The New Nation

by Frederic L. Paxson

With the growth of national uniformity went also the concentration of control. As the field of competition widened, the number of possible winners declined. Men measured strength, not only in their town or State, but across the continent, and the handful of leaders used the facilities of communication as the basis for the further expansion of their industries. Business was extended because it was possible and because it was thought to pay.

Many of the economies of consolidation were so obvious as to need no argument. If a single firm could do the business of five,—or fifty—it increased its profit through larger and better plants, greater division of labor, and a more careful use of its by-products. It could cut down expenses by reducing the army of competing salesmen and by lessening the duplication of administrative offices. The same economics in management which had driven the Old South to the large plantation as a type drove American industrial society toward economic consolidation and the trusts.

The technical form of organization of the trust was unimportant. Strictly speaking, it was a combination of competing concerns, in which the control of all was vested in a group of trustees for the purpose of uniformity. The name was thus derived, but it spread in popular usage until it was regarded as generally descriptive of any business so large that it affected the course of the whole trade of which it was a part. The logical outcome of the trust was monopoly, and trusts appeared first in those industries in which there existed a predisposition to monopoly, an excessive loss through competition, or a controlling patent or trade secret.

The first trust to arouse public notice was concerned in the transportation and manufacture of petroleum and its products. Commercial processes for refining petroleum became available in the sixties, enabling improvements in domestic illumination that insured an increasing market for the product. The industry was speculative by nature because of the low cost of crude petroleum at the well and the high cost of delivering it to the consumer. Slight rises in price caused the market to be swamped by overproduction, and threw the control of the industry into the hands of those who controlled its transportation.

Once above ground, the cheap and bulky oil had to be hauled first to the refiner and then to the consumer. The receptacles were expensive, and the methods of transportation that were cheapest in operation had the greatest initial cost. Barrels were relatively cheap to buy, but were costly to handle. Tank-cars were more expensive, but repaid those who could afford them. Pipe-lines were beyond the means of the individual, but brought in greater returns to the corporations that owned them.

It was inevitable that some of the dealers who competed in the oil-fields of Ohio, Pennsylvania, and West Virginia in the sixties should realize the strategic value of the control of transportation and profit by it. John D. Rockefeller happened to be more successful than others in manipulating transportation. His refineries grew in size, as they bought out or crushed their rivals, until by 1882 most of the traffic in petroleum was under his control. Economy and sagacity had much to do with the success, but were less significant than transportation. Railway rates were yet unfixed by law and every road sold transportation as best it could. Rockefeller learned to bargain in freight rates, and through a system of special rates and rebates gained advantages over every competitor. His lobby made it difficult to weaken him through legislative measures, while his attorneys were generally more skillful than his prosecutors before the courts. The recognition of the existence of rebates did much to hasten the passage of the Interstate Commerce Law. The group of corporations that flourished because of them became the greatest of the trusts. By 1882 the affiliated Rockefeller companies were so numerous and complicated that they were given into the hands of a group of trustees to be managed as a single business.

The Whiskey and Sugar Trusts, formed in 1887, had to do with commodities in which transportation was not the controlling element. These industries suffered from overproduction and ruinous competition, to eliminate which the distilleries and sugar refineries entered into trust agreements like that of the Standard Oil companies. Other lines of manufacture followed as best they could. Before Cleveland was inaugurated the trend was noticed and attacked.

Most of the agitation against the trusts came from individuals whose lives were touched by them. Competition was ruthless and often unscrupulous. Every man who was crushed by it hated his destroyer. There was much changing of occupations as firms merged and reorganized and as plants grew in size and ingenuity. Perhaps more workers changed the character of their occupation in the eighties than in any other decade. As each individual readjusted himself to his new environment, he added to the mass of public opinion that believed the trusts to be a menace to society.

As early as 1881 there was a market for anti-trust literature, for in March of that year the Atlantic Monthly printed the "Story of a Great Monopoly," by Henry Demarest Lloyd, who became one of the leaders in the attack. It had been fashionable to regard success as a vindication of Yankee cleverness and worthy of emulation, without much examination of the methods by which it was attained. The Standard Oil Company, attracting attention to itself, raised the question of the effect of industry upon society.

The evils ascribed to the trusts were social or political. In a social way they were believed to check individualism and to create too large a proportion of subordinates to independent producers. As monopolies, they were believed to threaten extortion through high price. It was strongly suspected of the largest trusts that having destroyed all competition they could fix prices at pleasure. Economists pointed out that such price could hardly be high and yet remunerative to the trusts, because the latter did not dare to check consumption. But fear of oppression could not be dispelled by any economic law.