Skip to main content

Full text of "The Trust Problem"

See other formats


Early Journal Content on JSTOR, Free to Anyone in the World 

This article is one of nearly 500,000 scholarly works digitized and made freely available to everyone in 
the world by JSTOR. 

Known as the Early Journal Content, this set of works include research articles, news, letters, and other 
writings published in more than 200 of the oldest leading academic journals. The works date from the 
mid-seventeenth to the early twentieth centuries. 

We encourage people to read and share the Early Journal Content openly and to tell others that this 
resource exists. People may post this content online or redistribute in any way for non-commercial 

Read more about Early Journal Content at 
journal-content . 

JSTOR is a digital library of academic journals, books, and primary source objects. JSTOR helps people 
discover, use, and build upon a wide range of content through a powerful research and teaching 
platform, and preserves this content for future generations. JSTOR is part of ITHAKA, a not-for-profit 
organization that also includes Ithaka S+R and Portico. For more information about JSTOR, please 



III. Difficulty of limiting the number and scope of trusts under a 
policy of regulation, 665. — Regulation implies fixing of prices or 
profits, or both, 668. — Difficulties of cost accounting, 670; of fluctua- 
tions in demand, 671. — Railroad regulation by the Interstate Com- 
merce Commission proves nothing for trust regulation, 672. — The 
policy a stepping stone to socialism, 675. 

IV. The alleged advantages of combinations, 677. — Desire to 
secure monopoly and promoter's profits in fact the cause of combina- 
tions, 678. — A monopolistic combination not necessarily more efficient 
than a limited one, 679. — Inductive evidence inconclusive, 680. — 
General reasoning, on advantages from magnitude of operations, 685; 
from combination as such, 686; from elimination of competition, 689. 
— Monopoly tends to stagnation, 695. — Summary of conclusions, 696. 

III. Ultimate Results op Permitting and 
Regulating Combinations 

In the preceding lectures (printed in this Journal for 
May, 1914) we have undertaken to show that it is 
necessary either to prohibit and destroy the trusts and 
pools or to regulate their prices and profits. Merely 
to prohibit unfair competitive methods and to deprive 
combinations of special privileges would not, in all 
probability, remove their power to extort monopoly 
prices. We further sought to show that it is possible 
to prevent the formation of combinations having 
effective monopoly power, and possible also in large 
measure to break up such combinations as already 
exist. The American people, therefore, are in a position 
to choose between the policy of regulating permitted 
trusts and pools, and the policy of prohibiting and 


destroying them. In making this choice they must 
first consider what would be the difficulties and what 
the probable results of a policy of regulation. They 
must then consider whether the advantages of combina- 
tions from the standpoint of efficiency and economy are 
great enough to justify permitting them to exist despite 
the difficulties of regulating them. 

Few of those who have advocated the policy of per- 
mitting combinations to exist subject to regulation by 
the government seem to have given much thought to 
the magnitude of such a task, its difficulties, or its 
ultimate outcome. They have had in mind the com- 
paratively few closely knit trusts of the present time, 
or possibly only a part of those trusts. They have had 
in mind particularly the so-called " good " trusts with 
their alleged superior efficiency and their more or less 
reasonable policy toward the public. 

In the first place, it would be difficult to limit the 
number of trusts under such a policy. It is, of course, 
conceivable that the government should undertake to 
suppress combinations in general, while permitting a 
few particular trusts to exist. A limited number of 
trusts might be tolerated, not because of the good 
motives or exceptional ability of their managers, but 
because of special economic characteristics of the 
industries concerned which tended to make combination 
particularly economical or to make the maintenance of 
competition peculiarly difficult. Such a plan would not 
necessarily lead to unreasonable discrimination between 
individuals and classes, tho to determine what were the 
extraordinary conditions justifying the existence of a 
trust would be extremely hard. If, however, the 
people once concede the right of a monopolistic com- 
bination to exist, independently of extraordinary 
conditions, a sense of justice should apparently compel 


them to permit combinations ad libitum. What is 
sauce for the goose is sauce for the gander. Under no 
theory of justice could all the trusts heretofore organized 
be permitted to continue without granting permission 
to organize trusts in every other field. Moreover, if 
the government permitted trusts freely to organize, it 
would have to permit pools also, at least until it was 
demonstrated that the trusts had material economies 
and other advantages and that the pools had no such 

In the second place, it would seem that if combina- 
tions having power to restrain trade are to be permitted 
at all, they must be permitted to become as compre- 
hensive as they desire. Why should a combination 
not be allowed to take over 100 per cent of the business 
in its field quite as readily as 90 or 80 or 70 per cent ? 
Very few persons desire to prohibit combinations which 
control only a small proportion of a given industry and 
which possess no possible monopoly power; but if we 
permit that limit to be overstepped at all, there is no 

One can only speculate how numerous and how com- 
prehensive the trusts and pools would become if the 
policy were adopted of permitting them freely but 
subjecting them to regulation. Presumably the dis- 
inclination to submit themselves to government regu- 
lation would prevent business men from forming 
combinations as universally as they would if combina- 
tions were permitted without regulation. It is quite 
possible that the field of combination would become 
immensely great. In all probability it would become 
far greater than at present. Beyond question, more- 
over, every combination, unless prevented by the 
government, would take in just as large a proportion 
of the trade as could be persuaded to enter it. In many 
cases this would mean the entire trade. 


If combinations were freely permitted and no limit 
placed upon their magnitude, neither actual nor poten- 
tial competition would be an adequate check upon 
prices and charges for service. This was, I think, 
sufficiently demonstrated in the first lecture. Govern- 
ment regulation would unquestionably be necessary. 

