In the Hocking Valley coal fields in Ohio, the Columbus, Hocking Valley and Toledo Railway Company owns 10,000 acres of coal lands, and mined, in 1887, 1,870,416 tons of coal. The coal in western Virginia is coming into the hands of the Norfolk and Western Railroad Company, while the coal of Alabama, of which so much has been noised abroad, has been quietly gathered in by the Louisville and Nashville corporation. The Tennessee Coal and Iron Company, which owns 76,000 acres of coal lands, and mined 1,145,000 tons in 1882, is owned by parties largely interested in the East Tennessee, Virginia and Georgia Railroad system. West Virginia has probably the most valuable untouched coal deposits of any State in the Union, but these also are rapidly being gathered up by railway corporations.

To sum up, in the words of one of the best informed authorities, the coal business of the country is at the mercy of the railroads.

It is to be noted, however, that this is simply the result of natural causes. Railway managers, in seeking to develop and place on a sound basis the mineral properties which could furnish a heavy and profitable traffic to their lines, have only done what they regarded as their duty to the owners of their roads. And that this policy has effected a rapid development of our resources is beyond question.

The combinations to restrict competition among bituminous coal producers have been of a very different sort from those in force among the anthracite producers. The soft-coal fields are so widely scattered that it has never been possible to combine all the producers so as to control prices by a single authority. Local combinations, however, controlling all the fields of a single locality, have long been an important feature of the trade, and have been able to control prices pretty absolutely within their respective localities. The fact that the principal item in the cost of coal is transportation, enables a combination covering all the producers of a certain field to raise prices very notably before competitors can afford to ship from other coal-producing districts.

It would seem that our fuel is especially liable to be subjected to monopoly, for, as we have already seen in the preceding chapter, the control over the petroleum trade is held by the Standard Oil Trust. How much of the production of crude petroleum is in the hands of the trust it is hard to say. This much is certain, that there is a "Petroleum Producers' Association," which has a compact enough organization to be able to make contracts with the Standard Oil Company regarding the limitation of production. It is even stated that the Standard Oil Trust itself controls to a considerable extent the oil-producing territory; but this is hardly probable.

Our newest and most wonderful fuel, natural gas, has already come under the control of a few great corporations, who own the wells and the pipes for conveying and distributing it to the consumers. A striking instance of the arbitrary nature of prices when under a monopoly's control was shown at Pittsburgh a few months ago. As is well known, upon the introduction of natural gas to that city a great number of the manufactories, as well as the private houses, discarded coal, and at considerable expense fitted up boilers, furnaces, etc., to use the new fuel. After the use of the gas had become general and its value had come to be thoroughly understood, the company furnishing the supply advanced the rates 100 per cent., without previous notice; and despite the remonstrance of indignant consumers, the advanced rate had to be paid or the use of the gas discontinued, the latter alternative involving the loss of the money invested in piping, burners, etc.

Of the minor products of mines and quarries, marble, sandstone, borax, salt, and asphalt are all known to be more or less thoroughly under the control of monopolies, which, though less important and powerful, show the same tendency toward the destruction of competition.

Great as is the extent to which the monopoly of the mineral wealth of the world has gone, we can scarcely doubt that if the movement is unchecked it will go much farther. In one sense the only absolute necessaries of life are food and clothing. But to the civilization of to-day the metals and minerals are no less indispensable; and these cannot be made anywhere, like manufactured goods; or grown on wide areas, like the products of the soil. We are absolutely at the mercy of the men who own our deposits of coal and copper and lead, and it is only to be expected that they will take greater advantage of their legal industrial advantage. The combinations that exist will be made stronger and more binding, and new ones will be formed. The French copper "corner" has taught men that under the broad protection of International law their schemes of industrial conquest may embrace the world; and it is not to be doubted that the temporary "corner" will yet result in a strong permanent combination; and that the precedent set by this successful monopoly will be eagerly followed by those who wish to secure like profits by the control of some other form of mineral wealth.



IV.

MONOPOLIES OF TRANSPORTATION AND COMMUNICATION.

We have already alluded to the fact that the concentration of manufacturing in large mills at great commercial centres has been made possible by the development of railway transportation, and that the rapid settlement of our Western prairies is due to the same agency; but it is worth while to note more fully the difference between ancient and modern conditions in the business of transportation.

In the first place, it is plain that no more than a century ago the world had comparatively very little need for railways. Each community produced from its farms and shops most of the things which it needed; and the interchange of goods between different sections, while considerable in the aggregate, was as nothing in comparison with modern domestic commerce. The king's highways were open to every one, and though monopolies for coach lines were sometimes granted and toll roads were quite common, there was no possibility for any really harmful monopoly in transportation to arise, because the necessity of transportation was so small. Some writer has ascribed all the evils of modern railway monopolies to the fact that in their establishment the old principle of English common law that the king's highway is open to every man, was disregarded. But if we sift down this ancient maxim of law to its essential principle, we find it to be, there must be no monopoly in transportation; and the problem of obtaining the advantages of modern railway transportation and keeping up, at the same time, the free competition that exists in transportation on a highway is seen to be as far from solution as before.

The importance of our railway traffic is proven by statistics. Of the total wealth annually produced in this country, it is probably a fair estimate to say that ten per cent. is paid for transportation of the raw material and finished goods in their various journeys between producers, dealers, and consumers, and for transportation of passengers whose journeys directly or indirectly contribute to the nation's industry. That is to say, the gross yearly earnings of all the railroads and transportation lines of the country is about one tenth of the total value of all the year's products. The average is brought down by the amount of sustenance still consumed in the locality where it is produced, and by the amount of valuable merchandise. But of the bulky products like coal and grain, the greater part of the cost to the remote consumer is due to the cost of carriage.

It is also necessary to a proper appreciation of the problem, that we understand that railway transportation is now as absolutely necessary as is the production of food and clothing. Annihilate the railway communications of any of our great cities, and thousands would perish by starvation before they could scatter to agricultural regions. There was great suffering in many small communities in Minnesota and Dakota in the severe winter of 1887-8, because the heavy storms blockaded the railroads and prevented them from bringing in a supply of coal and provisions. But it is not taking the question in its broadest sense to consider whether we could eke out an existence without railway communication. The fact is that under modern conditions every man obtains all the things which he desires, not by producing them himself, but by producing some one thing which others desire. The interchange between each producer and each consumer must, broadly speaking, be all made by means of the railway; and without that, stores, factories, mills, mines, and farms, would have to cease operation.

Remembering now the importance and necessity of transportation, let us inquire how the price at which it is sold to the public, the rate of fare and freight, is fixed. Is it or can it be generally fixed by competition?

There are now in the United States about 37,000 railway stations where freight and passengers are received for transportation. Now, from the nature of the case, not more than ten per cent. of these are or can be at the junction of two or more lines of railway. (By actual count, on January 1, 1887, eight per cent. of existing stations were junction points.) Therefore the shippers and buyers of goods at nine-tenths of the shipping points of the country must always be dependent on the facilities and rates offered by a single railway. Such rates of transportation as are fixed, be they high or low, must be paid, if business is carried on at all. And when we consider the ten per cent. of railway stations which are, or may be, junction points, we find that at least three-fourths of them are merely the junction of two lines owned by the same company. Consolidation of railway lines has gone on very rapidly within the past few years and is undoubtedly destined to go much further. Of the 158,000 miles of railway in the country, about eighty per cent. is included in systems 500 miles or more in extent; and a dozen corporations control nearly half of the total mileage. The benefits which the public receive from this consolidation are so vast and so necessary that no one who is familiar with railway affairs would dream of making the suggestion that further consolidations be stopped or that past ones be undone.

There is a great tendency on the part of the public, however, to look with fear and disfavor on further railway consolidation. And because this is so, it is greatly to be desired that the beneficial effects of consolidation should be better understood. The most important benefits are included under one head, the saving in expense and the avoidance of waste, and this is effected in very many different ways. Suppose a great system like the Pennsylvania or the Chicago & Northwestern were cut up into fifty or sixty independent roads, each with its own complete staff of officers. Each road would have to pay its president, directors, and heads of operating departments, would have to maintain its own repair-shops, general offices, etc., and conduct in general all the business necessary to the profitable operation of a railway corporation. A car of wheat or a passenger in going from Chicago to New York would have to be transferred from one road to another at perhaps twenty different points, and the freight or fare paid would be divided among twenty different companies, with corresponding clerical labor. The modern conveniences of through tickets, through baggage-checks, and through freight shipments, would be difficult, if not impossible. Further, consolidation tends to produce vastly better service and greater safety. The large systems can and do employ the highest grade of talent to direct their work. Every thing is systematized and managed with a view to producing the best results in efficiency and safety with the least waste of material and labor. And while the improvement in safety and convenience is all for the benefit of the public, a large part of the saving in expense effected by consolidation has likewise come back to the patrons of the roads in the form of reduced rates of fare and freight.

