So far as this furnishes an explanation of the motives leading to the earlier growth of the Company, the consolidation of rival companies, no doubt it contains a considerable element of truth. The Standard Oil Trust, however, differs from most others in that it was not directly formed by the union of a number of leading rival businesses, but was merely a reorganisation upon a firmer basis of a single complex business. The motive of self-protection, though it might be operative in the early history of the Company, cannot be adduced as the true motive of the formation of the Trust.
Since the claim of the Standard Oil Trust to be a public benefit rests upon the fall of price to the customer, resulting from the various economies and improvements adopted by the Trust, it may be well to append a diagram showing the actual fall of prices during the twenty years 1870 to 1890.
In this diagram we note that from 1870 to 1875 there was a rapid reduction of price in consequence of the fact that these were years of keen competition with other Pennsylvanian businesses. 1875, which marks the establishment of a monopoly of the interior trade in the hands of the Standard Oil Trust, also marks a sharp rise of prices. The expansion of their business brought them into contact with new and more distant competitors, and a fall of price continued until 1879, while prices continued to oscillate until 1881, the year of the formation of the Trust. From the time of the formation of the Trust the fall of price has been only half a cent. The moral is obvious. So long as there is competition, in spite of the expense of conducting the strife, prices fall; when the competition is suspended, and there is a saving of friction, the public gains no further reduction.
The reason why, even after the complete monopoly had been attained, the price of oil was not put up again will be apparent when we come to examine the economic limits of the power of a Trust.
Fluctuations of Prices of Standard Oil, 1870 to 1890.FLUCTUATIONS OF PRICES OF STANDARD OIL, 1870 TO 1890.
FLUCTUATIONS OF PRICES OF STANDARD OIL, 1870 TO 1890.
§ 10. A large number of these Trusts, similar in their constitution to the Standard Oil Trust, and with the same object of maintaining a scale of prices based upon monopoly, have been founded in the United States. Some have undoubtedly owed their establishment to the prevalence oflow profits in a trade where close competition has led to a constant cutting of prices, and their foundation has been leniently regarded as an act of self-defence. To this order belong the Whisky Trust, the Cotton Oil Trust, the Cotton Bagging Trust, and others. Indeed, one well-informed writer upon the subject holds that this is the normal origin of the Trust. "With the exception of the Standard Oil Trust, and perhaps one or two others that rose somewhat earlier, it may be fairly said, I think, that not merely competition, but competition that was proving ruinous to many establishments, was the cause of the combinations."[133]
This condition of ruinous competition must be recognised as the normal condition of all highly-organised businesses where modern machinery is applied, and which are not sheltered by some private economy in the shape of special facilities in producing or in disposing of their goods. Even the Standard Oil Company, as we saw, claimed that a policy of consolidation was forced upon it by the conditions of the market. But this claim is not a refutation, but an admission of the statement that the object of a Trust is to obtain monopoly prices; for these ruinously low prices and profits are the result of free competition, and the only alternative to this free competition is monopoly. Hence it is a legitimate conclusion that the economic object of a Trust is to substitute monopoly for competitive prices, and to do this more effectively than can be done by the mere acceptance of a common price-list by the separate firms engaged in a branch of production. In order to attain this object it is not necessary that the Trust shall comprise all the capital engaged in an industry. Even when the Standard Oil Trust was firmly established, and was, according to its own admission, paying 12-1/2 or 13 per cent. on its highly-watered stock, there appears to have existed no fewer than 111 smaller independent companies competing with it directly or indirectly at some point within the area of its market.[134]But the Standard Oil Trust was able to control prices, as the producer of some 75 per cent. of the total product, and the practical monopolist over the main area of its market. Similarly the Sugar Refineries Trust in 1888 had a firm gripover prices by its possession of 80 per cent. of the sugar refining capacity of the Atlantic Coast, or 65 per cent. of the sugar consumed in the United States.[135]There are other cases where a formally constructed Trust is for a time engaged in close effective competition, either with another Trust, as was the position of the Standard Oil Trust over a portion of its markets in the period 1881 to 1884, or with powerful companies not organised as Trusts. This is what Mr. Gunton appears to consider the normal condition of a Trust, one in which competition takes place between a few large bodies of capital instead of between many smaller bodies.[136]Certain Trusts have certainly been compelled to struggle for the retention of their monopoly power over the market. A notorious example is that of the Sugar Trust, which, after a most successful start in 1888, found itself in 1890 face to face with a new and formidable competitor in the shape of the Claus Spreckles refineries of Philadelphia and San Francisco, and was compelled to forego the high profits it had been making and fight for its existence under terms of keenest competition.
