Monopoly; The Power Behind the Trust

BY JOSEPH DANA MILLER

HOW comes it that a power in its unimpeded operations beneficent—namely, the force or forces of combination or co-operation—becomes under certain conditions so injurious to modern industry? Why is a union of two factories or many factories, of two companies or many companies, a signal to the community of anticipated extortion? And why should the development of natural laws—those of combination and co-operation—provoke a public demand for regulation, and those who avail themselves of these operations be deemed amenable to punishment?

We may grant that a perfected combination which should succeed in forestalling any given commodity would be criminal. The law from its very beginnings has so regarded all such attempts. It is conceivable that, under certain conditions, a mere agreement between individuals might perfect a combination clearly within the provision of the law compelling its forcible dissolution. But this is not conceivable under modern conditions where wide distribution of capital and free labor exists. Law, indeed, may create such monopolies, which it may by popular demand be called upon to destroy, undoing with one hand what it has done with the other. State-created monopolies have existed often in history—as notably in the reign of Queen Elizabeth—but because these have been created by direct act they have been exceedingly unpopular. So, in periods of greater public intelligence, and where the people exercise larger powers of government, it became necessary to accomplish the same result by indirect means, by putting into operation some general law under which monopoly could find a shelter, and the secret sources of which could not be so easily traced.

For, contrary to the almost universal opinion, monopoly is weak. It demands protection. And from what does it demand protection? From the all-powerful natural law of competition. The curious Socialist notion that competition leads to monopoly is true only in the sense that monopoly, seeing how powerless it is when threatened by the forces of competition, seeks the protection of such laws as it can secure, or which already exist, for the suppression of competition. And this brings us to the conclusion which is unavoidable that there are no monopolies save law-created monopolies.[1]

If this seem a novel proposition to the reader I will ask him not to grow impatient, for the demonstration will grow upon him as he reflects. It will seem novel, for if true all the laws and statutes for the regulation of combinations are so much waste of time and paper and the hours of legislatures and courts. In the acceptance of such explanation of the trust problem must go the rejection of many proposed remedies, among them the much-lauded one of “publicity.” While publicity is always to be commended and sought for in public or semi-public matters, it does not appear that laws enforcing publicity upon purely private industrial combinations are founded upon equity. Nor is it likely that publicity will assure us the possession of knowledge beyond what we already have through the work of independent investigators. Nor is it probable that enforced publicity will elicit impartial truth. This proposition is of a piece with the punitive theory in the treatment of the problem, a theory which has already led the people far astray. Men shrink instinctively from such stringent regulation, and this is a true index of the moral relation, if we may so speak, of this problem to legislation. But because they will not think clearly they return to the proposition of legal interposition.

Along with the remedy of “publicity” must go all laws, existing or proposed, limiting capitalization or stock watering. Beyond the fact that such laws would often force capitalization below the earning capacity—which is no unfair basis of capitalization—it must be said that the evils of stock watering are largely imaginary. It is true that over-capitalization may conceal from the public the real extent of monopoly profits, and is for this purpose, if for no other, often resorted to. But this of itself ought to constitute no valid reason for drastic legislation. Investors ought to be left free to take their own risks, and speculative ventures ought to be left free to fix their own capitalization, for otherwise perfectly legitimate, if largely speculative, business interests may be made to suffer injuriously to the interests of the community. But laying aside for the time all considerations of this kind, stock watering is only a symptom—a sign that monopolistic powers, and not legitimate business interests, are being capitalized.[2]

High capitalization, it is sometimes said, tends to increase price. It does offer temptation to increase of price, but nothing can put it within the power of combinations to increase price save the forces of monopoly. This power you do not increase or decrease by adding to the numbers of the counters, the considerations governing which are purely those of the stock-gambling fraternity.

National licensing of corporations to do business—a remedy proposed by Mr. Bryan and adopted by President Roosevelt—must also be dismissed. Obviously if the state has endowed corporations and armed them with letters of marque by authority of which they may prey upon commerce, it is the height of absurdity to ignore this feature of the question with talk about licensing them. In a very real sense they are already licensed, for it must be repeated that combinations do not create the monopoly, but merely avail themselves of the monopolistic powers created by society through acts of Government.

Of necessity all such laws must fail. This, it is scarcely necessary to say, has been the universal experience. And from future legislation no more is to be hoped than from past legislation, however well intentioned.