It is difficult, however, for any one not familiar with the technical details of the railway business to fully appreciate the importance and necessity of the consolidations which have been effected, and the grave results that would follow the realization of the mad proposition to set us back a half century by cutting up our railroad systems into short local lines. It must be plain to every one, however, that while the loss of all the benefits of consolidation would be certain, the gain in competition could affect only the few junction points; and as we shall now see, the effect even on them would be small.

Assuming that the total number of railway junction points in the United States is 3,000, we find, on examination, that at about two-thirds only two lines meet, and at more than half the remainder only three lines meet. It is plain that in the vast majority of cases where two roads intersect, and in many cases where three or four come together, the lines meet perhaps at right angles and diverge to entirely different localities. The shipper bringing goods to the station, then, may choose whether he will send his goods north or east perhaps; but only in the few cases where two lines run to the same point does he really have the choice of two rates for getting his produce to market. Practically, then, there are not, and never can be, more than a few hundred places in the country where shippers will be able to choose different routes for sending their goods to market. We say there never can be, because the building of a line of railway to parallel an existing line able to carry all the traffic is an absolute loss to the world of the capital spent in its construction, and a constant drain after it is built in the cost of its operation. This fact is now, fortunately, generally appreciated.

But what of the competitive traffic which exists between commercial centres, like the trunk-line traffic between Chicago and the cities on the seaboard, or between the former city and the collecting centres farther west like St. Paul, Omaha, and Kansas City? Here, indeed, there is competition; and it is of great importance because of the enormous bulk of the traffic which traverses these few routes.

It is a peculiar feature of the railway business which we have now to consider, and one which is not generally understood. We have already perceived the principle that competition cannot permanently exceed a certain intensity; and the proof of this principle in the case of the railway is remarkably plain. Suppose two roads are competing for the traffic between Omaha and Chicago. A shipper at the former city who wishes to send a few tons of freight to Chicago may go to one company and ask their rates, then to the other and induce them to give him a lower rate, and then back to the first again, until he secures rates low enough to suit him. Now it is a fact that either company can afford to carry this especial freight for less than the actual cost of carrying it better than it can afford to lose the shipment. This is because it costs the company practically no more to carry the goods than if they were not shipped by its line; and hence whatever is received for the freight is so much profit. Stated in the form of a principle, this fact is expressed thus: Receipts from additional traffic are almost clear profit. Nor is this all. The practical impossibility of distinguishing additional traffic from other traffic, and the enactment of State and National laws requiring uniform rates to be charged, places all traffic on a common basis; and the same cause which makes it more profitable to carry additional traffic for a song than to lose it, makes it better for a railroad to carry traffic, temporarily at least, for less than the actual running expenses of the road, rather than to lose it. The train and station service, the general office and shop expenses, must all be kept up, though the freight and passengers carried dwindle to almost nothing; and the capital invested in the road is a total loss, unless the line is kept in operation and earns some income, even though it be small. This last influence, as we shall see later, is a most important and far-reaching one in its effect on industrial competition.

The cause of the intensity of competition in railway traffic is now evident. And from what we have seen, it follows that two railway lines competing freely with each other cannot possibly do business at a profit. Let us see what are the actual results of this law of practical railway management. Evidently the managers of two competing railway lines have but two possible courses open. They may, by tacit or formal agreement, unite in fixing common rates on both the roads, or they may attempt to do business with free competition. But we have already proven that the latter course must result in reducing the income of the road certainly below the amount necessary to pay the operating expenses and the interest on the bonds, and probably it will be insufficient to pay the running expenses alone. The inevitable result, then, is the bankruptcy of the weaker road, the appointment of a receiver, and its sale, in all probability to its stronger competitor. This is the chain of cause and effect which has wrought the consolidation of competing parallel roads in scores of cases, and which, if free competition is allowed to act, is sure to do so.

We can now appreciate the necessity which managers of competing lines are under to agree upon uniform rates for traffic over their roads, and at the same time the difficulty of doing this. The strange paradox is true that while it is necessary to the continued solvent existence of the competing corporations that such an agreement be made, it is also greatly to their advantage to break it secretly and secure additional traffic. It is necessary, therefore, that the parties to the agreement be strongly bound to maintain it inviolate; and to effect this, "pools" were established. In pooling traffic, each company paid either the whole or a percentage of their traffic receipts into a common fund, which was divided among the companies forming the pool, according to an agreed ratio. Under this method it is evident that all incentive to secret cutting of rates and dishonest methods for stealing additional traffic from another road was taken away.

How widespread and universal is the restraint of competition by railway corporations may be seen by the following pithy words, penned by Charles Francis Adams, President of the Union Pacific Railway:

"Irresponsive and secret combinations among railways always have existed, and, so long as the railroad system continues as it now is, they unquestionably always will exist. No law can make two corporations, any more than two individuals, actively undersell each other in any market, if they do not wish to do so. But they can only cease doing so by agreeing, in public or private, on a price below which neither will sell. If they cannot do this publicly, they will assuredly do it secretly. This is what, with alternations of conflict, the railroad companies have done in one way or another; and this is what they are now doing and must always continue to do, until complete change of conditions is brought about. Against this practice, the moment it begins to assume any character of responsibility or permanence, statutes innumerable have been aimed, and clauses strictly interdicting it have of late been incorporated into several State constitutions. The experience of the last few years, if it has proved nothing else, has conclusively demonstrated how utterly impotent and futile such enactments and provisions necessarily are."

Disregarding for the present the latter part of the above quotation, consider the statement that during the whole history of railway corporations, agreements to restrain competition have been the rule. This the slightest research proves to be an historical fact, and it is in perfect accord with our preceding statement, that such agreements were necessary to the solvent existence of railway corporations. The records also show that invariably when these agreements have been broken and competition has been allowed to have full play, the revenues of the roads have been rapidly reduced to a point where, unless a peace was effected, bankruptcy ensued.

Mr. Adams said, with truth, that no law had proven of any effect in preventing these competition-killing agreements between railways; but since the above extract was written, the Interstate Commerce law has been enacted. Let us pay some attention to its working and results. It is a curious fact that the framers of railway legislation in this country, almost down to the present time, have concentrated all their energies on the endeavor to keep up free competition; and the Interstate law is no exception to this rule. The plan of the Interstate law was about as follows: "Here are a few dozen great commercial centres where the railway lines of different systems meet. We will first prohibit the pooling by which they have restricted competition at these points. Then, in order that the thousands of other shipping points shall receive an equal benefit, we will enact a 'long and short haul clause,' obliging the rates charged to be in some degree proportionate to the distance. Thus competition at the great centres will bring rates down everywhere, and the public will be benefited."

For a year after the enactment of the law its effects were not prominent. Pooling was abolished, but the agreements to maintain rates were still kept up and were fairly observed. But in 1888, the second year of the law's working, it came to be realized that the pool was the vital strength of the agreement to maintain rates, and that this agreement might now be easily broken. Then ensued a remarkable season of rate cutting, which, at the present writing, has reduced many strong companies to the verge of bankruptcy. It is plain enough that if this is allowed to go on, the various stages of receivership, sale, and consolidation will follow in regular order. To avoid this too sudden revolution and the general financial disaster which all sudden revolutions entail, the principal companies in the West are now striving to combine in an association for the maintenance of rates by a plan which will bind them more closely together than any other ever before adopted. Thus to quote Mr. Adams again: "The Interstate Commerce law has given a new impetus to the process of gravitation and consolidation, and it is now going on much more rapidly than ever before. It is at this moment rapidly driving us forward toward some grand railroad-trust scheme."

It is a fact which we shall do well to ponder over, that this legislation intended to stimulate competition has finally had just the opposite effect from that which its makers desired. They did increase the intensity of the competition, and have thereby nearly brought about a permanent end to all competition in railway traffic.

It must now be clear that the railway is essentially a monopoly, not, be it noted, because of any especial wickedness of its managers or owners, but because competition is impossible as regards the greater part of its business, and because wherever competition is possible, its effect, as the managers well know, would be to annihilate all profits from the operation of the road.