But in so far as a Trust stands in this position it has failed to achieve its industrial end of checking "ruinous competition" and the "cutting of prices." It is not in the possession of the chief economies of a Trust so long as it remains at warfare, for it is compelled to expend all that it gains from the enlarged scale of business and from the cessation of competition among its constituent companies upon the strife with its single antagonist. A Trust in this inchoate condition has no special economic character distinguishing it from other large aggregates of competing capital. It is with fully-formed trusts which are able to control prices and regulate to some degree production and profits that we are concerned. An economic Trust has itsraison d'êtrein monopoly. It may not have eliminated all actual competitors, and is generally limited in its power by the possibility of outside opposition, but so far as its power extends it must be able to regulate prices upon non-competitive lines.
§ 11. A large number of different articles have at somestage in their production fallen under the monopoly of a Trust.[137]
As is the case with "corners" and "rings" in the produce market, certain classes of commodities lend themselves more readily than others to the monopoly of Trusts.
There are three classes of industry which more easily than others permit the formation of effective trusts.
(1) Industries connected with, or closely dependent on, the nature and properties of land. When the whole or a large proportion of the raw material required for producing any class of goods is confined within a restricted area, the possession of that land by a single body of owners will give a strong monopoly. It was not essential to the Standard Oil Trust in its earlier years to own the sources of the oil provided they could possess themselves of the stream after it had left the source. But they have strengthened this monopoly lately by securing the ownership of the oil lands in Pennsylvania. The most striking example, however, is the monopoly of the anthracite coal region in Pennsylvania by the shareholders of the Pennsylvania and Reading Railway. The tendency of a Trust to strengthen its industrial position and at the same time to find a profitable investment for its surplus profits by fastening upon an earlier process of production or a contiguous industry, and drawing it under the control of its monopoly, is one of the most important evidences of the rapid growth of the system in America. The rapidity with which the whole railway system is passing into the hands of the two great monopolist syndicates with the necessary result of stifling competition is in some respects the most momentous economic movement in the United States at the present time. The magnificent distances which separate the great mass of the producers of agricultural and other raw products from their market makes the railway their only high-road, and the fact that except between a few large centres of population there is no competition of rival railways, places the producer entirely at the mercy of a single carrier, who regulates his rates so as to secure his maximum profit. Indeed, so fast is the amalgamation of railway capital proceedingthat even between large cities there is little genuine competition. The same is true of the telegraph and the supply of such things as water and gas, which, by reason of their relation to land, and the power thus conferred upon the owner of the first and most convenient means of supply, are "natural" monopolies. Where such industries are left, as in most cities of America, to private enterprise, they form the objects of a monopoly which is commonly so strong as to crush with ease attempts at competition where such are legally permissible. Jay Gould's Western Union Telegraph Company is an example of an absolute monopoly maintained for many years without the possibility of effective competition. The purchase of Western lands in order to hold them for monopoly prices has been a favoured form of syndicate investment during the last forty years.
(2) Articles which for economy of transport and distribution require to be massed together in large quantities are specially amenable to monopoly. Grains produced over a wide area have often to be collected in large quantities to be re-assorted according to quality, and to be warehoused before being placed in the market. So the produce of thousands of competing farmers passes into the hands of a syndicate of owners of grain elevators at Chicago or elsewhere. The same is true of meat, fish, fruit, vegetables, dairy produce. All these things, raised under circumstances which render effective co-operation for purposes of sale well-nigh impossible, flow from innumerable diverse places into a common centre, where they fall into the hands of a small group of middlemen, merchants, and exporters. Even the retail merchants, as we have seen, are able to make effective combinations to maintain prices in the case of more perishable goods.
In England the combination of retail merchants commonly takes the form of a trade regulation of prices restricting competition. But in the United States regular Trusts have been in some cases established in retail trade. The Legislative Committee of New York State, in its investigations, discovered a milk trust which had control of the retail distribution in New York City, fixing a price of three cents per quart to be paid to the farmer, and a selling price of seven or eight cents for the consuming public.
Hence it arises that the prices paid by the consumer for farm produce are picked pretty clean by various groups of monopolists or restricted competitors before any of them get back to the farmers or first producers.
The farmer, from his position in the industrial machine, is more at the mercy of Trusts and other combinations than any other body of producers. In the United States he is helpless under the double sway of the railway and the syndicate of grain elevators and of slaughterers in Chicago, Kansas City, and elsewhere. In England, in France, and in all countries where the farmer is at a long distance from his market, farm produce is subject to this natural process of concentration, and we hear the same complaints of the oppressive rates of the railway and the monopoly of the groups of middlemen who form close combinations where the stream of produce narrows to a neck on its flow to the consumer. The position of the American farmer, crushed between the upper and the nether mill-stone of monopoly, is one of pathetic impotence.
