be less employment for painters; and as less paint is used, all those interested in and employed in the paint trade are sufferers. It is to be remembered that we are speaking of the linseed oil trust only to make the case more vivid. The principle is general and applies equally well to other trusts, as for instance to the loss of employment by thousands of men working in refineries controlled by the sugar trust, in the fall of 1888. Still another effect of this trust's action is to be especially noted: the fact that the diminished production of oil lessens the demand for seed; and also that in the purchase of seed, as well as in the sale of oil, the trust has killed competition. The trust may, if it chooses, fix uniform prices for the seed which it purchases; and the farmer can take the prices they offer or keep his seed. Fortunately the farmer can raise other products instead of flax-seed, and will do so if the price is lowered by any large amount.
One other possible mode of profit for the trusts, which, however, they are hardly likely to engage in—from their fear of public opinion, if for no other reason—lies in the power which they possess over the labor market. Itwill probably be conceded at once that the rate of wages in any occupation depends, among other things, upon the competition of the various workmen who seek employment in that occupation, and also upon the competition among those who wish to hire men to work at that occupation. It is plain that when the competition among employers to secure men is active, wages will rise; and when this competition falls off, wages will fall. Now the trust is more than a combination for selling purposes only. It is a combination of all the properties concerned under practically a single ownership. Clearly, then, as the various mills belonging to a single owner will not compete with each other in the employment of labor, the mills belonging to a trust will be no more likely to do so. Thus if it were not for the fact that the workmen are able to take up some other employment if their wages are too low, they would be absolutely obliged to take what wages, great or small, the trust chose to give, and would be as dependent for their food and clothing upon the trust as was the slave upon his master.
The question is often asked why trusts have not been formed before, and what the causes are which have started them up so rapidly in such varied lines of industry. There is certainly room for much honest difference of opinion in reference to these causes; but one cause concerning whose influence there can be no dispute is the culmination of the change from the ancient system of manufacturing to the modern. Let us briefly trace the manner in which this branch of civilization has grown: In the most primitive state of existence, each man procures and prepares for himself the few things which he requires. With the first increase in intelligencethose of most skill in making weapons and preparing skins make more than they require for themselves, which they exchange with others for the products of the chase. The next step is to teach to others the special skill required, and to employ them to aid the chief workman. Conditions analogous to these existed down to the end of the last century. The great bulk of all manufacturing was done in small shops, each employing only a few workmen; and the manufacturer or master workman labored at the side of his journeymen and apprentices. The products of these little workshops were sold in the country immediately adjacent. Of course the number of these scattered shops was so great that the possibility of uniting all the manufacturers in any one trade into a single organization to prevent competition among them, was beyond the thoughts of the most visionary.
The present century has seen three great economic wonders accomplished: the invention of labor-saving machinery, greatly multiplying the efficiency of labor in every art and trade; the application of steam power to the propulsion of that machinery; and the extension over all civilized lands of a network of railway lines, furnishing a rapid, safe, and miraculously cheap means of transportation to every part of the civilized world. In order to realize the greatest benefit from these devices, it has become necessary to concentrate our manufacturing operations in enormous factories; to collect under one roof a thousand workmen, increase their efficiency tenfold by the use of modern machinery, and distribute the products of their labor to the markets of the civilized world. The agency which has acted to bring about this result is competition. The large workshops were able to make goods so much cheaper than the small workshopsthat the latter disappeared. Then one by one the large workshops were built up into factories, or were shut up because the factories could make goods at less cost. So the growth has gone on, and each advance in carrying on production on a larger scale has resulted in lessening the cost of the finished goods. Competition, too, which at first was merely an unseen force among the scattered workshops, is now a fierce rivalry; each great firm strives for the lion's share of the market. Under these conditions it is quite natural that attempts should be made to check the reduction of profits by some form of agreement to limit competition. Many plans have been tried which attempted to effect this by mere agreements and contracts, methods which left each property to the control of its special owners; but none have been permanently successful. By the trust plan of combination, the properties are practically consolidated; and the failure of the combination through withdrawal of its members is avoided. It offers to manufacturers, close crowded by competition, a means of swelling their profits and ensuring against loss; and encouraged by the phenomenal success of the Standard Oil combination, they have not been slow to accept it.
The point to which we need to pay especial attention, in the foregoing consideration of the causes which have produced trusts, is the fact that the cost of production is continually being cheapened as it is carried on on a larger and larger scale. And because the cheaper mode of production must always displace the mode which is more expensive: as Prof. Richard Ely expresses it, "Production on the largest possible scale will be the only practical mode of production in the near future." We need not stop to prove the statement that the cost of production by themodern factory system is a small fraction of that by the old workshop system. The fact that the former has beaten the latter in the race of competition would prove it, if it were not evident to the most careless observer. But it is also a fact that the trust, apart from its character as a monopoly, is actually a means of cheapening production over the system by independent factories, for it carries it on on a larger scale than it has ever before been conducted. Our review of the trust from the trust makers' standpoint showed this most forcibly; and we shall see more of it as we study further the methods by which the monopoly gains an advantage over the independent producer in dispensing with what we may call the waste of competition. In the argument presented by the Standard Oil Trust before the House Committee on Manufactures in the summer of 1888, occurs the following statement of the work which that monopoly has done in cheapening production:
"The Standard Oil Trust offers to prove by various witnesses, including Messrs. Flagler and Rockefeller, that the disastrous condition of the refining business and the numerous failures of refiners prior to 1875 arose from imperfect methods of refining, want of co-operation among refiners, the prevalence of speculative methods in the purchase and sale of both crude and refined petroleum, sudden and great reductions in prices of crude, and excessive rates of freight; that these disasters led to co-operation and association among the refiners, and that such association and co-operation, resulting eventually in the Standard Oil Trust, has enabled the refiners so co-operating to reduce the price of petroleum products and thus benefit the public to a very marked degree and that this has been accomplished:"1. By cheapening transportation, both local and to the seaboard, through perfecting and extending the pipe-line system, by constructing and supplying cars with which oil can be shipped in bulk at less cost than in packages, and the cost of packages also be saved; by building tanks for the storage of oil in bulk; by purchasing and perfectingterminal facilities for receiving, handling, and reshipping oils; by purchasing or building steam tugs and lighters for seaboard or river service, and by building wharves, docks, and warehouses for home and foreign shipments."2. That by uniting the knowledge, experience, and skill, and by building manufactories on a more perfect and extensive scale, with approved machinery and appliances, they have been enabled to and do manufacture a better quality of illuminating oil at less cost, the actual cost of manufacturing having been thereby reduced about 66 per cent."3. That by the same methods, the cost of manufacture in barrels, tin cans, and wooden cases has been reduced from 50 to 60 per cent."4. That as a result of these savings in cost, the price of refined oils has been reduced since co-operation began, about 9 cents per gallon, after making allowance for reduction in the price of crude oil, amounting to a saving to the public of about $100,000,000 per annum."
