The differentiation of function in the several parts of the industrial organism finds a partial expression in the localisation of certain industries. As there is growing division of labour among individuals and groups of individuals, so the expansion of the area of competition has brought about a larger and larger amount of local specialisation.
Roughly speaking, the West of Europe and of America has specialised in manufacture, drawing an ever larger proportion of their food supplies from the North-West States of America, from Russia, the Baltic Provinces, Australia, Egypt, India, etc., and their raw materials of manufacture from the southern United States, South America, India, etc., while these latter countries are subjected to a correspondent specialisation in agriculture and other extractive arts. If we take Europe alone, we find certain large characteristics which mark out the Baltic trade, the Black Sea trade, the Danube trade, the Norwegian and White Sea trade. So the Asiatic trade falls into certain tolerably defined divisions of area, as the Levant trade, the Red Sea trade, the Indian, the Straits, and East Indian, the China trade, etc. The whole trade of the world is thus divided for commercial purposes.[117]Though these trade divisions are primarily suggested byconsiderations of transport rather than of the character of production, the geographical, climatic, and other natural factors which determine convenient lines of transport are found to have an important bearing on the character of the production, and convenience of transport itself assists largely to determine the kind of work which each part of the world sets itself to do.
The establishment of a world-market for a larger and larger number of commodities is transforming with marvellous rapidity the industrial face of the globe. This does not now appear so plainly in the more highly-developed countries of Europe, which, under the influence of half a century's moderately free competition for a European market, have already established themselves in tolerably settled conditions of specialised industry. But in the new world, and in those older countries which are now fast yielding to the incursions of manufacturing and transport machinery, the specialising process is making rapid strides.
Improved knowledge of the world, facile communication, an immense increase in the fluidity of capital, and a considerable increase in that of labour, are busily engaged in distributing the productions of the world in accordance with certain dominant natural conditions. Those industrial forces which have during the last century and a half been operative in England, draining the population and industry from the Southern and Eastern counties, and concentrating it in larger proportions in Lancashire, the West Riding, Staffordshire, and round the Northumbrian and South Wales coal-fields, specialising each town or locality upon some single branch of the textile, metal, or other industries for which its soil, position, or other natural advantages made it suitable, are now beginning to extend the area of their control over the whole surface of the known and inhabited globe.
As large areas of Asia, South and Central Africa, Australia, and South America fall under the control of European commercial nations, are opened up by steamships, railways, telegraphs, and are made free receptacles for the increased quantity of capital which is unable to find a safe remunerative investment nearer home, we are brought nearer to a condition in which the whole surface of the world will be disposed for industrial purposes by these sameforces which have long been confined in their direct and potent influence to a small portion of Western Europe and America. This vast expansion of the area of effective competition is beginning to specialise industry on the basis of a world-market, which was formerly specialised on the more confined basis of a national or provincial market. So in England, where the early specialisation of machine-industry was but slightly affected by outside competition, great changes are taking place. Portions of our textile and metal industries, which naturally settled in districts of Lancashire, Yorkshire, and Staffordshire, while the area of competition was a national one,[118]seem likely to pass to India, to Germany, or elsewhere, now that a tolerably free competition on the basis of world-industry has set in. It is inevitable that with every expansion of the area of competition under which a locality falls the character of its specialisation will change. A piece of English ground which was devoted to corn-growing when the market was a district one centred in the county town, becomes the little factory town when competition is established on a national basis; it may become the pleasure-ground of a retired millionaire speculator if under the pressure of world-competition it has been found that the manufacture which now thrives there can be carried on more economically in Bombay or Nankin, where each unit of labour power can be bought at the cheapest rate, or where some slight saving in the transport of raw material may be effected.
§ 10. The question how industry would be located, assuming the whole surface of the globe was brought into a single market or area of competition, with an equal development of transport facilities in all its parts; or in other words, "What is the ideal disposition of industry in a world-society making its chief end the attainment of industrial wealth estimated at present values?" is one to which of course no very exact answer can be given. But since this ideal represents the goal of modern industrialprogress, it is worth while to call attention to the chief determinants of the localisation of industries under free world-competition. The influences may be placed in three groups, which are, however, interrelated at many points.
(1) The first group may be called Climatic, the chief influences of which are astronomical position, surface contour, prevalent winds, ocean currents, etc. Climatic zones have their own flora and fauna, and so far as these enter into industry as agricultural and pastoral produce, as raw materials of manufacture, as sustenance of labour, they are natural determinants of the localisation of industry. In vegetable products the climatic zones are very clearly marked. "The boreal zone has its special vegetation of mosses, lichens, saxifrages, berries, oats, barley, and rye; the temperate zone its peas, beans, roots, hops, oats, barley, rye, and wheat; this zone, characterised by its extent of pastures, hop gardens, and barley fields, has also a distinctive title in the 'beer and butter region.' The warm temperate zone, or region of 'wine and oil,' is characterised by the growth of the vine, olive, orange, lemon, citron, pomegranate, tea, wheat, maize, and rice; the sub-tropical zone, by dates, figs, the vine, sugar-cane, wheat, and maize; the tropical zone is characterised by coffee, cocoa-nut, cocoa, sago, palm, figs, arrowroot, and spices; and the equatorial by bananas, plantains, cocoa-nut, etc."[119]
(2) The second group is geographical and geological. The shape and position of a country, its relation in space to other countries, the character of the soil and sub-soil, its water-supply, though closely related to climatic influences, have independent bearings. The character of the soil, which provides for crops their mineral food, has an important bearing upon the raw materials of industry. The shape and position of the land, especially the configuration of its coast, have a social as well as climatic significance, directing the intercourse with other lands and the migrations of people and civilisations which play so large a part in industrial history.
(3) Largely determined by the two groups of influences named above are the forces which represent the national character at any given time, the outcome of primitive race characteristics, food supply, speed and direction of industrialdevelopment, density of population, and the various other causes which enter in to determine efficiency of labour. The play of these natural and human forces in world-competition leads to such a settlement of different industries in different localities as yields the greatest net productiveness of labour in each part.
§ 11. But this world-competition, however free it may become, can lead to no finality, no settled appointment of industrial activity to the several parts of the earth. Setting aside all political and other non-economic motives, there are three reasons which render such local stability of industry impossible.
There is first the disturbance and actual loss sustained by nature in working up the mineral wealth of the soil, and the flora and fauna sustained by it, into commodities which are consumed, and an exact equivalent of which cannot be replaced. The working out of a coal-field, the destruction of forests which reacts upon the elementary climatic influences, are examples of this disturbance.