Let us consider now some of the evils with which this monopoly is charged. The first of these is discrimination between persons and between places. A favored shipper has been enabled to ruin his competitors because he could obtain special rates, while they, perhaps, were charged an extra amount. The strong monopolies have in this way been able to strengthen their hands for the purpose of throttling their weak competitors. Passenger rates, too, have been low to one class and high to another; and the system of free passes has led to great abuses. Discrimination between towns and cities and States has been hardly less serious; and while the railways were permitted to make high local rates and low through rates, a great stimulus was given to the city at the expense of the country. The second class of evils is that rates in themselves have been too high. The railways have been wastefully built and then capitalized at double their actual cost, and it has been attempted to pay dividends of 6 to 10 per cent. on these securities. In some cases the principle of charging "what the traffic will bear" has been so applied that industries have been ruined through the absorption of their profits by unjust transportation charges. But our space will not permit a comprehensive review of the many abuses of railway management. They are already familiar to the public. We needed only to refer to them sufficiently to carry on our argument by showing that the railroad monopoly is not by any means a harmless monopoly if left to work its own pleasure.

There are two evils of our present railway system, however, which are not chargeable to monopoly, but to the attempt to defeat monopoly, and which are important to our discussion. The first is the waste of competition in railway traffic; the second, the waste of competition by the construction and threatened construction of competing lines where present facilities are ample for the traffic. Of the first it need only be said that in advertising, "drumming," and soliciting patronage the railways spend many millions of dollars every year, which comes out of the pockets of the public. The second is most serious, for it involves a far greater waste. It is a conservative estimate to say that 5 per cent. of the railways of the country were only built to divide the profits of older roads, and that their owners would be delighted to-day to have their money back in their possession and the railroad wiped out. The millions these roads have cost, the millions required every year to maintain and operate them, the millions spent on proposed roads that never reached completion, and the millions squandered in fighting proposed roads by every means short of actual bloodshed,—these are some of the wastes which we have made in our endeavor to create competition in railway transportation. And with all our efforts, and notwithstanding the fact that until within a short time the public sentiment and the railway managers have been united in the belief that free competition was the only mode of regulating railroad rates, we are farther removed from free competition now than ever before.

And now consider in addition to all this the fact that every railway company must first of all secure from the State a right to exercise the sovereign power of Eminent Domain, and that it may and does choose and take every advantage of the favorable locations where its road can be built most cheaply; which natural highways, mountain passes, and the like, are gifts of Nature, the right to whose use equitably belongs to the general public, and not to private parties exclusively. Taking these facts also into consideration, it seems needless to offer further proof of the fact that the business of railway transportation is essentially a monopoly, and that the attempt to regulate it by competition must always prove a failure in the future, as it always has in the past.

Necessarily we have limited our discussion to the most salient points, and have not touched at all many of the complicated details of the railway problem. In a later chapter we can study farther the evils due to railway monopolies, and the proper remedies therefor. At present we have accomplished our purpose in finding out the fact that railways are monopolies, and that they are so by their inherent nature.

Of monopolies in other forms of internal transportation, but little need be said. Our once busy canals and great rivers seem destined, with the constant rapid improvement and cheapening in the carriage of goods by rail, to lose all their former importance. The monopolies small and great that once held sway there have all vanished before their strong rival, the railway.

The use of steam in the vessels that navigate the ocean has had an effect very similar to the replacing of stage-coaches and freight wagons by the locomotive. Where hundreds of sailing vessels plied their slow and uncertain trade, steamer lines now make trips only less regular than the railway itself. The only cause for the existence of a monopoly in ocean traffic by steam is the greatly increased capital required for a rival steamship line as compared with that needed for the old sailing vessels. We find this, the requirement of a large capital, to be a feature of more or less importance in nearly every monopoly of the present day. In this case, however, unless there is an artificial monopoly in the shape of government aid or authorization, the strength of its capital is the only power the monopoly has.

We may reach a clear idea of the essential nature of all the monopolies considered in this chapter by considering an especial class of monopolies of communication, namely, mountain passes, bridges, and ship canals. If a person or a railway corporation could secure sole control of the only pass through a high mountain range separating two wealthy and populous districts producing goods of different sorts, they might exact a princely yearly revenue for its use, equal to the interest on the capital required to secure an equally favorable passage by tunnelling, or the annual cost of sending goods over some longer and more expensive route. But under the law no private person would be allowed to do this; and if the pass were a very important and necessary one, probably no one railway company would be allowed to do so. The law recognizes to some extent, and should recognize much more than it does, the fact that the benefit of this natural pathway is not the property of any one man or set of men, but equitably belongs equally to every person who needs to use it directly or remotely.

A very large and expensive bridge is like an important mountain pass, differing only in that one is the gift of Nature, while the other is wholly the work of man. But because the latter is the work of man, it does not follow that it is not a monopoly. The great bridge across the Mississippi River at St. Louis is owned by a private company which levies tolls for the teams and trains passing over it. These are deemed excessive, as they are sufficient to pay an exorbitant interest on the cost of the bridge. Yet for many years no one has cared to invest money in the erection of a new bridge, for they saw that there was no more traffic than one bridge could readily carry, and they knew that if a new bridge were erected, in the rivalry in tolls which would ensue, the old-established company would probably bankrupt its rival. It is thus plainly seen how an important bridge may become a monopoly, and a most powerful and onerous one.

We have still one important monopoly of communication to describe, the telegraph. Viewed from a narrow standpoint it may be thought that there should be no monopoly in the telegraph. A telegraph line is not expensive to erect and maintain, and it gets no monopoly from taking advantage of the most favorable route through difficult country as a railway does. But the economy effected by combination and the effect of sharp competition in bringing about bankruptcy and then consolidation are exactly similar to the case of the railway, which we have just described. In the early history of telegraph companies, many short competing lines struggled and fought for supremacy. In 1859 the Western Union Telegraph Company was formed with the avowed intention of combining these warring companies and making the telegraph business profitable. It has exceeded the most sanguine dreams of its promoters by swallowing up its rivals until the entire system of telegraph communication of the country is practically in its hands. The effects of this consolidation have been of two sorts. On the one hand we have the telegraph service of the country performed with the least possible work; there is nothing wasted in the maintenance of two or more rival offices in small towns where one is sufficient, nor in operating two lines of wire where a single one would serve as well. All expense of "drumming up" business in various ways is avoided, and also the cost of keeping the complicated books necessary when the receipts of a single message must be divided among several companies. On the other hand it is plain that the public is wholly at the mercy of the monopoly in the matter of rates, and must pay for the use of the telegraph exactly what the corporation asks. There is a weak and foolish argument which is often used in an attempt to show that this particular monopoly is not hurtful. It is that the telegraph is a luxury which only wealthy people use, and hence whether its rates are high or low is of little account. The fallacy of this statement is easily seen. A principal use of the telegraph is to aid the prosecution of business; hence to unduly raise rates is to cause an additional tax on business,—on the carrying on of the processes of production. This tax will certainly have its effect, either in decreased profits, decreased wages, or an increased price for the product. Another large class of telegrams are those which are sent with little thought of the cost, in time of sickness, death, or sudden emergency, yet by people whose purse feels severely the tax.

What to do with this vast monopoly is one of the questions of the day, but we will content ourselves at present with this investigation of its character, reserving its proper treatment for later consideration.



V.

MUNICIPAL MONOPOLIES.

The people who live in cities are far more dependent on monopolies than the resident of the country. The farmer can still, on necessity, return to the custom of primitive times, and supply himself with food, clothing, fuel, and shelter without aid from the outside world; but the city dweller must supply all his wants by purchasing, and is absolutely dependent on his fellow-men for the actual necessaries, as well as the luxuries of life. From the peculiar circumstances of city life, many monopolies arise in production and transportation which occur nowhere else. One of these is the carriage of passengers on street and suburban railways. There is no better instance, perhaps, of the great power which is placed in the hands of railway managers than this matter of suburban passenger traffic. One example must suffice to show this. Let us suppose that the managers of a railway, which has hitherto not been run with a view to the development of suburban traffic, secure control of several choice tracts of land on the line of their road near a growing city, and establish low rates of commutation and frequent and convenient train service. The land which they purchased is sold out in building-lots for many times its cost, and a number of thriving villages become established there, inhabited chiefly by people whose business is in the city and who are obliged to go back and forth on the trains. After a number of years the growth of the towns becomes more sluggish, and the managers find that the commutation traffic is not after all extremely profitable; therefore they lessen their train service and increase the rates of fare. Perhaps they may abolish commutation rates altogether. It is a well known fact that the value of suburban real estate depends almost entirely on the convenience and cheapness of access to the city. By the removal and forced sale, which many of these people will be obliged to make, it may easily happen that they may lose their entire property. It is not stated that such flagrant cases of autocracy on the part of railway managers are common. Indeed, it is a high compliment to the uprightness and probity of these men that such occurrences are so infrequent, and that the temptation, so constantly presented, of enriching one's self at the expense of the owners of the road and the public is yielded to so seldom. But there have been cases where railway managers have secured excellent train service and low rates of fare to benefit places where they held an interest in real estate, while other and competing places were given poor service and high rates. And the entire abolition of long-established commutation rates has happened more than once.