"The Standard Oil Trust offers to prove by various witnesses, including Messrs. Flagler and Rockefeller, that the disastrous condition of the refining business and the numerous failures of refiners prior to 1875 arose from imperfect methods of refining, want of co-operation among refiners, the prevalence of speculative methods in the purchase and sale of both crude and refined petroleum, sudden and great reductions in prices of crude, and excessive rates of freight; that these disasters led to co-operation and association among the refiners, and that such association and co-operation, resulting eventually in the Standard Oil Trust, has enabled the refiners so co-operating to reduce the price of petroleum products and thus benefit the public to a very marked degree and that this has been accomplished:
"1. By cheapening transportation, both local and to the seaboard, through perfecting and extending the pipe-line system, by constructing and supplying cars with which oil can be shipped in bulk at less cost than in packages, and the cost of packages also be saved; by building tanks for the storage of oil in bulk; by purchasing and perfectingterminal facilities for receiving, handling, and reshipping oils; by purchasing or building steam tugs and lighters for seaboard or river service, and by building wharves, docks, and warehouses for home and foreign shipments.
"2. That by uniting the knowledge, experience, and skill, and by building manufactories on a more perfect and extensive scale, with approved machinery and appliances, they have been enabled to and do manufacture a better quality of illuminating oil at less cost, the actual cost of manufacturing having been thereby reduced about 66 per cent.
"3. That by the same methods, the cost of manufacture in barrels, tin cans, and wooden cases has been reduced from 50 to 60 per cent.
"4. That as a result of these savings in cost, the price of refined oils has been reduced since co-operation began, about 9 cents per gallon, after making allowance for reduction in the price of crude oil, amounting to a saving to the public of about $100,000,000 per annum."
Certainly it would seem that this is a strong defence of the trust's character as a public benefactor; but it is well to note that while it has been making these expenditures and reducing the price of oil to the consumer, it has also been making some money for itself. The profits of this trust in 1887, according to the report of the committee appointed to investigate the subject of trusts by the New York Legislature, were $20,000,000. The nominal capital of the trust is but $90,000,000, a large portion of which is confessedly water. In answer to the statement that the price of oil has been reduced steadily by the operations of the trust, it is charged that no thanks is due to the trust for this benefit. The trust has always wished to put up the price, but the continual increase in the production of the oil fields has obliged the trust to make low prices in order to dispose of its stock. There are also about one hundred independent refineries competing with the trust, and their competition may have hadsome influence in keeping prices down. It is undoubtedly true that the economy in the storage, transportation, and distribution of oil by the systematic methods of the Standard Oil Trust has made it possible to deliver oil to the consumer at a small fraction of its cost a decade ago. But it is also true that a good part of the reduction in the price of oil is due to the abundant production of the petroleum wells, which have furnished us so lavish a supply. The principal charges against this trust, made by those who were conversant with its operations, have never been that it was particularly oppressive to consumers of oil; but that, in the attempt to crush out its competitors, it has not hesitated to use, in ways fair and foul, its enormous strength and influence to ruin those who dared to compete with it.
In a later chapter we shall be able to study these more intricate questions regarding trusts with a better understanding of our problem. Let us pay some attention now to the growth of the trusts and of combinations in general for the purpose of limiting competition among manufacturers, which has taken place within the past few years.
According to the little book entitled "Trusts," by Mr. Wm. W. Cook, the production of the following articles was, in February, 1888, more or less completely in the hands of trusts: petroleum, cotton-seed oil and cake, sugar, oatmeal, pearl barley, coal, straw-board, castor oil, linseed oil, lard, school slates, oil cloth, gas, whiskey, rubber, steel, steel rails, steel and iron beams, nails, wrought-iron pipe, iron nuts, stoves, lead, copper, envelopes, paper bags, paving pitch, cordage, coke, reaping and binding and mowing machines, threshing machines, ploughs, and glass—a long and somewhat jumbled list, to which, however, at the present time, there shouldprobably be added: white lead, jute bagging, lumber, shingles, friction matches, beef, felt, lead pencils, cartridges and cartridge-shells, watches and watch cases, clothes-wringers, carpets, coffins and undertakers' supplies, dental tools, lager beer, wall paper, sandstone, marble, milk, salt, patent leather, flour, and bread. It should be said that, as regards most of these combinations, the public is ignorant beyond its knowledge that some form of combination for the purpose of restricting competition has been formed. For the purpose of our present investigation it makes little difference just what this combination may be.
The salient facts for us to note are, that among the manufacturers of this country there has arisen a widespread movement to partially or wholly avoid competition in the production and sale of their goods; that in a very great number of manufacturing industries these combinations have progressed so far that their managers have been able to advance prices and check production; that some of these combinations have taken the form of trusts, and by this means have every prospect of maintaining their stability and reaping their enormous profits with the same permanency and safety as has their predecessor, the Standard Oil Trust; and, finally, that with this prospect before them, our manufacturers, as a class, would lose their reputation as shrewd business men if they did not follow out the path marked out for them, and combine every manufacturing industry in which combination is possible upon the plan of the trust.
In conclusion, it may be well to examine the statement attributed to Mr. Andrew Carnegie, that, "there is no possibility of maintaining a trust. If successful for a time, and undue profits accrue, competition is courted which must be bought out; and this leads to fresh competition,and so on until the bubble bursts. I have never known an attempt to defeat the law of competition to be permanently successful. The public may regard trusts or combinations with serene confidence."
Surely if this statement is true, we have little need for further examination of this subject. We have now knowledge enough of our subject to enable us to determine its truth or falsity. We have found in the actual trusts that we have examined none which have shown signs of succumbing to outside competition. More than this, however, we have seen that it is possible for a trust to carry on business and deliver goods to the consumer at much less cost than an independent manufacturer can. And as surely as this law holds that production on the largest scale is the cheapest production, so surely will the trust triumph over the independent manufacturer wherever they come into competition. If the trust were always content when its competitors were disposed of, to make only the profits which it could secure by selling at such prices as the independent manufacturers could afford, there would be less outcry against it. But with the consumers wholly dependent upon it for supplies, the prices are in the trust's hands; and the tendency is to reap not only the profits due to its lessened cost of production, but also all it can secure by raising the selling price without arousing too much the enmity of the public.