Some have suggested that regulation would be com- 
paratively simple. Good trusts would be left alone 
and only bad trusts interfered with, and the fear of 
government intervention would make most of the trusts 
good. The government, some seem to think, could 
let the trust go its own way until it was proved to have 
become extortionate or to have used unfair competitive 
methods, and could then step in and punish its officers, 
or suspend its right to do business for a season, or even 
dissolve it altogether. Such a course is fundamentally 
inconsistent with the principle of permitting combina- 
tions at all. How is the trust manager to know in 
advance what prices or what practices will be adjudged 
so unreasonable as to call for criminal prosecution ? 
What advantage would there be in breaking up a trust 
the first time it went too far, if another trust could be 
formed in its place the next day ? It would be intoler- 
able to the users of the products or the services of a 
trust to stop its business, even temporarily, as a punish- 
ment for unreasonable prices or unfair methods of 
competition. A good trust may become a bad trust 
overnight. Shall it be a lawful organization today and 
an outlawed wreck tomorrow ? Regulation of com- 
binations implies continuity of the combinations. 

Even if the government adopted the policy of punish- 
ing trust managers or breaking up combinations, as a 
penalty for extortionate prices and unfair practices, it 
would require almost as thoro and continuous investi- 
gation and quite as difficult judgment on the part of the 


government to determine when to inflict such penalties 
as to determine the proper prices and practices for the 
future. It would be most unjust to take drastic action 
against a trust or its managers without possession of 
most detailed knowledge of all the conditions. 

In its very essence, however, regulation implies, not 
punishment of past action, but prescription of future 
action. This means simply that the government, if it 
undertakes to regulate the trusts and combinations, 
will ultimately have to fix their prices or limit their 
profits, or both. After all, the one thing in which the 
general public is interested is the reasonableness of 
prices and charges. The prevention of combinations 
in restraint of trade and of unfair competitive methods 
are not ends in themselves. There is no way to insure 
reasonable prices under monopoly except to restrict 
them, — to fix them outright, or to limit the profits in 
such a way as to remove the incentive to unreasonable 

If the government enters upon the policy of fixing 
prices and profits strictly, ought it not to go a step 
further and guarantee to the combinations a permanent 
monopoly, protecting them against competition ? It 
has long been urged by the owners of railroads and other 
public service industries that justice to investors 
demands protection against competition as a concomi- 
tant of regulation of rates and charges. The public 
has been gradually coming to accept this view. If for 
a series of years the investor in trust securities has had 
his profits held down to a low percentage by govern- 
ment regulation, it is hardly fair for the government to 
permit those profits to be still further lowered, perhaps 
wholly destroyed, by the advent of a competitor. 

Whatever might be the outcome of government 
regulation in this respect, there can be no doubt of the 


immense difficulty of just and efficient regulation of the 
prices or the profits of industrial combinations. As 
already shown, the field to be covered by regulation 
would probably be exceedingly wide and diverse. The 
federal government and the states would have to 
maintain elaborate and powerful machinery to control 
the combinations. The task of regulation could not 
possibly be left to the courts, lacking as they are in the 
necessary machinery for investigation and occupied 
as they are with many other duties. 

Consider for a moment the nature of the task which 
would confront such an administrative body. In the 
first place, it would have to possess at all times detailed 
information regarding all the concerns under its juris- 
diction. It could not rest content with making special 
investigations from time to time on its own initiative or 
on complaint. Railroad rates and the charges of public 
service corporations are ordinarily comparatively stable, 
and properly so; but the prices of many other com- 
modities, if not of most, are necessarily variable. The 
costs of materials may change greatly and rapidly. The 
conditions of demand are changeable. Grave injury 
might be done to the public during the time required for 
securing information on which to base action if such 
information were not continuously in the possession of 
the regulating authority. Even annual reports would 
not always be adequate; quarterly or monthly data 
might be required. 

In the second place, the amount of detail involved 
would be enormous. A proper fixing of prices would 
require complete knowledge of the costs of production 
and of the amount of investment. In order to make 
sure of obtaining accurate information, the government 
would have to prescribe the methods of accounting. It 
would be impossible to prescribe uniform methods, as 


is done by the Interstate Commerce Commission in the 
case of the railroads. The bewildering variety of con- 
ditions in the different industries would have to be 
provided for. On the basis of accounting methods 
thus prescribed, detailed reports would have to be 
made to the government and these would have to be 
scrutinized and studied with utmost care. The federal 
government particularly would have to employ a vast 
corps of expert accountants, statisticians, and specialists 
familiar with the peculiar conditions in the different 

The difficulties of cost accounting are so great that 
many even of the largest business concerns have found 
it impossible to ascertain the costs of their products on 
scientific principles, or at any rate have considered it not 
worth while to incur the necessary expenses for that 
purpose. The business concern can get along without 
accurate knowledge of its own costs. Its prime interest 
is in demand and in profits. The government, however, 
in fixing prices, must know all about costs — both oper- 
ating costs and capital charges. They are the very 
things which primarily determine the reasonableness of 
prices. The limiting of profits would require somewhat 
less detailed information than the limiting of prices, but 
would still require a vast mass of data. 

In the third place, the determination of costs and of 
investment for the purpose of fixing prices or profits 
would involve immensely difficult problems of judg- 
ment. The judgment of the regulating body would be 
constantly challenged by the combinations and the 
probable result would be endless litigation. The proper 
allowance for depreciation and obsolescence, the proper 
apportionment of overhead charges among different 
products and services, the proper methods of valuing 
the different elements of investment, — these and 


similar matters would have to be passed upon by the 
regulating authority. Such problems are difficult 
enough as they confront the Interstate Commerce Com- 
mission, which has to deal with one kind of business 
only. They would be far more difficult for a body deal- 
ing with multifarious combinations in widely differing 

Even if the regulating authority should succeed in 
working out a satisfactory determination of costs of 
production and value of investment, it would still be 
beset with troubles in fixing prices or limiting profits. 
Demand for goods is variable even in non-competitive 
industries. Even if the combinations should be pro- 
tected against competition from domestic concerns, 
foreign concerns would have to be reckoned with. 
Unchanging prices or prices bearing an unchanging 
relation to costs would not be practicable in mining, 
manufacturing and mercantile business. A combina- 
tion might at times be justified in reducing prices and 
consequently profits below a normal level in order to 
stimulate demand and keep its force employed, or in 
order to meet foreign competition. The government 
would have then to determine to what limit prices or 
profits could subsequently be advanced in order to offset 
these reductions. In other words, the government 
would be dealing with a constantly changing problem of 
demand, just as the manager of any private business 
does. Particularly difficult would be the fixing of 
proper prices for products produced at joint cost. 
Take petroleum, for example. A wide variety of com- 
modities are derived from the' one raw material, crude 
oil. Some of these are in so little demand that they 
must be sold for less than the price of crude oil itself. 
Others are in great demand and can be sold for high 
prices. It is impossible to use cost as a basis for deter- 


mining prices of the specific products. The relative 
demand for the several products varies from day to day. 
For a regulating body to determine the proper relation- 
ship of the prices of these joint products is virtually 
impossible. This and several other important indus- 
tries would have to be regulated, if at all, by limiting 
profits rather than prices. 