(3) In those industries to which the most elaborate and expensive machinery is applied, and where, in consequence, the proportion of fixed capital to labour is largest, the economies of large-scale production are greatest. Here, as we have seen, the growing strain of the fiercer competition of ever larger and ever fewer capitals drives towards the culminating concentration of the Trust. Where, owing either to natural advantages, as in the case of oil and coal, or to other social and industrial reasons, a manufacture is confined within a certain district, and is in the hands of a limited number of firms in fairly close commercial touch with one another, we have conditions favouring the formation of a Trust. In most of the successful manufacturing Trusts some natural economy of easy access to the best raw material, special facilities of transport, the possession of some state or municipal monopoly of market, are added to the normal advantages of large-scale production. The artificial barriers in the shape of tariff, by which foreign competition has been eliminated from many leading manufactures in the United States, have greatly facilitated the successful operation of Trusts. Where the political, natural, and industrial forces are strongly combined, we have the most favourable soil for the Trust. Where amanufacture can be carried on in any part of the country, and in any country with equal facility, it is difficult to maintain a Trust, even though machinery is largely used and the individual units of capital are big.
Each kind of commodity, as it passes through the many processes from the earth to the consumer, may be looked upon as a stream whose channel is broader at some points and narrower at others. Different streams of commodities narrow at different places. Some are narrowest and in fewest hands at the transport stage, when the raw material is being concentrated for production, others in one of the processes of manufacture, others in the hands of export merchants. Just as a number of German barons planted their castles along the banks of the Rhine, in order to tax the commerce between East and West which was obliged to make use of this highway, so it is with these economic "narrows." Wherever they are found, monopolies plant themselves in the shape of "rings," "corners," "pools," "syndicates," or "trusts."
[124]There still survive in certain old-fashioned trades firms which do business without formal written contracts, and which would be ashamed to take a lower price than they had at first asked, or to seek to beat down another's price.
[124]There still survive in certain old-fashioned trades firms which do business without formal written contracts, and which would be ashamed to take a lower price than they had at first asked, or to seek to beat down another's price.
[125]There need, of course, be no actual diversion of goods into the possession of the Ring: the essence of the monopoly consists in the control, not in the possession of goods.
[125]There need, of course, be no actual diversion of goods into the possession of the Ring: the essence of the monopoly consists in the control, not in the possession of goods.
[126]Baker,Monopolies and the People, p. 81.
[126]Baker,Monopolies and the People, p. 81.
[127]Cf. Miss Potter,The Co-operative Movement, p. 199.
[127]Cf. Miss Potter,The Co-operative Movement, p. 199.
[128]Porter,Progress of the Nation, pp. 283-285.
[128]Porter,Progress of the Nation, pp. 283-285.
[129]C.S.T. Dodd, "Ten Years of the Standard Oil Trust,"Forum, May 1892.
[129]C.S.T. Dodd, "Ten Years of the Standard Oil Trust,"Forum, May 1892.
[130]"The Standard Oil Trust," Roger Sherman,Forum, July 1892.
[130]"The Standard Oil Trust," Roger Sherman,Forum, July 1892.
[131]Roger Sherman, "The Standard Oil Trust,"The Forum, July 1892.
[131]Roger Sherman, "The Standard Oil Trust,"The Forum, July 1892.
[132]Argument of Standard Oil Trust before the House Committee on Manufactures, 1888 (quoted Baker,Monopolies and the People, p. 21).
[132]Argument of Standard Oil Trust before the House Committee on Manufactures, 1888 (quoted Baker,Monopolies and the People, p. 21).
[133]J.W. Jenks,Economic Journal, vol. ii. p. 73.
[133]J.W. Jenks,Economic Journal, vol. ii. p. 73.
[134]Report to the Commission of the Senate of New York State, p. 440.
[134]Report to the Commission of the Senate of New York State, p. 440.
[135]Economic Journal, vol. ii. p. 83.
[135]Economic Journal, vol. ii. p. 83.
[136]"The Economic and Social Aspect of Trusts,"Political Science Quarterly, Sept. 1888.
[136]"The Economic and Social Aspect of Trusts,"Political Science Quarterly, Sept. 1888.
[137]Baker, writing 1890, names fifty-nine articles which have at various times formed the material of Trusts, ranging in importance from sugar and iron rails to castor-oil, school slates, coffins, and lead pencils.
[137]Baker, writing 1890, names fifty-nine articles which have at various times formed the material of Trusts, ranging in importance from sugar and iron rails to castor-oil, school slates, coffins, and lead pencils.
§ 1.Power of a Monopoly over earlier or later Processes in Production of a Commodity.§ 2.Power over Actual or Potential Competitors.§ 3.Power over Employees of a Trust.§ 4.Power over Consumers.§ 5.Determinants of a Monopoly Price.§ 6.The Possibility of low Monopoly Prices.§ 7.Considerations of Elasticity of Demand limiting Prices.§ 8.Final Summary of Monopoly Prices.
