TRUSTS. 504 TRUSTS. tracts. In the United States, on the other hand, the courts have very generally held that such agreements were in unreasonable restraint of trade, and in consequence void, as contrary to public policy. The parties to the pools, there- fore, knowing that they could not be legally bound, frequently violated the terms of the agreements by increasing their output beyond the amount agreed upon, cutting prices, and by other similar means. To overcome these diffi- culties, the form of the Trust was at length in- vented and put in practice — in the first place by the Standard Oil Company, in 1882. Under this form of organization, the stockholders of each of the separate companies assigned their stock to a few trustees, giving thus an irre- vocable power of attorney. In lieu of the stock assigned, the trustees issued trust certificates to the stockliolders of the separate companies, and upon these trust certificates profits were di- vided.' All of the earnings from the different members of the company were pooled, and each manufacturer received his due share as evidenced by the certificates regardless of the question whether his establishment were running or closed. The trustees, having in their hands the voting power of all the stockholders, elected whatever persons seemed to them best as officers of the separate companies. In this way the management was absolutely unified and the interests of all parties concerned became one. The courts finally holding that this Trust agree- ment was illegal, the plan was later adopted of organizing a new company which should buy up all of the separate plants of the different com- panies entering the combination, so that in this way a unified management was secured within the law. In order that a more convenient form of handling the properties of the different com- panies might be secured, and that under certain circumstances somewhat greater flexibility of management could be attained, a third form of organization was later adopted which was in many respects quite like that of the earlier Trusts. In this form a new company is or- ganized as a stock-holding company. This com- pany then buys up all or a large proportion of the stocks of each of the companies coming into the organization, and holds these stocks. The officers of the central organization are thus in a position, by voting the stocks of the different companies, to elect the directors and officers of those companies and thus conti'ol their policy. Prices. Competitive prices, it is frequently assumed, will in the long run be fixed mainly by the cost of production of that part of the stock which is produced at the greatest disad- vantage. Monopoly price, on the other hand, is fixed at that point which will secure to the monopolist the greatest net return. If greater return will be secured by lowering the price and increasing the sales, the price will be lowered. If the net returns will be greater by increasing the price, even though the number of sales be lessened, that policy will be adopted. In tech- nical discussions regarding prices, the assump- tion is u.sually made of either a regime of free competition, or of what is substantially monopoly. In a practical discussion of the ett'ects of Trusts upon prices, we must recognize that there may be certain monopolistic powers which may en- able ]jrices to be raised somewhat above the competitive rate, but which are still not suf- ficient to enable the Trust to fix prices entirely regardless of a potential competition. So, also, tills monopolistic power may vary in degree in diflerent industries or in the same industry at different times. If the economies of industrial combination spoken of before are great, it is evident that without lessening profits prices of the finished product might be placed somewhat lower than those under the competitive regime, or prices of the raw materials used might be raised above those prevailing under the competitive regime without lessening profits. We see, therefore, that it is within the power of the managers of the Trusts, provided the Trust has been care- fully organized in an industry adapted for com- bination to put prices below the competitive rates in order to drive out competitors, and then if the,v have secured monopolistic power thereby, to put prices, within certain limits at any rate, above competitive rates. Whatever may be the theoretic possibilities, however, under the Trust system, it is essential to note what has in fact been the result, inas- much as, in addition to the technical economic powers that have been suggested, the psycholog- ical factors of public opinion, of demands of laborers, of the boldness of the managers, etc., may all enter into the problem as factors in price determination. Although the Trusts have been in existence for a considerable length of time, it is still as yet altogether too early to determine what the ultimate effect of the Trust upon prices is to be. At the present time, however, there are many instances to show that in in- dividiuil cases, for short periods of time at any rate, the Trusts have actually lowered prices below the former competitive rates. Likewise numerous instances can be found of prices raised by the Trusts above former competitive rates. The surest way to test the effect of the combina- tion upon prices is to determine the margin of difference between the cost of leading raw ma- terials used and of the finished products. If an industry is simple in its nature, so that the raw material forms a large part of the value of the finished product, this test can be made with com- parative ease, as, for example, in the case of sugar refining, oil refining, the manufacture of alcohol, etc. Several industries were subjected to this test b.v the Industrial Commission, with the general result that up to date the influence of the Trust had apparently been to raise the margin between the price of the raw material and that of the finished product somewhat above that obtained imder the competitive system. This is a result which seems to establish beyond all doubt the fact that unless the cost of manufac- ture had been increased — a supposition clearly contrarv to the fact as claimed by the Trust peo- ple themselves — their profits must have been materially increased: and that the Trust had in reality raised prices to consumers, even though the actual price of the finished product may over a series of years have fallen. On the other hand, in certain instancs, it was shown that althoiigh this had been the early experience and the first result, showing clearly a decided monopnlistic power on the part of the combina-
