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Trusts

OR

Industrial
Combinations

IN THE

United States
Ernst von Halle




il^M




THE GIFT OF

MAY TREAT MORRISON

IN MEMORY OF

ALEXANDER F MORRISON



TRUSTS

OB

INDUSTRIAL COMBINATIONS AND
COALITIONS

IN THE UNITED STATES



■1h;?y^.



f



TRUSTS

OB

INDUSTRIAL COMBINATIONS AND
C0.4LITI0NS

IN THE UNITED STATES



BY

ERNST VON HALLE



THE MACiMILLAN COMPANY

LONDON: MAC.MILLAN & CO., Ltd.

1899

All rights rturvecL



Copyright, 1895,
By MACMILLAN AND CO.



Set up and electrotyped February, 1895. Reprinted January,

B96 ; April, 1899.



Nortoool) ISrfSS

J. S. Gushing & Co. — Berwick & Smith
Norwood Mass. U.S.A.



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MORITZ MEYERSBERG

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CONTENTS.



Introduction



CIIAI'TER

I. Earlier PiinT.ic Policy as to Combinations . 1
II. The Condition of Affairs before the Inter-
state Commerce Law, and the A\ti-Tri:st

Legislation ....... 9

IIL The Forms of Organization .... 19

IV. The Objects of Organization .... .SO

V. Nature and Effect of Trusts .... 5:3

VI. The Latest Phase of Corporation Law, and
its Effect on the Form and Nature of

Combinations ....... 92

VIL Public Opinion and the Combinations . . 118

VIII. Conclusions ........ 139

APPENDICES.
I. Deed of the Standaid ( )il Trust .... 10;;
IL By-Laws of tlu- Standard Oil Trust . .. . ]7(»

III. Statute of the . " Dcutsch-Ainericanische IVtro-

leuni Gesellschaft " 177

IV. United States Anti-Trust I>aw . . . . I'.MI
V. Illinois Anti-Trust Law 194

vii



VIU CONTENTS.

PAOE

VI. Amendment to the Illinois Anti-Trust Law . . 198

Via. Illinois Letter of Inquiry 203

VII. Texas Anti-Trust Law 204

VIII. Agreement between the Wilkesbarre Company

and the Reading Company .... 210
IX. Abstract from Proceedings in Chancery against

Reading Coal Combine ..... 225
X. Rebate Voucher of the Distilling and Cattle Feed-
ing Company 244

Xff. Blank of Reports on Sales 248

XI. Cotton Oil Trust Reorganization Contract . . 249
XII. Charter of the Distilling and Cattle Feeding Com-
pany 260

XIII. By-Laws of the United States Leather Company . 266

XIV. The Reorganization of the National Cordage Com-

pany 280

1. Report of Reoi'ganization Committee and Plan

of Reorganization ...... 280

2. Report of Accountants 292

3. Absorption of the Security Corporation . . 298

4. Appraisal of Good- Will 304

6. Circular No. 2 of the Reorganization Committee 306

6. Proposed Modified Plan of Settlement . . 314

XV. List of Combinations in the United States . . 328

XVI. Bibliography 338



INTRODUCTION.



It has become customary, within the last few
years, to apply to all kinds of industrial combina-
tions and coalitions indiscriminately the name of
"trusts." This is very significant; for it shows
that the public has unconsciously recognized that,
though different in their form and sometimes in
their temporary aims, all these attempts at com-
bination are but manifestations of one underlying
tendency. While theorists still discuss the advis-
al)ility, lawyers attack tlie legality, and politicians
doubt the constitutionality of the principle of com-
bination, we learn daily of the formation of new
combines throughout the civilized world. This
seems somewhat to discredit the cheerful hope-
fulness of the believers in tlie orthodox teaching
that combinations are nothing but temporary aber-
ratioiis fiom the natural law of free comi)rtili(»n.
At the same time it becomes evident that mere
legal prohibition has pi'oved neither successful nor

ix



X INTRODUCTION.

productive of any satisfactory results. Men who
were among the strongest opponents of all sorts
of combinations a few years ago now officially
admit them to be in certain instances the lesser
evil.^

But the way in which the discussion has, up to
this time, been carried on before the public can
hardly be said to have done justice to the ques-
tion as a whole. Very few of the numberless
writers on trusts have attempted to treat the sub-
ject from a more general and independent stand-
point. Their views, as will be shown later on,
have been mostly dictated by theoretical reasoning,
self-interest, or desire for popularity.

It must certainly be disappointing to the theo-
rist, who reasons from transcendental principles,
to wake up one day to find that he is left alone in
the field, and that events have taken a somewhat
different direction from that which he thought
would be their natural course. He will discover

1 The present railroad commissioner of Texas, Mr. Regan,
to whose endeavours, when in the House of Representatives in
1886, the anti-pooling clause of the Interstate Commerce Law
was mainly due, has recently admitted in his ofiQcial report that
thorough investigation has taught him the advisability of rail-
way pools under certain restrictions in the interest of all parties
concerned. (Report of the Interstate Commerce Commission,
1892, p. 51.)



