"The man who forms a corner in 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 whole supply is nearly in his control, he spreads the news that there is a 'corner' in the market, and buys openly all the wheat he can, offering higher and higher 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 higher prices 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."[126]
These "corners," of which in various forms and degrees the speculative business on the stock and produce markets largely consists, are attempts to substitute for a time a high monopoly price for a competitive price by "rigging the market." Since the calculations upon which these "corners" are based are essentially hazardous, attempted corners frequently break down. One of the most special examples of the collapse of a powerful corner in recent years is that of "La Société Industrielle Commerciale des Métaux," commonly known as the "Copper Syndicate." A body of French capitalists, for the most part not owners of mines or metal merchandise, but speculators pure and simple, placed a sum of money with the intention of cornering the supply of "tin." Before completing this design they were induced to undertake a larger speculation in the "copper market." In 1887 they entered into contracts with the largest copper-producing companies in various countries, agreeing to buy all the copper produced for the next three years at a fixed price of 13 cents per pound, with an added bonus equivalent to half the profit from their sale of the same. In 1888 the Syndicate sought to extend its contracts with chief mining companies to cover a period of twelve years, arranging with them also to limit the output of copper. For some time they held the market in their grip, and prices advanced considerably. But partly owing to a failure to complete their contracts securing a restriction in production, and partly from inability to meet their current liabilities, the "corner" was broken down in 1889, and the artificially inflated prices fell. Not only are the makers of "corners" liable to these miscalculations, but they are liable to be overthrown by counter combinations of capitalists or of operatives. The breakdown of a formidable attempt to "corner" cotton in Lancashire in 1889 was due to the prompt action of the Trades Unions, who undertook to unite with their employers in a stoppage of work for such length of time as was requisite to force the collapse of the "ring."
In the same year a formidable flour syndicate broke down before the firm attitude of the co-operative flour mills.[127]
But though the speculative character of modern commerce, assisted by the abundant use of credit, has lent special facilities to the formation of "corners" and "rings," it is hardly necessary to say that commerce has never been free from them. The celebrated "corner" in grain which Joseph organised on behalf of the King of Egypt was one of the largest and most successful. The commercial law of the Middle Ages is full of provisions against engrossers, forestallers, and regrators, all of whom were engaged in artificially raising prices to the consumer by obtaining some sort of monopoly. Organised rings to secure a monopoly of the food supply of some great city have been frequent throughout history. Cicero informs us of the celebrated ring of capitalists under Crassus to raise food prices at Rome. A closely-formed combination of northern coalowners continued to restrict output and impose monopoly prices upon London consumers for a considerable time in the middle of the eighteenth century.[128]
In modern times these "corners" are essentially of brief duration so far as they consist in narrowing the stream of commerce at a particular point so as to check its free flow. Most of them are confined to goods which are dealt with upon commercial exchanges, and are amenable to the operations of skilled speculators. The "deal" must be upon a scale large enough to enable a big net profit to be secured in a short time. The stimulation which artificially inflated prices apply to the early productive processes, the activity of other speculators, and the check given to consumption by high prices, generally preclude the possibility of a "corner" lasting long. The strength of the copper "corner," had it succeeded, would have lain in the hold it would have obtained over the early extractive stage, preventing the operation of the natural stimulus of high prices to increase production. If the Copper Syndicate had established its hold upon the mining companies, it would have been able to hold the market for an indefinite period, passing from the state of a "corner" into the more durable and established position of the Trust.
§ 8. A Trust may be regarded from an economic aspect, or from a legal aspect. Economically, the term Trust is applied to a class of syndicates which have established a partial or total monopoly in certain productive industries by securing the ownership of a sufficient proportion of the instruments of production to enable them to control prices. Legally, a Trust is a form of business association—"a trust of corporate stocks by means of which a body of men united in interest are enabled to carry on business through separate corporate agencies."[129] It is a company of companies, under which, while the formal structure of the original companies is maintained, they are incorporated as single cells in the larger organism which directs their activity. The constitution of the Trust is best explained by a description of its origin in the industry of the United States. The owners of a majority of the shares in a number of corporations hitherto separate in their constitution (though they may have been acting in agreement with one another, or have been largely owned by the same persons) agree to place their shares of stock in the full control of a body of persons called trustees. These trustees may or may not be shareholders or directors of the several corporations. They "act under an agreement that they will cast the votes represented by the stock so held for the perpetuation of the trust during the time agreed upon, and in furtherance of its purposes: will elect the officers provided for by law in each of the corporations, and in behalf of all of them manage the business of all, except, it may be, in small matters of detail." "Each shareholder, upon surrendering his corporate stock to the board of trustees, receives a certificate entitling him to an interest in all the property and earnings of all the corporations of the trust."[130]
These certificates are believed in many cases to certify a money value far in excess of the real value of the stock surrendered at the time when the Trust was formed. The Report of the New York Chamber of Commerce for 1887-88 estimates the "certificates" given by the Sugar Trust to the shareholders of its constituent corporations as bearing "water" to the amount of 200 per cent., so that the nominal dividend of 10-1/2 per cent. paid during the year represented a real net profit of 31-1/2 per cent. Such statements cannot, however, be verified, since it is the interest of the only persons who actually know to keep secret such an arrangement.
It is asserted by many, and several State courts have sustained the position, that a Trust is in America an illegal association, because it implies on the part of its constituent corporations a violation of the conditions under which they received the powers and privileges conferred in their charters by the government of the several States. Their illegality consists, it is held—
(1) In surrendering the power to manage and control their business to some persons other than those legally authorised.
(2) In engaging, through the Trust, in kinds of business not authorised by the charter.