Popular Science Monthly/Volume 45/July 1894/The Meaning of Corporations and Trusts
|THE MEANING OF CORPORATIONS AND TRUSTS.|
By LOGAN G. McPHERSON.
TO arrive at an understanding of that tendency toward combination which is a most conspicuous phenomenon of the industrial life of the United States, it is necessary to trace the industrial development throughout its several stages. And as it has been in this country that industrial activity has met with the least hindrance, the steps of its development can be rapidly summarized with approximate accuracy. Although the industrial structures of other countries in previous centuries have had an influence in determining the industrial forms of the United States, the isolation of the American continent and the peculiarity of the conditions affecting its settlement justify the consideration of its industrial expansion as a separate growth, without reference to the industrial status of other countries or older civilizations.
Grandfathers of to-day tell us that in their boyhood in many parts of the country the life of each household was sufficient unto itself. Buildings were erected, grain was raised, winnowed, and ground; cattle were killed, their meat cured and hides tanned; wool was clipped and spun by its members, who, in addition to the performance of manifold other simpler functions, carried processes of manufacture still further—the men, in the days of winter, making the family's shoes and the women its clothes. In doing this work the members of the family were maintaining themselves in that condition which contrasted with barbarism. Houses and clothing were necessary as protection against the often inclement weather, and the possession of a regular supply of food was only possible by the preparation and preservation of the products of the recurring seasons. Upon the evenness of the zgo THE POPULAR SCIENCE MONTHLY.
temperature of the body, secured by the use of houses and cloth- ing, and the evenness of the vital processes consequent upon regular nutrition, depends that appreciation of the impressions which come through the senses that leads to the clear and vigor- ous working of the mind. But in those early days tools and appliances were so rude and methods so crude that there was little time for any one to spend except at the work which directly con- cerned his bodily welfare. The duration of such tasks for men and women was usually from daylight until dark. The self- sufficiency of each household was forced by the conditions of life in a sparsely settled region.
As the number of inhabitants in a certain area increased, and communication between them became less difficult, it was found that the production of certain articles, which involved particular skill, particular training, or particular facilities, could, with profit to an entire community, be left to the individuals possessing the requisite skill, training, or facilities. For example, a man making shoes for a considerable number of people acquired skill enabling him to make better shoes than the man who devoted but limited time to the making of a limited number for his own family, and the greater the time devoted to and the greater the revenue derived from the prosecution of a single industry the more readily could he aif ord, from time to time, to possess himself of appliances rendering more and better work possible with less effort, and the better could he afford to give more time to seeking the material best adapted for his product, which, as the quantities he used increased, he could secure, other things equal, at decreasing cost. And so with other functions contributing to material welfare.
When the demands upon an artisan became so great that he could not meet them entirely by his own personal exertion he em- ployed a man to assist him. This is the first combination the simplest industrial organization. Its characteristics should be carefully noted. The efforts of both men being directed by the employer, there is centralized control, and the joint efforts of the two men supplying a greater demand than was possible for the one, the field of their operations extends. And the two men, by systematically combining their efforts, other things being equal, accomplish more than could the two men working separately ; wherefore, there is economy of production.
The numbers of individuals engaged in work for which there was greatest demand increased most rapidly every village pos- sessing its cobblers, carpenters, blacksmiths, and weavers and with the further increase of population and the extension of the area over which their products or services could be distributed, the number of separate vocations increased. Because of the greater number of people wanting houses it became profitable for
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a carpenter to make a specialty of house-building ; as furniture was needed, another carpenter devoted his time to making chairs and tables. Likewise the weaver .differentiated into the maker of carpets and the maker of cloths for wear ; and as the village grew there evolved the tinner, the harness-maker, and so on. The followers of each vocation thrived because the members of the community found it more economical to purchase their better products than to make similar articles themselves. This differen- tiation or diversification of industries heightened the contrast between the life of the community and barbarism, or, in other words, increased the degree of its civilization because, by reason of the particular skill, training, and facilities of the various indi- viduals who ministered to their various wants, the members of the community became better housed, better clothed, better sup- plied with the conveniences that contributed to the more rapid and efficient performance of their work and to the comfort of their homes.
The demand for a particular kind of work brought an increase in the number of individuals engaged in that work by causing an established artisan to increase the number of his employees, or by bringing an increasing number of men into that line of industry, some of whom continued to work separately, the direct servants of their patrons, while others formed other organizations of em- ployer and employee or employees. And thus arose competition, members of a community patronizing this or that tradesman or artisan in preference to another as the quality of his work or merchandise, his prices or accessibility, were the more suitable. Competition tended to secure to the members of a community a share of the benefit of the decreasing cost of production, different producers vying with each other to retain or increase their custom either by bettering the quality of their articles or decreasing the price, or both. With increasing ease of communication there was increased competition, artisans, in the course of their work, going more readily from one place to another, and merchantable articles were distributed throughout an extending territory.
With increasing ease of communication and transportation the localization of production was also affected. While many kinds of production remained tolerably evenly diffused over exten- sive areas, that which depended upon extremely favorable condi- tions tended to concentrate at localities so favored. For example,, in soil especially adapted for grazing, a farmer ceased to plant wheat when he could obtain the wheat more cheaply by purchase- from a distant farmer, to whom he could sell the flesh and hides of cattle raised on his meadows. And workmen engaged in pre- paring the products of cattle tended to concentrate near the graz- ing regions, while millers would erect their mills near the wheat
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fields all classes profiting by the economy incident to production in the especially favored localities.
With increasing demand for all kinds of products, men of shrewdness to see and ability to grasp larger opportunities enlisted to a greater extent the co-operation of others by the payment of wages or the forming of partnerships. Such co-ordination afforded means for securing in a greater degree the advantages gained by the simpler combinations. For, as the artisan devoting his time to one kind of work tended to acquire the skill, appliances, and the material best adapted thereto ; as, under the simplest combi- nation an organization of two men these advantages were heightened ; he who on a larger scale directed the efforts of others could, by careful training, develop further increase of skill, could because of a larger revenue afford to secure appliances increasing in number and cost, could procure greater quantities of the best adapted material at a decreasing price, and could devote greater energy to multiplying the consumption of his products by increas- ing their sale in old and extending their use in new markets. And these factors, stimulated by competition, all tend toward economy of production, to the serving of a community increasing both in extent and population with better articles at less expense. Contributing to this result was not only the economy in the im- mediate production of articles for immediate personal use and consumption, but the economy in the production of material and appliances used in the production of these articles.
