The Trust Problem

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THE TRUST PROBLEM

SUMMARY

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

THE TRUST PROBLEM 665

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

666 QUARTERLY JOURNAL OF ECONOMICS

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
advantages.

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
limit.

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.

THE TRUST PROBLEM 667

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

668 QUARTERLY JOURNAL OF ECONOMICS

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
prices.

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

THE TRUST PROBLEM 669

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

670 QUARTERLY JOURNAL OF ECONOMICS

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
industries.

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

THE TRUST PROBLEM 671

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
industries.

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-

672 QUARTERLY JOURNAL OF ECONOMICS

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
insuperable.

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-

THE TRUST PROBLEM 673

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

674 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 675

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

676 QUARTERLY JOURNAL OF ECONOMICS

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.

THE TRUST PROBLEM 677

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

678 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 679

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
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

680 QUARTERLY JOURNAL OF ECONOMICS

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
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

THE TRUST PROBLEM 681

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

682 QUARTERLY JOURNAL OF ECONOMICS

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
value.

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

THE TRUST PROBLEM 683

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
conclusions.

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

684 QUARTERLY JOURNAL OF ECONOMICS

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.

THE TRUST PROBLEM 685

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
ability.

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

686 QUARTERLY JOURNAL OF ECONOMICS

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
concern.

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-
ment.

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

THE TRUST PROBLEM 687

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

688 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 689

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-
tion.

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

690 QUARTERLY JOURNAL OF ECONOMICS

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
expenses.

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

THE TRUST PROBLEM 691

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
situation.

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-

692 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 693

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
generally.

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.

694 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 695

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.

696 QUARTERLY JOURNAL OF ECONOMICS

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

THE TRUST PROBLEM 697

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

698 QUARTERLY JOURNAL OF ECONOMICS

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-

THE TRUST PROBLEM 699

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-

700 QUARTERLY JOURNAL OF ECONOMICS

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
unrest.

E. Dana Durand.
University of Minnesota.