Saving Communities

Bringing prosperity through freedom, equality, local autonomy and respect for the commons.

The Ethics of Democracy

by Louis F. Post

Part 4, Economic Tendencies
Chapter 5, The Trust As a Natural Evolution

THE term "trust" comes from the original method of trust organization. The owners of stock in different corporations intending to consolidate would deposit it with the trustees, whom they invested with absolute power over it, subject to the reservations of the trust agreement. In that manner competing corporations concentrated in these trustees complete control over their business, and the consolidation was consequently called a trust. But this method of making industrial combinations proved by experience to be crude and open to timehonored legal objections, and from time to time improvements were adopted until the trust in its original form disappeared.

In a narrow verbal sense, therefore, it is correct to say that trusts no longer exist. It is correct, that is, in the same sense in which the punster is correct who tells you that "a door is not a door when it is a jar" - for it is simply a play upon words. But only in that sense, for the name and the trusts themselves have persisted, though the method of which the name was originally descriptive has long since given place to methods more effective. Trusts are more numerous and powerful than ever, but they are no longer in the hands of trustees. They are formed now, as described in a previous chapter, by the sale of competing corporations, or a majority of their stock, to new corporations organized especially for the purpose of buying their interests, consolidating their power, and managing their affairs.

That was the method adopted by the gigantic steel trust. A syndicate was organized, with which the stock of all the steel corporations of the country was deposited; and at the proper time this stock was turned over in exchange at certain ratios for the stock of the United States Steel Corporation, which had been organized for that purpose under the laws of New Jersey. Thus the United States Steel Corporation, though nominally nothing but a chartered company, like thousands upon thousands of others that have been spawned by incorporation laws, became in fact an enormous trust, monopolizing the steel industry of America and reaching out for the monopoly of that of the world.

This stupendous consolidation profoundly stirred public feeling. Where is all this concentration of power to end? was a question which if not upon every tongue was making almost every heart throb with anxiety. All our people were not like the complacent college professor of economics who, while realizing that the steel trust would have "very great power," regarded it as an evil only in case it should use "this power to raise prices to the consumer." There were those who had read history thoughtfully enough to dread unbridled power in itself.

The same professor spoke of these great combinations as "a natural evolution of the modern industrial system." That seemed to him not only a sufficient reply to all objections, but a complete justification of the trust as a good thing. Yet he would hardly have looked upon typhoid fever as a good thing, even if some medical professor had commended it as good because it was "a natural evolution of a method of drainage." He would have formed his own conclusions as to the goodness of typhoid fever, and if they were unfavorable would have suggested that the medical professor devise something in the way of improving drainage, so that typhoid fever might alter its "natural evolution."

When a method of drainage produces typhoid fever, this does not prove that the fever is good; it proves that the drainage is bad. So with trusts. If they are a natural evolution from the modern industrial system, so much the worse for the modern industrial system, not so much the better for trusts. Every tree brings forth fruit after its own kind, and by its fruit we know it. If the gigantic steel trust, with the unparalleled power it confers upon two or three men over the industries and even, the lives of great masses of the people, is a natural product of the modern industrial system, then it is time to overhaul that system and learn what is wrong with it.

But the idea that trusts are good - or at any rate tend in the direction of good - because they are a natural evolution from historical conditions, is not confined to political economy professors. There is no lack of other well meaning people wanting better things to come, who also embrace it.

Socialists of the historical school are in that category. They take the current of history for granted as good. Either that, or they assume the impossible - that good is a natural evolution from evil. For they believe that history exhibits a process of evolution which, having reached the present deplorable era, is about to pass into what would be a worse, the era of trusts, if it were not that the natural evolution from the trust era is to be an era of equality and good will.

If persons who believe in this way meant that trust phenomena would stir up public sentiment to a realization of the social disease that has produced them, and impel it to seek the root cause and apply radical remedies, their position would be intelligible. But they have no such meaning. They mean that out of these diseased social conditions, and by a continuation of the same natural process of evolution that has been at work through the ages, there will evolve healthy social conditions.

Since that is the reason they welcome trusts, it is not just to say, as is sometimes hinted, that they welcome them from motives similar to those which led the quack doctor to produce fits in his chicken pox patients - because he was death on fits and didn't know much about chicken pox - although their programme does suggest it. They look expectantly and hopefully for the concentration of all business in a few great trusts because they are confident that this condition will generate one in which the people as a whole, in an organized capacity, will acquire and administer all business for the common good. This programme truly is, upon the surface, somewhat like turning chicken pox into fits and then curing the fits; but that is really not a true interpretation of their reason for exalting trusts as a natural development toward better things. They seem to believe that all through history the human race has been a sick man (not from disregard of fundamental laws of social health, but of necessity in the nature of things evolutionary), who from one disease to another has finally got a chicken pox, which, in due course, is producing fits, and that the fits will in turn produce good health. It is not an encouraging programme.

Besides the philosophical absurdity of expecting a natural evolution of good from evil, the generation of health by disease, there is to be considered the commonplace fact heretofore alluded to, that the masterful minds which are able to dominate private trusts would have no difficulty in dominating government trusts, even under popular government; yea, more triumphantly under popular government. The invitation to cure the trust evil by encouraging the development of trusts with the expectation of their being taken over ultimately by some form of popular government, is an invitation to join in completing the destruction, instead of achieving the restoration, of popular liberty.