With industrial combination and recombination an increase of capital is required for the maintenance of the larger sphere of operation. Such capital necessarily is obtained from the accumu- lation of those directly in conduct of the operations or from the accumulation of others. The first artisans, as a rule, doubtless obtained by their own exertions the few rude tools and appliances used in their vocations, but in the succeeding combinations funds are contributed by partners, one or more of whom may not be directly or actively engaged in the conduct of the business, in which case the active partner or partners, while benefiting by the use of the contributed capital themselves, also assume a trust, in the ethical sense of the word, for the benefit of the others. Or included in the capital may be the funds of widows and minors, which those in the active conduct of the business therefore hold in trust. When the field of operations so extends as to neces- sitate plant and appliances more extensive than can be provided except by contributions from the accumulations of a considerable number of persons, there arises a new form of organization the corporation. The ownership of the various contributions to the capital fund is vouched by certificates of stock. The corporation, therefore, benefits the community as a whole, in that it commands
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to a greater degree the factors that tend toward economy of pro- duction ; in that it directs to greater advantage the efforts of a greater number of workers ; in that it permits the attainment of profit upon their accumulations by those that contribute to its capital. As these stockholders may be of all ages and sexes, and oftentimes of residence remote from the scene of operation, those chosen to administer the capital, to conduct the operations, assume a trust of great responsibility. It is essential that control be centralized in their hands ; for to the utmost rendering of this trust is necessary the most prudent administration of the capital, the exercise of the greatest discretion in the maintenance, repair, and renewal of the plant and appliances, the most efficient direc- tion of the workers, and the most judicious distribution of the product. These results can not be obtained by scattered respon- sibility and scattered authority.
It is important to note that along with the development of more comprehensive organizations has been the development of the capacity to control such organizations, men of foresight and executive ability, shrewd and resourceful in the attainment and use of money, oftentimes gaining the control of extended opera- tions over a considerable area that, in their absence, would have been conducted by simpler, separate, and scattered organizations. Not only the opportunity for increased revenue, but the ambition of such men to exercise the power incident to the control of ex- tended organizations, is no small factor in their formation.
The great advance in the bending of physical forces to man's aid that began in the early half of this century has caused so many changes in the methods of production and distribution that it seems as though the industrial processes had undergone a radi- cal transformation. But with the settling of the disturbed ele- ments into definite shape it can be perceived that the seemingly newer forms are but the more compact and comprehensive expres- sion of the old ; that they are but successive steps in the series of that development which tends toward the betterment of material, economy of production, extension of distribution, and decrease of cost. The use of steam made possible the railways, in the build- ing and operation of which is necessary the co-operation of large numbers of men working under centralized control, and, in connec- tion with the multiplied uses of machinery, has brought the large factories and mills in which great numbers of men work under control likewise centralized. And the ease and rapidity of com- munication and transportation afforded by the railroad and tele- graph have tended still more to concentrate particular industries in localities where conditions are most favorable to their prosecu- tion. All these factors have allied in cheapening production, in serving a community, increasing both in extent and population.
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with better articles at less expense. And they have intensified competition, the railways bringing to a community similar prod- ucts from factories situated remote from each other, in many instances placing the output of each center of production of certain merchandise in competition in all parts of the United States with the output of each other center of production of that kind of mer- chandise. Contributing to this result have been the efforts of the salesmen of the different establishments, who, in the desire to extend the sale of their products, have underbid their competitors, who, in turn, have been obliged to lower their prices, this rivalry usually continuing until the selling price has been lowered to and sometimes below the actual cost of production. This compe- tition is beneficial to a community as a whole so long as it compels all the processes of an industry to be conducted with thrift ; and it has been beneficial when it has forced at places the cessation of certain production that could not withstand the pressure of com- petition of similar production from localities more favorably conditioned. But it has been injurious when, after forcing pro- ducers in most favored localities to the adoption of every reason- able economy, it has compelled them to dispose of their products at unremunerative prices. It has been injurious when many pro- ducers, each striving to dispose of the greatest possible output, have placed upon the market products far in excess of the quantity for which there is a natural and wholesome demand, thereby often- times forcing stoppage of j^roduction, depriving men of work until the excess is consumed, and oftentimes leading salesmen to per- suade unwary merchants to make purchases so large that they are crushed beneath their weight, or tempted to defraud their creditors out of payment therefor. It has been injurious when the strife for the disposition of products has become so fierce that the energies of producers have been absorbed in fighting competi- tion, to the neglect of the orderly and equitable administration of the vital details of production ; when it has led them to make misrepresentations as to the quality of their products ; when, in the desire to produce cheap articles, it has led to the adulteration of material and scrubby workmanship. It has been injurious when it has reduced the wages of employees to a point inadequate to the support of themselves and their families. Misrepresenta- tion, adulteration, and inferior workmanship have often proceeded from cupidity and lack of scruple, but unrestrained competition feeds their noxious growth.
As with all things else, industrial competition, when carried to the extreme, meets opposing forces that bring reaction, and, as with all things else, the play of mutually opposing forces tends toward equilibrium. Equilibrium between the forces that affect industrial competition is that condition under which industrial
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products are sold at prices that are fair to producers and to con- sumers alike.
When any industry falls into the deplorable condition brought by extreme competition, what recourse is there but for the pro- ducers to meet and endeavor to agree upon a course that will per- mit the attainment of remunerative prices by all ; that will lead to the production of only so much output as, according to their com- bined judgment, can be absorbed without strain to either producer or consumer, to the abandonment of needless and excessive expend- iture for solicitation, and to the sale of products only to reputable merchants of sound credit ? Such conferences have led to compacts of various kinds, that usually have been but of short duration. The temptation to extend sales by a stealthy cut from the agreed price is too strong to be resisted, and the abandonment of the agreement quickly follows. Then more binding compacts are made some providing a penalty for the cutting of agreed prices ; some providing for a division of territory in which sales can be made by competing establishments ; some providing for the dis- tribution of the total sales of a product in certain percentages be- tween different establishments. All such compacts are combina- tions in a greater or less degree of different establishments, any of which may be owned by an individual, a firm, or a corporation, and, with indefiniteness of meaning, have variously been desig- nated as trusts.