Secondly, there is the progress of industrial arts, new scientific discoveries applicable to industry. There is no reason to believe that human knowledge can reach any final goal: there is infinity alike in the resources of nature and in the capacity of the development of human skill.
Lastly, as human life continues, the art of living must continually change, and each change alters the value attached to the several forms of consumption, and so to the industrial processes engaged in the supply of different utilities. New wants stimulate new arts, new arts alter the disposition of productive industry, giving value to new portions of the earth. Ignoring those new material wants which require new kinds of raw material to be worked up for their satisfaction, the growing appreciation of certain kinds of sport, the love of fine scenery, a rising value set upon healthy atmosphere, are beginning to exercise a more and more perceptible influence upon the localisation of certain classes of population and industry in the more progressive nations of the world.
§ 12. The same laws and the same limitations which are operative in determining the character and degree of specialisation of countries or large areas are also seen to apply to smaller districts, towns, and streets. Industries engagedin producing valuable, durable material objects in wide demand are locally specialised; those engaged in providing bulky perishable non-material goods, or goods in narrow demand, are unspecialised. England, where internal intercourse has been most highly developed, and where internal competition has been freest and keenest, shows the most advanced specialisation in several of its staple industries. The concentration of cotton spinning in South Lancashire is an example, the full significance of which often escapes notice. From the beginning South Lancashire was the chief seat of the industry, but it is now far more concentrated than was the case a century ago. Several of the most valuable inventions in spinning were first applied in Derbyshire, in Nottingham, at Birmingham, and in Scotland. Scotland then competed closely in weaving with Lancashire. Now the Scotch industry is confined to certain specialities. In spite of the enormous growth of the manufacture, the local area it covers is even narrower than last century. Within Lancashire itself the actual area of production has shrunk to some 25 square miles in the extreme south, while the two great cities are further specialised—Liverpool as the market for cotton, Manchester for yarn and cotton cloths.
Moreover, the localisation of various departments of the trade within Lancashire is still more remarkable. Not only have the old mills in which spinning and weaving were carried on together given way before division of labour, but the two processes are mostly conducted in different districts, the former in the towns immediately around Manchester, the latter in the more distant northern circuit. Nor is the specialisation confined to this. Spinning is again divided according to the coarser and finer qualities of yarn. The Oldham district, with Ashton, Middleton, and other towns south of Manchester are chiefly confined to the medium numbers. Bolton, Chorley, Preston, and other northern towns undertake the finer numbers. In weaving there is even more intricate division of labour, each town or district specialising upon some particular line of goods.[120]Moreover, it must be borne in mind that the substitution of the factory for the domestic system and thecontinual enlargement of the average factory indicates an important progressive concentration. So the cotton industry does not in fact cover nearly so large a local area as when it was one-hundredth the size. The same is true of the other chief branches of the textile and metal industries. Nor is it only in the manufactures that towns and districts are closely specialised. The enormous increase of commerce due to machinery of manufacture and of transport requires the specialisation of certain towns for purely commercial purposes. London, Liverpool, Glasgow, and Hull are more and more devoted to the functions of storage and conveyance. Manchester itself is rapidly losing its manufacturing character and devoting itself almost exclusively to import and export trade. The railway service has made for itself large towns, such as Crewe, Derby, Normanton, and Swindon. Cardiff is a portentous example of a new mining centre created when the machine development of England was already ripe.
The specialisation of function in a large town is, however, qualified in two ways. The strong local organisation of a staple trade requires the grouping round it of a number of secondary or auxiliary trades. In large textile towns the manufactures of textile machinery, and of subsidiary materials, are found. The machine-making of Manchester is one of its most important industries, furnishing the neighbouring textile towns. Leeds is similarly equipped for the woollen trade. This is one of the respects in which the superior development of the English cotton industry over the continental ones is indicated. In Alsace alone of the continental centres has the concentration of industry advanced so far as to furnish a local machine industry specially devoted to cotton machinery. Germany is still mainly dependent upon England for her machines.[121]So likewise with regard to co-ordinate trades, there is an advantage in the leading processes being grouped in local proximity, though they are not united in the same business. Thus we find dye-works and the various branches of the clothing trade largely settled in the large textile towns, such as Leeds, Bradford, Manchester, Bolton. The unit of local specialisation is thus seen to be not a singletrade, but a group of closely allied trades, co ordinate, dependent, and derivative.
Round some large industries in which men find employment minor parasitic industries spring up stimulated by the supply of cheap abundant labour of women and children. In metal and machine towns such as Birmingham, Dudley, Walsall, in Newcastle-on-Tyne, and other shipbuilding towns, where the staple industries are a masculine monopoly, textile factories have been planted. The same holds of various mining villages and of agricultural villages in the neighbourhood of large textile centres. There is in the midland counties a growing disposition to place textile factories in rural villages where cheap female labour can be got, and where the independence of workers is qualified by stronger local attachments and inferior capacity of effective trade union organisation. As textile work passes more and more into the hands of women,[122]this tendency to make it a parasitic trade thriving upon the low wages for which women's labour can be got where strong and well-paid male work is established, will probably be more strongly operative.
§ 13. The specialisation of certain districts within the town, though far less rigid than in the mediæval town, is very noticeable in the larger centres of industry. Natural causes often determine this division of localities, as in the case of the riverside industries, brick-making and market-gardening in the outer suburbs. Round the central station in every large town, for convenience of work and life, settle a number of industries related to the carrying trade. Every trade, market, or exchange is a centre of attraction. So the broking, banking, and the general financing businesses are grouped closely round the Royal Exchange. Mark Lane and Mincing Lane are centres of the corn and tea trades. In all town industries not directly engaged in retail distribution there are certain obvious economies and conveniences in this gregariousness. Agents, travellers, collectors, and others who have relations of sale or purchase with a number of businesses in a trade find a number of disadvantages in dealing with a firm locally detached from the main body, sothat when a district is once recognised as a trade centre, it becomes increasingly important to each new competitor to settle there. The larger the city the stronger this force of trade centralisation. Hence in London, untrammelled by guild or city regulations, we find a strong localisation of most wholesale and some retail businesses. In retail trade, however, the economic gain is less universal. Since retail commodities are chiefly for use in the home, and homes are widely distributed, the convenience of being near one's customers and away from trade competitors is often a predominating motive. Shops which sell bread, meat, fish, fruit, groceries, articles which are bought frequently and mostly in small quantities, shops selling cheaper articles of ordinary consumption, such as tobacco, millinery, stationery, and generally shops selling articles for domestic use, the purchase of which falls to women, are widely dispersed. On the other hand, where the articles are of a rarer and more expensive order, when it is likely that the purchaser will seek to compare price and character of wares, and will presumably be willing to make a special journey for the purpose, the centralising tendency prevails in retail trade. So we find the vendors of carriages, pianos, bicycles, the heavier articles of furniture, jewellery, second-hand books, furs, and the more expensive tailors and milliners clustering together in a special street or neighbourhood.