Clearly the trust is at once a benefit and a curse. Can we by any means secure the benefit which it gives of reduction in cost without placing ourselves at the mercy of a monopoly? This is the question which must occur to every thoughtful man. Before we can answer it, however, we must examine the effects of competition and monopoly in other industries.
It is a well known historical fact that the extraction of metals and minerals from the earth has been more subject to monopoly than almost any other business. It was, and in a large part of the civilized world still is, esteemed a prerogative of the sovereign. Agricultural products have always been gathered from a wide area; manufactures were formerly the product of mean and scattered workshops; but in the working of a rich mine, there was a constant income more princely than was to be obtained from any other single source. Again, with all due respect to the traditions of former generations, it seems to have been thought that any thing to which no one else had a valid title belonged to the crown; and as no one was able to assert any stronger claim to the ownership of mineral wealth than that they had stumbled upon it, it was natural for the sovereign to claim it as his. We see thus the recognition at an early date of the inherent difference between natural wealth and that created by labor.
But coming down to the present time, it is evident that the business of extracting some of the rarer metals from the earth is peculiarly liable to become a monopoly. It is one of the new laws of trade, whose force and importance we are just finding out, that the ease of restricting competitionvaries with the number of competing units which must be combined. Our most valuable metal, iron, is so widely distributed that any attempt to control the whole available supply could not long be successful. But it is one of the peculiarities of modern industry that by its specialization it furnishes constant opportunities for the establishment of new forms of monopoly, whose power is not generally understood. In the manufacture of Bessemer steel, which has now largely displaced wrought iron in the arts, it is necessary to use an iron ore of peculiar chemical composition. This ore is found most abundantly and of best quality in the mines of the Vermilion range, lying about one hundred miles north of Duluth, Minn., and in the mines of the Marquette Gogebic, and Menominee regions in the north Michigan peninsula. According to good authorities, a combination more or less effective has been formed among the owners of all these mines; and the highest price is charged for the ore which can be obtained without driving the customer to more distant markets for his supply. Among the mines of this district, competition, if not entirely stopped, is greatly checked, and is likely soon to be entirely a thing of the past. It is an interesting fact that among the members of the syndicate which owns the principal mines in the Vermilion regions are some of the trustees of the Standard Oil Trust. It is stated that some of these mines have paid 90 per cent. per annum on their capital stock, which, it is to be noted, represents a much greater sum than the amount invested in the plant of the mine.
It is thus apparent that the mining of the raw ore from which iron is made, abundant and scattered though it is, is not free from monopoly. The combinations torestrict competition among the makers of cast iron and of steel belong properly under the head of monopolies in manufactures. We need only refer here to the fact that they are supposed to exist and have more or less control of the market.
Fortunately for the stability of our system of currency and of finance, the precious metals, through the small ratio which their current production bears to the world's stock, and the fact that this stock is scattered among an enormous number of holders, are safe from any attempts to establish a monopoly to control their price through the control of their production. Other metals, however, which are like silver and gold in being found in workable deposits at but a few points on the globe but are there found in abundance, are peculiarly adapted to facilitate the schemes of monopolists. Of lead, copper, zinc, and tin, we require a steady supply for use in the various arts; and the statement has been made that the supply of each one of these is in the hands of a trust. To see the effect which these combinations have had on prices, let us examine the prices which have prevailed for two years past on these four articles, as shown in the following table:
Table of wholesale prices (cents per lb.) in New York City of copper, lead, tin, and zinc during 1886, 1887, and 1888:
CopperLeadTinZinc1885 Dec. 3111.54.605.351886 Apr. 311.454.905.501886 July 310.004.905.601886 Oct. 711.004.355.601887 Jan. 512.254.7524.506.421887 Apr. 611.004.7524.506.501887 July 610.504.9225.007.001887 Oct. 611.004.4523.306.751887 Dec. 2917.755.0037.006.001888 Mar. 2917.505.5039.506.751888 July 317.254.2522.006.501888 Oct. 418.505.7526.006.751889 Jan. 317.503.8522.005.501889 Apr. 2916.504.2523.006.50
Taking the evidence of this table, we conclude that the combination which is said to control the zinc and lead markets is probably not a trust, but a "Producer's syndicate" or corner. The prices of lead show no such firm tendency to advance as would be expected if the production was in the hands of a single combination.
The prices of zinc, however, show a decided advance in the past two years over the prices for the three years preceding, the average price for 1886 being but 5.50, while for 1887-8 it is 6.58. This is a rise of no small importance, and the way it is maintained seems to give evidence of restriction of competition among producers.
But the striking fact in the above table is the evidence it presents of the work which has been done by that most gigantic and daring combination for the suppression of competition ever organized, the French Copper Syndicate orLa Société Industrielle Commerciale des Metaux. This syndicate of French capitalists began operations in 1887, with the intention of "cornering" the tin supply of the world. The rise in price which was due to their operations is shown in the above table. But before completing their scheme they relinquished it for a grander enterprise, which would embrace the copper production of the world. They made contracts with the copper-mining companies in every country of the globe,by which they agreed to purchase all the copper which should be produced by the mines for three years to come at the fixed price of 13 cents per pound, and a bonus of half the profit which the syndicate was able to make from its sales to consumers. In effect this move killed the competition in the copper trade of the world, and placed every consumer at the mercy of this Paris syndicate. The advance in tin was of short duration, and those who suffered by it were speculators rather than consumers; but the advance in copper, as shown by our table, is still firmly maintained, and its effect on the industries using copper has been seriously felt all through 1888. In October, 1888, theSociétéextended its contracts with several mining companies to cover a period of twelve years, and advanced its price to the producers to 13½ cents per pounds. At the same time, to avoid the accumulation of stock, which the diminished consumption consequent upon the increased price had caused, and which it had been generally predicted would finally be the cause of theSociété'sdownfall, they arranged for the restriction of the production of the mines. If theSociété, which is backed by the heaviest capital, and managed by the shrewdest business skill of France, does what it intends to do, and its tributary producers are faithful to their contracts, for ten years to come, yes, for all years to come—for it is not likely that an enterprise of such golden returns will ever be abandoned if it can once profitably be carried out,—the world must pay for its copper whatever these monopolists demand.