They are, however, but the embryo of the trust properly so called, which is a complete amalgamation of different interests in the same industry. Stock is issued covering an appraised valua- tion of the several properties to be combined, and distributed in proportion to the owners of these properties, who surrender it to trustees, receiving in return therefor trust certificates issued by these trustees, who become the actual directors of the organiza- tion. By such a combination competition between its constituent members is removed. The concentration of management permits economy of administration, the organization, as a whole, obtain- ing the benefit of appliances and methods that before were peculiar to but one or a few of its constituent elements. The interests of the various producers are placed as a trust in the hands of the men whose mental grasp, practical knowledge, and executive ability enable them to direct to most efficient results the efforts of a great number of workers, to adopt and use to greatest advan- tage the best appliances, to obtain large quantities of the requisite material upon the most favorable terms, to perceive and meet the conditions of a varying market. And thus it is that the formation of a trust is a uniting of the conditions that permit the attainment in the highest degree of the advantages gained in smaller degree by the first industrial differentiation which marked the beginning
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of that diversification which, is an accepted sign of progress. The trust succeeds the corporation as the corporation succeeds the firm, as the firm succeeds the individual artisan, as the individual arti- san differentiated from the Jack-of-all-trades of the early house- hold.
A trust may be a combination of plants and operations thereto- fore separately conducted by corporations, corporations and firms, or by corporations, firms, and individuals. Its essential character- istic is the solidification of formerly diverse and opposing interests. This may be obtained by a combination under the trust certificate plan, or by the complete absorption of the ownership of the com- bining elements. Thus a corporation may be absorbed in a trust which may be transformed into a corporation, which in time may form a constituent element of a greater trust. Under each com- bination there is increased centralization of control and the exten- sion of the operations in a widening field. And it sometimes happens that one man, or a few men closely associated, hold a controlling interest in, or predominate in the direction of, several organizations. There are two or three firms in New York, for example, any one of which regulates the management of two or more railroad or other corporations.
In each sphere of development, from the growth of the plan- etary systems out of the nebulous mass to the ascent of the living organisms of highest endowment from the protoplasmic mass of dull and homogeneous sensation, all progress has been along the lines of differentiation of function and structure and co-ordina- tion of like functions in a decreasing number of structures or organizations, each characterized by an increasing centralization of control of a broadening field. If the working of the industrial forces that has led to the formation of corporations and trusts is directly analogous to the working of forces that along other lines has led to analogous effects, this industrial aggregation is a nat- ural and inevitable step of industrial evolution that therefore can not but be beneficent in its final results.
As evolution along any line is most direct when its forces are least impeded, the industrial development of the United States should have been most rapid, for here conditions have been more favorable to industrial activity than among any other people at any time in history. The American settlers were of vigorous ancestry ; natural wealth abounds ; the climate is temperate ; and there has been the least retardation from the evils of government, the evils of war, and religious intolerance. From this is another proof that the formation of trusts is a natural step of industrial evolution, for it is in the United States that they have been of most direct growth and have attained their greatest dimensions and their greatest strength.
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It has been remarked, with some show of facetiousness, that from the trust that supplies the cradle wherein he is rocked in infancy to the trust that furnishes the coffin wherein he is laid for the tomb, man is housed, fed, clothed, transported, and entertained by a trust of one description or another. And, notwithstanding arraignment in public print and public speech, trusts thrive and prosper. This alone might lead to the inference that they are the product of natural forces.
But trusts are not in possession of the entire industrial field. Not in any one line of industry is the entire production effected by the agency of any one combination. There are even corpora- tions, firms, and individuals engaged in the production, refining, and distribution of oil that owe no allegiance to the Standard Oil Company. There are refiners independent of the sugar trust, and iron manufacturers that are not in any pool. There are trusts in the same line of industry working in direct competition with each other, and also with firms and individuals engaged in like production. For example, the New York Biscuit Company, the United States Baking Company, and a similar company operating principally west of the Mississippi River, are three different trusts engaged in the manufacture of products of the bakery, operating principally each in territory separate from the other ; but at points in the ter- ritory of either it is in direct competition with the other, and each, in its own territory, is in competition with firms and individuals supplying bread, biscuits, crackers, and kindred articles of con- sumption. There are towns and villages not reached by any of these trusts that are supplied by local bakers, and there are thou- sands of households throughout the land producing almost en- tirely within their own kitchens all the products of grain con- sumed by their members. A certain similarity to this condition is presented in each other line of industry throughout the entire field. Combination is most marked in industries requiring ex- pensive plants and appliances and the services of a large number of especially trained workers in preparing a product for which there is great and constant demand, the railways and iron and steel and the textile industries all affording conspicuous examples of strong combination. In the more densely populated portions of the country there is combination to a greater or less extent in other industries that, in more recently settled portions of the country, are administered by smaller organizations, the three baking companies being notable examples. A variety of causes, more or less general, more or less particular, have affected com- bination in the different lines of industry at different places. The general tendency, however, is toward the formation of separate organizations for the manufacture of an increasing variety of specialized products, and toward the combination of the com-
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paratively similar organizations concerned in the manufacture of each. j)articular product into a decreasing number of organizations characterized by increased centralization of control and the exten- sion of their operations in a widening field. This tendency is in exact accord with the law of evolution as defined by Herbert Spencer, and the heterogeneous aspect presented by the different coexistent degrees of combination in the industrial field analogous to the heterogeneous aspect jDresented hj the various coexistent stages of development in each sphere of evolution throughout the universe, all phenomena of which are now believed by the deepest thinkers to proceed in accordance with that law.
It is true, however, that in the processes of this industrial de- velopment are phases affecting adversely the fortunes of classes and individuals, although working to the benefit of the commu- nity as a whole, and there have been phases entailing actual oppression without other attendant good than the bestowal of exiperience.
The displacement of human labor by machinery and improved economical methods has been the cause of much outcry from those whose earnings have been immediately affected ; but that readjustment to meet the advanced conditions can not but be beneficial to society as a whole perhaps needs at this time no extended defense, and likewise with the displacement of labor caused by the cessation of industries at particular places under stress of competition of more favored localities.
