The Americans

by Hugo Münsterberg

The trusts have other demoralizing effects. Their resources are so tremendous as in the end to do away with all opposition. The independent man who hopes to oppose the great rival, can too easily be put in a position in which he is made to choose between beggary and the repudiation of all his principles. Everybody knows the shameless history of the Standard Oil Company, which has strangled not merely weak proprietors, but, much more, has strangled strong consciences. Then, too, the whole system of over-capitalization is immoral. Large trusts can hardly be formed except by purchasing the subsidiary companies at fancy prices, and issuing stock which in large part represents the premium paid to the promoters. Indeed, this whole system of community of interests which puts thousands of corporations into the hands of a few men who everywhere play into one another’s hands, must bring it about that these men will soon grow careless and overlook one another’s irregularities in a way which will threaten sober business traditions. The whole country was shocked on hearing the revelations of the Shipbuilding Trust, and seeing with what criminal carelessness the organization went on in a little group of friends, and how the methods of poker-playing were applied to transactions of great moment. The fundamental objection, however, is always that it is immoral to kill competition by agreements which create a monopoly.

Now, what can be done to obviate these evils? Apparently the first thing would be a revision of the tariff; and yet even their opponents must agree that there is only an indirect relation between the protective tariff and the trusts. It is true that the high tariffs have helped to create those industries which have now come together in trusts, and if the industries were to be wiped out, of course there would be nothing left of consolidations. But it is surely not true that the trusts are the immediate effect of the tariff, and the more a revised tariff were to let in foreign competition so much the more would the national industries need to form themselves into trusts for the sake of the benefits of consolidated management. All the business advantages and all the moral evils of trusts would still remain, even though the dividends were to sink. And the trusts would not be carried off the field unless American industry itself should utterly succumb to the foreign enemy.

Most of all, however, it seems clear that any policy prejudicial to the conditions of production and distribution would first of all, and most sadly, hit the competitors of the trusts. There is no absolute monopoly in any American industry. Indeed, even the Sugar Refining Company has a few outside competitors, and there is a legion of independent producers outside of the Steel Trust who are themselves in part organized in groups, and in many industries the trusts do not comprise even half of the manufacturers. Now, if the high tariff wall should be torn down so that a flood of cheap foreign manufactures could come in, it is certain that the first sufferers would be the small independent companies, which would be drowned out, while the mighty trusts would swim for a long time. Indeed, the destruction of such home competition would greatly benefit the trusts. Some of the strongest of these would hardly be reached at all by a reduction of the tariff—as, for instance, the strongest of them, the Petroleum Trust, which does not enjoy any protection. And it is also to be asked if trusts do not prosper in free-trade England? So soon as the water is squeezed out of their stocks, as has in good part lately happened, the trusts would still have a great advantage after protective duties should be abolished. And at the same time the necessary depression of wages which would result from that movement would endanger the whole industrial fabric. Moreover, the social and moral evils of the trusts would persist. Therefore the Republican party, which is just now in power, will take no part in solving the trust question by reducing the tariff.

Those Republicans who oppose the trusts are much more inclined to proceed to federal legislation. President Roosevelt has, in a number of speeches which are among the most significant contributions to the whole discussion, pointed to this way again and again. The situation is complicated and has shifted from time to time. The real difficulty lies in the double system of legislative power which we have already explicitly described. We have seen that all legislative power which is not expressly conferred on the Union belongs to the several states; specially has each state the right to regulate the commercial companies to which it has given charters. But if the company is such a one as operates between several states—as, for instance, one which transports goods from one state to another—it is regulated by federal law. Now, as long ago as the year 1890, in the so-called Sherman Act, Congress passed draconic regulations against interstate trusts. The law threatens with fine and imprisonment any party to a contract which restricts interstate commerce. It can be said of this law that it entirely did away with the trusts in their original form, in which the various companies themselves composed the trust. At the same time the federal officials were strongly seconded by the judicial doings of the separate states, as we have already seen. But the effect has only been to drive industry into new forms, and forms which are not amenable to federal regulations, but fall under the jurisdiction of the separate states. Corporations were formed which have their home in a certain state, but which by the tremendous capital of their members have been able to acquire factories distributed all through the country. Indeed, they are not real trusts any more, and the name is kept up only because the new corporations have descended from trusts and accomplish the same purpose.