It is sometimes suggested that the same problem of 
joint costs confronts the Interstate Commerce Com- 
mission with respect to the relative freight rates on 
different commodities. It should be noted, however, 
that after making due allowance for actual and measur- 
able differences in the cost of transporting different 
commodities, the Commission could, without actually 
destroying railroad business, fix precisely the same rate 
per unit for every class of commodities. Such a policy 
is by no means unthinkable and might be better than 
the often extraordinary differences which now exist. 
For petroleum products on the other hand — and the 
same is true of a good many other products similarly 
produced under joint cost — flat prices would be 
absolutely impossible. Furthermore, it cannot be said 
that the Interstate Commerce Commission has satis- 
factorily solved the problem of fixing relative rates on 
different commodities. It has in fact left that problem 
almost untouched, and if it ever does enter seriously 
upon it, the Commission may find difficulties practically 

One could continue almost indefinitely setting forth 
the complexities and difficulties of government regula- 
tion of the prices and profits of combinations. Most 
people feel that for the government actually to fix 
definite prices for a multitude of industries, or even to 
limit their profits specifically, would be impracticable. 
Many advocates of government regulation hope some- 


how to get along in a more rough and ready manner. 
They vaguely contemplate a vague form of regulation. 
They expect the government to exercise a general 
restraining influence, to intervene occasionally and to 
render its judgments in a more or less hit and miss 
fashion. They hope that with the hand of the govern- 
ment resting upon them, as it were, in a general sort of 
way, and with potential competition also exercising 
some restraining influence, the combinations for the 
most part will behave themselves decently. They 
count upon the alleged superior efficiency of the trusts 
in production and marketing to counterbalance the 
ineffectiveness and incompleteness of regulation. 

Doubtless we could get along after a fashion with 
such a superficial form of regulation as this. It would 
be difficult, however, to prove that the public would be 
any better off under such a regime of half-regulated 
monopoly than under a regime of competition enforced 
as well as possible by laws against combinations and 
monopolies. Remove once the fear of penalties or of 
dissolution, and the combinations would always be 
crowding the limit of public tolerance. On the average, 
and in the long run, their prices and charges might not 
be greatly above a fair level, but they would almost 
certainly be somewhat above that level. Combination 
must be proved decidedly more efficient than competi- 
tion before the people would be justified in trusting 
trusts under any but most rigid government control. 

The work of the Interstate Commerce Commission 
in regulating railroads is often held up as demonstrating 
the practicability of successful government regulation of 
trusts. It has already been shown, however, that the 
regulation of trusts would be a much more complex 
task than the regulation of railroads. Moreover, with 
all due respect to the great intelligence and fairness 


with which the Interstate Commerce Commission has 
discharged its duties, we may yet question whether the 
ability of the Commission to regulate the railroads 
satisfactorily has been put to a final test. The Com- 
mission has thus far been concerned chiefly with the 
relationship of rates between different places. It has 
corrected many abuses in this respect, tho many still 
remain. As already stated, it has done very little to 
change the relation between the rates on different com- 
modities, a relation which is often unreasonable. The 
commission has never had to face the problem of reduc- 
ing the general level of rates for all railroads or for any 
particular railroad. The enormous increase in the 
volume of traffic during recent years would have en- 
abled the railroads to obtain altogether unreasonable 
profits under existing rates, had it not been for the 
coincidence of a great advance in the prices of commod- 
ities and in the costs of railroad operation. Had this 
not happened, the Commission would have been called 
upon to reduce rates in a wholesale manner and it would 
have found that task immensely complicated, besides 
encountering tremendous opposition from the railroads 
and the many who sympathize with them. The task 
just now before the Commission, of determining 
whether, or by how much, railroads shall be permitted 
to advance rates is a far easier task than that of 
compelling a general lowering of rates. 

Government regulation of prices and profits of private 
concerns always involves a large element of waste, of 
duplication of energy and cost. It means that two 
sets of persons are concerning themselves with the same 
work. The managers and employees of the corpora- 
tions must study cost accounting and conditions of 
demand in determining price policy. The officers and 
employees of the government must follow and do it all 


over again. Moreover, the fact that these two sets of 
persons have different motives in approaching their 
work means friction and litigation, and these spell 
further expense. To superimpose a vast governmental 
machinery upon the vast machinery of private business 
is an extravagance which should be avoided if it is 
possible to do so. 

The policy of government regulation of industry may 
readily become a stepping stone to government owner- 
ship and socialism. The chances are strong that the 
government of the United States will take over the tele- 
graphs and telephones in the near future and the rail- 
roads within less than quarter of a century. The 
demand for government ownership of these as well as of 
municipal public utilities may come from various 
sources. If regulation by the government proves 
ineffective in securing reasonable rates and charges, 
the general public will demand government ownership. 
If regulation proves so effective as to leave only 
moderate returns to the stockholders of the corpora- 
tions, the stockholders are likely to urge government 
purchase, which would at least assure them of a more 
certain income. In either case the excessive cost of 
government regulation will be urged as a reason for 
government ownership. In the same way, if the gov- 
ernment undertakes detailed regulation of combinations 
in manufacturing, mining and trade, there is bound to 
be a strong movement for government ownership in 
these fields also. 