In the first reaction from the unremunerative prices forced by competition, a combination sufficiently powerful to do so often raises prices of a product to a point as unreasonably high as previous prices were unreasonably low, and this is the basis for one of the apparently potent arguments against the toleration of trusts that they are oppressive to consumers. But there is the reply, first, that the desire to obtain the increased profits consequent upon an extending sale of the products will cause the most enlightened managers to keep their selling prices at the lowest point that consistent with profitable production will to the greatest extent increase consumption. When, however, this consideration does not prevail, there is a further check upon the maintenance of exorbitant prices in that capital, which tends to flow into the field in which greatest profits can be made, reduces prices by engendering new competition. Delay in the action of this corrective frequently has been caused by the fact that the making of enormous profits for a time is kept secret oftentimes by a combination engaged in an industry requiring a plant for its operations so extensive that great capital and experienced mana- gers are necessary to establish successful competition ; and the de-
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lay has been longest when, along with these conditions, the prod- uct has been of such a nature that the payment therefor ultimately comes from those not concerned in its immediate purchase. But it is a fact that in the industrial history of the last quarter cen- tury, notwithstanding these obstacles, many a combination strongly fortified in the maintenance of undue profit has, sooner or later, had its power broken by the flow of new capital into its field.
In the manufacture of steel beams and steel rails are required plants of great value, and the services of experienced managers and skilled workmen. The charge for beams falls upon the renters of apartments in buildings of the construction of which the beams are part, and the charge for rails upon the travelers and shipjDers over the railways ; and, as the immediate purchasers of the greatest quantities of beams and rails are often, if not generally, not the direct owners of the property for which the purchases are made, and therefore neither the immediate nor the remote pay- ment comes from the pockets of the immediate purchaser, the action of competition in efi^ecting a reduction in the prices of such material has been subjected to extreme delay, but that it finally effects such a reduction is shown by the fact that whereas seven or eight years ago the beam combination was composed of but five establishments who obtained over three cents a pound for their product, there are now over a dozen establishments engaged in this manufacture, and the price obtained is about one and a half cent per pound, and likewise combination after combination of steel rail producers that have endeavored to maintain unrea- sonably high prices has been broken.
Another corrective of the maintenance of inordinately 'high prices lies in the fact that a combination making one product upon an extensive scale is prone to discover means whereby waste, incident to that production, which could not be utilized by the smaller producer, can be made a valuable article of commerce, and the combination, therefore, has found it to its interest to stimulate the consumption of its principal product by reducing prices, in order that it may obtain the additional profit consequent upon the increased production and sale of the subsidiary product. For example, when a dressed-beef concern of Chicago found that oleo oil could be made from the inside fat of cattle, it reduced the price of beef to a narrow margin of profit, that it might increase the sale thereof and thereby oJ3tain the increased supply of fat for the production of oleo oil, for which there is great demand. Other dressed-beef producers were forced to reduce the prices of meat accordingly, the result being of great benefit to the con- sumers of meat, who are practically the entire population.
It has also happened that the maintenance of inordinately high
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prices for a particular product has led to the discovery of means whereby another product can be used in its stead, whereby the manufacturers of the original product have been compelled either to reduce their prices or retire from the field.
Competition, before reaching the point where the leaders in a particular industry are forced into final combination, tends to lower the wages of laborers in that industry ; for, as it is to the interest of the consumer to procure that which he needs at the lowest cost, his efforts to buy cheaper tend to force the cost of production to the lowest notch. When this pressure for low prices is such that it can not be met by the saving in production gained by the use of economical methods and improved appliances, attack is necessarily made upon the wages of the workmen. Like- wise the efforts of the salesmen of a particular product to extend its market in competition with other producers, force the lowest cost of production with like results upon the wages of the work- ingman. After competition has forced the final combination, the wages of workingmen in but few instances have voluntarily been increased, and sometimes they have been reduced. Those in con- trol of the capital, desiring to recoup for past losses and to secure the greatest returns for the future, still find it to their interest to keep down the cost of production. From this has arisen the cry that a main purpose of industrial aggregation is to crush the workingmen. To retain their employees, however, even great combinations are usually obliged to pay wages not less than can be obtained in other fields. Such combinations must be managed by men of the first ability, whose services can not be secured except for high remuneration. To the efiiciency of their work is necessary the careful training of a corps of subordinates to whom it is to the interest of the corporation to give adequate remuner- ation and certain tenure of position so long as they remain com- petent. And even to laborers of the lowest grades these corpora- tions must pay a rate of wages established by supply and demand. It is shown by statistics that the rate of wages during the past fifty years has steadily increased, in all except the vocations that are being supplanted and are dying out. The rate of wages is a matter, however, in which self-interest on either side is the prin- cipal factor, and, whether forced by competition or actuated entirely by selfishness, employers, as a rule, have not at any time extended any greater compensation to their employees than they have been obliged to. But in opposition to the tendency to force wages down there have also grown combinations, the labor organ- izations. These are trusts, in that the laborers in a certain field of industry place the care of their collective interests as a trust in the hands of the officers thereof. The theoretical justification for the existence of labor organizations is, therefore, the same as the
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theoretical justification for the existence of our democratic form of government that is, that the best interests of the constituent individuals are best served by placing in the hands of their chosen representatives certain functions which can be better per- formed for the individuals by those representatives than they could be performed by the individuals for themselves.
