trade. The nations, having tried restriction, found it
to be a detriment, and to so greatly interfere with trade
as to retard their growth, and finally reacted in
favor of non-interference and free trade. The philoso-
phers held that all interference of the government was a
detriment to the progress of nations; that if they would
let things alone the laws of trade would be established
according to justice and the best interests of the commu-
nity ; that each individual seeking his own interest would
seek the interest of the community at large. This theory
prevailed to a large extent, and the world felt the influence
of it for many years; but it finally awoke to the idea
that no one formula or theory could at all times govern the
actions of nations in relation to trade, and that, as political
laws were made to establish and insure freedom, it was
necessary, in order to secure freedom and justice in the
commercial world, to establish certain regulations; and
so the modern world has reacted from this position of
laissez-faire. Perhaps the growth of monopolies, which
has tended at all times to break down free competition
and free trade, has promoted the interference of nations in
regard to the regulation of trade and industry.
ECONOMICS. 445
Modern Restrictions Upon Industry and Trade.
A large number of laws have been passed restricting
industry and trade; protective tariffs indulged in to a
greater or less extent by all nations ; laws regulating and
limiting the power of corporations; laws regulating the
limits of certain industries, all show the development of
a tendency toward restrictive measures.
Legislation in Favor of Labor.
We find also a large number of laws made for the insur-
ance of the rights of labor; laws controlling the building
of factories, for the protection of life and limb, sanita-
tion and safety of the laborers, all showing that the gov-
ernment has its interest in all classes of people. A large
number of labor commissions in the States of the Union
and in various foreign countries which inquire into the
condition of labor and recommend certain laws concern-
ing its protection and control, show the tendency of re-
strictive measures in this line.
Legislation in Favor of Commerce.
Much legislation has been done to develop commerce.
The carrying trade of different nations has been encouraged
by laws and subsidies. Also, the extension of railroads
has been encouraged by means of land grants and subsi-
dies ; nations have given encouragement to commerce and
commercial enterprises by the development of canals and
water-ways. There are many other means for the encour-
agement of commerce. The Interstate Commerce Com-
mission, established by the United States Government to
inquire into the conditions of railroads and commerce in
general in the United States and for their restriction and
446 ECONOMICS.
regulation, and the various state commissions, all have a
tendency to place transportation within proper bounds.
Legislation Regulating Industry.
Considerable legislation has taken place in recent years
to -encourage the development of the resources of the
country. At one time a bounty was given for the produc-
tion of beet and cane sugar, which had a tendency to
develop that industry for a time. Had it continued, the
United States would soon have had sufficient sugar manu-
factories to supply its own needs. Whether this would
have been a wise movement or not would have depended
upon the effect in increased taxation and the effect upon
other industries and trade. Bounties have been given for
the planting of forest trees in semi-arid districts. The
protective tariff is urged as a means of developing home
industries.
Government Restriction of Monopolies.
The prohibition of the manufacture of certain articles
has been declared in various instances. A law against the
manufacture and sale of intoxicating drinks is among the
most important. Other industries are purposely burdened
by a process of taxation, such as liquors, tobacco, oleomar-
garine, etc. These taxes are laid with a view to the partial
suppression of the traffic. While at times they have more
or less influence, upon the whole they are ineffective as
prohibitive measures.
Plane of Competition.
There is a great discussion and a wide difference of
opinion as to the extent to which the government should
ECONOMICS. 447
go in the control of industries. The fundamental principle
lying at the base of all this may be stated : That the gov-
ernment should regulate all competition. It should set
a limit beyond which competition should not go ; it should
also aid and assist certain industries if possible by general
legislation, without special favoritism and without detri-
ment to other industries.
Government Should Realize to the People the Benefits of
Monopoly.
Having determined the plane of competition so that
there is freedom and justice within certain limits, the gov-
ernment should go a step farther, and realize to the peo-
ple the benefits of a monopoly which exists from the
nature of things. There is no reason why the government
should allow the development of a certain phase of in-
dustrial life which shall overshadow and overbear the ef-
forts of a large portion of our citizens in industrial life,
any more than it should allow the growth of a certain phase
of political life which shall overshadow and overbear a
large number of citizens, oppressing them and preventing
them from having the freedom and rights of political life.
Therefore, wherever this monopolistic power becomes op-
pressive and unjust and un-American, it should be regu-
lated by the government. Take the case of the street-
railway corporations and the gas companies. Franchises
are granted to a few persons in the name of a corporation
for the purpose of serving the public. The people own the
streets through which these persons operate, and by their
vote exclude all but a few individuals from carrying on
the special business. It is right that the people should
448 ECONOMICS.
have a rental for the use of the streets by private parties
to the exclusion of all others; it is absurd not to charge
the^ rental. Hence, in the form of a franchise tax or
cheaper rates, or both, or in the form of municipal owner-
ship, the government must realize to the people the benefits
of the monopoly arising on account of rental of streets
and public property.
