Monopolies and the People

by Charles Whiting Baker

Of retail trade in the cities, it is not necessary to speak at length. Combination here has seldom been found practicable because of the great number of competing units. There is, however, a noticeable tendency of late to the concentration of the trade in large establishments, which by their prestige and capital are able to take away business from their smaller competitors. It does not seem likely, however, that this movement will result in any very injurious monopoly among city retailers.

The wholesale trade is on quite a different basis from the retail. The number of competitors being so much less, combination is vastly easier. The tendency toward it has been greatly fostered and strengthened by the formation of trusts among the producers. These combinations made the manufacturer more independent in his treatment of jobbers, and disposed him to cut their profits to the lowest point. Naturally these men combined to resist this encroachment on their income. They refused to handle any goods for less than a certain minimum commission. It might be possible in many cases for manufacturers to sell directly to the retail traders, but in general the difficulty of changing old commercial channels is such that the friction and expense is less if the goods are permitted to pass through the wholesaler's hands. It is to be noted that one cause for ill-feeling between manufacturer and wholesaler is the fact that before the days of trusts the latter often reaped much greater proportionate profits than the producer himself. But in time this cause of dissension will be forgotten, and the trust and the wholesalers' association will work in harmony.

The point of greatest interest in this is the fact that combinations among this first class of middlemen are fostered and made possible by the combination of producers. Nor does the series end here necessarily. The increased price which the retail dealers are obliged to pay for the goods, with the fact that others are making larger profits, makes them eager to do the same; and by the aid and co-operation of the wholesale merchants they may be able to do much toward checking competition among themselves and increasing their profits. Thus by the operation of the combination at the fountain-head among the producers, there is a tendency to check competition all along the line, and grant to each handler of the goods between producer and consumer an abnormal profit. An excellent example of this is found in the sugar trade. The wholesale Grocers' Guild of Canada, which includes 96 per cent. of the Dominion's wholesale traders, entered into a compact with the Canadian sugar refiners, who agreed that dealers outside of the guild should be charged 30 cents per 100 pounds more for sugar than those who were in the guild. In November, 1887, fourteen members of the guild were expelled and were compelled to pay the higher price. The executive committee of the guild fixed the selling price for the retail dealers. The guild was so successful with sugar that it extended its operations to starch, baking powder, and tobacco, fixing prices for those goods as well. The committee of the Dominion Parliament, appointed to investigate the guild, reported that it was a combination obnoxious to public interest, because it limited competition, advanced prices, and treated with gross injustice those in the trade who were not its members. In New York State there are two associations of wholesale grocers which are working to prevent competition in the sugar trade. They have fixed a uniform price for sugar, and have tried to make arrangements with the managers of the sugar trust by which that organization shall discriminate against all grocers who are not members of the association by refusing to sell them sugar or charging them a higher price. In some other sections an attempt has been, or is being, made by which the retail grocer sells only at certain fixed prices determined by a committee of the wholesalers who issue each week a card of rates. It is urged in defense of the movement that sugar has been sold at an actual loss by both the wholesale and retail trade for a very long time. The Grocers' Association, at its first meeting, passed a resolution declaring that it was opposed to combinations for the purpose of extorting unreasonable profits from the public, and that all that was sought was to prevent the evil of handling certain staples below the cost of doing the business. But if we inquire why these staples have been handled at a loss, the answer is, because of the strong competition which has prevailed. The organization, then, is a combination to limit competition, to suppress it, in fact, and the difference between its purpose and work and that of the Sugar Trust is a difference of degree and not of kind. The reason for its moderate demands may be because grocers are more liberal-hearted than refiners, or because they understand that their power over the trade is more limited than those who control the original product, so that an attempt to exact too large profits would offer a tempting premium to competitors of the Association.

Another staple article of consumption in which combinations are known to exist is meat. It is affirmed that a combine of buyers and slaughterers controls the markets of Chicago and Kansas City, and both depresses the price paid for cattle in the market, and raises the price of beef to the retail dealer. This monopoly proved so oppressive, and attracted so much attention, that in February, 1889, Gov. Humphrey of Kansas, called a convention of delegates from the legislatures of ten different States and Territories to devise a system of legislation, to be recommended for adoption by the several States, which should destroy the power of the combination.

One of the combinations investigated by the New York State Committee appointed to investigate trusts and similar organizations, was an association of the retail butchers, and the brokers buying sheep, lambs, calves, etc., from the farmers. The purpose of the association is to prevent competition among its members and keep control of prices in its own hands by charging a higher price to outsiders than to members of the association. The ultimate effect is to increase profits by paying less for the animals and getting higher prices for the meat sold.