Probably the argument against the private ownership and control of the wealth which nature has stored up for the whole world's use was never brought home to men's minds so forcibly as it has been by the acts ofthese French speculators. Copper is a necessity to the industries of civilized society; and the mind of every unprejudiced person protests against the injustice of placing in the hands of any single firm or combination the power to exact such prices as they choose for the great staples of human consumption. This increase of price of about 7 cents per pound is a tax which affects, directly or indirectly, every person in the civilized world. Let us inquire what becomes of this tax. Perhaps 2 cents per pound will go into the pockets of the Frenchmen who have engineered the combination, a sum which will give them, if we set the annual consumption of copper at 400,000,000 pounds, a comfortable net income of about $8,000,000 per annum. The lion's share of the profits is taken by the producers, however; who, if 10 cents is the price at which copper would sell if free competition were in force, are receiving under the present contract with theSociétéabout 5 cents per pound as a reward for their co-operation in its monopolistic scheme.[2]
It is appropriate here, too, to make reference to the enormous profits which the owners of the copper mines of the country are receiving, apart from the special influence of this great syndicate. The richest and most valuable copper mines in the world lie on the southern shore of Lake Superior. The Calumet and Hecla Company, which works one of the richest deposits of native copper ever found, has a capital stock of $2,500,000, on which it has paid, since 1870, $30,000,000 in dividends. The reports of these companies to their stockholders show that the present cost of refined copper at the mines is as low as 4 cents per pound, and its cost, delivered in the New York market, is only 5¾ cents. Probably the officers of these companies are right in their belief that in no other mines of the world can copper be produced so cheaply. But the question that comes with force to every thinking man is: If the wealth of the ore in these mines is so much greater than that in any other that it can be produced at so much less cost, does there not exist here a natural monopoly, of which the owners of these mines are getting the sole benefit? And, again, by what right does the chief benefit from this rich deposit accrue to the few men who own the mines, rather than to the many men in all parts of the world who wish to use their product?
Great and important as is the copper monopoly, of far greater importance to us than any and all the combinations in the metal industries are the monopolies whichcontrol the price of coal. We do not often realize how intimately connected is our nineteenth-century civilization with the store of fuel laid up for us in distant geologic ages. And in this country, with our severe climate, coal is all-important as a factor of domestic economy, as well as a necessity to manufacturing and metallurgical industries. The total cost to the consumers of the coal used in the United States every year (about 120,000,000 tons), calling the average retail price $4.00 per ton, is nearly $500,000,000, or over $8.00 per annum for every man, woman, and child in the country. Surely, then, the statement which we make at the outset, that the coal trade of the United States is in the hands of monopolists; and that competition, where not killed, is almost impotent to keep down prices, is one which merits earnest attention.
The United States possesses coal fields of enormous extent and richness. The mineral is widely distributed, too, productive mines being now in operation in 27 of the States and Territories. Anthracite coal, however, which is by far the best adapted to domestic use, only occurs in a limited area in the State of Pennsylvania; but here the deposit is of phenomenal richness. The total area of the Pennsylvania anthracite field is about 300,000 acres. Of this area nearly 200,000 acres is owned by seven railway corporations. These companies, either directly or through subsidiary companies controlled in the same interest, carry on mining operations, carry the coal to market, and sell it. The following figures[3]exhibit the receipts of each of these companies from sales of coal from their mines during the year 1887:
COMPANY.TONS.RECEIPTS.Philadelphia and Reading R. R. Co.7,555,252$18,856,550Central R. R. Co. of N. J.4,852,85912,132,146Lehigh Valley R. R. Co.5,784,45014,461,125Del., Lackawanna, and Western R. R. Co.6,220,79319,044,803Delaware and Hudson Canal Co.4,048,34010,100,118Pennsylvania R. R. Co.3,818,1438,820,718New York, Lake Erie, and Western R'y Co.2,363,2906,846,342Total34,643,127$90,261,805
Thus these seven corporations alone produced from their own mines, carried to market, and sold, over 34,000,000 tons of coal during the year, for which they received about $90,000,000. Of the magnitude of the operations carried on by these great corporations we now have some idea. Let us next inquire to what extent competition is allowed to act between them to keep down prices.
Many years ago these seven companies formed the famous anthracite-coal pool. This was an agreement by which all the companies concerned agreed to maintain a uniform selling price for coal at all important distributing points where two or more of the companies came into competition. Some of the prices which were fixed by the pool were extremely arbitrary. Cities in Pennsylvania within an hour's ride of the coal fields had to pay nearly as high a price for coal as those 500 miles or more distant. Rates of transportation on coal mined by individual operators were made such that the latter could not afford to sell below the prices fixed by the pool, even if they had been so disposed. At the present time the situation has been modified by the long and short-haul clause of the Interstate Commerce law,by which the railroad is obliged to make its transportation rates somewhat proportionate to distance, and also by the passage of a law in the State of Pennsylvania, by which the acts of the anthracite-coal pool were declared illegal and punishable. Nominally, therefore, the pool is a thing of the past; but the practical fact is, that by secret or tacit agreement the various companies are not competing with each other any more now than in the days of the pool, and at points like New York or Buffalo, where two or more roads meet, the same prices are quoted by each different company.
Nor are the charges against the pool comprehended in its autocratic determination of the price of coal. To make production correspond with price, it was necessary at times to close collieries entirely, throwing the miners out of employment. The individual operators, too, have no love for the combination. Their profit depends more than any thing else on the rate of transportation, and thus whether they shall make or lose depends on the railroad companies. They claim that the railways base their rates for carrying coal upon the principle of "charging what the traffic will bear." This is a matter, however, which we can better discuss in the next chapter.
It is thus evident beyond dispute that the production of anthracite coal in this country is an industry uncontrolled by competition. To sum up: these seven great corporations own more than two thirds of the area in which workable anthracite coal is found: they mine and market directly the great bulk of the total production; the individual operators are dependent on the railways for getting their coal to a market; and the price at which they can afford to sell it depends on the railroadrates. Finally, consider that these seven companies work in harmony, both as to traffic rates and prices for the sale of coal, and the conclusion is irresistible that competition in anthracite-coal production in the United States is practically dead.
Let it be noted, for the benefit of those who may conceive that the above statement is unfair to the railway companies, that no charge is here made that the prices fixed by the companies for the coal are at the present time extortionate or unjust. That is a separate matter; in which, doubtless, there would be plenty to affirm on the one hand that the prices charged were no more than a just compensation, while their opponents would declare that the prices adopted by the pool favor some points to the prejudice of others, and that the statement that they were on the whole exorbitant was proven by the fact that the railway lines in the coal regions, where honestly managed, have paid great dividends on the actual capital invested.