Government ownership of this or that industry is not 
necessarily a bad thing. Even government ownership 
of a large proportion of the industries of the country, 
nay, even complete socialism, need not necessarily 
affright us. To discuss the merits of government 
ownership would take us too far afield. It is sufficient 


merely to point out that the people ought not to enter 
on the path of permitting and regulating combinations 
without considering the advantages and disadvantages 
of this, the possible ultimate outcome, as well as those 
of the immediate policy itself. If it could be proved 
that combination is materially more economical than 
competition, we should doubtless be wise to say farewell 
to competition. Presumably in that case we ought to 
test thoroly the practicability of government regu- 
lation of private monopoly before proceeding further. 
The people would naturally first try the plan of govern- 
ment ownership, if at all, in limited fields, and compare 
the results with those under regulated monopoly before 
undertaking general government ownership. It is by 
no means improbable that the ultimate outcome would 
be socialism. The future is very likely to see either a 
regime of general competition — with, of course, some 
special exceptions — or a regime of universal com- 
munism. Clearly then we should be very sure of our 
ground before we take the first step toward possible 
communism. We should convince ourselves beyond 
all doubt that competition is impossible; or that, if 
possible, it is less efficient than monopoly, — not 
merely at certain times and in certain places, but 
generally and permanently, — before we tolerate wide- 
spread combination in the field of business. 

We have not referred here to the effects of regula- 
tion upon the trusts themselves. We have considered 
only the difficulties which the government would 
encounter in an attempt to regulate trusts. It is quite 
possible that regulation would largely destroy that very 
efficiency which is held up as the reason for permitting 
them to exist. The discussion of this topic, however, 
belongs more properly with the next lecture, in which the 
alleged superior efficiency of trusts will be considered 
in detail. 


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 advan- 
tages of good and efficient trusts. Some go further and 
descant on the evils, nay, the immorality, of competi- 
tion, 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 defen- 
ders use the phrase, the trust movement in the United 


States was anything but a natural evolution. It was 
essentially artificial. The basic motive for the organ- 
ization 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-capitaliza- 
tion 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 pro- 
moters 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 dis- 
advantageous 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 advo- 
cates 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 com- 
binations altogether; usually it is only monopolistic 
or potentially monopolistic combinations that are 

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 
regime with that of a regime 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, partic- 
ularly 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 

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 organ- 
ization 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 regime over a regime 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 out- 
rageous tactics of the Standard toward competitors can 
attribute that fact wholly to the superiority of combina- 
tion 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 


respect to efficiency would be fair. It is unfortunate 
that the Bureau of Corporations, in its desire to protect 
the privacy of business, was unable to present the infor- 
mation which it possessed about the steel industry in 
such a way as to permit comparisons of this character. 
In can only be said that its report discloses wide varia- 
tions in cost of production among the individual plants 
of the Steel Corporation itself. It is more than probable 
that some of the independent concerns are superior in 
efficiency to the less efficient plants of the Steel Corpora- 
tion, and quite likely that they compare favorably even 
with the most efficient of those plants. Such concerns 
as Jones & Laughlin, the Lackawanna Steel Company, 
and the Cambria Steel Company are not weaklings. 
They have many millions of capital and a great output. 
They practise integration of related stages of produc- 
tion to a large extent. Their plants are largely new and 
up to date. The Lackawanna Steel Company at Buffalo 
preceded the Steel Corporation in the extensive use of 
the by-product coke oven, one of the most impor- 
tant of the modern forms of economy in the steel 
industry. Blast furnaces of Jones & Laughlin are 
among the record-holders for size and efficiency. 

Finally, it is obviously very difficult to judge of the 
advantages of combination in production and market- 
ing by comparing the business of combinations with 
that of single plants in other industries. The differences 
in the subject matter of production and in the conditions 
would in most cases render such comparisons of little 

In view of these difficulties, it is certain that detailed 
investigations regarding the relative efficiency of trusts 
and single plants, even if they covered the entire field 
of industry, would result only in disagreement among 
the people as to the conclusions to be drawn. It would 


probably be proved clearly enough that certain partic- 
ular trusts were highly efficient. We might convince 
ourselves, not only that they were more efficient than 
the best of the predecessor concerns, or than the best 
of the present competing concerns, but also that they 
were more efficient even than such individual plants 
as might have come into existence in the absence of 
combination. In other industries, however, no such 
demonstration would be possible. The investigations 
would still leave doubt as to whether the trust in general 
was superior in efficiency to the separate plant. 

But suppose, for purposes of argument, it should be 
demonstrated that in general the trust was more efficient 
than the individual plant. We should still have failed 
to show the superiority of the trust over the less exten- 
sive combination having no possibility of monopolistic 
power. That question could scarcely be attacked at all 
by statistical investigation of present or past conditions. 
The basis for comparisons does not exist. In very few 
industries did combination on a limited scale precede 
monopolistic combination on a large scale. In still 
fewer industries have there existed, side by side, a 
combination controlling the greater part of the business 
and another combination or combinations having only a 
minor fraction of the business. Comparison between 
the trust in one industry and the smaller combination 
in another industry would usually lead to no definite 

The fact is that we have had comparatively little 
experience with combinations other than trusts and 
pools of a more or less monopolistic character. If the 
desire to secure increased efficiency had been the only 
motive of business men in forming combinations, we 
might have witnessed a large number of combinations 
having no controlling proportion of the business in their 


respective fields. But since the main object was to 
suppress competition, combinations of a more compre- 
hensive character sprang at once out of the regime of 
separate plants. 

There is no objection to further investigation regard- 
ing trust efficiency, provided it is not made an excuse 
for deferring action as to the dissolution of trusts. A 
wide-reaching investigation of trust efficiency would 
require not less than ten years. Every year that trusts 
are permitted to continue renders it more difficult to 
restore competition among their constituent concerns. 
The officers and managers year by year become more 
accustomed to working together ; the organization year 
by year becomes more welded into an inseparable unit. 
The shock to business from breaking up combinations 
also will become more severe the longer it is deferred. 