Effective competition in retail trade sometimes requires concentration, sometimes dispersion of business. But the most characteristic modern movement in retail trade is a combination of the centralising and dispersive tendencies, and is related to the enlargement of the business-unit which we found proceeding everywhere in industry. The large distributing company with a number of local branch agents, who call regularly at the house of the consumer for orders, is the most highly organised form of retail trade. In all the departments of regular and general consumption the movement is towards this constant house-to-house supply. The wealthier classes in towns have already learned to purchase all the more perishable forms of food and many other articles of house consumption in this way, while the growing facilities of postage and conveyance of goods enable them to purchase from a large central store by means of a price-list all other consumables into whichthe element of individual taste or caprice does not largely enter. This habit is spreading in the smaller towns among the middle classes, so that the small dispersed retail businesses are becoming more and more dependent upon the supply of the needs of the working classes, and of such articles of comfort and luxury as may appeal to the less regular and calculable tastes of the moneyed classes. Just as in towns we have a constant automatic supply of water and gas instead of an intermittent supply dependent on a number of individual acts of purchase, so it seems likely that all the routine wants of the consumer will be supplied.
How far mechanical inventions may be applied to increase the facility and cheapen the cost of this distribution it is difficult to say. The automatic machine for distributing matches and sweetmeats is adaptable to most forms of routine consumption. In the larger stores many kinds of labour-saving machinery are already applied. As steam or electric power is adopted more widely in the local transport services the retail distribution of goods from a large single centre is likely to proceed apace, and a displacement of human labour by machinery similar to that which is taking place in manufacture will take place in distribution. So far as the wants of large classes of the public become regular and their consumption measurable in quantity, machinery will unquestionably take over the labour of distribution, especially in the large towns which are absorbing in a way convenient for mechanical distribution a larger proportion of the consuming public. With each new encroachment of machinery into the domain of the distributing trades the characteristics of machine-industry, enlarged mass of the business, increased area of the market, increased complexity of relations to other trades, increased specialisation of local activity will be clearly discernible.
We thus see in the several departments of industry, under the pressure of the same economic forces, an expansion of size, a growing complexity of structure and functional activity, and an increased cohesion of highly differentiated parts in the business, the market, and in that aggregation of related trades and markets which forms the world-industry. The physical instrument by which these economic forces, making for increased size, heterogeneity, andcohesiveness,[123]have been able to operate is machinery applied to manufacture and transport. Moreover, each new encroachment of machinery upon the extractive and the distributing industries brings into prominence within these processes the same structural and functional characteristics.
Comparative Value of Foreign Trade in European CountriesComparative Value of Foreign Trade in European Countries.
Comparative Value of Foreign Trade in European Countries.
[99]Cf. Chap. VI. for a discussion of this equation of maximum profit.
[99]Cf. Chap. VI. for a discussion of this equation of maximum profit.
[100]Report to Labour Commission on Employment of Women(1893), p. 125.
[100]Report to Labour Commission on Employment of Women(1893), p. 125.
[101]Statistical Abstract, 1878-92, p. 182
[101]Statistical Abstract, 1878-92, p. 182
[102]Social Peace, p. 126; cf. also Brentano,Hours, Labour, and Production, p. 60.
[102]Social Peace, p. 126; cf. also Brentano,Hours, Labour, and Production, p. 60.
[103]Contemporary Review, 1889, p. 394.
[103]Contemporary Review, 1889, p. 394.
[104]Porter,Progress of the Nation, p. 216.
[104]Porter,Progress of the Nation, p. 216.
[105]Principles of Economics, 2nd edit., p. 282.
[105]Principles of Economics, 2nd edit., p. 282.
[106]Schulze-Gaevernitz,Der Grossbetrieb, p. 90.
[106]Schulze-Gaevernitz,Der Grossbetrieb, p. 90.
[107]Marshall,Principles of Economics, 2nd edit., p. 283.
[107]Marshall,Principles of Economics, 2nd edit., p. 283.
[108]The works of Messrs. Colman, at Norwich, comprise among others the following subsidiary departments:—Coopery, engineering shop, saw mills, box-making, packing, paper-making, printing, laboratory. To the most highly developed businesses of pottery and machine-making schools of art and design are not uncommonly attached.
[108]The works of Messrs. Colman, at Norwich, comprise among others the following subsidiary departments:—Coopery, engineering shop, saw mills, box-making, packing, paper-making, printing, laboratory. To the most highly developed businesses of pottery and machine-making schools of art and design are not uncommonly attached.
[109]A good deal of the cleansing and combing in the cloth and worsted trades is, however, done separately on commission by large firms such as Lister's. Cf. Burnley, p. 417.
[109]A good deal of the cleansing and combing in the cloth and worsted trades is, however, done separately on commission by large firms such as Lister's. Cf. Burnley, p. 417.
[110]Marshall,Principles of Economics, 2nd edit., p. 517.
[110]Marshall,Principles of Economics, 2nd edit., p. 517.
[111]Cournot,Recherches sur les Principes Mathématiques de la Theorie des Richesses(quoted Marshall,Principles of Economics, p. 384).
[111]Cournot,Recherches sur les Principes Mathématiques de la Theorie des Richesses(quoted Marshall,Principles of Economics, p. 384).
[112]It ought, however, to be kept in mind that the application of the "roundabout" method is only economically justified by a continual increase in consumption. So far as a given quantity of consumption is concerned the result of the "roundabout" method is to diminish the quantity of capital which assists to produce it.
[112]It ought, however, to be kept in mind that the application of the "roundabout" method is only economically justified by a continual increase in consumption. So far as a given quantity of consumption is concerned the result of the "roundabout" method is to diminish the quantity of capital which assists to produce it.
[113]Professor Böhm Bawerk shows this increased time of production to be the essential characteristic of capitalist production. Cf.Positive Theory of Capital.