Compared with the production of Pennsylvania anthracite, the coal production of any other single section seems small. But it is only so by comparison, for the Western coals, while inferior in quality, are abundant and easily mined, and must remain the staple for general consumption throughout the region west of the Mississippi, as well as for large sections further east.
As is well known, the people of the Western and Northwestern plains are wholly dependent upon the railroads for their supplies of every description, except the raw products of the soil. The railways themselves are great consumers of coal, and have bought up large tracts of coal lands and opened mines. In the desireto develop traffic and ensure a supply of coal to the settlers on their lines—we will even say of cheap coal,—the railway companies have entered the coal trade themselves, either directly or through subsidiary companies. Thus it comes about that hundreds of thousands of people of the West and Northwest must pay for coal, which is an absolute necessity of life during several months of the year, whatever price the managers of a single railway corporation may demand. Let it be understood that no charges are here made of injustice or extortion on the part of the railway companies. It is only wished to bring out the fact that competition is here wholly absent. It is believed that, in some cases at least, an honest attempt has been made to mine and sell the coal at merely a fair profit. But in days to come it will not be so directly for the interest of the railways to deal liberally with their patrons as at present. Other men of less breadth and principle and more ready to grasp at a chance for enormous profits may control the company's affairs; and if that happens, the opportunity to take advantage of the absence of competition and raise the price of coal will be utilized.
A brief review of the actual status of the coal production of the West and South will help us to a clear appreciation of the case. The Missouri Pacific Railway Company, through subsidiary companies, extracted from its mines in Missouri and the Indian Territory, during 1887, 1,618,605 tons of coal. Through its control of transportation rates, private operators have been compelled to sell coal at the company's prices in the market. The company has recently purchased large tracts of coal lands in Colorado, on which it is opening mines. The Atchison, Topeka, and Santa Fé, the Chicago, Burlington,and Quincy, the Denver and New Orleans, the Union Pacific, and the Denver and Rio Grande Railway companies are also heavily interested in the Colorado coal mines. The last company has long held a bonanza in the monopoly of the coal mining and transportation for the Colorado silver-mining and smelting districts. Though the other companies, to which the Rock Island should probably be added, come in as competitors, there can be no doubt that their active competition will be of short duration. The Wyoming coal fields are being worked by the Union Pacific and the Chicago and Northwestern companies, while the Chicago, Burlington, and Quincy and a company supposed to be closely connected with the Northern Pacific are preparing to take the field at an early date. On the Pacific coast the coal trade has long been a monopoly in the hands of the Oregon Railway and Navigation Company, who have kept the prices in San Francisco just below the point at which it becomes profitable to import Australian coal. Other railways are now preparing to reach the coal fields, but can we doubt that the competition to which the coal consumers are looking with eager anticipation will prove evanescent? Returning to the East, we find the coal mines of northern Illinois all held by a single company, which has full control of the traffic; while the mines of southern Illinois, on which the St. Louis consumers depend, are united as the Consolidated Coal Company. This latter corporation has "wrecked" many of its mines for the purpose of limiting the supply and raising the price; and has bought many mines of competing companies and closed them for the same purpose. The Attorney-General of Illinois has been requested to bring suit against this "trust" for the forfeiture of its charter.
In the Hocking Valley coal fields in Ohio, the Columbus, Hocking Valley and Toledo Railway Company owns 10,000 acres of coal lands, and mined, in 1887, 1,870,416 tons of coal. The coal in western Virginia is coming into the hands of the Norfolk and Western Railroad Company, while the coal of Alabama, of which so much has been noised abroad, has been quietly gathered in by the Louisville and Nashville corporation. The Tennessee Coal and Iron Company, which owns 76,000 acres of coal lands, and mined 1,145,000 tons in 1882, is owned by parties largely interested in the East Tennessee, Virginia and Georgia Railroad system. West Virginia has probably the most valuable untouched coal deposits of any State in the Union, but these also are rapidly being gathered up by railway corporations.
To sum up, in the words of one of the best informed authorities, the coal business of the country is at the mercy of the railroads.
It is to be noted, however, that this is simply the result of natural causes. Railway managers, in seeking to develop and place on a sound basis the mineral properties which could furnish a heavy and profitable traffic to their lines, have only done what they regarded as their duty to the owners of their roads. And that this policy has effected a rapid development of our resources is beyond question.
The combinations to restrict competition among bituminous coal producers have been of a very different sort from those in force among the anthracite producers. The soft-coal fields are so widely scattered that it has never been possible to combine all the producers so as to control prices by a single authority. Local combinations, however, controlling all the fields of a single locality,have long been an important feature of the trade, and have been able to control prices pretty absolutely within their respective localities. The fact that the principal item in the cost of coal is transportation, enables a combination covering all the producers of a certain field to raise prices very notably before competitors can afford to ship from other coal-producing districts.
It would seem that our fuel is especially liable to be subjected to monopoly, for, as we have already seen in the preceding chapter, the control over the petroleum trade is held by the Standard Oil Trust. How much of the production of crude petroleum is in the hands of the trust it is hard to say. This much is certain, that there is a "Petroleum Producers' Association," which has a compact enough organization to be able to make contracts with the Standard Oil Company regarding the limitation of production. It is even stated that the Standard Oil Trust itself controls to a considerable extent the oil-producing territory; but this is hardly probable.
Our newest and most wonderful fuel, natural gas, has already come under the control of a few great corporations, who own the wells and the pipes for conveying and distributing it to the consumers. A striking instance of the arbitrary nature of prices when under a monopoly's control was shown at Pittsburgh a few months ago. As is well known, upon the introduction of natural gas to that city a great number of the manufactories, as well as the private houses, discarded coal, and at considerable expense fitted up boilers, furnaces, etc., to use the new fuel. After the use of the gas had become general and its value had come to be thoroughly understood, the company furnishing the supply advanced the rates 100 per cent., without previousnotice; and despite the remonstrance of indignant consumers, the advanced rate had to be paid or the use of the gas discontinued, the latter alternative involving the loss of the money invested in piping, burners, etc.
Of the minor products of mines and quarries, marble, sandstone, borax, salt, and asphalt are all known to be more or less thoroughly under the control of monopolies, which, though less important and powerful, show the same tendency toward the destruction of competition.