Unfortunately, the drift of discussion regarding the trust evil has seemed to favor this policy. That result is immensely contributed to by slovenliness in analyzing the trust problem. It has been assumed too carelessly that mere combinations make monopoly. Hence attention has been centered upon the problem of checking combinations, and been thereby diverted from the vital point, which is the nature of the thing combined. The idea to be grasped and clung to is the fact that it is not trusts that make monopoly, but monopoly that makes trusts. The evil springs from no normal condition, but altogether from abnormal adjustments. It does not depend upon mere combination; it depends upon the character of the interests that are combined. A combination of fishermen, for instance, could not, merely as fishermen, make a fishing trust. They have no monopoly. Their only advantage would be their fishing skill, and equal skill could soon be acquired by others. Even with the advantages of such special privileges as dockage rights and transportation opportunities, it has been found impossible to make an invincible fishing trust. An attempt to form a camera trust has failed, although there are patents to buttress such a combination. The great wall paper trust was once supposed to be an example of the power of mere combination, but it was compelled by outside competition to dissolve. Instances of this kind might be multiplied and in the future doubtless will be. The latest is the shipping trust, which, having but little fundamental monopoly power, has begun to totter. The cigar trust is in the same general category. What gives power to the cigar trust is similar to what gave power for a time to the wall paper trust - its trademarks; and it, too, is destined to collapse. So long as individuals or corporations possess only such interests as are freely open to competition, they can exercise no oppressive power. To hold the field to themselves, in such circumstances, they must render and continue to render superior service to all comers.

If, while doing that, a combination seems to injure some people by displacing employes or competing houses, the injury is not attributable to the combination. For if men are displaced in a business because they are not needed, and so suffer for lack of employment, their suffering is due, not to their displacement, but to the fact that opportunities for employment in occupations in which they really are needed are closed or narrowed by restrictive laws.

With such combinations, moreover, there is a limit of efficiency which any thoughtful student of the problem must infer, and which the business community is beginning to detect. I have already adverted to it. Up to a certain point there is economy in combination. It saves expense in many ways. But that point reached, the saving becomes less and less progressively as the combination expands, until further combination ceases to be economical and becomes positively wasteful and unprofitable.

In some degree all combinations are subject to this limitation, because all are to some extent combinations of interests that are open to competition. But to the degree that the combination is of monopoly interests, to that degree the limitation is lifted. A combination of nothing but monopoly interests, controlling the sources of supply and the channels of delivery for imperative demands, would have no limit and would be invincible. The evil power of trusts depends, consequently, upon the extent to which the interests they consolidate are monopoly interests. Though a combination of fishermen could not monopolize the fish trade, a combination of fishing ground monopolists with dock monopolists and railroad monopolists, could monopolize it.

The correctness of this analysis is confirmed by the history of the Standard Oil trust. By railroad privileges at first and afterwards by a pipe line from the oil regions to the sea, this trust has dictated terms to oil consumers at one end and to oil producers at the other. It is further confirmed by the story of the all-absorbing steel trust. Not merely to manufacture steel on a large and economical scale is this combination formed. That is only incidental. It is a function which might be relegated to others without weakening the trust. The real purpose is to combine the patent monopolies in steel production, with monopolies of the natural sources of steel supply. And by means of another great combination - that of the railroads, to be controlled ultimately by the same little coterie that controls the steel trust - monopoly of transportation also is to be secured. It is not combination for production that is sought, primarily; but combination of productive opportunities. These trusts are not organized to do things, but to "do folks."

Make a simple test analysis and you prove it. Imagine the withdrawal from the two great combinations, the steel trust and the railroad pool, of every monopoly, and what would become of those combinations? Suppose the iron mines were outside the pool. Suppose the coal mines were out. Suppose there were no patents to be combined. Suppose the railroad rights of way belonged to hostile interests, free to rack-rent the transportation companies. Yet, let these two great combinations own everything else. What power would they have?

Or, to put the same idea in another way, suppose the ore mines, the coal mines, the railroad rights of way, and the patents, all belonged to one trust; while the steel works, the railroad equipment, the machinery at the mines, and everything else of a competitive nature belonging to these two great combinations, were owned by another trust. What would be their relative power? Would not the latter trust be as a pigmy to a giant?

Again: Suppose that ownership of the coal and the iron mines were so adjusted that they could not be monopolized profitably by anybody. Suppose the same thing were so far true of railroad rights of way that everybody's transportation facilities were on a level. And suppose the steel-making patents had expired. Who, then, would care a picayune whether the steel and railroad interests combined or not? Nobody. It would in that case be clear to everyone that these combinations would have to render the best possible service to the public or be driven out by combinations that would.

All this is evident upon a little reflection. And when perceived it almost makes one impatient with the divers cuticular remedies that are proposed for the constitutional disease that evolves the trust.

Every injurious trust is built upon some monopoly - upon one that is conferred by the government directly, or upon one that is acquired from a direct beneficiary of government. Scores upon scores of little monopolies, and some big ones, rest upon the sub-letting of special privileges by railroad monopolists. Take away these monopolies, and trusts will take themselves away. Monopolies of ore mines, of salt mines, of railroad rights of way, of territorial privileges, and so on, fortified by tariffs which protect American monopolies from the competition of foreign monopolies - such are the things, and such alone, that make trusts possible. It is not true that the trust evil is a normal industrial evolution, in any other sense than it is true that typhoid fever is a normal sanitary evolution. Typhoid fever is not a product of wholesome conditions; it is a product of diseased conditions. It is a physical evolution from physical disorder. And so with the trust evil. A natural evolution this certainly is, but not a natural evolution from wholesome industrial conditions. It is a natural evolution from diseased industrial conditions - a social evolution from social disorder. And this industrial disease, this social disorder, is monopoly privileges created and fostered by law. What the germ is to typhoid fever, monopoly is to trusts.