§ 1.Power of a Monopoly over earlier or later Processes in Production of a Commodity.
§ 2.Power over Actual or Potential Competitors.
§ 3.Power over Employees of a Trust.
§ 4.Power over Consumers.
§ 5.Determinants of a Monopoly Price.
§ 6.The Possibility of low Monopoly Prices.
§ 7.Considerations of Elasticity of Demand limiting Prices.
§ 8.Final Summary of Monopoly Prices.
§ 1. It remains to investigate the actual economic power which a "monopoly" possesses over the several departments of an industrial society. Although the "trust" may be taken as the representative form of monopoly of capital, the economic powers it possesses are common in different degrees to all the other weaker or more temporary forms of combination, and to the private business which, by the possession of some patent, trade secret, or other economic advantage, is in control of a market. These powers of monopoly may be placed under four heads in relation to the classes upon whose interests they operate—(a) business firms engaged in an earlier or later process of production; (b) actual and potential competitors or business rivals; (c) employees of the Trust or other monopoly; (d) the consuming public.
(a) The power possessed by a monopoly placed in the transport stage, or in one of the manufacturing or merchant stages, to "squeeze" the earlier or less organised producers, has been illustrated by the treatment of farmersby the railways and by the Elevator Companies and the Slaughtering Companies of the United States. The Standard Oil Trust, as we saw, preferred, until quite recently, to leave the oil lands and the machinery for extracting crude oil in the hands of unattached individuals or companies, trusting to their position as the largest purchasers of crude oil to enable them to dictate prices. The fall in the price paid by the company for crude oil from 9.19 cents in 1870 to 2.30 in 1881, when the Trust was formed, and the maintenance of an almost uniform lower level from 1881 to 1890, testifies to the closeness of the grip in which the company held the oil producers; for although improvements in the machinery for sinking wells and for extracting oil took place during the period, these economies in production do not at all suffice to explain the fall. Indeed, the method of the company's transactions with the oil producers, as described by their own solicitor in his defence of the Trust, is convincing testimony of their control of the situation:—"When the producer of oil puts down a well, he notifies the pipe line company (a branch of the Trust), and immediately a pipe line is laid to connect with his well. The oil is taken from the tank at the well, whenever requested, into the large storage tanks of the company, and is held for the owner as long as he desires it. A certificate is given for it, which can be turned into cash at any time; and when sold it is delivered to the purchaser at any station on the delivery lines."[138]In similar fashion the Sugar Trust, before the competition of the Spreckles refineries arose, controlled the market for raw sugar. Nor was this power exercised alone over the producers of raw sugar. It extended to dictating the price at which the wholesale grocers who took from them the refined sugar should sell to their customers.[139]This power of a monopoly is not merely extended to the control of prices in the earlier and later processes of production and distribution of the commodity. One of the most potent forms it assumes in manufactures where machinery is much used is a control over the patentees and even the manufacturers of machinery. Where a strong Trust exists, the patentee of a newinvention can only sell to the Trust and at the Trust's price. Charges are even made against the Standard Oil Trust and other powerful monopolies to the effect that they are in the habit of appropriating any new invention, whether patented or not, without paying for it, trusting to their influence to avoid the legal consequences of such conduct. There is indeed strong reason to believe that the irresponsible position in which some of these corporations are placed induces them to an unscrupulous use of their great wealth for such purposes.