The reason why all this anti-trust legislation is futile is because, having created monopoly privileges, Government has appealed to the natural instincts of all men to seek these opportunities and benefits. Such laws are attempts to give effective form to the public’s foolish anathemas against impulses shared by everybody, and are therefore as futile as the Pope’s bull against the comet. When we understand that these great trusts are monopolies that Government has made, we will realize why it is that Government cannot unmake them by any other process than by removing the causes of their creation.[3] Books prescribing such anti-trust legislation may continue to cumber the libraries of our lawyers, and streams of statutes may continue to pour from the lawmaking bodies of states and Nation, but these will be either positively harmful or wholly harmless, never effective.

We are, indeed, “fooling” with natural laws, and we can do so only at our peril. The law of competition and the law of co-operation or combination are what they have often been called, the centripetal and centrifugal forces of social economics. Competition is often a painful but really a merciful process; it weeds out the useless and the inefficient; selects unerringly its business leaders; destroys, but where it destroys builds up; rescues from the mass the individuals and processes most fitted to survive, and out of chaos brings order. It replaces obsolete with more perfect organization, and where such organization becomes unwieldy it replaces organization with individuals, reverting to the earlier type of industry. Thus the country store is succeeded by the store in which is sold but one line of goods, and this is succeeded by the mammoth type of country store, the great city’s department store; and the development of the last named type seems again to revert to the second—viz., a congeries of stores in which each is distinct from the other, each attaining a reputation for competitive excellence in one line of goods, thus illustrating in the retail trade the interplay of the forces of competition and combination.

Just as there is a limit fixed to the bounds of competition, so there is a limit to the bounds of combination. The maximum of combination and the maximum of efficiency are not the same. There is a point in the progress of combination beyond which it does not, or would not naturally advance—and that is when it reaches the maximum of efficiency. It seems very likely that the element of monopoly in society today forces combination far beyond the point of the most efficient co-operation.

These natural laws may not be “regulated.” Such laws are not for regulation, but for obedience. We may impede, we may interrupt their operation, but only to our injury. The most we can do is to regulate our institution by these laws, as we trim a sail to the wind and tides; we do not attempt to “regulate” wind and tides; and these laws of co-operation and competition are of the same order—natural laws which to disobey is to be destroyed.

We hear much superficial talk about “the wastes of competition.” The Socialists play into the hands of the trust apologists who defend them on the ground that competition leads to waste. Beyond the fact that competition has never yet been fully tried, that it has never yet been wholly free, and that such waste as it entails is inseparable from the natural process which weeds out the incompetent, the antedated and the unskilled—a process of which the waste is but incidental to the conservation—is that these combinations do not seek primarily to escape the waste of competition so much as to avail themselves of those artificial laws which prevent competition from doing its perfect work.

The term expressing the opposite of competition is not combination, but monopoly. Professor Jenks, in his work, “The Trust Problem,” falls into this error when he speaks of combinations in the retail trade as overcoming the “friction” of competition, instancing associations of hardware dealers, druggists, etc. Here, he says, we have an element of combination from which he assumes the element of competition has been eliminated. But his error is in the analogy he seeks to establish between such agreements from which the element of competition cannot be expelled, and agreements which are based upon the control of some special privilege created by law, and of which the great railroad and industrial trusts are examples, and which people have in mind when they talk of the “trust problem.”

Clearly no monopoly exists nor can be made to exist in the retail trade. Agreements may be made, but they will be broken; and the fact that they can be broken by isolated individuals who can thus separate themselves from the combination, and by their separation cause it to dissolve, is proof that the monopoly element does not exist. For the monopoly element in the possession of the great trusts is the potent weapon with which the combinations can compel the recalcitrant member to return, or beat him into starvation. From mere agreements in the retail trade, such as Professor Jenks instances, the primary element of monopoly being absent, desertions are fatal, and for this reason such combinations are never effective as means for extortion, though they do often arrest the sacrifices of keenly competing retailers. And the illicit intrusion of such examples is a favorite trick of the trust apologist, who, when the evils of the trust are pointed out, grows righteously indignant over the right of men to combine—which nobody seriously disputes—or points out with superfluous wealth of illustration how combination effects the cheapening of production—which nobody ever really denies. For the same reason labor unions cannot be considered as effective monopolies—though the trust apologist does not forget them in his special pleas—for the reason that they possess no effective legal privilege.