But turning now to the city railways proper, those carrying passengers through the streets, it is evident at first sight that we have another case where competition is a factor of little account. The power of this monopoly for harm is greatly intensified by the fact that its use is largely a necessity. In all our great cities the business sections are far removed from the residence sections, and the great mass of the industrial population is obliged to ride at least twice each day in going to and returning from work. In nine cases out of ten there is one route so much more convenient than any other as to overbalance any slight difference of fare. Thus, even on the supposition that every different line was run in competition with every other line, the amount of really competitive business would be but a trifle. But besides this, as is well known, in a great many cities consolidation has gone on as rapidly among street-railway companies as among the great trunk-line railways. The three lines of New York elevated roads were originally projected by rival companies; but they were not long in coming together under one management. A Philadelphia syndicate has secured control of most of the street railways of that city, and in addition has purchased a number of the lines in Boston, Chicago, Pittsburg, and St. Louis. Although the benefit in economy by consolidation is much less in the case of street railways than in the case of steam roads, yet considerable is gained, and the competition which is killed by the consolidation is, as we have just seen, of no great importance to the public. The so-called street-railway trust, then, is really of no great moment. The monopoly in street-railway traffic arises from the nature of the business rather than from any especial effort of capitalists to kill competition.

But the railway companies are not the only monopolies which have the use of our city streets. Water, gas, and steam pipes beneath the pavements, and wires, either in subways or strung overhead, carrying electricity for street and domestic lighting, telegraph, telephone, and messenger service, are all necessities to our modern civilization.

The absolute necessity of a public water supply, and the practical impossibility in most cases that any competition in the furnishing thereof can be established and maintained, have led, in the case of most of our large cities, to the work of water supply being undertaken by the municipal authorities. But many of our smaller cities have entrusted to private companies the work of furnishing a water supply. While this is a case of real monopoly, yet under the conditions which may be enforced, most of the power for harm is taken away. According to the best plan in vogue, the city sells the franchise for constructing the works to the company who bids to furnish water at the lowest rates under definitely specified conditions, the franchise being sometimes perpetual, but oftener granting to the city at some future date an option for the purchase of the works. It is to be particularly noticed that this is a case in which the administration of an absolute monopoly has been entrusted to private enterprise with excellent results; a fact which may be of use to us in our later investigation.

While the fact was early appreciated that a water supply when once introduced became an absolute necessity, it was not recognized when illuminating gas was first brought into use how important it was to become. Franchises, or more properly permits, for erecting works and laying mains for supplying consumers were given away to hastily formed companies; and even at the present time there are but a few cities (only five in the United States) which own their works and mains for supplying gas. As a matter of course the gas companies saw their advantage. Knowing that gas once introduced was a necessity at almost any price, they made no move toward lowering rates as new and cheaper methods came into vogue and their output and profits increased. The stocks of our gas companies have been swollen by enormous amounts of water, and upon this fictitious capital they have continually paid enormous dividends. At one time there was a great call for competition in the gas business. The public demanded it, and as usual the demand was supplied. Rival companies were organized, and the city authorities made haste to grant them permits for laying their mains in the city streets. A war of rates of course ensued, and lasted till one company gave up the fight and sold out to its rival. The consolidated company promptly increased its stock by at least the amount which had been spent in purchasing and laying this extra and entirely needless set of gas mains. The public has to pay interest on this sum, and suffer besides the damage done to the pavements by tearing up and re-laying.

In at least twenty cities of the United States has this farce been repeated, and in every case with the same result. It is now generally acknowledged that the attempt to regulate the price of gas by competition is unwise and harmful. Prof. E. J. James, of the University of Pennsylvania, in a monograph entitled "The Relation of the Modern Municipality to the Gas Supply," has treated this subject most fully. He describes the experience of cities in England, France, and Germany, where competition has been tried and abandoned, it being found by dear experience that the gas business is necessarily a monopoly. A Congressional Committee, who reported on the application of a rival gas company which proposed to lay mains in the city of Washington, declared that "it is bad policy to permit more than one gas company in the same part of the city." One of the best informed men in the gas business says: "The business is almost outside of the domain of rules governing other enterprises. Competition is so deadly to it that it is impossible for rival companies to occupy the same street without ruin to both, or without consolidation with its attendant double investment, and cheap light is thus rendered an impossibility."

Hon. T. M. Cooley says:

"The supply of public conveniences to a city is usually a monopoly, and the protection of the public against excessive charges is to be found first in the municipal power of control. Except in the very large cities, public policy requires that for supplying light and water there should be but one corporation, because one can perform the service at lower rates than two or more, and in the long run will be sure to do so. In some kinds of business competition will keep corporations within bounds in their charges; in others it will not. When it will not, it may become necessary to legislate upon profits."

Considering it determined, therefore, that the gas industry is a monopoly, let us inquire something of the manner in which this monopoly regulates the prices for its service. According to recent statistics, collected from 683 gas companies in the United States, 148 companies charge $2 per thousand cubic feet, and 145 companies charge $2.50 per thousand. It is thus seen that rates have been fixed to make "even figures," something which does not occur when margins of profit are reduced by competition. The complete table shows this fact more fully as follows:

7 companies charge $1.00 per thousand cubic feet. 32 " " 1.50 " " " " 24 " " 1.75 " " " " 148 " " 2.00 " " " " 57 " " 2.25 " " " " 145 " " 2.50 " " " " 20 companies charge 2.75 per thousand cubic feet. 86 " " 3.00 " " " " 25 " " 3.50 " " " " 19 " " 4.00 " " " " 120 companies charge various other prices per thousand cubic feet.

According to the same authority these companies in 1886 produced 23,050,706,000 cubic feet of gas, for which they received $40,744,673, an average price per M. of $1.76-71/100. According to the statement of good authorities, gas can be manufactured at a cost of 50 to 75 cents per M. in this country. Prof. James, in his work before quoted, says: "In England at the present time gas is manufactured at a net cost of 30 cents per thousand feet; some works in New England now manufacture it for 38 cents per thousand feet to the holder." The President of the American Gas-Light Association is quoted as stating in an address before the Association that the cost of the gas delivered to consumers by the South Metropolitan Company of London in 1883 was 39.65 cents per thousand, and figuring by the relative cost of coal and labor there and here, he stated that gas could be delivered in New York at a cost of 65 cents per thousand. In Germany the price of gas to consumers varies from 61 cents in Cologne to $1.02 in Berlin. Very recent improvements in processes have greatly cheapened the cost of manufacture. Mr. Henry Woodall, the engineer of the Leeds, England, gas-works, states that coal-gas costs in the holder 22 cents per thousand. Of nineteen companies doing business in principal English cities, the average rate charged consumers is 521/2 cents, and the average cost of manufacture is 37-1/3 cents.

The history of the gas monopoly is repeating itself in the matter of electric lighting. The smaller cities of the country, in their haste to "boom," are ready to grant a liberal franchise to the first firm or company which offers to supply an electric-lighting system, trusting to future competition to regulate prices, a resource that must prove of no avail. Nor are the men in power in our larger cities any wiser. The city of New York is taking every means to encourage the operation of rival electric-light companies, and is letting yearly contracts for street-lighting to the lowest bidder. It is true that competition is active just now, but it requires no far-seeing eye to discern the inevitable combination and consolidation among the companies.

Again, not only is competition of this sort sure to fail, but the attempt to establish it is very harmful. To say nothing of the expense and waste of wealth which is involved when rival companies are allowed to stretch their wires and establish their extensive central stations in the same district, it is everywhere acknowledged that the multiplication of wires overhead is a crying evil and danger. Are we to double and treble it, then, by permitting rival companies to place their wires wherever they please? It is evident that the temporary rivalry which we obtain in this way is bought at much too great a cost. What is true of electric street light wires is equally true of the vastly greater multitude of wires which belong to our rapidly growing system of domestic lighting, and the telegraph, telephone, and messenger service. Surely no man knoweth the beginning or the end of the network which is woven over our heads, and which, besides all the useful wires already enumerated, is full of "dead" wires, many of them strung by defunct or irresponsible companies, who would never have been allowed to obstruct the streets if they had not been "competing" for the business. Can there be any doubt that it is the height of folly to continue this work, and that the only rational way of entrusting electric service to incorporated companies is to permit but a single company to operate in a district and control prices by some other means than competition?

We have the beginnings of other monopolies in our city economies which are destined to become much more important, but to which we need only refer.