We might go on at indefinite length to examine the various monopolies of this sort, but it does not seem necessary. The salient fact which is evident to any one at all conversant with business affairs is, that in almost every line of trade the restriction of competition is in force to a greater or less extent. Those monopolies are strongest, indeed, which have control of production; but in so far as they can control the market, the men engaged in buying and selling are equally ready to create minor monopolies, and an acquaintance with the general markets convinces one that these monopolies are numerous enough to have a very important effect in increasing the cost of goods to the consumer.

We are accustomed to think of competition as a force which always tends to keep prices down, and of a monopoly as always raising prices; but it should be understood that this is true only of the competition and monopolies among sellers of goods. It must be remembered that the competition among buyers, is a force which acts in the opposite direction and tends to raise prices; and that it is quite possible to have combinations among buyers to restrict competition and keep prices down. Of course, where the buyer is the final consumer, this is almost impossible, for the great number of competitors forbids any permanent combination. Also where the product concerned is a manufactured article or a mineral product, the mining or manufacturing company or firm will generally have capital enough and business ability enough to defeat any attempt of the wholesale merchants to combine to reduce the prices paid for their output. This he can easily do by selling to retail dealers direct. But in the case of products gathered from the farmers the case is different, and the producer can less easily protect himself against combinations among buyers to fix the price he shall receive. The power and extent of these monopolies varies with the distance of the farmer from markets, and also, it must be said, with the intelligence and shrewdness of the farmer. In districts remote from railways and markets the farmers are often dependent on the travelling buyers for a chance to sell their cattle or produce. In a thinly settled region there may be no more than two or three times in a season when a farmer will have an opportunity to dispose of his surplus products; and, realizing his necessity, he is apt to be beaten down to a much lower price than the buyer would have given if other buyers had been competing with him to secure the goods. In the chief markets, too, there is often a combination of buyers formed to keep down prices. The combine of cattle-buyers in Kansas City and Chicago has just been noted. The New York Legislative Committee discovered that a milk trust had control of the supply of milk for New York City, fixing the price paid to the farmer at three cents per quart, and the selling price at 7 or 8 cents per quart. According to the suit brought by the Attorney-General of Louisiana against the Cotton-Seed Oil Trust, that monopoly has reduced the price paid to the planters for seed from $7 to $4 per ton. As the total amount of cotton seed which it purchases is about 700,000 tons a year, it is evident that this feature of the combination alone puts into the pockets of the owners of the Trust over two million dollars per annum, over and above the profits made through its control of the cotton-seed oil market. Evidently the combinations which lower prices by restricting competition among purchasers are not to be overlooked because of unimportance.

In the chapter on monopolies of mineral wealth it was stated that the French copper syndicate is not a "trust," but a "corner." It has not been common to consider "corners" as a species of monopoly, except as they have, like the latter, acquired a bad reputation with the general public from their effect in raising the price of the necessaries of life. But if we look at the matter carefully, it becomes plain that the aim of the maker of corners is the same exactly as that of the organizer of trusts,—to kill competition. The difference lies in the fact that the "corner" is a temporary monopoly, while the trust is a permanent one. The man who forms a corner in, let us say, 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 supply is nearly within his control, he spreads the news that there is a "corner" in the market, and buys openly all the wheat he can, offering larger and larger prices, until he raises the price sufficiently high to suit him. Now the men who 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 a higher price 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."

Fourier tells of an event in his early life which made a lasting impression on him. While in the employ of a mercantile firm at Marseilles, his employers engaged in a speculation in rice. They purchased almost all the available supply and held it at high prices during the prevalence of a famine. Some cargoes which were stored on shipboard rotted, and Fourier had to superintend the work of throwing the wasted grain, for the want of which people had been dying like dogs, into the sea. The "corners" of the present day are no less productive of discontent with the existing state of society than were those of Fourier's time.

But, returning to our subject, it should be said that the "corner," generally speaking, does much less injury to the public than is commonly supposed. As we have shown, the manipulators of the corner make their chief profits from other speculators who operate on the opposing side of the market; and it is but a small part of their gains which is taken from the consumers. The effect on the consumer of the abnormal rise in price caused by the corner is sometimes quite made up for by the abnormal fall which occurs when the corner breaks. Generally, however, the drop in prices will be slower to reach down to the final consumer, past the middlemen, than will the higher prices. The corner makers also are apt, if they are shrewd and successful, to make the total of their sales for the current supply yield them a profit. Thus suppose that the normal price of wheat is 70 cents per bushel, and that the syndicate secures control of five million bushels at the normal price. If while it keeps the price up it sells two million bushels at $1.20 per bushel, it can afford to get rid of the rest of its stock at an average price as low even as 50 cents per bushel, and still make four hundred thousand dollars' profit.