Since there are thus no adequate existing data on 
which to base conclusions as to the advantages of trusts 
from the standpoint of efficiency, we are forced to fall 
back upon general reasoning. The theoretical advan- 
tages claimed for the trusts by their defenders naturally 
fall into three groups — those attributable to mere 
magnitude, those attributable to combination of sepa- 
rate plants, and those attributable to the elimination 
of competition. The failure to make this obvious 
classification is the source of much fallacious thinking. 
Only advantages of the third class can properly be put 
forward as directly proving the desirability of trusts 
that possess a controlling proportion of the industry in 
which they are engaged. 

The following are some of the advantages claimed for 
trusts which, so far as they exist at all, exist solely by 
reason of the magnitude of their business. 

1. Command of the largest and most efficient units 
of production — buildings, power plants and machinery. 


2. Command of large liquid capital and credit, enab- 
ling the concern to meet emergencies and to take advan- 
tage of special opportunities. 

3. Command of superior administrative and technical 

4. Economy in the purchase of raw material and 
supplies in large quantities. 

5. Distribution of administrative and other overhead 
expenses and of selling and advertising expenses over a 
large output, thus reducing unit costs. 

6. Practicability of introducing efficient accounting 
systems too expensive for smaller concerns. 

Any concern, if sufficiently large, can possess all these 
advantages. Magnitude of operation is purely a 
relative term. In minor industries, only a concern 
which has the greater part of the entire business can be 
considered large. In great industries the concern 
which has only a small fraction of the business may 
possess millions of capital, a vast plant and an army of 
employees. No one would think of denying that large 
scale operation has advantages over small scale opera- 
tion. It does not follow that an industrial combination 
controlling the major part of a business will, by reason 
of size alone, be more efficient than a less extensive 
combination or even than a single large plant. Effi- 
ciency does not increase proportionately with size. It 
has been learned by the experience of business men that 
when the individual plant passes beyond a certain size, 
it ceases to gain in efficiency. The same causes which 
make this true of the individual plant apply to the com- 
bination of plants as well. There may be advantages 
from combination as such or from monopoly as such, 
but the advantages of mere magnitude have their 
limits. Moreover, when size passes beyond a certain 
point, it may even lessen efficiency. The unwieldiness 


of a vast organization, the difficulty of securing coopera- 
tion among its parts, the impossibility of personal 
oversight by the master mind — these are disadvantages 
of excessive magnitude. 

There may be some industries in which, from the 
standpoint of magnitude alone, the greatest efficiency 
would lie in a concern controlling virtually the entire 
business. There is little ground for believing that this 
is the case in the great majority of industries. At any 
rate it is utterly impossible, by general reasoning or by 
statistical investigation, to prove that it is so. Indeed, 
it would seem that in most industries a concern having 
even as much as half of the total business would, in 
respect to those elements of efficiency now under con- 
sideration, have no superiority over a somewhat smaller 

Another set of advantages claimed for trusts rests upon 
the fact of combination as such. These supposed advan- 
tages result from the assemblage of separate plants under 
a single control. They are not dependent on the elimina- 
tion of competition. Among these are the following: 

1. Use in all plants of the best methods and devices 
discovered in any one plant, comparative cost account- 
ing rendering it possible to determine which are, in fact, 
the best. 

2. Rivalry between the managers of different plants, 
stimulated by comparative cost accounts and other 
comparative data. 

3. Saving in cross freights by shipping from the plant 
nearest to the desired destination. 

4. Integration of industry — that is, the conduct of 
successive or related processes under a single manage- 

Combination undoubtedly does have its advantages. 
But combination, like magnitude, is a relative matter. 


In a minor industry a combination of even a few plants 
may mean the bringing together of the larger proportion 
of the business. In another industry a combination 
including a considerable number of plants may have but 
a fraction of the total business. Any combination of 
plants, however few, can obtain the advantages specified 
in some degree. Just as economies of magnitude do not 
increase proportionately with magnitude, so economies 
of combination do not increase proportionally with the 
number of plants combined. There is a limit beyond 
which the addition of plants brings no further economy. 
Just where the limit is can be proved neither by abstract 
reasoning nor by statistical investigation. It is dif- 
ferent in different industries. There is little reason to 
believe that in most industries a combination controlling 
the entire business would be appreciably superior, with 
respect to the elements of efficiency above mentioned, 
to a combination having a minor fraction of the business. 

Take, for example, the matter of cross freights. In 
some industries freights are not an important element 
of expense. In others the location of materials, or of 
consuming markets, or like conditions, make it impos- 
sible to locate plants with a view to saving freight either 
on materials or products. There are, however, a good 
many industries in which scattered plants competing 
with one another incur much needless expense in trans- 
portation. In such industries a combination by ship- 
ping from the nearest plant could effect material savings. 
It does not follow that a combination of all the plants 
in the country could save more than a combination of a 
moderate number of well distributed plants. 

Where an industry derives peculiar advantages from 
the integration of successive and related processes, 
combination on a large scale may be essential to the 
full realization of economies of this character. If in a 


single one of the related branches of business the greatest 
efficiency requires the handling of a large part of the 
total business by a single organization, then it may be 
advantageous for the combination to conduct other 
branches of the business on a corresponding scale. 
There are, however, very few industries in which suc- 
cessful integration requires the control of the major 
part of the business by a single combination. In a good 
many instances a concern that has not more than a 
single plant engaged in each of the different stages of 
production has been able to secure an efficiency at least 
closely comparable with that of a wide-reaching com- 
bination. This is the case, for example, with several 
independent concerns in the steel industry and even 
with some of the recently developed independent 
concerns in the oil industry. 