Steam for supplying heat and power is beginning to be distributed from great central stations, through mains laid underground, to all parts of the surrounding district. The necessity for frequent repairs and stoppage of leaks renders it necessary to break the pavement and dig down to the mains much oftener than is required for any other of our underground furniture. Nothing would seem more evident than that the number of these pipes to be laid should be the fewest consistent with the proper supply of the district, yet it is a fact that for a time two competing steam companies were permitted to run riot in the streets of lower New York, until the weaker one succumbed "to over-pressure." Yet it is scarcely to be doubted, that if another rival company were to ask for a permit to operate in the district now monopolized by the New York Steam Company, public opinion would tend to favor the granting of the permit "because it would give more competition." It is to be hoped that before these great systems for the distribution from central stations of various necessities reach much greater proportions, the public will become educated enough to perceive the folly of attempting to regulate them by competition.

The necessity for this will be more, rather than less, apparent with the use of underground instead of overhead wires. The cost of placing wires in subways is far beyond the cost of stringing them on poles, and if we are obliged to build our subways large enough to accommodate all the rival wires which may be offered, we have a herculean task upon our hands.

The great question of the monopoly of land can be merely touched in this connection. While the fact that land is natural wealth must be freely acknowledged, it is only where population is most dense that any great monopoly appears in its ownership. The principle is well established, indeed, that private ownership of land cannot stand in the way of the public good. When a railway is to be built, any man who refuses to sell right of way to the railway company at a reasonable price may have it judicially condemned and taken from him. We have already noted in the chapter on railway monopolies the injustice of permitting a single person or corporation to control and own any especially necessary means of communication, as a mountain pass or a long and expensive bridge, and the same principle is apparent in connection with the railway terminals in our large cities. The enormous expense attendant upon securing right of way for an entrance to the heart of the city, makes it a very difficult matter for any new company to obtain a terminus there, except by securing running rights over the tracks of an older company. To give to any single corporation the sole control of the entrance to a city and permit it to charge what toll it pleases for trains that pass through it, evidently places the city at the mercy of a monopoly. Practically the case is not so bad as this, as most large cities have means of water communication, and the railroads are run to the heart of the city through the public streets. But the time is fast approaching when these city grade crossings will be done away with, and in every city of importance the railways will enter the city on elevated viaducts terminating in a single union depot. Evidently it is contrary to the public welfare to sink more capital in these expensive structures than is necessary; and in general, several companies will use a single structure for entrance and exit. It is evident that the control of these terminals, if vested in a single company, may give rise to just the abuse we have set forth; and that the city itself should retain enough control over its railway terminals and freight-transfer lines to ensure that no single carrier or combination shall monopolize them.

In the last analysis it is evident that the monopoly of entrance to a city is really a monopoly in land, or, we might more properly say, in space. We are fortunate in this country in having millions of acres of land still awaiting cultivation; and while it is not intended here to defend the policy of giving away the estate of the public which our government has pursued, there is no danger for a long time to come that an actual monopoly will exist in agricultural lands. The price of land used for business purposes in a city, however, depends almost wholly upon its location. The price at which a single block of land near Wall Street, in New York City, was recently sold was so great that, at the same price, the value of a square mile would be equal to half the whole estimated wealth of every sort in the United States.

Now the question must occur to every thinking man, by what right does the owner of this property receive this enormous wealth? To make the case of those who advocate the public control of the gifts of Nature more clear, let us consider a special case. Suppose a man in an Eastern city chanced to come into possession two-score years ago of a tract of land in what is now Kansas City. We may suppose that he got it by inheritance, or through some chance, and that, except to pay the taxes upon it, he has never given farther attention to it. During all the years of the city's rapid growth he pays no attention to his land and takes no part in furthering the growth of the city. At last, at the height of the real-estate boom, he sells the land, and, whereas it cost him in the first instance a merely nominal sum, perhaps $100, he sells it now for $100,000. This value it has, not because of itself, as is the case with farming lands, but because of its situation in reference to the community around it. In other words, practically the whole value of this land has been given it by the people who have come and built this city around it. It is their labor that has given this property its value, and, in equity, the value should be theirs. A more detailed statement of the arguments for the public control of land incomes cannot be given here. What we are concerned with here is the extent to which land is subject to a monopoly. It appears too evident to require further discussion that, as a general rule, agricultural lands in every section of the country are competing to a greater or less extent with lands in every other section, and that the lands used for business purposes in the cities compete likewise, each city with others neighboring and of similar size, while lands in the same city similarly situated compete with each other.



VI.

MONOPOLIES IN TRADE.

We have now examined the various forces which are destroying competition in the production of goods in our factories, and of raw material from our mines; in the transportation of these goods in their various journeys between the producer and the consumer, and in the supply of the especial needs of the dwellers in our cities.

It is an old and well-worn adage that "competition is the life of trade"; and if this be true, we shall certainly not expect to find the men who are earning their living by the purchase and sale of goods endeavoring to take away the life of their business by restraining or destroying competition. At first sight it seems as if it would be a difficult matter in any case to destroy competition in trade. The buyer and seller of merchandise has no exclusive control over natural wealth; no mine or necessary channel of transportation is under his direction; nor does he in his trade produce any thing, as does the manufacturer. He only serves the public by acting the part of a reservoir to equalize and facilitate the flow between the consumers and producers; and if necessity requires, the two can deal directly with each other and leave him out altogether. But in dealing with the question of monopolies we must not conclude that the absolute control of supply is at all necessary to the existence of a monopoly. While there are monopolies, as we have seen, which have the keys to some of the necessities of civilized life, there are others which control merely some easier means for their production, carriage, or distribution; and to this latter class belong the principal monopolies in trade. To be sure that this constitutes a monopoly, we have but to turn to the case of the mountain pass mentioned in a former chapter. The use of that particular pass for transporting goods is only an easier means of transportation than the detour to some other pass or by some other route; and the degree of power of the monopoly depends directly on the amount which is saved by the use of its facilities. So with the monopolies in trade. Brokers and jobbers and retail merchants form a channel through which trade is accustomed to pass, and through which it can pass more readily than by any new one.

It is to be noted that under modern conditions the power of middle-men has been greatly reduced from what it was formerly. As we have already seen, manufacturing was then carried on only in families and small workshops, and the mines which were worked were principally in the hands of the king. The merchants were the wealthy men of olden time. They controlled largely the transportation facilities of that day; and while, as we have already noted, the commerce which then existed was but a trifle compared with the present, the principal exchange being in local communities, yet the trade in all articles which were imported, and all domestic commerce between points any great distance apart was in the hands of the merchants.

It is natural, therefore, that we find monopolies in trade to have been among the first which existed and to have been of importance and power when manufacturers' trusts were not dreamed of. The guilds which flourished near the close of the Middle Ages, while not devoted to the establishment of a monopoly, did nevertheless aim, in some cases at least, to hinder competition from those outside their guild.

But turning to the present, let us examine the conditions under which competition in trade is checked to-day. Let us take, first, the case of retail trade in any of the thousands of country villages and petty trade centres in the land. The history of the life of the country store-keeper is a constant succession of combinations and agreements with his rivals, interleaved with periods of "running," when, in a fit of spite, he sells kerosene and sugar below cost, and, to make future prices seem consistent, marks down new calico as "shop-worn—for half price." It is true the sum involved in each case is a petty one, but when we consider the enormous volume of goods which is distributed through these channels, the total effect of the monopoly in raising the cost of goods to the consumer must approach that effected by monopolies of much wider fame. But perhaps it may not seem evident that this is a monopoly of the same nature (not of the same degree) as a manufacturers' trust or a railroad pool. It certainly seems to be true that the merchant has a right to do as he chooses with his own property; and that if he and his neighbor over the way agree to charge uniform prices for their goods, it is no one's business but their own. And, indeed, we are not yet ready to take up the question of right and wrong in this matter. That the act is essentially a "combination in restriction of competition," however, is self-evident. The degree of this monopoly may vary widely. If the merchants who effect this combination raise their prices far above what will secure them a fair profit on the capital invested in their business, and if it is difficult for their customers to reach any other source of supply outside of the combination, the monopoly will have considerable power. On the other hand, if the stores of another village are easy of access, or if the merchants who form the combination fix their prices at no exorbitant point, the effect of the monopoly may be very slight indeed.

We find this class of trade monopolies most powerful and effective on the frontier. Wherever railroad communication is easy and cheap the tradesmen of different towns—between whom combinations are seldom formed—compete with each other. The extension of postal, express, and railway-freight facilities to all parts of the country, too, have made it possible for country buyers to purchase in the cities, if necessary. Thus the railways have been a chief instrument in lessening the power of this species of monopoly in country retail trade, which was of great power and importance a half century ago.

Of retail trade in the cities, it is not necessary to speak at length. Combination here has seldom been found practicable because of the great number of competing units. There is, however, a noticeable tendency of late to the concentration of the trade in large establishments, which by their prestige and capital are able to take away business from their smaller competitors. It does not seem likely, however, that this movement will result in any very injurious monopoly among city retailers.