When an employer announces a rate of wages, an employee has the right to work at that rate or not, as he may choose that is, he has the right to contract for his services. But if the mana- ger of a mill, a mine, a factory, or other large establishment em- ploying a great number of workmen engaged in the same kind of work, announces a reduction from the established rate of wages, what is the effect upon the individual workman if entirely dependent upon his individual resources in the negotiations inci- dent to this individual contract ? He may continue to work at the reduced wages or not, as he may choose, but to seek work at another establishment is often impracticable, especially if necessi- tating removal to another locality. To remain without work, even for a short time, entails ill-borne loss. The result is that a por- tion of the employees may leave, but the majority find it prefer- able to accept the reduction, especially those who have acquired homes in the vicinity, and live wrapped in the web of attachment woven by the associations of the home, the neighborhood, and the community. The contract for a rate of wages between the em- ployer and the individual is, therefore, one in the negotiations for which the employer has an advantage so tremendous that his decision is practically the mandate of a despot, and, as upon the rate of wages practically depends the employee's subsistence, the amount of necessaries, comforts, and luxuries he can procure for himself and family, the employer oftentimes has greater power over the manner of life and the happiness of his employees than the Constitution accords to Congress and the President of the United States. When this power is used to reduce wages, work- ingmen have frequently but little means of knowing whether the reduction is forced by the conditions of production and distribu- tion, or whether it is an arbitrary attempt to swell the employer's profits. The conditions of their lives are such that they can not know much of the cost of plants, appliances, material, and the rela- tion that wages bear to the cost of production or to the expense of distribution. In any event, the strong promptings of immediate self-interest impel them not only to resist any reduction, but to endeavor to obtain, from time to time, an increase of wages, a general betterment of condition ; and as individual assertion is of little or no avail in resisting reduction or obtaining an increase, the natural result is that the workingmen in a particular line of industry endeavor to obtain by combined action that which they
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can not obtain separately, and thns have arisen organizations of the working-men in different lines of indnstry, and as they have increased in number and complexity, they have tended toward more extensive combination, with greater centralization of con- trol witness the Knights of Labor, the Sovereigns of Industry, and the American Federation of Labor. But as the representa- tives of the people, charged with the administration of the politi- cal government, have, times without number, because of ignorance of the working of economic law, because of cowardice in follow- ing their convictions, because of personal greed, because of a truckling to popular prejudice, enacted laws, sanctioned executive action, or indulged executive neglect, that have inured to the in- jury of the people as a whole, so also have the representatives of workingmen, charged with the administration of labor organiza- tions, from like causes, enacted regulations, permitted action, or neglected to restrain action, that has worked to the direct injury of their constituents, and tended to bring labor organizations, as a class, into widespread obloquy. As the demagogue has often obtained political preferment, so also have the palavering hypo- crite and the sordid bully but too frequently been made the rep- resentative and spokesman of labor ; and then, again, it has often happened that well-meaning representatives of labor, after con- ferences with employers in which they have been clearly shown the conditions that necessitate reduction of wages, or that render impossible an increase of wages, have been repudiated and con- demned by their constituents when endeavoring to make such conditions clear to them. All too often have workingmen of the best intentions been overruled by the headstrong, who have worked upon their credulity and prejudice until they have met appeals to reason with unreasoning sullenness, and when minds credulous and prejudiced have been inflamed by liquor there have been deplorable and disastrous results. In years past the confer- ences between the representatives of capital and the representa- tives of labor have too often been marked on both sides by aggressiveness, rapacity, and greed, by the absence of good faith and calm, considerate, thorough discussion. Strikes have inured to the injury of both capital and labor, but as strike after strike is fought and ended the reasons for the conflicts come more clearly to the light of publicity, and popular opinion, the basis of all law, seizing upon the points of dispute and perceiving the attitude of the combatants, visits with condemnation or approval the one side or the other ; and this light of publicity, searching out that which is unjust in the action of labor and that which is unjust in the action of capital, can not but bring, and may now be seen to be bringing, a healthier tone to the proceeding of one and a greater honesty of consideration to the attitude of the THE MEANING OF CORPORATIONS AND TRUSTS. 303
other, from which can not but come a more reasonable and equitable solution of the problems that are continually pre- sented to each.
And notwithstanding all the attacks that have been made upon them, labor organizations survive. Like the other trusts, they are the product of natural forces ; like the other trusts, they fulfill a natural function. As men of greater knowledge and broader views come to their control, the directors of great industrial organiza- tions who want to be just toward their employees find it advan- tageous to communicate with them through such representatives. The situation can be gone over with them more frankly and thor- oughly and in shorter time than would be possible with each of the workingmen separately, or with all of them jointly, and the report and recommendations of these representatives to the work- ingmen can be met and received as the result of the best judgment of competent minds acting in their behalf. It is to be hoped that in time the perception of a common interest and a common sense of justice between employer and employee will render the labor organizations unnecessary. It is likewise to be hoped that advanc- ing civilization will reach a plane whereon all political govern- ment will be unnecessary.
An assertion that has been used with great vehemence against industrial aggregations is that they are instruments for ensnaring and misappropriating the funds of the weak and unwary. Con- demnation on this ground was made of the minor industrial and financial combinations. The cry against corporations a generation ago was as bitter as that against the trusts of the present. It has arisen from the fact that the multiplicity of means that have been developed for borrowing capital, the giving of mortgages, the issue of stock certificates and bonds of different kinds and forms, with the attendant manipulation in stock markets, has given men with predominating desire for personal gain opportunity for obtaining money in excess of the needs of their business, or of the value of the property which they can oflier as security, and complicated methods of bookkeeping have concealed its unjustifiable applica- tion and the misuse of profits. Instances of such defection have been so numerous as to breed in the minds of a considerable por- tion of the population a certain distrust of all that pertains to the buying and selling of stocks and bonds, and this distrust in many places with many people is so deeply rooted that the advantages to the entire community gained by honestly and discreetly man- aged industrial combinations are overlooked. It is the men of largest brains and keenest wit that in the fields of finance and industry conceive and control enterprises of magnitude, and when this keenness of wit has been combined with lack of scruple they have often been able to envelop the conduct of their enterprises 304 THE POPULAR SCIENCE MONTHLY.
in a mystery that the ordinary mind did not penetrate, under the cloud of which they have wrested undue personal gain. The con- version by men to their personal ownership of funds and estates held by them as trustees was an abuse from which the common law for centuries was inadequate to afford immunity. The devel- opment of the ethical trust relation sustained by those in active conduct of the great industrial organizations of this century to those whose funds are invested therein has been more rapid than the development of the legal safeguards for the protection of that relation. But as every abuse is the forerunner and the cause of its own remedy, the deleterious manipulation of stocks, bonds, and securities of every sort must give way before a public intelligence that tends more and more to a perception of the methods by which it has been possible. And this intelligence will compel the em- bodiment in legal codes of measures that will place these recently developed trusteeships upon as clearly defined and safe a basis as the earlier and simpler trusteeships were placed by the system of jurisprudence and jurisdiction organized by the Earl of Not- tingham.