There is another economy sometimes claimed for the 
combination of separate plants, namely, that it is able 
to close down the inefficient plants and concentrate 
business in the largest and most modern. This, how- 
ever, is not an advantage to the public. No combina- 
tion, unless with monopolistic intent, would take in 
inefficient plants. The fact that a good many trusts 
have, shortly after their organization, dismantled 
numerous plants is proof simply of their monopolistic 
purpose. Under a regime of competition the inefficient 
plant will in due time be forced out of business and the 
public will no longer be burdened with supporting it. 
When a combination takes in an inefficient plant and 
dismantles it, the public pays the bill, provided the 
combination succeeds in obtaining a sufficient degree of 
monopoly power. The combination either charges 
prices high enough to enable it to write off the cost of 
such a plant out of its profits, or that cost is permanently 
represented by securities on which dividends are 


expected to be paid. A combination which takes in a 
limited number of selected, efficient plants is in this 
respect far more conducive to economy than a monopo- 
listic combination. 

It thus appears probable that the economies claimed 
for the trusts could, in many if not most industries, be 
secured in approximately equal measure without per- 
mitting combinations sufficiently comprehensive to 
possess any approach to monopoly power. There 
remain those alleged economies of trusts which arise 
not from mere magnitude tor from mere assembling of 
separate plants, but from the elimination of competition. 
These require more thoro consideration. They are few, 
namely : 

1. Prevention of needless duplication of plants. 

2. Elimination of that part of the cost of selling goods 
which results from the effort to secure business at the 
expense of competitors. 

3. Elimination of waste due to irregularity of opera- 
tion, and of the losses of so-called destructive competi- 

Let us take these up in order: 

1. It is contended that competition leads to excessive 
investment of capital, to the erection of plants with a 
capacity in excess of the needs of the country. This 
is true only in a very limited degree of ordinary mining, 
manufacturing, and commercial business. Such busi- 
ness differs radically from the so-called industries of 
increasing returns, such as transportation. In order 
that there shall be any rail transportation between two 
points, it is necessary to build a track which may have 
more than capacity enough for all the traffic. Under 
such conditions, the one railroad can increase its busi- 
ness without corresponding new investment. In fact, 
up to a certain limit, even the operating expenses of a 


railroad do not increase proportionately with volume 
of business. The building of a second railroad under 
the conditions mentioned would mean unnecessary 
duplication of capital and perhaps also of the operating 

In the case of the ordinary manufacturing industries 
it seldom happens that a single plant, however large, 
can supply the entire demand of the territory to which 
it has natural access. The construction of a second 
plant usually does not mean needless duplication of 
investment. The aggregate capacity of all plants is 
not likely to exceed materially the demand in times of 
prosperity. The desire of each competitor to be ready 
to get as large a share of the trade as possible may lead 
to some excess in plant capacity, but not to a great 
excess. Moreover, in manufacturing industries, even 
if there be some excess of plant capacity, operating 
expenses are not likely to be materially augmented. 
The plant working at less than full capacity can lessen 
its force more or less proportionately. Operating 
expenses vary fairly closely with output. 

It must not be forgotten that the great majority of 
the industries of the country are steadily and rapidly 
growing. In industries where trusts are powerful, as 
well as in other industries, additional plant capacity is 
constantly being constructed, and additional working 
force taken on. Even if it were not for the growth of 
demand, the improvements in methods of production 
would necessitate the construction of new plants. The 
older and less efficient plants in a manufacturing indus- 
try ought not to be taken into account in judging the 
relation of plant capacity to demand. 

The reasoning as to duplication of plant capacity 
which applies to manufacturing industries applies as 
well to mining and to mercantile business. There are 


a few manufacturing industries in which it is customary 
for the manufacturer to conduct also some special form 
of transportation. Ecomony in such transportation 
may demand that duplication of plant be avoided, — 
that there be monopolistic operation. If the transporta- 
tion business cannot be divorced from the manufacture, 
or subjected to separate regulation, monopolistic opera- 
tion of the manufacturing business as well may be 
unavoidable or at least advantageous. For example, 
the Standard Oil Company and other leading refiners of 
petroleum operate pipe lines for transporting crude oil 
and also tank cars and tank wagons for delivering 
refined products. Needless duplication of plants and 
of operating expenses may be involved in competition 
in these two branches of the oil industry. Unless they 
can be divorced from the refining business proper, it 
may prove necessary to tolerate monopoly in petroleum 
refining. It has been proposed to require the owners 
of pipe lines, be they refiners or others, to transport oil 
as common carriers at reasonable charges to be fixed 
by the government. There are serious technical diffi- 
culties in the way, but it is probable that they could be 
overcome by special methods of government regulation. 
Whether it would be possible to manage the tank 
wagon delivery business in a similar way is more doubt- 
ful. Were it not for the extraordinary difficulty of 
regulating the prices of refined petroleum products, 
arising from the fact of joint cost, a simpler way of 
avoiding the evils of monopoly in the oil industry might 
be through such regulation of prices. Regulation of 
profits may be the most feasible plan of meeting the 

The Steel Corporation is also engaged in transporta- 
tion. It operates railroads which to a large extent are 
patronized by its competitors, and it operates steam- 


ships. To require the Steel Corporation to divest itself 
of its railroads — at least the more important lines which 
competitors may have occasion to use — would not 
materially lessen the efficiency of the integration 
secured by that corporation. Nor would there be any 
serious difficulty in effectively regulating the charges 
of such railroads if left in the. control of the Steel 
Corporation. At any rate, the element of transporta- 
tion in the steel industry is not a factor necessitating 
or justifying a combination of steel manufacturing 
plants of sufficient size to possess any approach to 
monopoly power. 

2. It is contended further that competition means 
large waste in selling expenses, due to the endeavor of 
business concerns to wrest trade from one another 
through solicitation and advertising. This is doubtless 
true in some industries, but it is by no means equally 
true in all. Where the products of an industry are 
standard in character, are in steady demand, and are 
marketed through large middlemen or to large individ- 
ual consumers, even the most vigorous competition in 
pushing the sale of goods involves no very great expense. 
In the case of certain other industries, heavy selling 
and advertising expenses are considered necessary by 
business men merely for the purpose of stimulating 
demand and regardless of competition. Concerns 
which have virtually a monopoly often spend great sums 
in advertising their wares. However, it must be ad- 
mitted that in a good many industries competition in 
selling does mean some economic waste. The advan- 
tage of eliminating such waste can properly be set 
against the disadvantages of monopolistic control. 