[113]Professor Böhm Bawerk shows this increased time of production to be the essential characteristic of capitalist production. Cf.Positive Theory of Capital.
[114]For a full and valuable treatment of these harmonious relations, from the point of view of consumption and production, see Patten'sEconomics of a Dynamic Society.
[114]For a full and valuable treatment of these harmonious relations, from the point of view of consumption and production, see Patten'sEconomics of a Dynamic Society.
[115]Cf. Porter,Progress of the Nation, pp. 177-206.
[115]Cf. Porter,Progress of the Nation, pp. 177-206.
[116]Principles of Sociology, vol. i. p. 500 (3rd edit.).
[116]Principles of Sociology, vol. i. p. 500 (3rd edit.).
[117]For a detailed account of the national trade divisions, cf. Dr. Yeats,The Golden Gates of Trade.
[117]For a detailed account of the national trade divisions, cf. Dr. Yeats,The Golden Gates of Trade.
[118]Foreign competition with English textiles, though comparatively modern so far as the more highly developed machine-made fabrics is concerned, was keenly felt early in the century in hand-made goods. Schulze-Gaevernitz points out that the depression in work and wages of the hand-loom workers in 1820 was due more to foreign competition than to the new machinery. (Der Grossbetrieb, p. 41.)
[118]Foreign competition with English textiles, though comparatively modern so far as the more highly developed machine-made fabrics is concerned, was keenly felt early in the century in hand-made goods. Schulze-Gaevernitz points out that the depression in work and wages of the hand-loom workers in 1820 was due more to foreign competition than to the new machinery. (Der Grossbetrieb, p. 41.)
[119]Yeats,The Golden Gates of Trade, p. 12. (Philip & Son.)
[119]Yeats,The Golden Gates of Trade, p. 12. (Philip & Son.)
[120]Cf. Schulze-Gaevernitz's minute investigation of this whole subject,Der Grossbetrieb, pp. 98, 99, etc.
[120]Cf. Schulze-Gaevernitz's minute investigation of this whole subject,Der Grossbetrieb, pp. 98, 99, etc.
[121]Schulze-Gaevernitz, p. 110.
[121]Schulze-Gaevernitz, p. 110.
[122]For the gain of female over male employment in textile factories, cf. Chap. xi.
[122]For the gain of female over male employment in textile factories, cf. Chap. xi.
[123]In a free application of Spencer's formula of evolution to modern industry I have not included the quality of "definiteness," which close reflection shows to possess no property which is not included under heterogeneity and cohesiveness.
[123]In a free application of Spencer's formula of evolution to modern industry I have not included the quality of "definiteness," which close reflection shows to possess no property which is not included under heterogeneity and cohesiveness.
§ 1.Productive Economies of the Large Business.§ 2.Competitive Economies of the Large Business.§ 3.Intenser Competition of the few Large Businesses.§ 4.Restraint of Competition and Limited Monopoly.§ 5.Facilities for maintaining Price-Lists in different Industries.§ 6.Logical Outcome of Large-Scale Competition.§ 7.Different Species of "Combines."§ 8.Legal and Economic Nature of the "Trust."§ 9.Origin and "Modus Operandi" of the Standard Oil Trust.§ 10.The Economic Strength of other Trusts.§ 11.Industrial Conditions favourable to "Monopoly."
§ 1.Productive Economies of the Large Business.
§ 2.Competitive Economies of the Large Business.
§ 3.Intenser Competition of the few Large Businesses.
§ 4.Restraint of Competition and Limited Monopoly.
§ 5.Facilities for maintaining Price-Lists in different Industries.
§ 6.Logical Outcome of Large-Scale Competition.
§ 7.Different Species of "Combines."
§ 8.Legal and Economic Nature of the "Trust."
§ 9.Origin and "Modus Operandi" of the Standard Oil Trust.
§ 10.The Economic Strength of other Trusts.
§ 11.Industrial Conditions favourable to "Monopoly."
§ 1. The forces which are operating to drive capital to group itself in larger and larger masses, and the consequent growth of the business-unit, require special study in relation to changes effected in the character of competition in the market and the establishment of monopolies. The economies which give to the large business an advantage over the small business may be divided into two classes—economies of productive power, and economies of competitive power.
In the first class will be placed those economies which arise from increased sub-division of labour and increased efficiency of productive energy, and which represent a net saving in the output of human energy in the production of a given quantity of commodities, from the standpoint of the whole productive community. These include—
(a) The effort saved in the purchase and transport ofraw materials in large quantities as compared with small quantities, and a corresponding saving in the sale and transport of the goods, manufactured or other. Under this head would come the discovery and opening up of new markets for purchase of raw materials and sale of finished goods, and everything which increases the area of effective competition and co-operation in industry.
(b) The adoption of the best modern machinery. Much expensive machinery will only "save labour" when it is used to assist in producing a large output which can find a tolerably steady market. The number of known or discoverable inventions for saving labour which are waiting either for an increase in the scale of production or for a rise in the wages of the labour they might supersede, in order to become economically available, may be considered infinite. With every rise in the scale of production some of these pass from the "unpaying" into the "paying" class, and represent a net productive gain in saved labour of the community.
(c) The performance of minor or subsidiary processes upon the same premisses or in close organic connection with the main process, the establishment of a special workshop for repairs, various economies in storage, which attend large-scale production.
(d) Economies consisting in saved labour and increased efficiency of management, superintendence, clerical and other non-manual work, which follow each increase of size in a normally constructed business. These are often closely related to (b), as where clerical work is economised by the introduction of type-writers or telephonic communication, and to (c), as by the establishment of more numerous and convenient centres of distribution.
(e) The utilisation of waste-products, one of the most important practical economies in large-scale production.
(f) The capacity to make trial of new experiments in machinery and in industrial organisation.
§ 2. To the class Economies in Competitive Power belong those advantages which a large business enjoys in competing with smaller businesses, which enable it either to take trade away from the latter, or to obtain a higher rate of profits without in any way increasing the net productiveness of the community. This includes—
(1) A large portion of the economy in advertising, travelling, local agents, and the superiority of display and touting which a large business is able to afford. In most cases by far the greater part of this publicity and self-recommendation is no economy from the standpoint of the trade or the community, but simply represents a gain to one firm compensated by a loss to others. In not a few cases the "trade" may be advantaged to the damage of other trades or of the consumer, as when a class of useless or deleterious drugs is forced into consumption by persistent methods of self-appraisal which deceive the public.