The wholesale trade is on quite a different basis from the retail. The number of competitors being so much less, combination is vastly easier. The tendency toward it has been greatly fostered and strengthened by the formation of trusts among the producers. These combinations made the manufacturer more independent in his treatment of jobbers, and disposed him to cut their profits to the lowest point. Naturally these men combined to resist this encroachment on their income. They refused to handle any goods for less than a certain minimum commission. It might be possible in many cases for manufacturers to sell directly to the retail traders, but in general the difficulty of changing old commercial channels is such that the friction and expense is less if the goods are permitted to pass through the wholesaler's hands. It is to be noted that one cause for ill-feeling between manufacturer and wholesaler is the fact that before the days of trusts the latter often reaped much greater proportionate profits than the producer himself. But in time this cause of dissension will be forgotten, and the trust and the wholesalers' association will work in harmony.

The point of greatest interest in this is the fact that combinations among this first class of middlemen are fostered and made possible by the combination of producers. Nor does the series end here necessarily. The increased price which the retail dealers are obliged to pay for the goods, with the fact that others are making larger profits, makes them eager to do the same; and by the aid and co-operation of the wholesale merchants they may be able to do much toward checking competition among themselves and increasing their profits. Thus by the operation of the combination at the fountain-head among the producers, there is a tendency to check competition all along the line, and grant to each handler of the goods between producer and consumer an abnormal profit. An excellent example of this is found in the sugar trade. The wholesale Grocers' Guild of Canada, which includes 96 per cent. of the Dominion's wholesale traders, entered into a compact with the Canadian sugar refiners, who agreed that dealers outside of the guild should be charged 30 cents per 100 pounds more for sugar than those who were in the guild. In November, 1887, fourteen members of the guild were expelled and were compelled to pay the higher price. The executive committee of the guild fixed the selling price for the retail dealers. The guild was so successful with sugar that it extended its operations to starch, baking powder, and tobacco, fixing prices for those goods as well. The committee of the Dominion Parliament, appointed to investigate the guild, reported that it was a combination obnoxious to public interest, because it limited competition, advanced prices, and treated with gross injustice those in the trade who were not its members. In New York State there are two associations of wholesale grocers which are working to prevent competition in the sugar trade. They have fixed a uniform price for sugar, and have tried to make arrangements with the managers of the sugar trust by which that organization shall discriminate against all grocers who are not members of the association by refusing to sell them sugar or charging them a higher price. In some other sections an attempt has been, or is being, made by which the retail grocer sells only at certain fixed prices determined by a committee of the wholesalers who issue each week a card of rates. It is urged in defense of the movement that sugar has been sold at an actual loss by both the wholesale and retail trade for a very long time. The Grocers' Association, at its first meeting, passed a resolution declaring that it was opposed to combinations for the purpose of extorting unreasonable profits from the public, and that all that was sought was to prevent the evil of handling certain staples below the cost of doing the business. But if we inquire why these staples have been handled at a loss, the answer is, because of the strong competition which has prevailed. The organization, then, is a combination to limit competition, to suppress it, in fact, and the difference between its purpose and work and that of the Sugar Trust is a difference of degree and not of kind. The reason for its moderate demands may be because grocers are more liberal-hearted than refiners, or because they understand that their power over the trade is more limited than those who control the original product, so that an attempt to exact too large profits would offer a tempting premium to competitors of the Association.

Another staple article of consumption in which combinations are known to exist is meat. It is affirmed that a combine of buyers and slaughterers controls the markets of Chicago and Kansas City, and both depresses the price paid for cattle in the market, and raises the price of beef to the retail dealer. This monopoly proved so oppressive, and attracted so much attention, that in February, 1889, Gov. Humphrey of Kansas, called a convention of delegates from the legislatures of ten different States and Territories to devise a system of legislation, to be recommended for adoption by the several States, which should destroy the power of the combination.

One of the combinations investigated by the New York State Committee appointed to investigate trusts and similar organizations, was an association of the retail butchers, and the brokers buying sheep, lambs, calves, etc., from the farmers. The purpose of the association is to prevent competition among its members and keep control of prices in its own hands by charging a higher price to outsiders than to members of the association. The ultimate effect is to increase profits by paying less for the animals and getting higher prices for the meat sold.

We might go on at indefinite length to examine the various monopolies of this sort, but it does not seem necessary. The salient fact which is evident to any one at all conversant with business affairs is, that in almost every line of trade the restriction of competition is in force to a greater or less extent. Those monopolies are strongest, indeed, which have control of production; but in so far as they can control the market, the men engaged in buying and selling are equally ready to create minor monopolies, and an acquaintance with the general markets convinces one that these monopolies are numerous enough to have a very important effect in increasing the cost of goods to the consumer.

We are accustomed to think of competition as a force which always tends to keep prices down, and of a monopoly as always raising prices; but it should be understood that this is true only of the competition and monopolies among sellers of goods. It must be remembered that the competition among buyers, is a force which acts in the opposite direction and tends to raise prices; and that it is quite possible to have combinations among buyers to restrict competition and keep prices down. Of course, where the buyer is the final consumer, this is almost impossible, for the great number of competitors forbids any permanent combination. Also where the product concerned is a manufactured article or a mineral product, the mining or manufacturing company or firm will generally have capital enough and business ability enough to defeat any attempt of the wholesale merchants to combine to reduce the prices paid for their output. This he can easily do by selling to retail dealers direct. But in the case of products gathered from the farmers the case is different, and the producer can less easily protect himself against combinations among buyers to fix the price he shall receive. The power and extent of these monopolies varies with the distance of the farmer from markets, and also, it must be said, with the intelligence and shrewdness of the farmer. In districts remote from railways and markets the farmers are often dependent on the travelling buyers for a chance to sell their cattle or produce. In a thinly settled region there may be no more than two or three times in a season when a farmer will have an opportunity to dispose of his surplus products; and, realizing his necessity, he is apt to be beaten down to a much lower price than the buyer would have given if other buyers had been competing with him to secure the goods. In the chief markets, too, there is often a combination of buyers formed to keep down prices. The combine of cattle-buyers in Kansas City and Chicago has just been noted. The New York Legislative Committee discovered that a milk trust had control of the supply of milk for New York City, fixing the price paid to the farmer at three cents per quart, and the selling price at 7 or 8 cents per quart. According to the suit brought by the Attorney-General of Louisiana against the Cotton-Seed Oil Trust, that monopoly has reduced the price paid to the planters for seed from $7 to $4 per ton. As the total amount of cotton seed which it purchases is about 700,000 tons a year, it is evident that this feature of the combination alone puts into the pockets of the owners of the Trust over two million dollars per annum, over and above the profits made through its control of the cotton-seed oil market. Evidently the combinations which lower prices by restricting competition among purchasers are not to be overlooked because of unimportance.

In the chapter on monopolies of mineral wealth it was stated that the French copper syndicate is not a "trust," but a "corner." It has not been common to consider "corners" as a species of monopoly, except as they have, like the latter, acquired a bad reputation with the general public from their effect in raising the price of the necessaries of life. But if we look at the matter carefully, it becomes plain that the aim of the maker of corners is the same exactly as that of the organizer of trusts,—to kill competition. The difference lies in the fact that the "corner" is a temporary monopoly, while the trust is a permanent one. The man who forms a corner in, let us say, wheat, first purchases or secures the control of the whole available supply of wheat, or as near the whole supply as he can. In addition to this he purchases more than is really within reach of the market, by buying "futures," or making contracts with others who agree to deliver him wheat at some future time. Of course he aims to secure the greater part of his wheat quietly, at low figures; but after he deems that the supply is nearly within his control, he spreads the news that there is a "corner" in the market, and buys openly all the wheat he can, offering larger and larger prices, until he raises the price sufficiently high to suit him. Now the men who have contracted to deliver wheat to him at this date are at his mercy. They must buy their wheat of him at whatever price he chooses to ask, and deliver it as soon as purchased, in order to fulfil their contracts. Meanwhile mills must be kept in operation, and the millers have to pay an increased price for wheat; they charge the bakers a higher price for flour, and the bakers raise the price of bread. Thus is told by the hungry mouths in the poor man's home, the last act in the tragedy of the "corner."

Fourier tells of an event in his early life which made a lasting impression on him. While in the employ of a mercantile firm at Marseilles, his employers engaged in a speculation in rice. They purchased almost all the available supply and held it at high prices during the prevalence of a famine. Some cargoes which were stored on shipboard rotted, and Fourier had to superintend the work of throwing the wasted grain, for the want of which people had been dying like dogs, into the sea. The "corners" of the present day are no less productive of discontent with the existing state of society than were those of Fourier's time.