But to avoid a possible misunderstanding let us now answer a query which may have risen in the mind of the reader. Is competition or combination the beneficent law of industry? Both; for one is the complement of the other. They exist together, and together they effect the industrial progress of the world. But monopoly is the negation of both, since further combination or co-operation is no longer possible where monopoly is complete. And where there is competition there will be combination, healthy, rational, continuous, and competition will determine its development and direction. The defense of the trust based upon the economic benefits resulting from the elimination of the unskilled is a defense of the principle of combination present under free competition, and is in no sense a defense of monopoly of which what we know as the “trust” is the manifestation. Such discussion, together with much talk of the wastes of competition, which helps to swell so many pretentious works on the trust problem, is so much irrelevant “padding.”

That the trusts avail themselves of all possible economies in production has often been urged in their defense. Certainly such economies are not needed to secure a monopoly in possession, nor does it seem that the greatest incentives to their adoption are present. The sacrifice of inventions rather than their use by these great monopolies is proof that they do much to prevent such economies. A monopoly can be induced to accept only with difficulty improved devices which under the spur of competition it would gladly avail itself of. Thus in the Post-Office, which is a monopoly, though a Government monopoly, improvements are introduced only with the greatest difficulty.

If combination can of itself effect monopoly, why are huge sums set aside by these great corporations to influence legislation? Why are contributions made to the campaign funds of the two great parties? Is it not because these combinations seek to perpetuate their monopolistic privileges? It may be said that it is contributed to effect the defeat of “strike bills.” But what would a business partnership, not in some way dependent upon previously existing legislation, care about “strike bills”? Why does the American Sugar Refining Company (according to the testimony of Mr. Havemeyer) contribute in some states to the Republican campaign fund, and in other states to the Democratic campaign fund?

As an example of the kind of defense urged by the trust apologists here is a work entitled, “The Trust; Its Book,” containing articles from the pens of Charles R. Flint, James J. Hill, S. C. T. Dodd, Francis B. Thurber, and others. It is a plea of “confession and avoidance.” The authors fight shy of even the hated term monopoly, and content themselves with defending the right of combination. Not one of them appears to think that the popular outcry against trusts is founded on anything but utter ignorance; and they therefore devote themselves to showing the advantages of large scale production—as if that were the question. All this seems purely disingenuous. It is hardly conceivable that men who know so well the effects of monopoly, who know how potent has been the use by combination of existing laws securing the possession of special privileges, should write this way from any other motive than to becloud the issue. We can acquit them of intentional deception far less readily than the professors of political economy. The latter may be at once exonerated, since it is incredible that men who have become involved in the self-created subtleties of modern economics should retain sufficient clearness of comprehension to see anything in its proper relation.

If it be true that there are no monopolies save law-created monopolies, it only remains for the state to undo the work it has done. The means by which the state, consciously or unconsciously, has fostered monopolies may be removed, and a new, and up to this time untried, method for remedying the evils of trusts be set in motion.

Before we can agree to this, however, we must understand what monopoly is. Briefly stated, it is the power to charge more than a competitive price for a commodity or service. This power can be permanently secured by the favor of Government, and in no other way. An agreement between individuals cannot accomplish it, since such agreements, even if they include all individuals in interest, which is impossible, or at all events inconceivable, would infallibly be broken. The only way such agreements may be made effective is for Government to make powerless, or nearly so, the potential competitive elements or individuals in interest. This it does in several ways, or to be explicit, chiefly in three ways.

By Land Laws,

Tax Laws,

Laws Regulating (or that fail to regulate) the use of the steam highways of the country.

I know of no other source of monopoly unless it be our patent laws. But these being—originally at least—rewards of invention, the injury results from their misuse.[4] Even the misuse of patent laws is not one of the chief potent influences in the perpetuation of monopoly. But without, in most cases, adding to the power of monopoly, which derives its strength from other causes, it puts in the hands of the great combinations the power to arrest progress. The value to society of an invention is in its use. Under present misuse of patents, inventions are held out of use and are often bought up and destroyed for the purpose of depriving competitors of the use of like improvements, or because such inventions would often reduce the machinery in present use to the value of old iron. Clearly, if industrial progress is to be made to yield its full results, some change in our patent laws is imperatively called for. Were the law of competition allowed to work freely, the use of such inventions, even under present patent laws, would be determined largely by the law of self-preservation. For the sources we have indicated are also the sources to a degree of the patent monopoly. In a competitive market for the use of an invention the inventor would be less likely to part with his invention, even under the present patent system. Where the bidding is artificially restricted the inventor sells at a disadvantage. Monopoly has the inventor at its mercy. But however this may be, nothing less than the free use of an invention to everyone willing to pay a royalty to the inventor for its use will do justice to the inventor and meet, at the same time, the interests of the great public and the necessary demands of industrial progress.