(2) The power of a large business to secure and maintain the sole use of some patent or trade secret in machinery or method of manufacture which would otherwise have gone to another firm, or would have become public property in the trade, represents no public economy, and sometimes a public loss. Where such improvement is due solely to the skill and enterprise of a business man, and would not have passed into use unless the sole right were secured to his business, this economy belongs to the productive class.
(3) The superior ability of a large business to depress wages by the possession of a total or partial monopoly of local employment, the corresponding power to obtain raw material at low prices, or to extort higher prices from consumers than would obtain under the pressure of free competition, represent individual business economies which may enable a large business to obtain higher profits.
§ 3. Now all these forces operative in trades which are said to be subject to the law of increasing returns tend to increase the size and to diminish the number of businesses competing within a given area. In some industries the expanding size of the market or area of competition keeps pace with this movement, so that the total number of the larger competitors within the market may be as great as before. But in most of the markets the growing scale of the business is attended by an absolute diminution in the number of effective competitors, or at any rate by an increase which is very much smaller than the increase in the amount of trade that is done.
So long as we have merely the substitution of a smaller number of large competing businesses for a larger number of small ones, no radical change is effected in thenature of industry. So long as every purchaser is able to buy from two or more equally developed and effectively competing firms he can make them bid against one another until he obtains the full advantage of the economies of large-scale production which are common to them. So long as there remains effective competition, all the productive economies pass into the hands of the consumer in reduction of price. Nay, more than this, a competing firm cannot keep to itself the advantages of a private individual economy if its competitor has another private economy of equal importance. If A and B are two closely competing firms, A owning a special machine capable of earning for him 2 per cent. above the normal trade profit, and B owning a similar advantage by possession of "cheaper labour," these private economies will be cancelled by competition, and pass into the pocket of the consuming public.
There is every reason to believe that with a diminution in the number of competitors and an increase of their size, competition grows keener and keener. Under old business conditions custom held considerable sway; the personal element played a larger part alike in determining quality of goods and good faith; purchasers did not so closely compare prices; they were not guided exclusively by figures, they did not systematically beat down prices, nor did they devote so large a proportion of their time, thought, and money to devices for taking away one another's customers.[124]From the new business this personal element and these customary scruples have almost entirely vanished, and as the net advantages of large-scale production grow, more and more attention is devoted to the direct work of competition. Hence we find that it is precisely in those trades which are most highly organised, provided with the most advanced machinery, and composed of the largest units of capital, that the fiercest and most unscrupulous competition has shown itself. The precise part which machinery, with its incalculable tendency to over-production, has played in this competition remains for later consideration. Here it is enough to place in evidence the acknowledged fact thatthe growing scale of the business has intensified and not diminished competition. In the great machine industries trade fluctuations are most severely felt; the smaller businesses are unable to stand before the tide of depression and collapse, or are driven in self-defence to coalesce. The borrowing of capital, the formation of joint-stock enterprise and every form of co-operation in capital has proceeded most rapidly in the textile, metal, transport, shipping, and machine-making industries, and in those minor manufactures, such as brewing and chemicals, which require large quantities of expensive plant. This joining together of small capitals to make a single large capital, this swallowing up of small by large businesses, means nothing else than the endeavour to escape the risks and dangers attending small-scale production in the tide of modern industrial changes. But since all are moving in the same direction, no one gains upon the other. Certain common economies are shared by the monster competitors, but more and more energy must be given to the work of competition, and the productive economies are partly squandered in the friction of fierce competition, and partly pass over to the body of consumers in lowered prices. Thus the endeavour to secure safety and high profits by the economies of large-scale production is rendered futile by the growing severity of the competitive process. Each big firm finds itself competent to undertake more business than it already possesses, and underbids its neighbour until the cutting of prices has sunk the weaker and driven profits to a bare subsistence point for the stronger competitors.
So long as the increased size of business brings with it a net economic advantage, the competition of ever larger competitors, whose total power of production is far ahead of sales at remunerative prices, and who are therefore constrained to devote an increased proportion of energy to taking one another's trade, must intensify this cut-throat warfare. The diminishing number of competitors in a market does not ease matters in the least, for the intensity of the strife reaches its maximum when two competing businesses are fighting a life or death struggle. As the effective competitors grow fewer, not only is the proportion of attention each devotes to the other more continuous and more highly concentrated, but the results of success aremore intrinsically valuable, for the reward of victory over the last competitor is the attainment of monopoly.
§ 4. To keen-eyed business men engaged in the thick of large-scale competition it becomes increasingly clear that good profits can only be obtained in one of two ways. A successful firm must either be in possession of some trade secret, patent, special market, or such other private economy as places it in a position of monopoly in certain places or in certain lines of goods, or else it must make some arrangement with competing firms whereby they shall consent to abate the intensity or limit the scope of their competition. It will commonly be found that both these conditions are present where a modern firm of manufacturers or merchants succeeds in maintaining during a long period of time a prosperous or paying business. The firm, though in close competition over part of the field of industry, will have a speciality of a certain class of wares, at any rate in certain markets, and it will be fortified by a more or less firmly fixed rate of prices extending over the whole class of commodities. Both of these forces signify a restriction upon competition.
To the older economists, who regarded free competition as the only safe guarantee of industrial security and progress, it appeared natural that capitalists continually engaged in the maximum competition would yet secure a living rate of profit, for if this were not the case, they ingenuously urged, capital would cease to remain in such a trade. With the fallacy involved in this theory we shall deal in a later chapter. It is sufficient here to observe that where keen competition is operative in modern machine industries the average rate of profits obtained for capital is generally below that which would suffice to induce new capital invested with full knowledge to come into the trade.
In highly organised trades, where the natural effects of free competition have been fully manifested, we find that the hope of a profitable business is entirely based upon the possibility that a trade agreement will so mitigate competition as to allow a rate of selling prices to obtain which remains considerably higher than that which free competition would allow.
As the field of competition is narrowed to acomparatively few large competitors, there arises a double inducement to suspend or mitigate hostilities; as the competition is fiercer more is gained by a truce; as the number of combatants is smaller, a truce can be more easily formed and maintained. In most machine-using countries each branch of a staple industry endeavours to protect itself from free competition by a combination of masters to fix a scale of prices. This is the normal condition of trade in England to-day. These combinations to fix and maintain prices are not equally successful in all trades, but they are always operative to a more or less extent in modifying or retarding the effects of competition. Where trade unions of operatives are strong, well-informed, and resolute, or where outsiders have large facilities for investing capital and dividing the trade, the endeavours to maintain prices and to secure a higher than the competitive rate of profits are unsuccessful. The joint operation of both these conditions in the cotton-spinning trade explains why the Lancashire spinners have been unable to check the effects of cut-throat competition. But throughout all branches of textile, metal, pottery, engineering, and machine-making trades strong and persistent endeavours are made by co-operative action of capitalists to limit competition by fixing a scale of prices which should not be underbid.