INTRODUCTION. XI

by and by that theories can be based only on
the amplest knowledge of the facts of economic
life and of their historical development. On the
contrary, the discnssion that has taken place
has already passed judgment on laissez /aire. Ad-
vocates of this principle certainly fall into their
own trap when they cry out for restrictions
against things that have naturally developed, and
for state interference to secure " the unhindered
working of natural forces."

The right of the public to look into the affairs
of the combinations, although it has been gener-
ally acknowledged, has been questioned by the
parties immediately concerned. Yet, as Schmoller
says, " they must be reminded that they are not
violets that may blush unseen."

To leave the investigation, discussion, and set-
tlement of the trust problem in the hands of pol-
iticians does not seem to have proved a success
in the United States. In other countries it is
regarded as one of the chief duties of political
economists to make themselves tlie foremost ex-
perts on the facts of economic life and conditions.
Their advice is more and more souglit where there
seems to be danger that party politics and st'lf-in-
terest may lead people to a one-sided view. Tliis
gives them a most important mission under a



XU INTRODUCTION.

system of popular government, and has removed,
to a great extent, the prejudice existing against
economists and economic science in general, — the
prejudice which was expressed, for instance, in
an answer made by the Saxon government at the
beginning of this century. An application to have
a chair of political economy established at the Uni-
versity of Leipzig was declined on the ground that
this would be a useless expense, as the political
economist taught things that were not true, and
theories that had no application to real life.

In Germany, since the beginning of the sixties,
economists and other leading public men, aware
of their duty of influencing public opinion, have
established associations for the purpose of dis-
cussing the economic questions of the day. It has
become customary to prepare volumes of reports
which should give the members of the associa-
tions, as well as the public at large, the most reli-
able information about the facts concerned. In
earlier days the " Volkswirthschaf tliche Vereini-
gung" was of the foremost importance, and the
discussions and opinions of its members had a far-
reaching influence in the abolition of guilds, the
introduction of free migration, currency reform,
and commercial policy. Its standpoint was some-
thing like that of the Cobden Club. When, in



INTRODUCTION. XUl

the seventies, a reaction was felt against the older
economic school and the policy which it advocated,
and when it appeared that hencefortli the social
question would demand the chief part of public
attention, the " Verein fiir Social-Politik " was es-
tablished (1872). Its influence steadily increased,
so that within about ten years it took the place of
the older society. A series of fifty-eight volumes of
reports and proceedings, covering many questions
of the day, had been already published, when, in
the year 1892, the board of the association decided
to take up as the next subject " Industrial Com-
binations " in all countries. Among others, the
author, then in Chicago, w^as requested, in May,
1893, to take part in the preparation of the re-
port, and the United States were assigned to him.
After some eight months of investigation he was
able to submit a [)a})er, which lias since been printed
in Volume Lix. of their publications.

The present book is not a mere translation of
this essay. A great deal of maica-ial has been
omitted, which, though necessary to the German
reader, dealt with subjects which have, of late,
been sufficiently discussed in the United States and
England ; such as the railway problem and a part
of the legal history of the trust (piestion. On the
other hand, a great deal of the remainder has been



XIV INTRODUCTION.

rearranged and rewritten, and much further infor-
mation added. The most recent literature has
been taken notice of, especially the very interest-
ing essay by Professor Jenks in the Political Sci-
ence Quarterly for September, 1894.

An economist is entitled to take a definite atti-
tude towards the subject he deals with, after hav-
ing investigated it carefully. He is entitled to
make his book a programme of his convictions ;
but it seems indispensable that he should try to
do justice as fully as possible to all interests con-
cerned, and make his work neither a blind eulogy
nor an acrimonious pamphlet.^

The principles of perspective may easily apply
to the intellectual eye, just as they do to' the
physical, — enlarge the near and prominent, and
make the background seem small. According to
the different tastes and party affiliations of the
observer, he will endeavour to draw the picture as
he sees it or wants it to be seen, adjusting the
focus to group the lights and shadows so as to
harmonize with his particular purpose.

If, however, one wishes to obtain an unbiassed

1 The latter objection must be raised against H. D. Lloyd's
"Wealth against Commonwealth," which loses considerable
part of its value by not even attempting to present the facts
on both sides.



INTRODUCTION. XV

impression, one has to proceed mathematically, and
to attempt a determination of the relation be-
tween the parts and the whole. For that purpose
an analytical division into the several elements is
necessary; and then, by re-combining the various
parts of the problem, we may hope to put our-
selves in a position to judge the phenomenon as
a whole. Let us ask, then, what are the inherent
tendencies of the general development? W4iat
the product of a local and temporary situation ?
What of accidental and individual influences?
These questions must suggest the outlines of an
analytical inquiry.

There are, accordingly, four preliminary matters
to be considered.