It is frequently asserted that a nation's industries are in most healthful condition when conducted by a great number of inde- pendent producers. If carried to its logical conclusion, this im- plies that the village artisan who employs one man to assist him is guilty of an act of injustice. For otherwise, if A has a right to better his condition by working for wages under the direction of B, why should not both A and B, if they can better their condi- tion by doing so, work for wages under the direction of C ? And why should not scores and hundreds of men work under the direc- tion of the master mind of Z ? It is true that whether impelled by the desire to obtain increased profits, or by the constant de- mand for the reduction of prices, it is the tendency of an indus- trial combination to absorb the performance of the functions con- tributing to the manufacture of its ultimate product, thereby either destroying or curtailing the profits of those theretofore engaged in the performance of those functions. For example, but a few years ago the placing in the Northwestern markets of coal from the Pittsburg bituminous coal field involved the mak- ing of profits by the mine producing qoal, the agent in Pittsburg that purchased it on commission, the firm who employed him, the company over whose docks it was loaded in vessels at the ports of Lake Erie, the owners of the vessels which carried it to the North- west, the owners of the docks on which it was unloaded at the head of the lakes, and the dealers who disposed of it in the vari- ous Northwestern cities. The pressure of competition reducing the possibility of separate profits has forced the combination of these different agencies of production and distribution for in-
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stance, one man now controls what is practically one organiza- tion, owning mines at Pittsburg, docks on Lake Erie, vessels that ply on the lakes, docks at the head of the lakes, and coal yards at St. Paul and Minneapolis. As the retail price for Pittsburg bituminous coal at St. Paul and Minneapolis has been materially reduced in the past ten years, it will be observed that the co- ordination of the various functions enumerated has resulted in immense benefit to the consumers of coal, that has extended throughout the Northwestern States. When contributory func- tions are absorbed by a combination, the men engaged in the performance of those functions are not deprived of a liveli- hood. Their services are needed in the performance of those same functions by the combination, which must yield them compensation in accordance with their experience and ability. If it be the effect of this competition to force a lesser income than accrued from the profits theretofore enjoyed, the result, while it may to a greater or less extent be to the misfortune of the absorbed individuals, is for the good of the community as a whole. If the functions which they did perform can be per- formed by the combination equally well at less expense, it would be unjust to the consumers of the ultimate product for these indi- viduals to continue to enjoy such profits. There is the further consideration that in the performance of the various functions necessary to the continuation of a great organization men of vari- ous kinds of ability can devote their energies to the tasks for which they are best adapted. The organization and the nation as a whole are therefore benefited by having the best outcome of men who, if working independently in a smaller sphere, would be hampered by having to give a greater or less proportion of their time to tasks for which they are less adapted.
The instinct of self-preservation, carried to its extreme in the desire for the greatest gain with the least liability for aggression, is apparent in the difi^erent steps of industrial combination. The limited partnership laws in effect in many of the States contain provisions restricting liability that, as a rule, have stood the test of application, but there has been much irregularity on the part of corporations that, obtaining a charter under the laws of a par- ticular State, have gained advantages that have permitted opera- tions in other States under the laws of which similar privileges could not have been obtained ; and, conversely, particular States have placed unjust restrictions upon the operation within their jurisdiction of corporations working under charters obtained in other States. The desire to evade responsibility, together with the desire to evade the assault that in many localities is facilitated by the laws arising from distrust of corporate action, has led certain of the combinations known as trusts to adopt carefully
VOL. XLV. 24 3o6 THE POPULAR SCIENCE MONTHLY.
studied and elaborate plans of organization that permit the great- est freedom of operation, while reducing to a minimum the oppor- tunity for legal attack. Such devices, to the extent that they ex- ceed the bounds required for proper self-protection, can not long stand before an increasing intelligence of their aims and methods. That same intelligence, acting through the media of courts and legislatures, must arrive at a more equitable solution of the prob- lem of corporate rights and corporate aggression.
In the effort to extend to the greatest degree the sale of its products, a trust now and then has adopted other measures than the endeavor to place upon the market products of a quality and price that will insure the largest consumption. In certain locali- ties it has, regardless of immediate loss, placed the selling prices of its product at a point so low that a competitor can not meet them without loss that, if continued, will drive him from the field. But it has happened that the resources of a competitor, or his facilities for production, have been such that he can success- fully defy such an onslaught. In such a case a trust has some- times adopted another method of attack by coercing merchants into desisting from the sale of the competitor's products under threat of using the influence of the trust to harass and embarrass them. Such methods, although sometimes apparently successful, often redound to the injury of the user, for one of the first steps of the object of the persecution is to enlist sympathy by giving publicity to his position. When, however, an industrial organi- zation gives a merchant who agrees to sell its products to the exclusion of similar products of other manufacturers lower prices than if he also handled competitors' goods, it is simply acting upon the established principle of selling greater quantities at lower prices than lesser quantities. If these low prices yield a profit to the producer, and the products can be sold by the merchants at a lower price than similar products of competing producers, the result is that consumers are benefited by the re- duced prices, and the profits of the merchants and manufacturers are increased by reason of the extended consumption.
An organization controlling the shipment of large quantities of material used in manufacture, or of a finished product, has oftentimes been able to obtain lower rates of transportation than its competitors because transjDortation companies have underbid each other in the desire to obtain the extensive traffic, and the advantage gained by means of the low rates has contributed to the exclusion of competition. Many of the States have estab- lished commissions to look into the administration of transporta- tion companies, and the Interstate Commerce Act was the begin- ning of national action in the same field. And the State and national commissions are throwing light on the problems of trans-
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portation that have been but little understood. Abuses are being corrected, and in many instances procedure supposed to be to the injury of the public in general is shown to flow from the action of natural forces tending to the public good.
Much that has been evil in the conduct of trusts has been ascribed to the working of our so-called protective tariff, and the exclusion of foreign competition has, doubtless, been an important factor in the over-capitalization of different plants and the water- ing of stock that have been almost constant elements in trust for- mation. But it is not to be inferred that an abandonment of or a reduction in the tariff would be followed by the dissolution of trusts. If the greatest economy of production is obtained under a trust, which is the final combination forced by competition, will not the renewed and intensified competition consequent upon an abandonment of or a reduction in the tariff render the trust all the more necessary ? The foreign competition will doubtless hasten a reduction of undue profits, but at the same time will tend to increase the compactness of organization and method under which the final industrial combination is of greatest good to the community. The three baking companies referred to on a pre- ceding page are examples of trusts the formation and continuance of which do not depend upon any advantages derived from the tariff. The United States Baking Company was formed under the pressure of competition entirely domestic. It thrives because the operations of the constituent baking establishments are con- ducted under centralized control, by which is obtained for each the advantages of the best appliances and methods, the best adapted material at the lowest cost, and the most judicious distri- bution of the products.
