Let us now turn to some of the effects of industrial combinations, which we may classify according as they bear upon competitors and producers of raw materials, labor, and consumers. As the number of competitors is reduced the fierceness of competition among those remaining in the field is greatly increased, for the value of the prize to the successful enterprise is correspondingly greater. It is not surprising therefore that at times this rivalry should have assumed unethical if not actually illegal forms. The practice by some trusts of fixing prices below cost at some strategic point in order to crush out a troublesome competitor, and then correspondingly raising them elsewhere
so as not to sustain any loss, is serious because so subtle. Prof. John B. Clark regards this as so serious an evil that he would have the Constitution amended in order that power might be given the Federal Government to prevent it. The producers of raw materials, as cattlemen, crude oil and coal producers, sugar and tobacco growers, and others, complain that the prices at which they sell their products are dictated to them by the trusts, which are practically the sole purchasers of what they have produced. They claim that prices are depressed to the lowest point possible and that every gain from increase of demand goes into the pockets of the trust managers. It may of course be answered that the trust cannot depress prices below the point at which a living profit can be secured by the producer of the raw material or he will stop producing, but there is no doubt but that the monopoly power possessed by the trust in such cases will sometimes be used to the disadvantage of those whose product it alone buys.
The effects upon labor of the organization of capital in combined industries and under centralized control are more complex. As trusts have superseded single corporations because this mode of industrial organization was more economical, we must expect to find that one of the economies was the displacement of labor. The discharge of traveling salesmen has already been spoken of; with the consolidation of various plants under one control other high-priced men were let go—managers, superintendents, etc. The same thing was true at the other end of the industrial scale and thousands of workmen, usually the least efficient and capable, were deprived of work. The natural consequences of these combinations and economies were not clearly apparent at the time, because they were happily coincident with a period of business expansion and prosperity which reabsorbed into the industrial organism most of the displaced workers. Another phase of the relation between trusts and labor is that of their effect upon wages.
In general it may be said that there are only two sources out of which an increase of wages can be paid, and these are the profits of the business organizer and manager or the increased product of the business itself, and of these two only the latter can serve as a permanent source of higher wages. Now it is pretty evident that labor has not been in a position to force the trust magnates to forego their profits. On the other hand, wages in industries carried on by industrial combinations have risen, and it must therefore have been because there was more produced and consequently more to be divided. If the inefficient workers were discharged and only the best ones retained by the trusts, here is one explanation why they could afford to pay high wages—they paid more because they got more done. As yet labor has not admitted that it is unable to cope with these industrial combinations; it has however demanded that it be allowed to combine on a national scale and to bargain collectively for united labor with combined capital.
The discussion of the effects of trusts upon the consumer leads at once to the discussion of their effects upon prices, for it is through the agency of price that the trust touches the ordinary man. The advantages claimed by trust organizers are economies of production and lowered cost; but the vital question to the consumer is whether lowered cost increases profits or reduces prices. On this point the Industrial Commission reaches the following conclusion: “that in most cases the combination has exerted an appreciable power over prices, and in practically all cases it has increased the margin between raw materials and finished products. Since there is reason to believe that the cost of production over a period of years has lessened, the conclusion is inevitable that the combinations have been able to increase their profits.” Moreover the power over prices was greatest during certain periods when the control of the combinations was greatest. The problem
therefore resolves itself into the question, are trusts monopolies? While a categorical answer cannot be given to this, it may safely be affirmed that all trusts try to be monopolies. Nor is it necessary to control the production, sale, or purchase of a commodity absolutely in order to exercise monopoly power; the control of 50 or 60 per cent may suffice to secure virtual monopoly. The purpose of a monopoly is so to fix the price that it will obtain the maximum net profit. It is conceivable that this result may be attained by lowering the monopoly price below the point of the competitive price, but this is unusual. In general a monopoly price has meant a high price, and a high price has meant a restriction of the output. Where that has been the result of trust control, society has been injured, for not only has it not shared in the economies of production but it actually gets less and has to pay more than it would have done under competition. It may be said, however, that even in the case of the greatest monopoly there is always the specter of potential competition threatening its profits, while the possibility of substituting some other commodity for the monopolized article protects the consumer from too great extortion and keeps the price within limits. Absolute control over price is never exercised by any monopoly. Nevertheless, we may fairly conclude, in the words of Henry D. Lloyd, that “monopoly is business at the end of its journey,” control over prices is the object of combination.
There remains to be considered another charge of monopoly which has been brought against the trust, the monopoly of opportunity or the suppression of individual initiative. It is no longer possible, it is claimed, for the man of small means, even with good talents, to engage in business for himself: he must accept some subordinate position in a corporation where his individuality is checked and his power of initiative does not find free play. So far as this is true it would seem to be the result not so much
of the trust movement as of large-scale production. We have seen that the tendency of machine production is to enlarge the business unit and to call for the investment of constantly larger amounts of capital in up-to-date establishments. Some writers even point out that the average business man who engages in business on his own account fails, and that he should therefore be grateful if more efficient producers offer him a remunerative and steady salaried position. Without insisting upon this point it may still fairly be noted that there are large fields of enterprise that lie outside the area of monopolistic control. “Large-scale production is best adapted to articles that can be turned out in large quantities according to uniform patterns and standards; individual initiative is still free in those lines of production that call for artistic ability or appeal to individual tastes, or which, like agriculture, are dependent upon variable conditions.”[6]
There are, however, other evils connected with trust organization and management that are more easily remediable and that call for legislative regulation. “The evils of combination, remedied by regulative legislation,” concludes the report of the Industrial Commission,[7] “come chiefly from two sources: (1) the more or less complete exercise of the power of monopoly; (2) deception of the public through secrecy or false information.” Various remedies have been suggested to meet the first class of evils, those of monopoly, generally in the direction of strengthening the powers of the Federal Government. We have however no lack of legislation on this subject already: thirty-four states and territories have passed anti-trust laws, and the federal Anti-Trust Law of 1890 explicitly provides that “every contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations,
is hereby declared illegal.” The severe restrictive measures of the states have been largely nullified by the loose legislation of three or four “charter granting” states, in which 95 per cent of all the trusts have accordingly been chartered, while the federal enactments have been found very difficult to enforce. It is not easy to define or to prove monopoly or conspiracy in restraint of trade. The second class of evils has been met by statutes requiring publicity and more definitely fixing the responsibility of corporation officials. Such measures of control must be the first step toward intelligent regulation, and are to be commended as thoroughly reasonable. The establishment of the federal Bureau of Corporations with power to “investigate” industrial corporations engaged in interstate commerce has already led to the publication of some valuable reports. We must first proceed along the lines of publicity and intelligent information before we attempt more drastic remedies.