Where competing railways fix a tariff of rates for carriage, or competing manufacturers fix a scale of prices for their goods, their object is to secure to themselves in higher profits a portion or the whole of the productive and competitive economies attending large-scale production, instead of allowing them by unrestricted competition to pass into the hands of their customers. Suppose that a number of steel rail manufacturers freely competing would drive down the selling price to £1 a ton, but that by a trade agreement they maintain £1 10s. as the minimum price, 10s. per ton represents the economies of production which they divert from their customers into their own possession by a limitation of the competition. Part of the 10s. may represent the actual saving of the labour which would have been spent in competition as prices fell from £1 10s. to £1. Part may represent a taking in higher profits of some of the economies of new machinery or improved methodsof production common to the competing firms, and which would inevitably have led to a fall of price if the competitive process had been allowed free play.
The prices thus fixed are monopoly prices—that is to say, they are determined by the action of a number of competing capitals which at a certain point agree to suspend their conflict and act as a single capital; when the bidding is above a certain figure they are many, when it is below that figure they are one. The condition in such a trade is one of limited monopoly. The prices fixed by such trade agreements will generally be different from those of a single firm with the absolute monopoly of a market, whose prices are arranged to yield the maximum net profit on the capital engaged. For since the economies of competition and some of the economies of production would be far greater for a single producing firm with a monopoly, the schedule of supply prices measuring the expenses of producing the different quantities of goods will be different, and this difference will be reflected in a different scale of non-competitive market prices from that which would issue from a trade agreement. Moreover, a loose voluntary compact between trade rivals yields a monopoly of a far feebler order than does the unity of a single capital. If a scale of prices were fixed which would yield a considerably higher profit than the market rate, the temptation to secure a larger share of trade by secret underbidding through commissions, drawbacks, or otherwise, or even by an open cutting of rates, is very powerful. Moreover, the ability of a number of firms with conflicting interests to secure this monopoly by quick and vigorous repression of the attempts of outside capital to come in either for the purpose of sharing the higher profits, or of being bought out, is far less than in the case of a single monopolist firm. So the scale of prices fixed by a number of competing firms will generally be nearer to the competition prices than would be the case with the prices of a single monopolist.
§ 5. The recognition of the advantages of limiting competition by price tariffs, and the experience of the difficulty of maintaining such tariffs, lead competing businesses to take further steps in the curtailment of competition. Where a powerful trade opinion can be focussed on an offender against the scale, where he can be boycotted or otherwisesubjected to punishment, and where outsiders can be prevented from intruding into the trade, a common scale of profitable prices can often be maintained with the verbal or even the tacit consent of those concerned. This is the case in many manufactures where the fixed and well-known character of the goods makes a close price-list possible. Retail dealers in local markets are often able to keep a close adherence to a rigid scale by the pure force ofesprit de corps. The price of bread, meat, milk, coals, and other articles sold locally by well-known measures, is seldom, if ever, regulated by free competition among the vendors. In articles where more depends upon the individual quality of wares, and where a rigid tariff is less easily fixed and less easily maintained, as in the case of vegetables, fruit, fish, and groceries, trade agreements are less easy to maintain. Still more difficult is it to maintain a tariff for articles of dress or adornment of the person or the house, and in other articles where the consumer is less confined to a narrow local market.
The general experience of manufacturing and mercantile businesses, where each firm is closely confronted by other firms of similar capacity and equipment at every point in the market, indicates an increasing difficulty in maintaining prices at a profitable level. Everywhere complaints are heard of a reckless use of the productive power of machinery, of over-stocked markets, of a cutting of prices in order to get business, and of a growing inability to make a living rate of profit.
§ 6. The endeavour of a number of individual businesses in a trade to fix and maintain a certain profitable scale of prices is constantly frustrated. The introduction of new machinery enabling certain firms to make a profit at prices below the tariff induces them to utilise their full productivity, cut prices, and still sell at a profitable price; others involved in the meshes of speculative production are compelled to cut prices and effect sales even at a loss; the difficulty of finding safe investments drives new capital into the hands of company-promoters, who fling it with criminal negligence into this or that branch of production, underbidding the tariff to win a footing in the market. All these forces render loose agreements to limit competition more and more inadequate to secure theirpurpose. Frequent experience of the impotence of these partial forms of co-operation drives trade competitors to seek ever closer forms of combination. An issue of this necessity is the Syndicate and the Trust. By raising the co-operative action so as to cover the whole, and by thus reducing the competition to zero, it is hoped that a union may be formed strong enough to maintain monopoly prices. Thus the Trust is seen as the logical culmination of the operation of economic forces which have been continually engaged in diminishing the number of effective competitors, while increasing their size and the proportion of their energy devoted to the competition.
At each stage in the process the smaller competitors are eliminated, and the larger driven to increase their size so that the whole may be illustrated by a pyramid, the base or first stage of which consists of a larger number of small units, and each higher stage of a smaller number of larger units, with a Trust or Monopoly Syndicate for its apex.
§ 7. The motive which induces a number of businesses hitherto separate, or associated merely for certain specific actions, such as the fixing of prices or wages, to amalgamate so that they form a single capital on which a single rate of interest is paid, is a double-edged one. There is, on the one hand, the desire to protect themselves against excessive competition and cutting of rates, and on the other hand a desire to secure the advantages which arise from monopoly. The way in which Syndicates and Trusts are regarded depends very much from which of these two aspects they are regarded. Those who consider these business "combines" as arbitrary and high-handed interferences with freedom of commerce, undertaken in order to place in the hands of a few persons a power to rob and oppress the consuming public by legalised extortion, regard the motive of combination to be monopoly. On the other hand, the combining firms represent themselves as the victims of circumstances, bound in self-protection to combine. Our analysis of the operations of commercial competition enables us to see that these two forces are not really separate, but are only two ways of looking at the same action. Every avoidance of so-called "excessive" competition isipso factoan establishment of a monopoly. The tariff of prices established a weak and partial monopoly.The "combine," whether it takes the name of "ring," "syndicate," or "trust," succeeds, in so far as it establishes a stronger and more absolute monopoly.