Of course, this change would have been of no advantage for the several companies if the stern spirit shown by Congress in this legislation had been manifested once more by the separate states, that is, if each separate state had forbidden what the Union had forbidden; but so long as a single state in the whole forty-five permitted greater freedom to business than the others, of course all new companies would be careful to seek out that state and settle there. And, what was more important, would there pay taxes—a fact which tended to persuade every state to enact convenient trust laws.

Now, it is not a question between one state and forty-four others, but rather between the diversities of all the forty-five. Almost every state has its peculiar provisions, and if its laws are favourable to the trusts this is because, as each state says, if it were to stand on high moral grounds it would only hurt itself by driving away profitable trusts, and would not benefit the whole country, because the trusts would simply fly away and roost in some other state. More especially the industrially backward Western States would be always ready to entertain the trusts and pass most hospitable laws, for the sake of the revenue which they could thereby get for their local purposes. And so it is quite hopeless to expect the trusts to be uprooted by the legislation of the separate states. If all forty-five states were to pass laws such as govern stock companies in Massachusetts, there would be no need of further legislation; and it is also no accident, of course, that there are very few trusts in the State of New York. All the great trusts whose directors reside in the metropolis have their official home across the river in the State of New Jersey, which has made great concessions to the companies.

If these companies are to be reached by law, the surest way seems to be by taking a radical step and removing the supervision of large stock companies from the single states, and transferring it to the federal government; this is the way which President Roosevelt has repeatedly recommended. In our political section we have explicitly shown that such a change cannot be introduced by an act of Congress, but only by an amendment to the Constitution, which cannot be made by Congress, since it is in itself a product of the Constitution. Congress would be able only to take the initiative, and two-thirds of both houses would have to support the proposition to change the Constitution; and this change would have to be ratified by three-fourths of the state legislatures themselves. Now, it would be difficult to get a two-thirds majority in both houses on any question hostile to trusts; but it is quite out of the question to induce the three-fourths of the states to cripple their own rights in so important a matter as the regulation of stock companies; particularly as in economic matters local power is necessary to local optimism, and the weaker states would never consent to give up such rights, since they would be forced to see industrial laws framed according to the requirements of the more highly developed states. Was the President, then, in his speeches, like Don Quixote, tilting against the windmills; or was he proposing, as some of his opponents said, quite impracticable solutions in order to divert attention from such a handy solution as that of tariff reduction? And was he declaiming loudly against the trusts before the public in order really to help on the friends of capital?

Perhaps another point of view may be found. It may be that President Roosevelt proposed a constitutional amendment in order to arouse discussion along certain lines, and in order specially to have the chance of demonstrating that federal control of those overgrown business enterprises is necessary, and that their control by the several states is dangerous. It looks indeed as if such discussion would have been highly superfluous if not insincere, if it were true that the sole way of helping the situation were the quite impossible constitutional amendment.

But such is not the case; there is another way of reaching the same end without meeting the difficulties involved in changing the Constitution. Of course, the President was not free to discuss this means, nor even to mention it. This way is, we think, for the Supreme Court to reverse its former decision, and to modify its definition of interstate commerce in closer accord with the latest developments of the trusts. We have seen that there are drastic laws relating to interstate commerce which have overthrown all the earlier trusts; but a corporation claiming home in New Jersey, although owning factories in different states and dependent on the co-operation of several states for its output, is to-day treated by the Supreme Court as a corporation pertaining to one state. If, now, the Supreme Court were to decide that such a corporation transacts interstate commerce, then all the severity of the existing federal laws would apply to such corporations, and everything which could be accomplished by an amendment to the Constitution would be effected by that one decision. Of course, the President could not suggest this, since the Supreme Court is co-ordinate with the Executive; yet if public attention should be awakened by such a discussion, even the judges of the Supreme Court might consider the matter in a new light.

To be sure, this would at the same time require the Supreme Court somewhat to modify its previous interpretation of the Anti-Trust Law itself, and not merely its application; since otherwise, if the trusts come under federal jurisdiction, the law might wipe out the new trusts, as it did the old, instead merely of regulating them. In view of the recently published memoirs of Senator Hoar, there can be no doubt that the Supreme Court has interpreted the law forbidding the restraint of trade more strictly than was originally intended in the bill which Hoar himself drew up. Congress meant to refer to agreements in restraint of trade in a narrow, technical sense, while the court has interpreted this law as if it were to apply to every agreement which merely regulates production or sale in any place. But this unnecessarily severe construction of the law by the unexpected verdict of the court can of course be set aside by a further Congressional measure, and therefore offers no difficulty.