As it often happens that the actions of a servant, performing his duties quietly and efficiently to the increasing satisfaction of his master, meet with no other recognition than the stipulated compensation, although departure from the exact line of correct performance, whether apparent or actual, whether the result of ignorance, carelessness, or positive dishonesty, meets with com- plaint, rebuke, and punishment, so it has happened that an indus- trial combination which is but the servant of the public, so long as its operations have been confined to the production and mar- keting of articles for which there is a demand, of a quality and at prices that satisfy that demand, has been permitted to continue its functions without particular attention, receiving reward in the profits accruing from the sale of its product. But the real or apparent departure of such an organization from the simple per- formance of such functions, whether the result of actual aggres- sion or the disturbance entailed by the readjustment to changing conditions, brings outcry that has been followed by that public
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rebuke which, has ended in legislative enactment designed to pre- vent a continuance of the real or apparent abuse. The discharge of employees, the reduction of wages, the raising of prices, the decrease of production, whether justifiable or not, antagonize the immediate interests of a greater or less proportion of the popula- tion whose discontent often finds voice through men who, whether sincere or guided by self-interest in their protestations, are utterly unable to trace the ramifications of cause and eif ect throughout the complications of the industrial and commercial web. And such men, clothed with the power of legal enactment, have given force to statutes that have tended to kill instead of to cure. But it can not be denied that the desire for gain, without due regard for justice, has led men charged with the administration of indus- trial organizations into actions that have abundantly justified public complaint and severe punishment, and many organizations have been formed because of the facility for public aggression attained by combined action and the absence of individual re- sponsibility ; and all that has been reprehensible in the acts of such organizations, gaining a greater or less publicity, has tended to obscure the perception of the benefits of industrial combination as a whole.
The enumeration of the evils attendant upon combined action leads to the perception that they did not spring into existence at any one period of industrial development, but that they are the outgrowth of not properly restrained actions, arising from motives that exist in individuals, and were manifested in the actions of individuals before the tendency toward combination became no- ticeable, and have been manifested with increasing conspicuity at each of the stages of combination. In other words, the vices and virtues of aggregations of men are but the vices and virtues of individual men, and vice and virtue alike become intensified as they are manifested in the actions of an aggregation of men con- trolled by leaders of whom they are characteristic. Opportunity for dispute as to the rate of wages and the hours of labor arose when there were first employer and employee. It is the very trad- ing instinct to sell at the highest price and purchase at the lowest. The mean and the crafty have ever sought to obtain money with- out repaying it, to obtain privilege without compensation, to gain advantage over others by fair means or foul. As it has been the increase of intelligence and morality and accumulated experience that has led to a wider justice between individual men, so must it be the increase of intelligence, morality, and accumulated experi- ence that will lead to the allotment of justice between individual man and an aggregation of men, and between aggregation and aggregation.
The very hugeness of the more recent industrial combinations
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has raised in the minds of many a vague fear akin to that which chiklren feel when they read of giants and genii, and politicians have conjured with their names as nurses frighten infants with tales of great monsters that are coming to eat them, and this not- withstanding that the greatest effect in all fields of human effort has been gained through organizations, characterized by combi- nation and recombination, that, working under centralized con- trol, have enlisted great numbers of men in the attainment of far- reaching ends. The advantages of combined action in bodily attack and defense led step by step through the grouping of tribes and clans to the formation of great armies. Upholders of like ecclesiastical doctrines have associated themselves in organiza- tions that have sought to extend their sway by united effort. Similar needs of similarly conditioned masses of men have caused the growth of political governments that have combined and recombined. With advancing civilization the soldier's calling becomes of less and less importance ; with the growth of the intellect ecclesiasticism loses its dominance ; and with the loosen- ing of the shackles of paternalism the sphere of political govern- ment recedes. Advancing humanity now demands, more than ever before, the service of him who contributes most to that wholesome care of the physical being which is essential to the highest development of the mental and moral life. The artisan and the tradesman, who were the butt of ridicule, the object of contumely, when my lords the warriors and my lords the bish- ops ruled the world, find that their vocations, increased and extended by the aid of science, are of inestimable value to the human race. The forces tending toward the highest civilization, that through physical conflict have evolved the great nations which abide side by side under a fuller promise of peace that throughout the strife between mind and mind as to the Unknown Cause have evolved the great religious organizations that seem more and more content to abandon useless dogmas, to join in the promulgation of moral precepts that are common to them all and in the ever more discreet ministration of charity are now swirl- ing with greatest intensity in the field of industry, evolving the great industrial organizations, that through the mutual reaction of one upon the other will bring that clearer knowledge by means of which they will be made the peaceful and harmonious agents of the higher life. And therefore, inseparable from consideration of the causes that have led to industrial combination and the effect of industrial organizations in the present, is speculation as to the direction the tendency toward such combination will take in the future, the extent to which it will involve industrial func- tions, and the effect the organizations will have upon the individ- ual life of the members of a community.
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Functions, the performance of which particularly depends upon the skill and application of individuals and have little con- nection with concrete production, will likely to a considerable extent remain exempt from combination, although attorneys and physicians whose pursuits depend almost exclusively upon sep- arate individual ability and application have allied themselves in associations through which to an extent fees are regulated and the experience of individuals is brought to the benefit of all. A striking example of the centralization tendency is presented by the action of the banks in many of the larger cities during the recent financial distress. To the clearing house, which is prima- rily but a combination of banks for mutual benefit, which inures also to the benefit of the public, were assigned securities belong- ing to each of the banks holding membership therein, to be held by the clearing house as the basis for the issue of clearing-house certificates which were designed for the benefit both of the banks and of the community served by them. As the property of the different banks was placed in the hands of a committee clothed with executive authority, this action displayed a principal char- acteristic of the trust formation.
