The Americans

by Hugo Münsterberg

The very obvious opulence of the leaders naturally excites popular criticism, but it has been often shown that the wealth of these rich people has not increased relatively to the average prosperity of other classes, and the corporations themselves make it possible to distribute the profits saved by concentration throughout the population. The famous United States Steel Company had last year 69,000 stockholders, and the shares of American railroads are owned by more than a million people. For instance, the Pennsylvania Railroad alone has 34,000 stock and bond holders, who intrust the control to a very few capitalists. In fact, the whole railway system belonging to a million people is controlled by about a dozen men; and the Steel Company with its 69,000 owners is managed by twenty-four directors, who in turn are guided by the two presidents of the administration and finance committees. The chief point is thus not the concentration of ownership, but the concentration of power.

This same movement toward concentration has taken place in the banking business; and here the point is certainly, not that one man or a few men own a main share in the banks, but only that a few men are put in charge of a group of financial institutions for the sake of organized management. In this way the public is more uniformly and systematically served, and the banks are more secure, by reason of their mutual co-operation.

Among the directors of the Bank of Commerce there are, for instance, directors of two life-insurance companies which have a capital of $750,000,000, and of eight trust companies; and the directors of these trust companies are at the same time directors of other banks, so that they all make a complete chain of financial institutions. And they stand more or less under the influence of Morgan. There is, likewise, another system of banks, of which the chief is the National City Bank, which is dominated by Rockefeller; and these personal connections between banks are continued to the industrial enterprises, and then on to the railroad companies. For instance, the Rockefeller influence dominates not only banks and trust companies whose capital is more than $400,000,000, the famous Standard Oil Company with a capital of $100,000,000, the Lackawanna Steel Company worth $60,000,000, and the gas companies of New York worth $147,000,000, but also the St. Paul Railroad, which is capitalized at $230,000,000, the Missouri, Kansas and Texas at $148,000,000, and the Missouri Pacific at $212,000,000.

It is certainly true that such tremendous influence under present conditions can be gotten only by men who actually own a huge capital. And yet the essential economic feature is always the consolidation of control, which is found necessary in every province of industry, and which entirely overtops the question of ownership. It has been estimated that the twenty-four directors of the United States Steel Company exert a controlling influence in two hundred other corporations; that back of them are the largest banks in the whole country, about half the railroads, the largest coal, oil, and electric companies, and the leading telegraph, express, and life-insurance companies, etc. They control corporations with a capital of nine billions of dollars: and such consolidation is not to be undone by any artificial devices of legislation.

If economic life, by reason of the dimensions which it has assumed in the last decades, requires this welding together of interests in every department, then the formation of syndicates and trusts is only a phase in the necessary development; and to prevent the formation of trusts would affect the form, and not the essence of the movement. Indeed, the form has already changed a number of times. The earliest trusts were so organized that a number of stock companies united as such and intrusted their business to a new company, which was the “trust.” That system was successfully abolished; the trust itself seemed unassailable, but the state could revoke the charters of the subsidiary companies, because by the law of most states these latter might continue only so long as they carried on the functions named in their charters; that is, so long as they carried on the transaction of their affairs themselves. A stock company has not the right, possessed by an individual, to intrust its property to another. And if the stock companies which came together into a trust were dissolved, the trust did not exist. In this way the State of New York proceeded against the Sugar Trust, Ohio against the Standard Oil Company, and Illinois against the Chicago Gas Company.

But the course of events has shown that nothing was gained by this. Although it was recognized that corporations could not legally combine to form a trust, nevertheless the stockholders controlling the stock of separate companies could join as individuals and contribute their personal holdings to a new company which was virtually a trust; and in this form the trusts which had been demolished were at once reorganized. Moreover, of course any number of stock companies can simply dissolve and merge into one large company, or they may keep their individuality but make important trade agreements with one another, and so indirectly fulfil the purposes of a trust. In short, the ways of bringing assenting industrial enterprises under one management and so of virtually making a given industry into a monopoly, are manifold.

To promote the development of trusts, there was nothing necessary but success at the outset. If the first trusts were successful, the device would be imitated so long as there was any prospect of profit. It really happened that this imitation went on finally as a sort of mania, where no special saving of profits could be predicted; one trust followed another, and the year 1903 saw 233 purely industrial trusts incorporated, of which 31 had a capital of over $50,000,000 each, and of which the total capitalization was over nine billions.

At first sight it might look as if this movement would be really sympathetic to the American people in general. The love of size generated in the nation by the lavishness of nature must welcome this consolidation of interest, and the strong spirit of self-initiative claiming the right of individuals to unite and work together must surely favour all sorts of co-operation. As a fact now an opposite tendency operates, which after all springs from the same spirit of self-initiative. The freely acting individual must not be prevented by a stronger force from using the strength he has. Everything which excludes free competition and makes the individual economically helpless seems immoral to the American. That is old Anglo-Saxon law.

The common law of England has at all times condemned agreements which tend toward monopoly, and this view dominates the American mind with a force quite surprising to the European who has become accustomed at least to monopolies owned by the state. The laws of almost all the separate states declare agreements tending toward a monopoly to be illegal; and federal legislation, in its anti-trust measures of 1887 and 1890, has seconded this idea without doing more than formulating the national idea of justice. The law of the country forbids, for instance, all agreements looking to the restriction of trade between different states of the country or with foreign nations. Senator Foraker, in February, 1904, called down public displeasure by proposing a law which permitted such agreements restricting commerce so long as the restriction was reasonable. It was feared at once that the courts would think themselves justified in excusing every sort of restraint and monopolistic hindrance. And yet there is no doubt that the interpretation of what should constitute “restriction” to commerce was quite as arbitrary a matter as the interpretation of what should be “reasonable.” Indeed, the economic consolidation of competing organizations by no means necessarily cuts off the beneficent effects of competition. When, for instance, the Northern Securities Company united several parallel railway lines, it asserted justly that the several roads under their separate corps of officials would still compete for public favour. Yet the public and the court objected to the consolidation. The one real hindrance to the propagation of trusts lies in this general dread of every artificial check to free competition.

Many circumstances which have favoured the formation of trusts are obvious. In the first place, the trust can carry on business more cheaply than the component companies individually. The general administration is simplified by doing away with parallel positions, and all expenses incident to business competition are saved. Then, too, it can make larger profits since when competition stops, the fixing of prices lies quite with itself. This is of course not true, in so far as other countries are able to compete; but here comes in the function of the protective tariff, which permits the trust to raise its prices until they equal those of foreign markets plus the tariff.