In their economic aspect these terms are somewhat vague, the vagueness arising in some degree from the changing and secret shapes these combinations often find it convenient to adopt in order to preserve the appearance of competition, or to avoid public obloquy or legal interference. "Combine" is probably the generic term which covers all these operations. A syndicate of capitalists are said to form a "combine" with the view of controlling prices so as to pay a profitable interest. If they apply their capital not to the acquisition of the plant and machinery of manufacture with the view of regulating production, but directly and mainly to the planning of some speculative stroke or series of strokes in the produce market, obtaining temporary control of sufficient goods of a particular kind to enable them to manipulate prices, they are said to form a "corner" or "ring." Such forms of combined action are generally of short duration. Technically they consist in an artificial diversion[125]of a particular class of goods from the ordinary channel of a number of competing owners into a single ownership, so that they may be held and placed upon the supply market at such times and in such ways as to enable the owner to obtain a famine price. The following description of a wheat "corner" will serve to exemplify this method of "combine":—
"The man who forms a corner in wheat, first purchases or secures the control of the whole available supply of wheat, or as near the whole supply as he can. In addition to this he purchases more than is really within reach of the market by buying 'futures,' or making contracts with others who agree to deliver him wheat at some future time. Of course he aims to secure the greater part of his wheat quietly, at low figures; but after he deems that the whole supply is nearly in his control, he spreads the news that there is a 'corner' in the market, and buys openly all the wheat he can, offering higher and higher prices, until he raises the price sufficiently high to suit him. Now the menwho have contracted to deliver wheat to him at this date are at his mercy. They must buy their wheat of him at whatever price he chooses to ask, and deliver it as soon as purchased, in order to fulfil their contracts. Meanwhile mills must be kept in operation, and the millers have to pay an increased price for wheat; they charge the bakers higher prices for flour, and the bakers raise the price of bread. Thus is told by the hungry mouths in the poor man's home the last act in the tragedy of the corner."[126]
These "corners," of which in various forms and degrees the speculative business on the stock and produce markets largely consists, are attempts to substitute for a time a high monopoly price for a competitive price by "rigging the market." Since the calculations upon which these "corners" are based are essentially hazardous, attempted corners frequently break down. One of the most special examples of the collapse of a powerful corner in recent years is that of "La Société Industrielle Commerciale des Métaux," commonly known as the "Copper Syndicate." A body of French capitalists, for the most part not owners of mines or metal merchandise, but speculators pure and simple, placed a sum of money with the intention of cornering the supply of "tin." Before completing this design they were induced to undertake a larger speculation in the "copper market." In 1887 they entered into contracts with the largest copper-producing companies in various countries, agreeing to buy all the copper produced for the next three years at a fixed price of 13 cents per pound, with an added bonus equivalent to half the profit from their sale of the same. In 1888 the Syndicate sought to extend its contracts with chief mining companies to cover a period of twelve years, arranging with them also to limit the output of copper. For some time they held the market in their grip, and prices advanced considerably. But partly owing to a failure to complete their contracts securing a restriction in production, and partly from inability to meet their current liabilities, the "corner" was broken down in 1889, and the artificially inflated prices fell. Not only are the makers of "corners" liable to these miscalculations, but they are liable to be overthrown by counter combinations of capitalists or ofoperatives. The breakdown of a formidable attempt to "corner" cotton in Lancashire in 1889 was due to the prompt action of the Trades Unions, who undertook to unite with their employers in a stoppage of work for such length of time as was requisite to force the collapse of the "ring."
In the same year a formidable flour syndicate broke down before the firm attitude of the co-operative flour mills.[127]
But though the speculative character of modern commerce, assisted by the abundant use of credit, has lent special facilities to the formation of "corners" and "rings," it is hardly necessary to say that commerce has never been free from them. The celebrated "corner" in grain which Joseph organised on behalf of the King of Egypt was one of the largest and most successful. The commercial law of the Middle Ages is full of provisions against engrossers, forestallers, and regrators, all of whom were engaged in artificially raising prices to the consumer by obtaining some sort of monopoly. Organised rings to secure a monopoly of the food supply of some great city have been frequent throughout history. Cicero informs us of the celebrated ring of capitalists under Crassus to raise food prices at Rome. A closely-formed combination of northern coalowners continued to restrict output and impose monopoly prices upon London consumers for a considerable time in the middle of the eighteenth century.[128]
In modern times these "corners" are essentially of brief duration so far as they consist in narrowing the stream of commerce at a particular point so as to check its free flow. Most of them are confined to goods which are dealt with upon commercial exchanges, and are amenable to the operations of skilled speculators. The "deal" must be upon a scale large enough to enable a big net profit to be secured in a short time. The stimulation which artificially inflated prices apply to the early productive processes, the activity of other speculators, and the check given to consumption by high prices, generally preclude the possibility of a "corner" lasting long. The strength of the copper "corner," had it succeeded, would have lain in the hold it would have obtained overthe early extractive stage, preventing the operation of the natural stimulus of high prices to increase production. If the Copper Syndicate had established its hold upon the mining companies, it would have been able to hold the market for an indefinite period, passing from the state of a "corner" into the more durable and established position of the Trust.
§ 8. A Trust may be regarded from an economic aspect, or from a legal aspect. Economically, the term Trust is applied to a class of syndicates which have established a partial or total monopoly in certain productive industries by securing the ownership of a sufficient proportion of the instruments of production to enable them to control prices. Legally, a Trust is a form of business association—"a trust of corporate stocks by means of which a body of men united in interest are enabled to carry on business through separate corporate agencies."[129]It is a company of companies, under which, while the formal structure of the original companies is maintained, they are incorporated as single cells in the larger organism which directs their activity. The constitution of the Trust is best explained by a description of its origin in the industry of the United States. The owners of a majority of the shares in a number of corporations hitherto separate in their constitution (though they may have been acting in agreement with one another, or have been largely owned by the same persons) agree to place their shares of stock in the full control of a body of persons called trustees. These trustees may or may not be shareholders or directors of the several corporations. They "act under an agreement that they will cast the votes represented by the stock so held for the perpetuation of the trust during the time agreed upon, and in furtherance of its purposes: will elect the officers provided for by law in each of the corporations, and in behalf of all of them manage the business of all, except, it may be, in small matters of detail." "Each shareholder, upon surrendering his corporate stock to the board of trustees, receives a certificate entitling him to an interest in all the property and earnings of all the corporations of the trust."[130]
These certificates are believed in many cases to certify a money value far in excess of the real value of the stock surrendered at the time when the Trust was formed. The Report of the New York Chamber of Commerce for 1887-88 estimates the "certificates" given by the Sugar Trust to the shareholders of its constituent corporations as bearing "water" to the amount of 200 per cent., so that the nominal dividend of 10-1/2 per cent. paid during the year represented a real net profit of 31-1/2 per cent. Such statements cannot, however, be verified, since it is the interest of the only persons who actually know to keep secret such an arrangement.