But, returning to our subject, it should be said that the "corner," generally speaking, does much less injury to the public than is commonly supposed. As we have shown, the manipulators of the corner make their chief profits from other speculators who operate on the opposing side of the market; and it is but a small part of their gains which is taken from the consumers. The effect on the consumer of the abnormal rise in price caused by the corner is sometimes quite made up for by the abnormal fall which occurs when the corner breaks. Generally, however, the drop in prices will be slower to reach down to the final consumer, past the middlemen, than will the higher prices. The corner makers also are apt, if they are shrewd and successful, to make the total of their sales for the current supply yield them a profit. Thus suppose that the normal price of wheat is 70 cents per bushel, and that the syndicate secures control of five million bushels at the normal price. If while it keeps the price up it sells two million bushels at $1.20 per bushel, it can afford to get rid of the rest of its stock at an average price as low even as 50 cents per bushel, and still make four hundred thousand dollars' profit.

The operations of corner makers are confined principally to goods which are dealt in upon commercial exchanges. One evident reason for this is that the vast purchases and sales, which are necessary in the formation of a corner are impossible without the facilities afforded by an exchange. It must be said, too, that the plain truth is that our principal commercial exchanges, while they do serve certain useful purposes, are yet practically devoted chiefly to speculation. This, simmered down to its essence, means that the business of the speculators is to bet on the future prices of the articles dealt in,—a game in which the largest players are able to influence prices to accord with their bets, and hence have their "lamb" opponents at an obvious disadvantage. The evil of this sort of commercial gambling is recognized by practical men of every class; but its cure is yet to be effected.

A sort of business allied both to trade and transportation is the business of storage or warehousing, and this has recently shown some interesting cases of monopoly.

The owners of warehouses along the Brooklyn waterfront combined their business in January, 1888, and doubled their rates for storage. In the testimony of one of the members of this trust, before the New York Legislative Committee, he said: "We want to destroy competition all we can. It is a bad thing." The owners of grain elevators at Buffalo, N. Y., have long combined to exact higher prices for the transfer of grain than would have prevailed were free competition the rule. At the session of 1887 the New York Legislature took the bull by the horns and enacted a law fixing a maximum rate for elevator charges; a statute which was based on the popular demand for its enactment, but is hard to accord with the principles of a free government.

There are a number of lines of business auxiliary to trade in which competition is more or less restricted by the fact that the amount of capital controlled and the prestige of the established firms renders it a difficult and risky matter to start a new and competing firm. The insurer of property or life, if he be wise, will demand financial stability as a first requisite for the company in which he takes a policy. The companies engaged in the business of fire insurance have long been trying to agree on some uniform standard of rates and the avoidance of all competition with each other. These combinations, however, are apt to be broken, as soon as formed, by the weaker companies, whose financial condition operates to prevent them from getting their share of the business under uniform rates. Even when this rate-cutting is stopped, there is still competition to be met from the various small mutual companies, who are necessarily outside the combination.

Banks are a necessity to the carrying on of modern commerce, and they have great power over the financial affairs of the business men of the community which they serve. As a general rule, however, they are largely owned by the merchants and others who patronize them, and the instances of this power being abused are, therefore, not common. It is to be remembered, in discussing this, as in other monopolies, that the power of a monopoly depends entirely upon its degree. A bank, trust company, or real-estate guaranty company which has a great capital, an established reputation for safety and conservatism, sole control of many special facilities, and conveniences for obtaining and dispatching business, has a real monopoly, whose degree varies with the tendency people have to patronize it instead of some weaker competitor, if one exists. There is no evil effect from the monopoly upon the community, unless it takes advantage of its power to charge a sum greater than their real worth for the services it renders, or uses it to discriminate to the injury of special persons or places.

In closing our discussion of the monopolies in trade, there is an important point to be noted. In the lines of industry considered in the preceding chapter, the monopoly was easy of maintenance because it held full control of the source of production, or of some necessary channel through which commerce must pass. No gift of nature assists to maintain a monopoly in trade. It must be wholly artificial, and it relies for its strength simply on the adherence of its members to their agreement to maintain prices. Its degree of power can never be great, compared with monopolies which control the original sources of production; for if it is attempted to put up prices inordinately, competition will start up outside of the combination, or the consumer will be led to deal directly with the producer.

Because of this weakness, the temptation is great for these monopolies to strengthen themselves in ways quite indefensible on any score. The alliance of trade monopolies with trusts, in order to strengthen themselves, we have already considered. But the trust which makes such an alliance must plead guilty to the charge of discrimination as well as monopoly. It is bad enough to raise the prices of the necessaries of life, and force the whole community to pay the tax; but it is worse to add to this the crime of discrimination against certain persons in the community, at the instance of a minor monopoly.

But the trade monopoly does not confine its sins to tempting the stronger monopoly to practise discriminations. It practises discrimination itself in some very ugly forms. A combination among manufacturers of railway car-springs, which wished to ruin an independent competitor, not only agreed with the American Steel Association that the independent company should be charged $10 per ton more for steel than the members of the combine, but raised a fund to be used as follows: When the independent company made a bid on a contract for springs, one of the members of the trust was authorized to underbid at a price which would incur a loss, which was to be paid for out of the fund. In this way the competing company was to be driven out of business. It is often argued that combinations to advance prices can never exist long, because of the premium which the advanced price puts upon the entrance to the field of new competitors; but the weapons which this trust used to ruin an old and strong competitor are even more effectual against a new-comer; and the knowledge that they are to meet such a warfare is apt to deter new competitors from entering the field.

The boycott was once deemed rather a degrading weapon of warfare; but now the term has grown to be a familiar one in trade circles. Even the great railway companies do not scruple to use the boycott in fighting their battles. One might imagine that both the thing and the name filled a long felt want.



VII.

MONOPOLIES DEPENDING ON THE GOVERNMENT.

The fact has been already referred to that the principal monopolies which existed previous to the present century were those created by government. In the days when governments were less strong than now, and less able to raise money by such taxes as they chose to assess, it was a very convenient way to replenish the king's exchequer to sell the monopoly of a certain trade to some rich merchant. Nor was the establishment of these monopolies entirely without just reason. In those days of scarce and timid capital, inducements had to be held out to encourage the establishment of new enterprises. An instance of this, familiar to every one, was the grant to the owners of the first steamboat of the sole right to navigate the Hudson River by steam for a term of years. In the early history of the nation and in colonial days, government grants to establish local monopolies were very common. In this, however, we only followed the example of the mother country, which had long granted limited monopolies in trade and transportation as a means of encouraging new enterprises and the investment of capital.

The monopolies of the present day which are properly considered as government monopolies are of two classes. The essential principle on which all are based is that their establishment is for the common benefit, real or supposed; but the first class—to which belong the patents and copyrights—are also justified on the ground that the brain worker should be protected in his right to reap the just profits from his labor.

The effect of a copyright is simply to make it possible for an author to receive some recompense from his work. He can only do this by selling it in printed form to those who may wish to buy; but if there were no copyright, any printer might sell duplicates of the book as soon as it was issued, and could sell them at a much less price than the original edition, as the book would have cost him nothing to prepare. The practical result would thus be that few could afford to spend study and research in writing books, and the volumes which would be printed would be apt to be only those of so cheap and worthless a sort that no one would take the trouble to copy them. The monopoly produced by a copyright takes nothing from the public which it previously enjoyed. The writer of a book creates something which did not before exist; and if people do not wish to buy that which he has created, they are at perfect liberty not to do so. The monopoly relates only to the production and sale of that particular book. Others are at liberty to write similar books upon the same subject, which will compete with the first; and the same information may be given in different words without infringing the copyright.

It seems clear enough, then, that the monopoly which occurs in the use of a copyright, is of an entirely different sort from the monopolies which we have previously considered. Competition is not destroyed by it, and its only effect upon the public relates to an entirely new production, which is not a necessity, and which the public could not have had an opportunity to enjoy if the copyright law had not made it possible for the author to write the book with the prospect of being repaid for his labor by the sale of the printed volume.

As already stated, the granting of patents is based on the same principle as the granting of copyrights. A clause of the Constitution empowers the general government to grant to authors and inventors for limited periods the exclusive right to their respective writings and discoveries.

If we judge the granting of patents by the aims and intentions which are held in the theory of the law, we must conclude that it is a highly wise, just, and beneficial act. The man who invents a new machine or device which benefits the public by making easier or cheaper some industrial operation, performs a valuable service to the world. But he can receive no reward for this service, if any one is at liberty to make and sell the new machine he has invented; and unless the patent laws gave him the power to repay himself for the labor and expense of planning and designing his new device, it is altogether probable that he would not spend his time in inventing.