Certain superficial economists, misled by recent manifestations in trust building, have hastily concluded that the problem it presents is a new one. For example, Collier, in his work on the subject, says: “The problem of the trusts is a momentous one, yet it is unqualifiedly a new one.” Of course it is not new. It is the same old problem of monopoly, and the so-called trust problem is but a phase of it. It is the problem of monopoly crystallized. The evils of the trust rivet the public attention, not because they are more real than the evils of monopoly per se, but because they are more obvious. In some respects the trust, by combining certain elements of monopoly, tends to make monopoly more perfect and its operations more harmful. But it simply avails itself of monopolistic institutions—that is to say, it is built upon land, railroad or tax monopoly; it takes to itself certain privileges which society has created and which have hitherto been appropriated and exercised by individuals. It therefore immediately makes these evils concrete. The trust is thus a manifestation, and the people, with their customary thoughtlessness, attack the manifestation rather than the thing itself—the fruit of monopoly rather than the tree.

The great combinations which suggest themselves when we think of the trust problem—is there one of them which does not owe its existence to some monopoly privilege? What would the Standard Oil Company be but for its control of rights of way, sources of supply, railroad terminals and the preferential benefits it is enabled to secure? What is the Steel Trust but a network of artificial privilege? Has not Mr. Charles E. Russell clearly shown, in his recent articles in Everybody’s Magazine, that the Beef Trust draws its life-blood from its monopolization of railroad privileges? What would the Sugar Trust be without the favors it receives from the tariff in its control of the raw material? Could the Tobacco Trust exist save for the power of taxation which strangles competition?

Those mentioned include nearly all the greater trusts. A more detailed demonstration of the truth we are insisting upon could be given, but the reader can himself carry this line of analysis further. He will find that it explains the existence of every oppressive combination, and that it leaves little unresolved or unexplained. It may happen that injurious combinations will present themselves in which this element of monopoly does not clearly appear. But these are by-monopolies, so to speak, and their sources of power may be traced to indirect association with the giant monopolies.

Let us admit all the good there is in aggregated capital. Let us take the trust advocates at their word that industry should be left free of all meddling, repressive or restrictive legislation. Is there, then, a common ground upon which we can meet? To think so is to delude ourselves. For their objection is not so much to mischievous laws of this sort as to interferences with things as they are. Their plea for laissez faire is hollow and insincere; true laissez faire would render every combination of capital innocuous for evil; there would be no mammoth aggregations of wealth in the hands of single individuals and no plethoric incomes.

The law of competition, let the Socialists prate as they will, gives only to those who earn. But from the denial of this law (of competition) flows all existing inequality in the distribution of wealth. There are, it is true, great swollen fortunes, which seem unconnected with these artificial laws of monopoly. Some of these, while clearly not the result of greater enterprise or greater ability, seem to be due to cunningly arranged devices independent of existing monopoly laws. But this is so in appearance only. There are no such made-to-order arrangements of industrial combination that can be used for extortion. Competition is too keenly scrutinizing for such arrangements to go undetected. The inevitable day when imitation shall overtake them can only be permanently postponed by seeking the shelter of monopoly.

Some of these gigantic fortunes are the result of stock speculation. But these are incidental, and are the profits and losses of the gambling fraternity—a game really played with the counters of monopoly, like “chips” in a poker game, and the transference of which from one to another enriches or depletes the finances only of those who play. They do not concern the man who refrains from taking part in the game, and whether it be played with railroad stocks or industrials is no great matter. If these gamblers sometimes use the moneys on deposit in public institutions—as Mr. Lawson has asserted they do—that also is another question, though a momentous one.

With the dissolving of these giant combinations which would result from the removal of the laws of monopoly would disappear the great host of gamblers and stock jugglers. The great fortunes that result from the granting of legislative favors would also disappear, since there would be no longer any legislative favors to grant. And so with many other unjust possessions. And with them would be banished forever much that corrupts our social and political life.