It is asserted by many, and several State courts have sustained the position, that a Trust is in America an illegal association, because it implies on the part of its constituent corporations a violation of the conditions under which they received the powers and privileges conferred in their charters by the government of the several States. Their illegality consists, it is held—
(1) In surrendering the power to manage and control their business to some persons other than those legally authorised.
(2) In engaging, through the Trust, in kinds of business not authorised by the charter.
§ 9. It is, however, the economic character and powers of the Trust, and not its legal position, which concern us here.
The following short history of the origin andmodus operandiof the Standard Oil Trust, the largest and in some respects the strongest of these organisations, will serve to give distinctiveness to the idea of the Trust:—
Petroleum began to be an article of extensive commerce about the year 1862. The wells from which the crude petroleum oil was drawn were in Pennsylvania, and the work of boring the wells with machinery and extracting the oil grew to be a considerable business. The crude oil was sold to various refiners, who set up factories in Cleveland (Ohio), in Pittsburg, and in several other cities. By 1865 these factories had become pretty numerous, and in that year a private refinery at Cleveland, owned by a few partners, obtained a charter forming it into a corporation entitled the Standard Oil Company, with a capital of$100,000. Until 1870 the progress of the company was comparatively slow. In order to increase their hold upon the sources of production in Pennsylvania, and to expand their trade, they began to purchase stock in corporations already existing in that State, and succeeded in establishing others, with which they worked in close alliance. A Standard Oil Company was organised at Pittsburg, the stock of which passed into the hands of the owners of the Cleveland Company. They then proceeded to establish agencies in other States, primarily for the sale of their goods, but when these businesses were firmly planted they obtained for them from the several States charters incorporating them as companies for refining oil. In 1872 the shareholders of the Standard Oil Companies at Cleveland, Pittsburg, and Philadelphia organised another corporation called the South Improvement Company, obtaining a charter from the State of Pennsylvania. This corporation, which was in fact though not in legal form the "Standard Oil Companies," then entered into contracts with the New York Central and Hudson River Railroad Company, the Erie Railway Company, and several other lines which traversed the oil-producing country, for the shipment of petroleum. The South Improvement Company agreed to ship over these railways all the petroleum products. In return the railway companies agreed to carry their goods, not upon the terms open to other customers, but with a system of rebates, paid not only upon the oil shipped by the company, but upon that shipped by any other competing companies. "In one locality the railroad companies were to charge oil shippers as freight not exceeding $1.50 per barrel, and pay a rebate to the South Improvement Company of $1.06 per barrel, whether it was the shipper of the oil or not, so that under these contracts the Standard Oil Company members would pay no more than 44 cents per barrel as freight to the carrier, while their competitors would pay $1.50, and of this last sum the railways were to pay back to the combination $1.06 per barrel."[131]
Though this monstrous conspiracy was quickly unmasked, and the South Improvement Company lost its charter,secret negotiations with the railway companies enabled the Standard Oil Companies to strengthen themselves by this system of rebates paid out of the pockets of their business rivals. Chiefly by means of these and other discriminating contracts they were enabled to enlarge their sphere of activity, and making full use of their growing capital, succeeded in destroying or absorbing their competitors, until, as early as 1875, they held a practical monopoly of the refineries of the interior. No fewer than seventy-four refineries are stated to have been bought up, leased, or bankrupted by the Standard Oil Company in Pennsylvania alone in the course of its career.
Until about 1878 the chief source of power of the company seems to have been the alliance with the railroads and the local monopolies obtained by buying up or crushing rival businesses. But the president, Mr. Rockefeller, and his associates were men of keen business ability, who understood how to make use of the inventive genius of the abler employees who passed into their service, and of the improvements in method of production and distribution of oil which were suggested. In the next few years the company were enabled to effect enormous economies in the storage and conveyance of oil. Pipe lines were laid down connecting New York, Philadelphia, Baltimore, Buffalo, Pittsburg, Cleveland, and Chicago, and a network of feeding lines joining the sources of supply. Thousands of huge tanks were erected for holding surplus stores; a large number of agencies were established along the sea-shore with storage attached. Further considerable economies were effected by the undertaking of the manufacture of barrels and cans and other subsidiary articles required in the trade. At the close of 1881 the owners of the entire capital of fifteen corporations and parts of the stock of a number of others, the latter chiefly trading companies, established the Trust. The number of shareholders thus associated was forty, and they placed their stocks in the hands of nine of their number as trustees, who continued to administer the whole business, paying interest upon the certificates which represented the stock of the several shareholders until March 1892, when the Trust was legally dissolved. The legal dissolution of the Trust has not, however, materially impaired its economic unity and power; on the contrary, it has extended in theUnited States its monopolic control of the market, and has already established a strong control over several European markets for the sale of oil, and over the chief natural sources of supply. Although a practical monopoly in many parts of the interior had been acquired at a tolerably early date, there continued to be active competition in all branches of the petroleum business until 1884, when the war of rates, which had been waged for some time with a formidable Canadian competitor, the Tidewater Company, ceased, an alliance being formed between the rivals. From that time the Standard Oil Trust has held a practical monopoly over the greater part of the country. It has introduced new economies in the machinery of refining, has found profitable uses for naphtha and other waste products, and has vastly increased its output and the machinery of distribution. Not content with controlling the market for crude oil, it has during the last few years obtained the possession of larger and larger portions of the oil-producing country, forming companies to acquire mining rights, sink wells, and oust the private producers from whom it had previously been content to purchase the raw material at their own prices.
Bearing in mind the fact that the actual unification of businesses took place a good many years before the formation of the Trust, there is nothing in the account given above inherently inconsistent with the following explanation afforded by the Standard Oil Trust of their proceedings:—
"The Standard Oil Trust offers to prove by various witnesses 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 price 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."[132]