§ 2. (b) Since the prime object of a Trust is to effect sales at profitable prices, and prices are directly determined by the quantitative relation between supply and demand, it is clearly advantageous for a Trust to obtain as full a power in the regulation of the quantity of supply as is possible. In order to effect this object the Trust will pursue a double policy. It will buy up such rival businesses as it deems can be worked advantageously for the purposes of the Trust. The price at which it will compel the owners of such businesses to sell will have no precise relation to the value of the business, but will depend upon the amount of trouble which such a business can cause by refusing to come into the Trust. If the outstanding firm is in a strong position the Trust can only compel it to sell, by a prolonged process of cutting prices, which involves considerable loss. For such a business a high price will be paid. By this means a strongly-established Trust or Syndicate will bring under its control the whole of the larger and better-equipped businesses which would otherwise by their competition weaken the Trust's control of the market. A smaller business, or an important rival who persistently stands out of the Trust, is assailed by the various weapons in the hands of the Trust, and is crushed by the brute force of its stronger rival. The most common method of crushing a smaller business is by driving down prices below the margin of profit, and by the use of the superior staying power which belongs to a larger capital starving out a competitor. This mode of exterminating warfare is used not merely against actually existing rivals, as where a railway company is known to bring down rates for traffic below cost price in order to take the traffic of a rival line, but is equally effective against the potential competition of outside capital. After two orthree attempts to compete with Jay Gould's telegraph line from New York to Philadelphia had been frustrated by a lowering of rates to a merely nominal price, the notoriety of this terrible weapon sufficed to check further attempts at competition. In this way each strongly-formed Trust is able to fence off securely a certain field of investment, thus narrowing the scope of use for any outside capital. This employment of brute force is sometimes spoken of as "unfair" competition, and treated as something distinct from ordinary trade competition. But the difference drawn is a purely fallacious one. In thus breaking down a competitor the Trust simply makes use of those economies which we have found to attach to large-scale businesses as compared with small. Its action, however oppressive it may seem from the point of view of a weaker rival, is merely an application of those same forces which are always operating in the evolution of modern capital. In a competitive industrial society there is nothing to distinguish this conduct of a Trust in the use of its size and staying power from the conduct of any ordinary manufacturer or shopkeeper who tries to do a bigger and more paying business than his rivals. Each uses to the full, and without scruple, all the economic advantages of size, skill in production, knowledge of markets, attractive price-lists, and methods of advertisement which he possesses. It is quite true that so long as there is competition among a number of fairly equal businesses the consuming public may gain to some extent by this competition, whereas the normal result of the successful establishment of a Trust is simply to enable its owners to take higher profits by raising prices to the consumer. But this does not constitute a difference in the mode of competition, so that in this case it deserves to be called "fair," in the other "unfair."
It is even doubtful whether such bargains as that above described between the Standard Oil Company and the Railways, whereby a discriminative rate was maintained in favour of the Company, is "unfair," though it was underhand and illegal. In the ordinary sense of the term it was a "free" contract between the Railways and the Oil Company, and in spite of its discriminative character might have been publicly maintained had the law not interfered on a technical point. The same is even true of the flagrant actof discrimination described by Mr. Baker:—"A combination among manufacturers of railway car-springs, which wished to ruin an independent competitor, not only agreed with the American Steel Association that the independent company should be charged $10 per ton more for steel than the members of the combine, but raised a fund to be used as follows: when the independent company made a bid on a contract for springs, one of the members of the Trust was authorised to under-bid at a price which would incur a loss, which was to be paid out of the fund. In this way the competing company was to be driven out of business."[140]These cases differ only in their complexity from the simpler modes of underselling a business rival. Mean, underhand, and perhaps illegal many of these tactics are, but after all they differ rather in degree than in kind from the tactics commonly practised by most businesses engaged in close commercial warfare. If they are "unfair," it is only in the sense that all coercion of the weak by the strong is "unfair," a verdict which doubtless condemns from any moral standpoint the whole of trade competition, so far as it is not confined to competing excellence of production.
The only exercise of power by a Trust or Monopoly in its dealings with competing capital which deserves to be placed in a separate category of infamy, is the use of money to debauch the legislature into the granting of protective tariffs, special charters or concessions, or other privileges which enable a monopoly company to get the better of their rivals, to secure contracts, to check outside competition, and to tax the consuming public for the benefit of the trust-maker's pocket. Under this head we may also reckon the tampering with the administration of justice which is attributed, apparently not without good reason, to certain of the Trusts, the use of the Trust's money to purchase immunity from legal interference, or, in the last resort, to buy a judgment in the Courts.
How far the more or less definite allegations upon this subject are capable of substantiation it is beyond our scope to inquire, but certain disclosures in connection with the Tweed Ring, the Standard Oil Company, the Anthracite Coal Trust, and other syndicates induce the belief thatthe more unscrupulous capitalists seek to influence the Courts of Justice as well as the Houses of Legislature in the pursuance of their business interests.
§ 3. (c) The more or less complete control of the capital engaged in an industry, and of the market, involves an enormous power over the labour engaged in that industry. So long as competition survives, the employee or group of employees are able to obtain wages and other terms of employment determined in some measure by the conflicting interests of different employers. But when there is only one employer, the Trust, the workman who seeks employment has no option but to accept the terms offered by the Trust. His only alternative is to abandon the use of the special skill of his trade and to enter the ever-swollen unskilled labour market. This applies with special force to factory employees who have acquired great skill by incessant practice in some narrow routine of machine-tending. The average employee in a highly-elaborated modern factory is on the whole less competent than any other worker to transfer his labour-power without loss to another kind of work.[141]Now, as we have seen, it is precisely in these manufactures that many of the strongest Trusts spring up. The Standard Oil Company or the Linseed Oil Trust are the owners of their employees almost to the same extent as they are owners of their mills and machinery, so subservient has modern labour become to the fixed capital under which it works. It has been claimed as one of the advantages of a Trust that the economies attending its working enable it to pay wages higher than the market rate. There can be no question as to the ability of the stronger Trusts to pay high wages. But there is no power to compel them to do so, and it would be pure hypocrisy to pretend that the interests of the labourers formed any part of the motive which led a body of keen business men to acquire a monopoly. One of the special economies which a large capital possesses over a small, and which a Trust possessespar excellence, is the power of making advantageous bargains with its employees.