References : Ely, Monopolies and Trusts ; Bemis, Municipal Mo-
nopolies; Ripley, \V. Z., Pools, Trusts, and Corporations; Jenks, J. W.,
The Trust Problem ; Bolen, J. W., Plain Facts as to the Trusts and
the Tariff.
ECONOMICS.
449
CHAPTEE II.
PUBLIC CONTKOL OF INDUSTRIES.
General Management of Industries.
There are several ways in which the state or government
may deal with industries: First, it may let them en-
tirely alone, leaving them to the laws of trade and competi-
tion on the supposition that the largest justice will be
meted out without any interference ; second, it may estab-
lish such rules and regulations as would control them
within particular limits; third, it may own and operate
such industries as seem necessary for the benefit of the com-
munity. Perhaps no one of these rules could be laid down
as universally correct, for the government seeks under all
circumstances to provide for the well-being of the com-
munity at large, and may do anything that is possible or
necessary for securing this well-being. The question to
be considered is : What will produce that largest well-being
at the least expense to the community? In other words,
What is expedient to do under the circumstances ? rather
than, What is theoretically just ?
In many instances there are industries to be let alone
entirely, with the exception of certain rules of justice ap-
plying to the intercourse of individuals. Second, there are
those industries which are better controlled with certain
laws and regulations for the purpose of determining and
securing justice for the people. In the third place,
450 ECONOMICS.
there are those industries that are difficult to regulate and
which it would be an advantage to the people for the state
to own and control, and under such circumstances one must
presume almost entirely upon proper administration of
affairs in order to secure justice.
Control by Commissions.
One of the most important of modern methods for the
control of industry is represented in the growth of railroad
commissions in the United States. These commissions
vary in regard to their powers. Most of them are simply
advisory and limited in their jurisdiction. Some of them
have great power to act. The Interstate Commerce Com-
mission has done a vast deal to regulate industry, notwith-
standing the fact that its powers have been greatly cur-
tailed by the courts, having established uniform systems
of bookkeeping and uniform methods of reports. They
have established that public carriers are public servants,
and are amenable to the public for their wrong-doings;
and have also done much toward establishing uniform rates
and preventing extortion. The same may be said of nearly
every railroad commission in the United States. These
commissions gradually gain the confidence of the people
and gain more power ; and while many people advocate the
public ownership of the railroads as a public necessity, it
appears that it will be determined in most instances that
the increasing power of the commissions will eventually
furnish them ample control and regulation.
Government Ownership of Railroads.
There are many who advocate the government ownership
of railroads because they are said to be natural monopolies.
ECONOMICS. 451
At best, they can only be said to be partial monopolies;
and a system of government ownership, as established in
different communities and states, has not proved entirely
satisfactory. It would entail a vast debt on the United
States to procure all the railroads, which are now capital-
ized at over ten billions of dollars. It would involve the
employment of a vast army of people, which, if not put
upon the civil-service rules, would be a dangerous political
power.
It would have some advantages in insuring a uniform
system of rates and of traffic. It would prevent extortion
and injustice, which sometimes prevail. It would prevent
waste in some ways by the consolidation of different lines
and the abolishment of parallel roads. It would prevent
waste in the management, dispensing with numerous high-
salaried officials. And yet, on the other hand, without wise
management railroads might fail to yield a dividend suf-
ficient to defray the interest on the payment of a necessary
sinking fund for the reduction of the debt which must be
assumed in the purchase of the roads. In comparing Eu-
ropean management with American management, there is
more progressive development in certain lines found in
American railroads than in any others in the world. In-
deed, Europeans are patterning after Americans with re-
spect to equipment and comfort. It also seems proper that
the United States should pattern after the European lines
in perfection of road-bed and precautions for safety. But
the advantage of government ownership in regard to all of
these matters is not evident, for England has a better
system than is found on the Continent, and still under pri-
452 ECONOMICS.
vate management. Many persons urging government con-
trol of railroads in the United States have failed to observe
the enormous mileage compared with that of some of the
European nations. It will be observed that the conditions
vary in different countries, and consequently the same rule
will not apply to all. (See Table I.)
Laws Controlling Corporations.
But whatever takes place in regard to specific industries,
the general laws controlling corporations need careful
supervision and enlargement. There should be more spe-
cific care in regard to such matters. It appears, then,
that something should be done respecting corporation regu-
lations. Restrictions should be placed upon methods of
organization, the granting of franchises, and, in fact, laws
made controlling and limiting the operation of corpora-
tions.
Municipal Ownership of Gas- and Water- Works.