However, needless expense in selling goods is likely 
sooner or later to be reduced by informal understandings 
not amounting to monopolistic agreements. As the 


competing concerns become larger and more efficient in 
production, their managers are likely to see the absurdity 
of trying to get all the trade away from one another. 

3. Finally, it is contended that uncontrolled competi- 
tion results in irregularity of consumption and conse- 
quently in irregularity of the operation of plants, which 
tends to increase costs as well as to injure the working 
classes and to disturb business generally. The most 
common illustration used to support this contention is 
that of the steel industry. It is urged that when by 
reason of active competition, prices are particularly 
low, the consumers of iron and steel and their cruder 
products buy excessive quantities and so discount their 
future needs as subsequently to result in very light 
demand. The plants in the industry, after being 
worked to their utmost capacity, may have to drop a 
large part of their force or even close altogether. Such 
irregularity in production is uneconomical. It has 
been maintained that the greater steadiness of prices 
since the organization of the United States Steel Cor- 
poration not only has tended to cheapen production 
but has been beneficial to consumers and to business 

It may well be questioned whether competition is as 
important a factor in causing irregularity of consump- 
tion of steel products as is sometimes supposed. The 
consumption of many of the more important products 
of iron and steel is necessarily variable. Those prod- 
ucts are used primarily in the creation of new capital 
goods. The desire of men to invest in new capital 
goods varies greatly with the general conditions of 
prosperity or depression in business. The policy of 
the Steel Corporation in recent years has had less to do 
with the steadiness of demand for steel than the rela- 
tively continuous prosperity of the country. 


If it were possible for trusts, when subjected to strict 
regulation by the government, to adjust supply accu- 
rately to demand, and to cause demand itself to be 
more steady, that fact would constitute an argument 
of considerable force in behalf of the policy of permitting 
trusts to exist subject to regulation. As already sug- 
gested, however, the task of the government in regulat- 
ing prices for an industry subject to variable demand 
would be extraordinarily difficult. The efforts at doing 
so would probably prove far from successful in bringing 
about steadiness of production. 

The argument with regard to the effect of competition 
in causing irregularity of consumption and of production 
is often extended further. It is urged that competition 
in modern industry tends to become so fierce as to 
destroy capital. So-called destructive competition, it 
is claimed, may bring even the most efficient concerns 
to bankruptcy. Such a result not only injures inves- 
tors, but at least sometimes means actual waste of 
capital, and therefore, in the long run, injures consumers 
as well. Indeed, some believe that pools, tho possess- 
ing few advantages with respect to efficiency of produc- 
tion in other respects, are justifiable as means of 
preventing the losses of destructive competition. 

The subject of destructive competition has been 
discussed in the second lecture with reference to its 
influence in driving concerns into combination. It was 
there shown that, in the great majority of manufactur- 
ing industries, competition is not likely to become as 
fierce as in transportation industries. The principle 
of increasing returns, which tends peculiarly to cause 
bitter competition, has little application in manufac- 
tures. The concern which finds current business 
unprofitable usually restricts its output or stops it 
altogether, looking to the time when the increase of 


demand will again render the business of the plant 
profitable. It does not go on cutting prices until forced 
into bankruptcy. 

Against these alleged advantages of monopolistic 
combination must be set the tendency of monopoly to 
lessen efficiency and retard industrial progress. It is 
generally recognized that the possession of a monopoly 
tends strongly toward stagnation. Competition is a 
powerful spur to efficiency. The competitor who would 
not go to the wall must be ever on the alert. Inventions 
of machinery and improvements in methods are essential 
to successful competition. Marked as has been the 
progress in the railroad business of the United States, 
there is much reason to believe that American railroads 
have made less progress during the last decade or two 
than most American manufacturing industries, and that 
this is due to the comparative absence of competition 
in the railroad business during recent years. The 
relative unprogressiveness of the largely monopolized 
telegraph business in this country, at least till recently, 
has often been commented on. 

It can scarcely be proved that any of the leading 
trusts have been particularly lacking in progressiveness, 
that they have actually made fewer improvements in 
methods than have been made in industries where com- 
petition was active. Comparisons on this point are 
virtually impossible. But the trusts have thus far been 
on the defensive both against potential competition and 
against public criticism. This defensive position has 
made them look closely to efficiency. Should the policy 
of permitting monopolistic combinations be adopted, 
there would be danger that the absence of competitive 
pressure would more than counterbalance any possible 
advantages from the elimination of competition. 


Regulated monopoly is likely to be even less efficient 
than unregulated monopoly. The trust, if unrestricted 
in prices and profits, has at least a motive to do business 
as cheaply as possible. When, however, the trust 
anticipates that every reduction in costs may mean a 
reduction in prices, that profits resulting from increased 
efficiency may be wholly or largely taken from it by 
government regulation, even this motive tends to dis- 
appear. In the case of public service corporations 
various methods have been pursued, with more or less 
success, for securing a division of the advantages of 
increased efficiency between the public and the monop- 
oly. Should the government enter upon the policy 
of regulating the prices and the profits of trusts, similar 
methods would have to be followed as far as possible. 
Because of the multifarious character of the different 
industries, however, it would be much harder to apply 
these methods successfully to trusts than to the limited 
number of public service enterprises. 

Let us now bring together summarily the results of 
this discussion of the trust problem. We have tried to 
show that unregulated combination is dangerous to the 
public welfare. Even if they could be deprived of the 
weapons of unfair competition or of the advantages of 
natural monopoly — a thing by no means easy — trusts 
and pools would still probably possess a material degree 
of monopolistic power. It would be a dangerous experi- 
ment to remove the ban of the law from them without 
substituting effective machinery for regulation. 

We have sought to show further that it is feasible to 
prevent by law the more formal types of combinations 
and of contracts in restraint of trade. It may be 
impossible wholly to prevent informal understandings 
which in some degree restrict competition. These 


informal understandings, however, are far less effective 
in maintaining monopoly prices and charges than formal 
combinations such as pools and trusts. 

