IV. THE ALLEGED ADVANTAGES OF COMBINATION

In the preceding lecture we have tried to show that regulation of the prices and profits of trusts and pools would involve much difficulty. Nevertheless, if it could be shown that combinations controlling a large proportion of their respective industries were necessary to secure the highest economy and efficiency, and possessed other economic advantages, the proper course would be to permit such combinations, while subjecting them to regulation.

Claims of this sort are put forth with much vigor in behalf of the trusts. We are told by many that the trust is a natural evolution, that it is the last word in industrial progress, that to destroy it would be to turn the hands of the clock backward.

Let us restrict

monopolistic greed, they say; let us, if necessary, destroy the bad trusts; but let us not lose the advantages of good and efficient trusts. Some go further and descant on the evils, nay, the immorality, of competition, the superiority of peace over the sword in industry as in international politics. War is hell; competition is war, say they.

The claim that the trust possesses superior efficiency deserves thoro and fair consideration. The assertion that the desire for greater efficiency was the primary motive in the organization of the trusts, however, is not in accordance with the facts. The trust was far from being a natural sequence in the progress of methods of production. In a sense, everything that happens in economic history is a natural evolution. It is due to the working of laws. But in the sense in which trust defenders use the phrase, the trust movement in the United

It was

States was anything but a natural evolution. essentially artificial. The basic motive for the organization of most trusts was to suppress competition, to maintain or advance prices. Hostile criticism from without was met by the proclamation of other motives and the prophecy of other results. Within the camp, talk was all of the advantages of checking competition. That was the appeal to the owners of the concerns which were invited to enter the fold. That was the appeal to the investors in securities. Indeed, many of the leaders in the trust movement admitted frankly to the public before the Industrial Commission of 1899, for example - that desire to check so-called destructive competition was their original incentive.

A second important factor in the organization of trusts, particularly during the most active period of trust formation from 1898 to 1901, was the desire for profits of promotion and of speculation. The promoter with his glib tongue and glowing prospectus was very much in evidence. There was a craze for combinations

among business men and investors. Over-capitalization was a practically universal feature of the corporate combinations of this period. Over-capitalization was designed in part to conceal from the public the profits of operation. Even more, its purpose was to help promoters unload properties upon the investing public at high valuations.

The fact that the trust movement was largely based on illegitimate motives and fostered by artificial methods does not demonstrate that trusts are disadvantageous to the general public, but it should at least dim the halo of sanctity with which some seek to surround them. It places them on the defensive.

The main argument in favor of the trusts, their supposed superior efficiency and economy, can scarcely

be advanced in behalf of the pools. To affect costs materially, the combination must control fully all the operations of its constituent concerns. This the pool does not attempt to do. In fact, very few of the advocates of trusts attempt to defend pools. Yet should the policy of permitting combinations to exist be adopted, it would be found difficult, constitutionally and practically, to draw a rigid line between permitted trusts and prohibited pools.

Most of the discussions of trust efficiency, whether based on statistics and other facts of experience or on general reasoning, do not go to the true issue and therefore do not prove anything. It has been assumed that to show that a great combination of plants is more efficient than a single plant is to show the desirability of trusts. Far from it. The advocate of trusts must prove further the superiority of the trust that is, the combination sufficiently comprehensive to possess or at least to threaten monopolistic power over the smaller combination possessing no possible monopolistic power. He must show either that combinations increase in efficiency merely with increase in magnitude, or that the elimination of competition itself is necessary to the highest efficiency. Very few propose to prohibit combinations altogether; usually it is only monopolistic or potentially monopolistic combinations that are attacked.

The investigations of trusts hitherto conducted have been quite inadequate to prove whether or not they are the most efficient organization for conducting business. It is sometimes argued, therefore, that the people should defer judgment regarding the trusts pending further investigation of their efficiency. Some go so far as to suggest that the government undertake to determine for each industry the exact point at which the

size of combinations reaches the limit of economy in production and marketing. It is doubtful whether further investigations along these lines would be especially instructive. Serious difficulties stand in the way of reaching definite conclusions from them.

Even an effort to compare the efficiency of a trust régime with that of a régime of strictly separate plants and entire absence of combination holds little prospect of success. An investigation on this point might be undertaken in either of three ways. It might compare conditions in a given industry before and after the formation of the trust. It might compare the business of the trust with that of independent concerns in the same industry at the same time. It might compare trusts with independent concerns in other industries. Either of these methods of investigation encounters great obstacles from lack of cost data. So difficult is it to calculate costs accurately that many concerns, particularly those operating only a single plant, have not yet undertaken thoro-going cost accounting. Very few, indeed, of the plants which entered into the trusts had satisfactory cost accounts before that time and such accounts as did exist are in most cases no longer accessible.

But suppose by following the first of the methods of inquiry above mentioned it should be shown that, after taking into account changes in the prices of materials and in wages, a trust today was doing business more cheaply than its predecessor concerns ten or fifteen or twenty years ago. Would that prove the increase in efficiency to be due to combination? Efficiency has advanced also in industries where no combinations have been organized. This is the era of the cost accountant and the efficiency engineer. During recent years business men inside and outside of combinations have

been applying themselves to bettering methods more assiduously than ever before. Increased size of plants, larger and better machinery, better methods of organization are characteristic of practically every industry. The census statistics as to the average number of employees and of horse power per establishment seem to indicate that, while increase in average size of plants is perhaps more conspicuous in industries where the trusts are prominent, there is no marked difference between these industries and others in that respect.

Again, even if adequate data could be secured for an accurate comparison of the efficiency of a trust with that of its present single-plant competitors, this would not prove the advantage of a trust régime over a régime of separate plants. The inefficiency of the independent concerns may be due to the presence of the trust. The combination at its inception may have taken in all the larger and more efficient plants then existing. The fear of the trust, and the actual effect of its competition, fair or unfair, may have prevented the development of large competing concerns thereafter. The Standard Oil Company did produce more economically than its competitors. But who that is familiar with the outrageous tactics of the Standard toward competitors can attribute that fact wholly to the superiority of combination over competition? Had no trust been formed in the oil industry there would certainly have developed by this time a number of large separate concerns, each with a considerable degree of integration, and with efficiency at least not greatly inferior to that of the Standard Oil Company.

In a few industries the steel industry, for example there are today comparatively large single-plant concerns standing side by side with combinations. Comparisons between them and the combinations with