It would seem that in cities where water is furnished for
the people at large, it should be done by the city itself
rather than be left to private corporations. The water-
supply is so essential to the sanitation, health and conveni-
ence of all the people, it seems to be a very improper thing
for a city to allow it to pass from under its control. What-
ever is the expense, whether great or less under city control,
there can be no question that every municipality should
own and manage its water-works, regardless of inconveni-
ence and expense.
In regard to the gas-supply, it is a great question whether
or not the city should own and operate its gas plant. There
are several methods to be observed where the city owns its
ECONOMICS. 453
gas plant. In the first place, a normal price may be charged
for the gas and the surplus turned into the public treasury
to lighten taxation. In the second place, the gas may be
furnished at a very low price, the city neither gaining nor
losing by the operation. The third proposition is a com-
bination of these two ideas, the gas being furnished to the
people at something below the normal rate and still having
a surplus for the treasury, less than in the other case.
As to the right of municipal ownership, there can be no
question. The streets belong to the people at large, and no
excessive monopoly should be given to any persons without
adequate return. The city itself has a better right to use
these streets to establish its own industries than has any
private corporation or monopoly. There are many things
pointing towards the expediency of the city ownership of
gas.
Government Management versus Government Ownership.
Those who advocate government ownership state that
a revenue would be returned to the city which would bene-
fit the community. Under wise management this may
prove true ; but it sometimes happens that a deficit occurs
in city administration, and this revenue is not obtained.
There is always an attendant danger to business where
politics prevails to a large extent. Until we reach a period
where municipal government shall be conducted on a busi-
ness basis, there can be no assurance that the gas-supply
will yield a return to the city. It is urged also that politi-
cal influence will be lessened by government ownership.
It is held that under private corporations corruption is
developed and the city council is elected by corrupt
28
454 ECONOMICS.
methods, so that corporations have their own way; while
under municipal ownership this would disappear, the
records would show whether business was properly man-
aged and the funds properly used. However, unless the in-
creased responsibility would bring a better class of citizens
to act as officers, there could scarcely be any improvement
in this line. It would seem that government control, wisely
administered, would reach the same ends. Wherever the
cities have managed their own gas-works there has been a
tendency to furnish a better quality of gas, at reduced rates.
Where good business methods have prevailed they have
made a financial success of the enterprise ; where bad busi-
ness methods have prevailed they have made a failure.
Disposal of Public Franchises.
One modern method of disposing of public franchises
seems to be a solution of the problem in a very satisfactory
way. That is, the putting up at auction of all franchises
to which the public rights are granted, and disposing of
them to the highest bidder, letting only to responsible par-
ties. These franchises are granted for a limited period of
time ; with the privilege of the municipality to purchase
them at a normal price, or to renew, as it sees fit. In
addition to this, the bid provides for the payment of a
certain per cent, of the gross proceeds into the public treas-
ury. A provision is also made that the article furnished
shall be of a certain grade and furnished at a maximum
price. With these restrictions there is no reason why the
municipality should not realize the benefits of the monop-
oly with certainty without government ownership. Under
present conditions of most municipal governments this is
far preferable to government ownership.
ECONOMICS.
455
Economic Freedom Demands Restrictive Laws.
A great many people seem to hold that while laws should
be established for the control of civil liberty, the state has
no right to interfere with the economic life. The growing
importance of economic life, however, has rendered it
the base of all modern operations. All legislation rests
more, in these days, upon trade industries, commerce, cap-
ital, labor, corporations, and industries in general, than
upon the bare fact of securing civil and political justice.
The latter has to a great extent already been secured in our
own country. It appears that industrial liberty or eco-
nomic freedom should be maintained, and that it is just as
essential to establish some general laws and restrictions
upon trade and industry to secure economic freedom as it
is to make political and civil laws for the security of politi-
cal and civil freedom; and that this can be done without
the state passing beyond its legitimate function in provid-
ing for the general well-being of the community.
The Modern Trust.
There has recently sprung up a form of financial organi-
zation called the "trust/ 7 which has developed stupendous
proportions. Within recent years it took the form of the
organization of separate corporations into a pseudo over-
corporation. The pseudo over-corporation took all of the
corporations of a given industry into an association, issuing
so much stock to each or else giving to each a certain pro-
portion of the income of the new organization called the
trust. That is, the business of the various corporations was
held in trust by the super-organization, which might be
dissolved at any time. There was a great question whether
456
ECONOMICS.
the trust was responsible as an organization or not, as
it held itself ready to dissolve at any time. But by the
power of law it has been forced more and more to become
one large corporation, absorbing into one definite organiza-
tion all of the other corporations, the latter losing their
identity in the former.