It was pointed out that the difficulties of govern- 
ment regulation are exceedingly great. The policy of 
permitting trusts to exist at all, if not restricted to extra- 
ordinary conditions , might result in the extension of trusts 
over almost the entire field of industry. It might also 
result in practically complete monopolization by each 
trust of its particular field. The determination of costs 
and of investment as a basis for the fixing of prices and 
profits over the multifarious field of industry would 
require immensely elaborate investigations and would 
involve extraordinarily difficult questions of judgment. 
Proper adjustment to the ever varying conditions of 
demand would be almost impossible. A vast govern- 
mental machinery for fixing prices and profits would 
have to be superimposed upon the machinery of private 
business. Government ownership on a vast scale or 
even complete socialism might readily be the outcome 
of this policy. 

Finally, it has been shown that many of the alleged 
advantages of trusts in efficiency could probably be 
secured in almost if not quite as great measure through 
large individual plants and through smaller combina- 
tions not powerful enough to threaten monopoly. 
While the suppression of competition itself may tend to 
bring about certain economies and other advantages, 
there must be set against these not only the grave 
difficulties of regulation, but the tendency of monopoly 
and of regulation itself to lessen efficiency. 

It may be granted that the data and the reasoning 
throughout this discussion have been not altogether 
conclusive. It cannot be expected that every one will 
agree with the points of view here taken. The burden of 


proof, however, rests upon the defenders of the trusts. 
They ask us to permit the trusts to exist, whether with 
or without regulation. In this they are asking a depart- 
ure from what until very recently were universally 
considered the proper principles of law and of economics. 
Their argument is certainly no more conclusive than 
the argument of those who would suppress trusts. 

To defend big business is easy. The advantages of 
large scale production are obvious. To identify big 
business and large scale production with the trust is 
quite another thing. The glamor of the huge corporation 
with its mighty plants, its splendid organization, its thor<5 
accounting system, its integration of related processes, 
must not blind us. All these are essential to progress. To 
get them we might even be willing to pay the high price 
of surrendering competition. But we must be sure that 
they can be secured at no lower price before we tender 
such a compensation, or before we even enter on a path 
which may ultimately necessitate that compensation. 

To pass from a regime of competition to one of monop- 
oly is easy. To return from a regime of monopoly to 
one of competition is immensely difficult. The Ameri- 
can people have not yet tried out fully the possibilities 
of competitive industry. It would be foolish to aban- 
don the experiment thus early in our national develop- 
ment. If we destroy as far as possible the trusts that 
now exist, if we prevent trusts and combinations from 
being formed, we shall soon see whether it is possible 
to secure real competition, and whether under competi- 
tion efficiency can reach a high point. If not we can 
readily enough change our policy. On the other hand, 
to accept the trusts today is to leap in the dark. Every 
step in that direction is difficult to retrace. The results 
of an experiment with permitting trusts freely to 
organize and with regulating them could not be deter- 


mined for such a long period of time that the trusts 
would meantime get a grip almost impossible to shake 
off. In fact, we never could satisfy ourselves by such 
an experiment that a trust regime was more satisfactory 
than a regime of competition, for we should have no fair 
example of the working of competition under similar 
conditions with which to make comparison. 

Particularly weak would it be to allow the mere fear 
of a temporary disturbance of business to turn us from 
a safe permanent policy. The thoughtful man can have 
no patience with the complaint that the government is 
interfering with business or lowering the prices of 
securities by enforcing the anti-trust law. Suppose an 
industrial depression should be brought about ? Is that 
a heavy price to pay for protecting the decades and the 
centuries of the future against a mightly evil ? Granted 
that it is uncertain whether the trust regime would be 
a mighty evil, the mere possibility that it would prove 
such is enough to justify a present sacrifice to avert it. 

The thoughtful opponent of trusts does not urge that, 
as the phrase goes, the government should " run 
amuck." It need not in a year or two attack every 
combination without due inquiry as to whether it 
actually possesses or threatens monopoly power, or as 
to the manner in which it is exercising such power as 
it does possess. A policy once determined upon and 
definitely announced may be carried out with reason- 
able deliberation and consideration of all interests. 
But it is high time that an end shall be put to all doubt 
of the intention of the people. Either they must pro- 
claim their determination to maintain a regime of com- 
petition in manufactures and trade for an indefinite 
period to come, or they must promptly declare them- 
selves for the policy of regulation. The safe policy for 
today is prohibition of trusts and other monopolistic com- 


binations. It is the vigorous enforcement of the anti- 
trust laws, aided by the provision of expert administrative 
machinery such as the proposed trade commission. 

Whether the ultimate policy adopted toward the 
trust be laissez faire, regulation or prohibition, we shall, 
in all probability, find it necessary to supplement the 
chosen policy by vigorous exercise of the taxing power. 
Taxation can take away a large part of monopoly profits 
and other unearned gains whether derived from trusts and 
pools, from railroads, from banking, from control of land 
and other natural resources, or from any other source. 

Direct taxation of trusts and other business enter- 
prises with a view to taking away excessive gains would 
encounter practically the same difficulties as regulation 
of prices and profits. Heavy income taxes upon 
individuals, particularly if progressive, are very hard 
to enforce. Inheritance taxes would be more feasible. 
Progressive inheritance taxes, even with rates such 
that much the greater part of the largest fortunes would 
be taken by the government, would, in the opinion of 
many thoughtful men, be neither unjust nor socially 
disadvantageous. They are defensible even when 
applied to fortunes derived from strictly legitimate 
business. Taxes of this sort might in some degree tend 
to check the accumulation of capital and to prevent the 
efficient captain of industry from exercising his talents 
to the utmost, but the effect in these directions would 
probably not be very serious. There might, too, be 
some difficulty in enforcing collection and preventing 
evasion, but on the whole the system would go far 
toward correcting that immense disparity of wealth 
and of opportunity which is the main source of social 

E. Dana Durand. 
University of Minnesota.