It is possible that a firm like the Standard Oil Trust may to some limited extent practise a cheap philanthropy ofprofit-sharing in order to deceive the public into supposing that its huge profits enrich many instead of few. But there is no evidence that the employees of a Trust have gained in any way from the economies of industrial monopoly, nor, as we see, is there anyà priorilikelihood they should so gain.[142]
But the practical ownership of its employees involved in the position of a monopoly is by no means the full measure of the oppressive power exercised by the Trust over labour. Since the means by which Trust prices are maintained is the regulation of production, the interests of the Trust often require that a large part of the fixed capital of the companies entering the Trust shall stand idle. "When competition has become so fierce that there is frequently in the market a supply of goods so great that all cannot be sold at remunerative prices, it is necessary that the competing establishments, in order to continue business at all (of course, under perfectly free competition many will fail), check their production. Now an ordinary pool makes provision for each establishment to run in one of the two ways suggested. Manifestly a stronger organisation like the Trust, by selecting the best establishments, and running them continuously at their full capacity, while closing the others, or selling them, and making other use of the capital thus set free, will make a great saving. The most striking example of this kind in the recent history of the Trusts is furnished by the Whisky Trust. More than eighty distilleries joined the Trust. Formerly, when organised as a pool, as has been said, each establishment ran at part capacity, one year at 40 per cent., one year at only 28 per cent. A year after the organisation of the Trust only twelve were running; but these were producing at about their full capacity, and the total output of alcohol was not at all lessened. The saving is to be reckoned by the labour and running capital which had formerly been employed in nearly sixty distilleries. It must be borne in mind that onthe product of these twelve distilleries good profits were made on the capital represented in more than eighty plants. All the greater Trusts, such as the Standard Oil, the Cotton Oil, the Cotton Bagging, and the Sugar Trust, have followed this plan of closing entirely the weaker establishments and running only the stronger, thereby effecting a saving in capital and labour."[143]
Here we see a Trust exercising its economic power of regulating production. That power, as we shall see below, is not merely confined to closing the inferior mills in order that the same aggregate output may be obtained by a full working of the more efficient plant. Where over-production has occurred it is to the interest of the Trust to lessen production. With this end in view it will suddenly close half the mills, or works, or elevators in a district. The owners of these closed plants get their interest from the Trust just as if they were working. But the labour of these works suddenly, and without any compensation for disturbance, is "saved"—that is to say, the employees are deprived of the services of the only kind of plant and material to which their skilled efforts are applicable. It is probable that one result of the formation of each of these larger trusts has been to throw out of employment several thousands of workers, and to place them either in the ranks of the unemployed or in some other branch of industry where their previously acquired skill is of little service, and where their wages are correspondingly depressed. From the account given above of the changes in organisation of production under the Trust it might appear that the effect upon labour was not to reduce the net employment, but to give full, regular employment to a smaller number instead of partial and irregular employment to many, and that thus labour, considered as a whole, might be the gainer. An industrial movement which substitutes the regular employment of a few for the irregular employment of many is so far a progressive movement. But it must be borne in mind first that there is usually a net reduction of employment, a substitution not of 50 workers at full-time for 100 at half-time, but of 30 only. For not only will there be a netsaving of labour in relation to the same output, the result of using exclusively the best equipped and best situated factories, but since the Trust came into existence in order to restrict production and so raise prices, the aggregate output of the business will be either reduced or its rate of increase will be less than under open competition. The chief economy of the Trust will in fact arise from the net diminution of employment of labour. As the Trust grows stronger and absorbs a larger and larger proportion of the total supply for the market, the reduction of employment will as a rule continue. Of course, if the scale of prices which the Trust finds most profitable happens to be such as induce a large increase of consumption, and therefore to permit an expansion of the machinery of production, the aggregate of employment may be maintained or even increased. But, as we shall see below, there is nothing in the nature of a Trust to guarantee such a result. The normal result of placing the ordering of an industry in the hands of a monopoly company is to give them a power which it is their interest to exercise, to narrow the scope of industry, to change itslocale, to abandon certain branches and take up others, to substitute machinery for hand labour, without any regard to the welfare of the employees who have been associated with the fixed capital formerly in use. When to this we add the reflection that the ability to choose its workmen out of an artificially made over-supply of labour, rid of the competition of other employers, gives the Trust a well-nigh absolute power to fix wages, hours of work, to pay in truck, and generally to dictate terms of employment and conditions of life, we understand the feeling of distrust and antagonism with which the working classes regard the growth of these great monopolies on both sides of the Atlantic.