Consideration of the effect of industrial organizations upon the individual lives of their members leads to analogy drawn from the relation borne by the individuals thereof to the other great organizations that have attended the progress of humanity. As the true soldiers were content to find their reward and glory in the valorous service of the militant organizations to which they be- longed, as the sincere ministers attained the highest personal good by the abandonment of self in the striving to uphold the precerpts of their creeds, so it may be that the members of a great industrial army, imbued with the feeling that their well-directed energies contribute in the greatest possible degree to the welfare of the nation, to all that is meant by the attainment of the highest civi- lization, will find happiness in their work that is only equaled by the happiness found in their homes, and will be content with the personal credit and personal reward that may follow the exer- cise of their ability in a field where an increasingly juster percep- tion of each man's capacity will give the opportunity for its fullest utilization, and where there is increasing recognition of the fact that it is to the efforts of all the workers in a particular field that results are due, that the credi^j in proportion to his usefulness belongs to the private as well as to the general. The manager of a great railway gives the best of his mental and physical energy to the conduct of its affairs, with the consciousness that he is thereby contributing to the welfare not only of the corporation and its employees but of the community which it serves ; likewise with the president of a bank or the head of a great industrial or-
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ganization. The name of the organization lie serves may have endured for long before his term of service and for long after, as the name of the nation endures throughout many changes in the head of its government. If a prime minister finds more than pecuniary reward in having risen to the most important place of service to his nation, so should a captain of industry find more than pecuniary reward in having risen to the place of most impor- tant service to a great industry that ministers to the welfare of a multitude of people. If a sailor in the navy takes pride in con- tributing his mite under his nation's flag, so should the industrial private find satisfaction in the thought that his efi:orts are of use. Besides the pleasure that he should find in his work, there is the happiness man should find in his home, in wholesome recrea- tion, and the development of his mental and moral nature. That which is essential in the enjoyment of home does not depend upon the place in the industrial world occupied by the head of the family, for that there may be contentment in the cottage and misery in the palace is proverbial. Now that wise managers are discovering that the best work is obtained from men whose life in its entirety is most wholesome, it may be expected that in time the executive heads of great organizations will endeavor to allow their fellow- workmen every reasonable facility for domestic enjoyment, healthful recreation, and self-culture. And all the advantages gained by industrial combinations lead to this end. As products are cheapened their use becomes extended, so that in time it may be expected that the humblest may possess themselves of the clothing, food, and conveniences of habitation that minister in greatest degree to bodily health. As men working in concert with improved appliances and under improved methods produce a greater and greater output in less time and with less nervous and muscular exhaustion, it may be expected that before many generations have passed the labor necessary to supi^ly the material needs of the human race may be encompassed within limits of time and exertion that will allow to all sufficient leisure and suflB.- cient spirit for the cultivation of all that gives to life its perfect flower. The great industrial organizations perform for all the people what the men and women in the days of our grandfathers did for themselves and their families. They extend the mutual helpfulness of all the members of the nation, binding community to community, " obtaining an advantage while conferring a boon " ; and the increasing exchange of products between nation and nation gives reason for belief that in generations to come, as the individuals of different nations know and appreciate one another more truly, there may be an extension of industrial organization that will have the whole world for its scope, ministering to all mankind. 312 THE POPULAR SCIENCE MONTHLY.
A recapitulation and summary of cause and effect throughout the industrial development of the United States as outlined in the foregoing pages lead to the conclusions :
That specialization of function and co-ordination of similar functions become more pronounced with the growth of popula- tion and ease of communication ; that this specialization and co- ordination is accelerated by the invention of machinery, the dis- covery of processes whereby the production and distribution of greater quantities of an increased variety of products are facili- tated ; that this specialization and combination are of benefit to all individuals of the nation in that they bring to the control of the processes of production and distribution the men best fitted there- for, under whose directions the efforts of great bodies of workers are co-ordinated to the greatest advantage, and under whose di- rection the accumulations of great numbers of people can be used with profit to the investors and to the individuals of the whole nation, for this specialization and co-ordination lead to the pro- duction and distribution on an ever-extending scale and at de- creasing expense of the i)roducts that contribute to the strength and fitness of the buildings in which these individuals live and work, in which they congregate for instruction, deliberation, and recreation ; of the products that nourish and the products that clothe the body under the varying conditions to which it is sub- jected, thereby aiding each individual to preserve for the greatest period that condition which permits the effective performance of the functions dependent upon physical action.
That a powerful factor in this industrial specialization and combination and in the diffusion of the benefits thereby attained is the force known as competition. Increased demand causes in- creased production by an increased number of producers, who, by competition, are forced to lower selling prices and are thereby forced to the discovery, invention, and adoption of appliances and methods that decrease cost of production. Competition, still en- croaching upon their profits, incites a combination of producers in self-defense, but to withstand its still active force they are com- pelled to production only in localities where conditions are most favorable and to vest its control in men most competent to direct it. Competition that rippled and eddied around and among the simpler organizations of employer and employee gains increase of force as the agencies of production combine, and rolls in mighty waves upon a great organization, washing away and crumbling every point of weakness, until there is left but that wall of bed rock formed by production and distribution upon the most eco- nomical basis that can be maintained with justice to producer and consumer alike.
That as the conditions incident to industrial combination have
�� � caused a differentiation in the ranks of producers, forming the elements distinguished as capital and labor, the force of competition upon the producers has tended not only to reduce the profits of capital but the wages of labor. As capitalists have combined to protect their profits from the encroachment of competition, so have laborers combined to protect their wages from the encroachment of other laborers, the encroachment of competition acting through the capitalists, and the encroachment of the capitalists direct. And as the action of these labor organizations throughout the industrial field tends to obtain and preserve to the workingman a share of the benefit derived from the sale of products in proportion to the value of the part in the production of which his efforts have contributed, they fulfill an important function in the attainment and maintenance of that equitable relation between the consumer and producer which constitutes industrial equilibrium.
As the argument from every point of view goes to prove that industrial combinations are the products of natural forces ministering eventually to the highest good of the individuals of a community, of the community as a whole, and to community and community in domestic and international relationship alike, lawmakers should have care that in the effort to rid the tree of poisonous growth they do not interfere with the current of the life-giving sap. The object of legal enactment should be the maintenance of justice between man and man, without hampering beneficent activity that will be driven into proper channels by the same forces that give it existence.