Great as is the extent to which the monopoly of the mineral wealth of the world has gone, we can scarcely doubt that if the movement is unchecked it will go much farther. In one sense the only absolute necessaries of life are food and clothing. But to the civilization of to-day the metals and minerals are no less indispensable; and these cannot be made anywhere, like manufactured goods; or grown on wide areas, like the products of the soil. We are absolutely at the mercy of the men who own our deposits of coal and copper and lead, and it is only to be expected that they will take greater advantage of their legal industrial advantage. The combinations that exist will be made stronger and more binding, and new ones will be formed. The French copper "corner" has taught men that under the broad protection of International law their schemes of industrial conquest may embrace the world; and it is not to be doubted that the temporary "corner" will yet result in a strong permanent combination; and that the precedent set by this successful monopoly will be eagerly followed by those who wish to secure like profits by the control of some other form of mineral wealth.
We have already alluded to the fact that the concentration of manufacturing in large mills at great commercial centres has been made possible by the development of railway transportation, and that the rapid settlement of our Western prairies is due to the same agency; but it is worth while to note more fully the difference between ancient and modern conditions in the business of transportation.
In the first place, it is plain that no more than a century ago the world had comparatively very little need for railways. Each community produced from its farms and shops most of the things which it needed; and the interchange of goods between different sections, while considerable in the aggregate, was as nothing in comparison with modern domestic commerce. The king's highways were open to every one, and though monopolies for coach lines were sometimes granted and toll roads were quite common, there was no possibility for any really harmful monopoly in transportation to arise, because the necessity of transportation was so small. Some writer has ascribed all the evils of modern railway monopolies to the fact that in their establishment theold principle of English common law that the king's highway is open to every man, was disregarded. But if we sift down this ancient maxim of law to its essential principle, we find it to be,there must be no monopoly in transportation; and the problem of obtaining the advantages of modern railway transportation and keeping up, at the same time, the free competition that exists in transportation on a highway is seen to be as far from solution as before.
The importance of our railway traffic is proven by statistics. Of the total wealth annually produced in this country, it is probably a fair estimate to say that ten per cent. is paid for transportation of the raw material and finished goods in their various journeys between producers, dealers, and consumers, and for transportation of passengers whose journeys directly or indirectly contribute to the nation's industry. That is to say, the gross yearly earnings of all the railroads and transportation lines of the country is about one tenth of the total value of all the year's products. The average is brought down by the amount of sustenance still consumed in the locality where it is produced, and by the amount of valuable merchandise. But of the bulky products like coal and grain, the greater part of the cost to the remote consumer is due to the cost of carriage.
It is also necessary to a proper appreciation of the problem, that we understand that railway transportation is now as absolutely necessary as is the production of food and clothing. Annihilate the railway communications of any of our great cities, and thousands would perish by starvation before they could scatter to agricultural regions. There was great suffering in many small communities in Minnesota and Dakota in thesevere winter of 1887-8, because the heavy storms blockaded the railroads and prevented them from bringing in a supply of coal and provisions. But it is not taking the question in its broadest sense to consider whether we could eke out an existence without railway communication. The fact is that under modern conditions every man obtains all the things which he desires, not by producing them himself, but by producing some one thing which others desire. The interchange between each producer and each consumer must, broadly speaking, be all made by means of the railway; and without that, stores, factories, mills, mines, and farms, would have to cease operation.
Remembering now the importance and necessity of transportation, let us inquire how the price at which it is sold to the public, the rate of fare and freight, is fixed. Is it or can it be generally fixed by competition?
There are now in the United States about 37,000 railway stations where freight and passengers are received for transportation. Now, from the nature of the case, not more than ten per cent. of these are or can be at the junction of two or more lines of railway. (By actual count, on January 1, 1887, eight per cent. of existing stations were junction points.) Therefore the shippers and buyers of goods at nine-tenths of the shipping points of the country must always be dependent on the facilities and rates offered by a single railway. Such rates of transportation as are fixed, be they high or low, must be paid, if business is carried on at all. And when we consider the ten per cent. of railway stations which are, or may be, junction points, we find that at least three-fourths of them are merely the junction of two lines owned by the same company. Consolidation ofrailway lines has gone on very rapidly within the past few years and is undoubtedly destined to go much further. Of the 158,000 miles of railway in the country, about eighty per cent. is included in systems 500 miles or more in extent; and a dozen corporations control nearly half of the total mileage. The benefits which the public receive from this consolidation are so vast and so necessary that no one who is familiar with railway affairs would dream of making the suggestion that further consolidations be stopped or that past ones be undone.
There is a great tendency on the part of the public, however, to look with fear and disfavor on further railway consolidation. And because this is so, it is greatly to be desired that the beneficial effects of consolidation should be better understood. The most important benefits are included under one head, the saving in expense and the avoidance of waste, and this is effected in very many different ways. Suppose a great system like the Pennsylvania or the Chicago & Northwestern were cut up into fifty or sixty independent roads, each with its own complete staff of officers. Each road would have to pay its president, directors, and heads of operating departments, would have to maintain its own repair-shops, general offices, etc., and conduct in general all the business necessary to the profitable operation of a railway corporation. A car of wheat or a passenger in going from Chicago to New York would have to be transferred from one road to another at perhaps twenty different points, and the freight or fare paid would be divided among twenty different companies, with corresponding clerical labor. The modern conveniences of through tickets, through baggage-checks, and throughfreight shipments, would be difficult, if not impossible. Further, consolidation tends to produce vastly better service and greater safety. The large systems can and do employ the highest grade of talent to direct their work. Every thing is systematized and managed with a view to producing the best results in efficiency and safety with the least waste of material and labor. And while the improvement in safety and convenience is all for the benefit of the public, a large part of the saving in expense effected by consolidation has likewise come back to the patrons of the roads in the form of reduced rates of fare and freight.
It is difficult, however, for any one not familiar with the technical details of the railway business to fully appreciate the importance and necessity of the consolidations which have been effected, and the grave results that would follow the realization of the mad proposition to set us back a half century by cutting up our railroad systems into short local lines. It must be plain to every one, however, that while the loss of all the benefits of consolidation would be certain, the gain in competition could affect only the few junction points; and as we shall now see, the effect even on them would be small.