The following is a short summary of the findings of a Committee of Congress with reference to the relations existing between the railroad and coal companies which control the anthracite coal-fields in Pennsylvania and the coal-miners:—"Congress has found (Document No. 4) that the coal companies in the anthracite regions keep thousands of surplus labourers in hand to underbid each other for employment and for submission to all exactions; hold them purposely ignorant when the mines are to beworked and when closed, so that they cannot seek employment elsewhere; bind them as tenants by compulsion in the companies' houses, so that the rent shall run against them whether wages run or not, and under leases by which they can be turned out with their wives and children on the mountain-side in mid-winter if they strike; compel them to fill cars of larger capacity than agreed upon; make them buy their powder and other working outfit of the companies at an enormous advance on the cost; compel them to buy coal of the company at the company's price, and in many cases to buy a fixed quantity more than they need; compel them to employ the doctor named by the company and to pay him whether sick or well; 'pluck' them at the company's store, so that when pay-day comes round the company owes the men nothing, there being authentic cases where 'sober, hard-working miners toiled for years, or even a lifetime, without having been able to draw a single dollar, or but few dollars in actual cash,' in 'debt until the day they died;' refuse to fix the wages in advance, but pay them upon some hocus-pocus sliding-scale, varying with the selling price in New York, which the railway slides to suit itself; and most extraordinary of all, refuse to let the miners know the prices on which their living slides, a 'fraud,'" says the report of Congress, "on its face" (pp. 71 and 72). The companies dock the miners' output arbitrarily for slate and other impurities, and so can take from their men 5 to 50 tons more in every 100 than they pay for (p. 76). In order to keep the miners disciplined and the coal market under supplied, the railroads restrict work, so that the miners often have to live for a month on what they can earn in six or eight days, and these restrictions are enforced upon their miners by holding cars from them to fill, as upon competitors by withholding cars to go to market. (Document No. 4, p. 77.)
Labour organisations are forbidden, and the men intentionally provoked to strike to affect the coal market. The labouring population of the local regions, finally, is kept "down" by special policemen, enrolled under special laws, and often in violation of law, by the railroads and coal and iron companies, practically when and in what number they choose, and practically without responsibility to any one but their employers, armed as the Corporation see fit with armyrevolvers or Winchester rifles, or both; made detectives by statute, and not required to wear their shields, provoking the public to riot (pp. 9 and 93-98), and then shooting them legally. "By the percentage of wages," says the report of Congress, "by false measurements, by rents, stores, and other methods the workman is virtually a chattel of the operator."[144]
§ 4. (d) Those who admit that a Trust is in its essence a monopoly, and that it is able, by virtue of its position, to sell commodities at high prices, sometimes affirm that it is not to the interest of a Trust to maintain high prices, and that in fact Trusts have generally lowered prices. We have here a question of fact and a question of theory. Of these the former presents the greater difficulty. It seems a simple matter to compare prices before and after the formation of the Trust, and to observe the tendencies to rise or fall. This comparison has been made in a good many cases, with the result that some Trusts seem to lower prices, others to raise them. The growth of the Standard Oil Company and the strengthening of its power was attended, as we saw, by a considerable fall of price. So also we are told respecting the Cotton Seed Oil Trust, formed in 1883, that "during these four years the price of cotton seed oil fell more than eight times as much as it did during the five years before the Trust was formed."[145]The rates of the most absolute monopoly, the Western Union Telegraph Company, are very little higher than those which prevail in England, where the Government works the telegraph system at a considerable loss each year. The Sugar Trust, on the other hand, directly it was formed, raised prices considerably. The same is true of several of the other most conspicuous combinations.
Now, it is argued, if it be admitted that prices have in fact fallen under the administration of some of the strongest Trusts, it cannot be maintained that Trusts have a tendency to raise prices. In reply, it is pointed out that in almost allhighly-organised modern industries improved methods of production are rapidly lowering the expenses of production and prices, and that therefore the statement that Trusts tend to maintain high prices is quite consistent with the fact of an absolute fall, the question at issue being whether the fall of prices under the Trust was as great as it would have been under free competition. Moreover, a comparison of dates appears to indicate that the Trust's prices, as we saw in the Standard Oil Company, fluctuate with the degree of their monopoly, falling rapidly under the pressure of actual or threatened competition, rising when the danger is past. Finally, opponents of the Trust allude to certain Trusts which, in spite of the greater economies of production they possess, have raised prices.
Excepting by the inverse and questionable method of arguing that the high profits distributed by a Trust are themselves proof that prices have not fallen as they would have fallen under free competition, it is not possible to build a very convincing condemnation of the Trust from statistics of price. And even when profits are high it is open to the defenders of the Trust to maintain that they only represent the saving of the cost of competition, and that if competition were introduced the profits would be squandered in the struggle instead of passing into the consumer's pocket.