The wealth which a valuable patent promises has been a great incentive to the work of inventors, and has undoubtedly been a chief cause of the great mechanical advancement of the last half century. But the state of mechanical science has greatly changed from what it was when the clause of the Constitution was penned which speaks of inventions as "discoveries." The trained mechanical designer now perfects a machine to do a given work, with almost the same certainty that it will be successful in its operation that he would feel if the machine were an old and familiar one. The successful inventor is no longer an alchemist groping in the dark. His task is simply to accomplish certain results with certain known means at his disposal and certain well-understood scientific principles to guide him in his work. But this statement, too, must be qualified. There are still inventions made which are the result of a happy inspiration as well as of direct design. Not all the principles of mechanical science and the modes of reaching desired ends are yet known or appreciated by even the best mechanical engineers. There is still room for inventors whose rights should be protected. The interpreters of our patent laws have always held the theory that the use of a natural agent or principle could not be the subject of a patent. This is undoubtedly wise and just. The distinction should always be sharply drawn between those existing forces of nature which are as truly common property as air and sunlight, and the tool or device invented to aid in their use.

Again, it is a notorious fact that the great multiplicity of inventions has made the search to determine the novelty of any article submitted for a patent for the most part a farce. No one is competent nowadays to say surely of any ordinary mechanical device that it is absolutely new. The bulky volumes of Patent-Office reports are for the most part a hodge-podge of crude ideas, repeated over and over again under different names, with just enough valuable matter, in the shape of the inventions of practical mechanical designers and educated inventors, to save the volumes from being an entire waste of paper and ink. Space, however, will not permit us to discuss at length the faults of our patent system. The important point for us to notice is that the patent system establishes certain monopolies, and that these monopolies are not always harmless. Patents are given to "promote the useful arts," but the inventor whom they are supposed to encourage reaps but a small share of the profits of his inventions. Valuable improvements soon fall into the hands of large companies, who are able to defend them in the courts, and reap all possible profits by their use.

Again, patents sometimes aid in the formation of trusts and combinations. Two or three firms may control all the valuable patents in connection with some important industry. If they agree to combine their interests and work in harmony, they are far stronger than an ordinary trust, because the patents they hold prevent outside competition. It was pointed out in the opening chapter how the control of patents was sometimes a feature helping to induce the formation of trusts. The Standard Oil Trust had its origin in the superiority which one firm gained over its competitors through the control of an important patent. The envelope trust, which, at this date, has raised the price of envelopes about twenty per cent., owes its chief strength to its control of patents on the machines for making the envelopes. Instances innumerable could be given where a few manufacturers, who by their ownership of patents controlled the whole field, have ended a fierce competition by consolidating or agreeing to work together harmoniously in the matter of selling-prices. Very many of these are monopolies in trade or monopolies in manufacturing, and as such have already been considered in the preceding chapters; but it is proper here to point out the part which our patent system has taken in their formation, and the fact that it is due to their control of patents that many of the existing combinations owe their security against outside competition.

Probably the public was never so forcibly reminded of the defects of our patent system by any other means as it has been by the operation of the Bell Telephone monopoly. The purpose in granting patents is to aid in the establishment of new lines of industrial activity, secure to the inventor the right to reap a reward for his work, and encourage other inventors to persevere in their search for new improvements. All these things are effected by the monopoly which is held by the Bell Telephone Company; but they are effected at a cost to the users of the telephone under which they have grown very restive. Passing by the statement that the patents which the Bell company holds were illegally procured in the first place, through the inventor having had access to the secret records in the Patent Office of other inventions for which a patent had been asked at about the same time as his own, it is an undisputed fact that the Bell company holds the monopoly of communication by electric telephone in this country. They have managed this monopoly with great skill. While the instrument was yet in its introductory stage, and when every smart town felt obliged to start a telephone exchange or fall behind the times, prices were kept low; but when once the telephone became a business necessity and its benefits were well known, rates of rental were advanced to the point where the greatest possible profits would accrue to the Bell company's stockholders. This was excellent generalship. The same principle is applied in many other lines of business; and it was only because the company held a monopoly of a most valuable industry, that it proved so immensely profitable here. But other acts of the company, it is alleged, while within the letter of the law, are yet clearly infringements on the just rights of the public. It is charged that the company has purposely refrained from putting into practical use any of the many improvements which have been made in the telephone during the past few years, but at the same time has quietly secured their control. By skilfully managing "interferences" of one patent against another, and by amending and altering the various specifications, it contrives to delay as long as possible the issue of the patents upon these inventions. By means of these improvements, which it purposes to introduce as its present patents expire, it proposes to continue its monopoly for many years to come. It is very likely that this attempt will succeed.

We have already seen the folly of establishing competing electric light companies, and the attempt to establish rival telephone exchanges is just as sure to result ultimately in a heavy additional tax on the public. Then, too, the monopoly has grown so wealthy and powerful through its enormous profits that it will be very loth to release its hold, even when it is no longer protected by patents. Rival companies which may be established then, it will seek to crush by a fierce competition; and it will be quite likely to succeed. But in so far as it is not protected by patents, it is properly to be considered with other municipal monopolies, in which class we have already referred to it.

The course pursued by the Bell Telephone Company has at least proved that our whole patent system demands a thorough and radical revision. The inventor should certainly be protected, but not to the public hurt.

The second class of monopolies which the government establishes or aids in establishing because it is deemed to be for the public welfare that they exist, are, first, those private industries which receive aid from the government, either directly by subsidies or indirectly by the taxation of the goods of foreign competitors; and second, those branches of industry which are carried on by the government itself.

The question concerning the granting of subsidies is principally a past issue. A century ago many new enterprises in all lines of industry looked to the government for aid. In those days, when capital was scarce and when investors hesitated at risk, it was perhaps wise to grant the help of the public treasury to aid the establishment of young industries; but nowadays, when millions of capital are ready to seize every opportunity for profitable investment, it is recognized that subsidies by the general government are no longer needed. The days of subsidy granting ended none too soon. The people of the United States gave away millions of acres of their fertile lands and other millions of hard-earned dollars to aid in the building of the railroad lines of the West; and a great part of the wealth thus lavished has been gathered into the coffers of a few dozen men. The monopolies created by these subsidies have been largely shorn of their power; but while they reigned supreme, their profits were gathered with no halting hand.

There is only one direction in which we still hear the granting of subsidies by the general government strongly advocated; that is in the direction of establishing steamship lines to foreign ports. It would be apart from the scope of our subject to discuss the wisdom or folly of such a proceeding farther than to note the fact that it establishes a monopoly.

Take, let us say, the case of a steamer line between New York and Buenos Ayres. It is plain in the first place that the government aid will only be granted if there is not business enough to induce private parties to take up the enterprise. But as we suppose that there was not business enough in the first place to support one steamer line unaided, it is certain that none will undertake to establish a rival line to compete with that already sure of profits by reason of the government aid. Hence this line will have a monopoly of the trade; and unless some proper restrictions as to rates accompany the subsidy, the monopoly may lay an extortionate tax on the public who patronize it.

The relation of the tariff to monopolies is one which deserves the careful attention of every thinking man. Let us, in discussing this question, lay aside all prejudice and preconceived ideas for or against the protective tariff system and consider candidly what are the actual facts of the case. It is evident, in the first place, that the purpose of the tariff tax which the government levies on goods imported from abroad is to keep out foreign competition from our markets. The imported goods cost more by the amount of the tariff than they otherwise would; and the American producer, if he makes equally desirable goods and does not raise his selling price above that at which imported goods can be bought, is secure against foreign competition. But we have already learned that monopoly is simply the absence of competition; and inasmuch as the tariff checks or shuts out foreign competition, it has a tendency toward the establishment of monopoly. But this tendency may not result in the establishment of any monopoly. There is a tariff on potatoes, but there is no monopoly in their production. Evidently the tariff cannot create a monopoly; it only makes its establishment more easy by narrowing the field of competition to the producers of this single country. If we turn back over the list of monopolies we have studied, to find those which the tariff has any effect in aiding to establish, we shall find none till we reach the first two chapters. The monopolies in mineral products and manufactured goods, known generally by the name of trusts, it is self-evident are largely dependent upon the tariff. If they raise their price above a certain point, people will buy goods of foreign production instead. This point—the price at which foreign goods can be profitably sold—depends on the rate of the tariff, on the cost of production in foreign countries, and the cost of their carriage here.

Of the various trusts, it is evident that only those would be effected by the removal or reduction of the tariff whose products are now covered by it. Thus the Standard Oil Trust and the Cotton-Seed Oil Trust would not be injured by any reduction in the tariff. As a matter of fact, however, nearly all of the trusts have to do with manufactured goods which are covered by the tariff, and the two exceptions already named are about the only ones.