Assuming that the total number of railway junction points in the United States is 3,000, we find, on examination, that at about two-thirds only two lines meet, and at more than half the remainder only three lines meet. It is plain that in the vast majority of cases where two roads intersect, and in many cases where three or four come together, the lines meet perhaps at right angles and diverge to entirely different localities. The shipper bringing goods to the station, then, may choose whether he will send his goods north or east perhaps; but onlyin the few cases where two lines run to the same point does he really have the choice of two rates for getting his produce to market. Practically, then, there are not, and never can be, more than a few hundred places in the country where shippers will be able to choose different routes for sending their goods to market. We say there never can be, because the building of a line of railway to parallel an existing line able to carry all the traffic is an absolute loss to the world of the capital spent in its construction, and a constant drain after it is built in the cost of its operation. This fact is now, fortunately, generally appreciated.
But what of the competitive traffic which exists between commercial centres, like the trunk-line traffic between Chicago and the cities on the seaboard, or between the former city and the collecting centres farther west like St. Paul, Omaha, and Kansas City? Here, indeed, there is competition; and it is of great importance because of the enormous bulk of the traffic which traverses these few routes.
It is a peculiar feature of the railway business which we have now to consider, and one which is not generally understood. We have already perceived the principle that competition cannot permanently exceed a certain intensity; and the proof of this principle in the case of the railway is remarkably plain. Suppose two roads are competing for the traffic between Omaha and Chicago. A shipper at the former city who wishes to send a few tons of freight to Chicago may go to one company and ask their rates, then to the other and induce them to give him a lower rate, and then back to the first again, until he secures rates low enough to suit him. Now it is a fact that either company can afford to carry this especialfreight for less than the actual cost of carrying it better than it can afford to lose the shipment. This is because it costs the company practicallyno moreto carry the goods than if they were not shipped by its line; and hence whatever is received for the freight is so much profit. Stated in the form of a principle, this fact is expressed thus:Receipts from additional traffic are almost clear profit. Nor is this all. The practical impossibility of distinguishingadditionaltraffic from other traffic, and the enactment of State and National laws requiring uniform rates to be charged, places all traffic on a common basis; and the same cause which makes it more profitable to carry additional traffic for a song than to lose it, makes it better for a railroad to carry traffic, temporarily at least, for less than the actual running expenses of the road, rather than to lose it. The train and station service, the general office and shop expenses, must all be kept up, though the freight and passengers carried dwindle to almost nothing; and the capital invested in the road is a total loss, unless the line is kept in operation and earns some income, even though it be small. This last influence, as we shall see later, is a most important and far-reaching one in its effect on industrial competition.
The cause of the intensity of competition in railway traffic is now evident. And from what we have seen, it follows that two railway lines competing freely with each other cannot possibly do business at a profit. Let us see what are the actual results of this law of practical railway management. Evidently the managers of two competing railway lines have but two possible courses open. They may, by tacit or formal agreement, unite in fixing common rates on both the roads, or theymayattempt todo business with free competition. But we have already proven that the latter course must result in reducing the income of the road certainly below the amount necessary to pay the operating expenses and the interest on the bonds, and probably it will be insufficient to pay the running expenses alone. The inevitable result, then, is the bankruptcy of the weaker road, the appointment of a receiver, and its sale, in all probability to its stronger competitor. This is the chain of cause and effect which has wrought the consolidation of competing parallel roads in scores of cases, and which, if free competition is allowed to act, is sure to do so.
We can now appreciate thenecessitywhich managers of competing lines are under to agree upon uniform rates for traffic over their roads, and at the same time the difficulty of doing this. The strange paradox is true that while it isnecessaryto the continued solvent existence of the competing corporations that such an agreement be made, it is also greatly to their advantage to break it secretly and secure additional traffic. It is necessary, therefore, that the parties to the agreement be strongly bound to maintain it inviolate; and to effect this, "pools" were established. In pooling traffic, each company paid either the whole or a percentage of their traffic receipts into a common fund, which was divided among the companies forming the pool, according to an agreed ratio. Under this method it is evident that all incentive to secret cutting of rates and dishonest methods for stealing additional traffic from another road was taken away.
How widespread and universal is the restraint of competition by railway corporations may be seen by the following pithy words, penned by Charles Francis Adams, President of the Union Pacific Railway:
"Irresponsive and secret combinations among railways always have existed, and, so long as the railroad system continues as it now is, they unquestionably always will exist. No law can make two corporations, any more than two individuals, actively undersell each other in any market, if they do not wish to do so. But they can only cease doing so by agreeing, in public or private, on a price below which neither will sell. If they cannot do this publicly, they will assuredly do it secretly. This is what, with alternations of conflict, the railroad companies have done in one way or another; and this is what they are now doing and must always continue to do, until complete change of conditions is brought about. Against this practice, the moment it begins to assume any character of responsibility or permanence, statutes innumerable have been aimed, and clauses strictly interdicting it have of late been incorporated into several State constitutions. The experience of the last few years, if it has proved nothing else, has conclusively demonstrated how utterly impotent and futile such enactments and provisions necessarily are."
"Irresponsive and secret combinations among railways always have existed, and, so long as the railroad system continues as it now is, they unquestionably always will exist. No law can make two corporations, any more than two individuals, actively undersell each other in any market, if they do not wish to do so. But they can only cease doing so by agreeing, in public or private, on a price below which neither will sell. If they cannot do this publicly, they will assuredly do it secretly. This is what, with alternations of conflict, the railroad companies have done in one way or another; and this is what they are now doing and must always continue to do, until complete change of conditions is brought about. Against this practice, the moment it begins to assume any character of responsibility or permanence, statutes innumerable have been aimed, and clauses strictly interdicting it have of late been incorporated into several State constitutions. The experience of the last few years, if it has proved nothing else, has conclusively demonstrated how utterly impotent and futile such enactments and provisions necessarily are."
Disregarding for the present the latter part of the above quotation, consider the statement that during the whole history of railway corporations, agreements to restrain competition have been the rule. This the slightest research proves to be an historical fact, and it is in perfect accord with our preceding statement, that such agreements were necessary to the solvent existence of railway corporations. The records also show that invariably when these agreements have been broken and competition has been allowed to have full play, the revenues of the roads have been rapidly reduced to a point where, unless a peace was effected, bankruptcy ensued.
Mr. Adams said, with truth, that no law had proven of any effect in preventing these competition-killing agreements between railways; but since the above extract was written, the Interstate Commerce law has been enacted. Let us pay some attention to its working and results. It is a curious fact that the framers of railway legislation inthis country, almost down to the present time, have concentrated all their energies on the endeavor to keep up free competition; and the Interstate law is no exception to this rule. The plan of the Interstate law was about as follows: "Here are a few dozen great commercial centres where the railway lines of different systems meet. We will first prohibit the pooling by which they have restricted competition at these points. Then, in order that the thousands of other shipping points shall receive an equal benefit, we will enact a 'long and short haul clause,' obliging the rates charged to be in some degree proportionate to the distance. Thus competition at the great centres will bring rates down everywhere, and the public will be benefited."