It is only from a deductive treatment of the subject that we are able to clearly convict the Trust of possessing a power over prices antagonistic to the interests of the consuming public.
A Trust, or other company, or a single individual who has a complete monopoly of a class of goods for which there is a demand, will strive to fix that price which shall give him the largest net profit on his capital. The question with him will be simply this, "How many articles shall I offer for sale?" If he offers only a small number the competition of more urgent wants among the consumers will enable him to sell the small number at a high price. Assuming, for the moment, that the production of these articles was subject to the law of constant returns—i.e., that a few things were produced relatively as cheaply as many, this small sale would give the highest rate of profit on each sale, for the "marginal utility" of the supply would be high and would enable a high price to be obtained for the wholesupply. But if he possesses large facilities of production it may pay him better to sell a larger number of articles at a lower price with a lower rate of profit on each sale, because the aggregate of a larger number of small profits may yield a larger net profit on his whole capital. How far it will pay him to go on increasing the supply and selling a larger number of articles at a lower price will entirely depend upon the effect each increment of supply exercises upon demand, and so upon prices and profits. Everything will hinge upon the "elasticity of demand" in the particular case. If the object of the monopoly satisfies a keen, widely-felt want, or stimulates a craving for increased consumption among those who take off the earlier supply, a large increase in supply may be attended by a comparatively small fall in prices. Sometimes a large increase of supply at a lowered price will, by reaching a new social stratum, or by forcing the substitution of this article for another in consumption, so enlarge the sale that though the margin of profit on each sale is small, the net profit on the whole capital is very large. In all such cases of great elasticity it may pay a monopolist to sell a large number of articles at a low price.
Where the article belongs to that class in which the law of increasing returns is strongly operative—i.e., where great economies in expenses of production attend a larger scale of production, this increase of supply and fall of prices may continue with no assignable limit. On the other hand, where there is little elasticity of demand, where an increase of supply can be taken off only at a considerable fall of price, it will probably pay a monopolist to restrict production and sell a small number of articles at a high price. It is this motive which often induces the destruction of tons of fish and fruit in the London markets for fear of spoiling the market. These goods could be sold at a sufficiently low price, but it pays the companies owning them to destroy them, and to sell a smaller number which satisfies the wants of a limited class of people who "can afford to pay." Now, when free competition exists among sellers, as among buyers, this can never happen. It will always be to the interest of a competing producer or dealer to lower his price below that which would yield him the largest net profit on his capital were hea monopolist. If he is a monopolist he will only lower his prices provided the elasticity of demand in the commodity in question is so great that the increased consumption will be so considerable as to yield him a larger net profit. But if he is a competing dealer he does not look chiefly to the consumption of the community, but to the proportion of that consumption which he himself shall supply. The elasticity of demand, so far as his individual business is concerned, is not limited to the amount of the increased consumption of the community stimulated by a lowering of prices, but includes that portion of the custom of his rivals which he may be able to divert to himself. Hence it arises that under free competition it will be the tendency of the several competitors to drive down the prices to the point at which the most advantageously placed competitors make the minimum profit on their capital.
§ 5. It is all important to an understanding of the subject to recognise that a monopoly price and a competitive price are determined by the operation of an entirely different set of economic forces. The loose opinion that it must be to the interest of a Trust or other monopoly to sell at the same price as would be fixed by competition is quite groundless.
Let us look more closely at the determinants of a monopoly price. Suppose we are dealing with a Trust owning a large amount of fixed capital, some of it more and some less favourably ordered for production, and having an absolute monopoly in the market for steel rails, cotton bagging, or other manufactured articles. First look at expenses of production. A very small output, though produced by the exclusive use of the very best machinery and labour, would not be produced very cheaply, because the economies attending large-scale production would be sacrificed. Each successive increment in output would involve a decreased expense per unit of production so long as the most favourably situated plant was employed. If the output grew so large that worse material or works fitted with inferior plant, or less favourably placed, were called into requisition, the economies of an increased scale of production would be encroached upon by this lowering of the margin of production. Taking the Trust's capital at a fixed amount, there would necessarily come an increment of output which it would not pay to produce even if sold at the price fetchedby the previous increment. The ton of steel or of cotton bagging which would only yield a bare margin of profit, if sold at the price fetched by the last ton, limits the maximum output of the business. Under the pressure of free competition this marginal ton will be actually produced. But though, considered by itself, it yields a margin of profit, it will rarely if ever be produced as part of the actual output of a Trust. The actual output of a Trust, we shall find, will be determined at any point between the first unit of output and this marginal increment. The expenses of production will not increase in any close correspondence with the growth of the output, but will represent the fluctuating resultant of the several economies of production at the several points.