The progress of the trust as it attempted to absorb all
competing industries in a given line has been very marked,
and the rapidity with which the trusts have been organized
and in which small industries have been absorbed has cre-
ated alarm in the minds of the people. At the close of the
year 1897 there were 111 trusts, none of which had a
smaller capital than $1,000,000 ; while at the close of the
year 1898, 98 more were formed, with an aggregate capital
of about $2,000,000,000, making the capital of all trusts
formed by the close of the year 1898 equal to about $5,000,-
000,000, or about one-fifth of the assessed valuation of the
taxable property in the United States at the time of the
census of 1890. The following are some of the principal
trusts formed during the past few years, with their esti-
mated or known capital: Joint Traffic Association, $1,-
404,130,581; Federal Steel Company, 1200,000,000;*
Beading Coal Company, $150,000,000; Western Union
Telegraph Company, $95,370,000; American Sugar Ke-
fining Company, $73,936,000; Standard Oil Company,
$97,500,000; Wholesale Grocers' Association of New
England, $75,000,000; Central Lumber Company, $70,-
000,000; United States Leather Company, $62,711,100;
Chicago and Milwaukee Brewers' Association, $60,000,-
000 ; New England Insurance Exchange (84 fire insurance
* The United States Steel Company has now a capitalization of $1,404,000,000.
ECONOMICS.
457
companies), $58,537,167; Steel Kail Association, $50,-
000,000; Chemical Combine, $50,000,000; Carnegie
Steel Company, $35,000,000; Consolidated Gas Company
of New York, $35,430,060. Some recently proposed or-
ganizations are the Flour Trust, with a capital of $150,-
000,000; the Knit Goods Company, with a capital of
$30,000,000 ; and the Thread Company, with a capital of
$18,000,000. With the opening of the year 1899 trusts
with gigantic capitalization were formed with wonderful
rapidity, to the great alarm of many people.
The chief objection urged against trusts by the people is,
that they destroy competition and crush out the smaller
concerns. That they destroy competition, is true to a cer-
tain extent ; but as there has never been a complete organi-
zation of any given industry, there is always a threatened
competition. And it is a fact that on account of the con-
centration of a given industry, prices are more stable under
the organization of the trust, and that in the long run they
average lower than under the competition of many small
concerns. The wants of the community, both in manufac-
tures and trade, are more carefully estimated by this means
of social organization.
That they crush out smaller concerns, is true ; and while
the people at large may reap a benefit in reduced prices
and more stable business life by the crushing out of the
small concerns, it is a great detriment to the local com-
munities where these concerns are established. In a West-
ern town there was situated a barbed-wire factory an
independent concern, which had grown up from a very
small beginning until it employed 200 men and did a very
458 ECONOMICS.
large amount of business. The trust absorbed this institu-
tion into its main body. The object of the trust was to
control the output so as to prevent prices from declining,
as they had reached such a low basis that profits were very
small, and they thus desired to hold to monopoly prices and
monopoly profits. What was the result ? The owners of
the local plant received a large sum for their factory,
indeed much larger than the actual value of the plant under
ordinary business prospects would warrant. It will be no-
ticed that trusts always pay high for local enterprises. This
means that they anticipated making larger returns than
were made by the smaller concerns when worked separately.
It will be observed, however, that this can be done only by
the reduction of expenditures and by the establishment of
monopoly prices. It is a mistake to suppose that because an
organization controls an entire industry it can charge such
prices as it pleases. Yet many investors in stock of trusts
called "industrials" are led to suppose this to be true. The
fact is, after they become complete monopolies they must
be controlled by monopoly prices and monopoly profits
and threatened competition. (See Monopoly Profits,
supra.) Another result is, that a large amount of money
has come into the town which will immediately seek other
investments, probably in the town itself; and while the
trust destroys one business in the town, it leaves a large
amount of free capital to invest in other businesses.
Another result in the case in point which is more detri-
mental to the progress of the town is, that 200 men with
their families, probably 1,000 persons in all, are thrown
out of employment. Many of these will leave for other
ECONOMICS. 459
places, and, unless as stated other businesses spring up,
trade will fall off with the merchants and a general detri-
ment to the community will ensue. This local destruction
of business is one of the greatest evils of the modern trust ;
yet even it may have a compensation in the fact that a
large amount of capital is freed for new enterprises, and
it is, after all, the free capital of the community that makes
a business.
Another objection to the modern trust made by the peo-
ple is, that the power of concentrated capital to influence
legislation is great. ~No doubt this is the greatest danger
in connection with it. It has this power if it desires to
use it. Yet the danger here is not as great as it might
appear, for when a trust controls the entire output of any
industry it has less desire to control legislation in its own
interest than have several large competing concerns which
attempt to take advantage of one another. Nevertheless,
because they are never free from competition, as com-
petition is between corporation and corporation and trust
and trust, there may still be a desire for influencing legis-
lation in various forms.
It is objected that trusts raise prices by restricting pro-