For a year after the enactment of the law its effects were not prominent. Pooling was abolished, but the agreements to maintain rates were still kept up and were fairly observed. But in 1888, the second year of the law's working, it came to be realized that the pool was the vital strength of the agreement to maintain rates, and that this agreement might now be easily broken. Then ensued a remarkable season of rate cutting, which, at the present writing, has reduced many strong companies to the verge of bankruptcy. It is plain enough that if this is allowed to go on, the various stages of receivership, sale, and consolidation will follow in regular order. To avoid this too sudden revolution and the general financial disaster which all sudden revolutions entail, the principal companies in the West are now striving to combine in an association for the maintenance of rates by a plan which will bind them more closely together than any other ever before adopted. Thus to quote Mr. Adams again: "The Interstate Commerce law has given a new impetus to theprocess of gravitation and consolidation, and it is now going on much more rapidly than ever before. It is at this moment rapidly driving us forward toward some grand railroad-trust scheme."
It is a fact which we shall do well to ponder over, that this legislation intended to stimulate competition has finally had just the opposite effect from that which its makers desired. They did increase the intensity of the competition, and have thereby nearly brought about a permanent end to all competition in railway traffic.
It must now be clear that the railway is essentially a monopoly, not, be it noted, because of any especial wickedness of its managers or owners, but because competition isimpossibleas regards the greater part of its business, and because wherever competition is possible, its effect, as the managers well know, would be to annihilate all profits from the operation of the road.
Let us consider now some of the evils with which this monopoly is charged. The first of these isdiscriminationbetween persons and between places. A favored shipper has been enabled to ruin his competitors because he could obtain special rates, while they, perhaps, were charged an extra amount. The strong monopolies have in this way been able to strengthen their hands for the purpose of throttling their weak competitors. Passenger rates, too, have been low to one class and high to another; and the system of free passes has led to great abuses. Discrimination between towns and cities and States has been hardly less serious; and while the railways were permitted to make high local rates and low through rates, a great stimulus was given to the city at the expense of the country. The second class of evils is that rates in themselves have been too high. The railways havebeen wastefully built and then capitalized at double their actual cost, and it has been attempted to pay dividends of 6 to 10 per cent. on these securities. In some cases the principle of charging "what the traffic will bear" has been so applied that industries have been ruined through the absorption of their profits by unjust transportation charges. But our space will not permit a comprehensive review of the many abuses of railway management. They are already familiar to the public. We needed only to refer to them sufficiently to carry on our argument by showing that the railroad monopoly is not by any means a harmless monopoly if left to work its own pleasure.
There are two evils of our present railway system, however, which are not chargeable to monopoly, but to theattempt to defeat monopoly, and which are important to our discussion. The first is the waste of competition in railway traffic; the second, the waste of competition by the construction andthreatenedconstruction of competing lines where present facilities are ample for the traffic. Of the first it need only be said that in advertising, "drumming," and soliciting patronage the railways spend many millions of dollars every year, which comes out of the pockets of the public. The second is most serious, for it involves a far greater waste. It is a conservative estimate to say that 5 per cent. of the railways of the country were only built to divide the profits of older roads, and that their owners would be delighted to-day to have their money back in their possession and the railroad wiped out. The millions these roads have cost, the millions required every year to maintain and operate them, the millions spent on proposed roads that never reached completion, and the millions squandered in fighting proposed roads by every means short of actualbloodshed,—these are some of the wastes which we have made in our endeavor to create competition in railway transportation. And with all our efforts, and notwithstanding the fact that until within a short time the public sentiment and the railway managers have been united in the belief that free competition was the only mode of regulating railroad rates, we are farther removed from free competition now than ever before.
And now consider in addition to all this the fact that every railway company must first of all secure from the State a right to exercise the sovereign power of Eminent Domain, and that it may and does choose and take every advantage of the favorable locations where its road can be built most cheaply; which natural highways, mountain passes, and the like, are gifts of Nature, the right to whose use equitably belongs to the general public, and not to private parties exclusively. Taking these facts also into consideration, it seems needless to offer further proof of the fact that the business of railway transportation is essentially a monopoly, and that the attempt to regulate it by competition must always prove a failure in the future, as it always has in the past.
Necessarily we have limited our discussion to the most salient points, and have not touched at all many of the complicated details of the railway problem. In a later chapter we can study farther the evils due to railway monopolies, and the proper remedies therefor. At present we have accomplished our purpose in finding out the fact that railways are monopolies, and that they are so by their inherent nature.
Of monopolies in other forms of internal transportation, but little need be said. Our once busy canals and great rivers seem destined, with the constant rapid improvementand cheapening in the carriage of goods by rail, to lose all their former importance. The monopolies small and great that once held sway there have all vanished before their strong rival, the railway.
The use of steam in the vessels that navigate the ocean has had an effect very similar to the replacing of stage-coaches and freight wagons by the locomotive. Where hundreds of sailing vessels plied their slow and uncertain trade, steamer lines now make trips only less regular than the railway itself. The only cause for the existence of a monopoly in ocean traffic by steam is the greatly increased capital required for a rival steamship line as compared with that needed for the old sailing vessels. We find this, the requirement of a large capital, to be a feature of more or less importance in nearly every monopoly of the present day. In this case, however, unless there is an artificial monopoly in the shape of government aid or authorization, the strength of its capital is the only power the monopoly has.
We may reach a clear idea of the essential nature of all the monopolies considered in this chapter by considering an especial class of monopolies of communication, namely, mountain passes, bridges, and ship canals. If a person or a railway corporation could secure sole control of the only pass through a high mountain range separating two wealthy and populous districts producing goods of different sorts, they might exact a princely yearly revenue for its use, equal to the interest on the capital required to secure an equally favorable passage by tunnelling, or the annual cost of sending goods over some longer and more expensive route. But under the law no private person would be allowed to do this; and if the pass were a very important and necessary one, probablyno one railway company would be allowed to do so. The law recognizes to some extent, and should recognize much more than it does, the fact that the benefit of this natural pathway is not the property of any one man or set of men, but equitably belongs equally to every person who needs to use it directly or remotely.