1. The general economic development, which,
growing out of the past, influences and is influ-
enced by the present, and furnishes the basis for
the conditions of the future, themselves changing
in their turn.

2. The national character, to which it is due
that phenomena differ from place to place, al-
though the general features of the development
are similar.

This largely conditions

3. Legal relations, which determine the form
of the new phenomena, unless they are strong



XVI INTRODUCTION.

enough to break them down and create new ones
for themselves.

4. Then there are, lastly, the purely "subjec-
tive " influences, the chance concurrence of cir-
cumstances, the presence or absence of particular
individuals, which give their colour to events.
These are usually put in the foreground, and are
only too likely to have an undue influence upon
our judgment by misleading us as to the relative
importance of things.

In his investigation the author has been sup-
plied with much valuable information by all parties
interested in this question. These personal expe-
riences, combined with the contents of the books
referred to in the bibliography. Appendix XVI.,
have furnished the materials of the sketch. The
author avails himself of the opportunity, with
very great pleasure, to express his thanks to all
the statesmen, economists, trust-presidents and at-
torneys, labour-leaders, financiers, merchants, and
lawyers who have supported him in his task.
Besides, he feels especially obliged to Professor
W. J. Ashley, who has been so very kind as to read
the proof-sheets and remove the numerous Ger-
manisms of the manuscript.

Boston, January, 1896.



TEUSTS

OR

INDUSTRIAL COMBINATIONS AND COALITIONS
IN THE UNITED STATES.



CHAPTER I.

EARLIER PUBLIC POLICY AS TO COMBINATIONS.

In the United States the question of combi-
nations presents a different appearance from that
which it has in Europe, where guilds and corpor-
ations have, from time immemorial, been legal
institutions. Not before the great industrial
changes in the first half of our century — in
some countries not till 1807 ^ — were they al)ol-
ished. And this was at the time the necessary
condition for economic progress.

The constitution of the United States, and the
English law, in the shape in which it was adopted
at the time of the separation from the mother

1 In certain states of Germany the " Gewerbeordnung des
Nordduutsclieu Buiides " abolished artisans' iruild;*.



2 INDUSTP^IAL. COMBINATIONS.

country, did not recognize guilds and combina-
tions. The old English law of the eighteenth
century abhorred monopolies and agreements to
control or restrict the production and sale of
goods, or in any way to enhance prices.^ The
Constitution aimed at securing equal personal *
rights for every one, and at prohibiting whatever
might be attempted to cripple them, or to inter-
fere with the free transaction of lawful private
business. It was drawn up in the time of the
complete predominance of the "pliysiocratic" doc-
trines of natural rights, and the rise of the laissez
/aire theory. These ideas penetrated thg^ first
rulers of the United States ; to this their actions
bore witness. In the first half of the century,
the physiocratic principles permeated the whole
of American public life. They seemed to be con-
firmed by experience. Experiments with state
ownership of banks and railroads, almost every
extension of public activity, turned out disas-
trously. A belief in the blessings of a minimum
of government, and a disinclination for the inter-
ference of society with the sphere of the indi-
vidual, was more widely diffused than in any
other country. To forbid as little as possible,

1 Coke, "On Monopolies."



EARLIER PUBLIC POLICY. tJ

and to regard what was not forl)idde]i as silently
permitted, to consider a right once granted as
irrevocable : these were the principles on which
public opinion was built. The device of free
competition partook, in the eyes of the people, of
the character of an eternal holy truth, remote
from the influence of time and economic con-
ditions. Whoever disregarded it was eo ipso
wrong; his actions were "against public policy."
And for some time, imblic o])inion seemed to
be justified. For, what the energetic children of
the Anglo-Saxon race, with their inborn sense
of individuality, active strength, and ccoiiomie
ability, achieved by free self-conscious labour, is
most remarkable. Advancing the work of civili-
zation from place to ])lace, the individual, look-
ing out merely for liis own self-interest, brought
about a gain for the connnunity; especially since
a steady stream of emigration rejuvenated the
country's blood, ke.})t tlie people informed about
European progress in invention and lliouglit, and
provided ample lields for the wants of fresh pio-
ductive labour. If a town was overcrowded w ilh
tailors or shoemakers or smiths, these avaihd
themselves of tlu' o[)i)ortunily of western expedi-
tions, to seek new homes where they were sure to
find a proiitable and growing trade.



4: INDUSTRIAL COMBINATIONS.

The building- of railroads in the eastern states
seemed still further to brighten the prospect. By
improved means of transportation, artisans were
enabled to largely extend their field of trans-
actions, and, at the same time, by the gradual
introduction of machinery, their scale of produc-
tion. They become manufacturers.

But with the extension of the railway system
a new problem arose. Centres of production grew
up, which very soon destroyed local industries,
and acquired control of the supply of vast terri-
tories. Consequently, that paragraph of the con-
stitution which vests in Congress the power of
regulating interstate commerce became of unex-
pected importance.

In all his undertakings the American is an en-
thusiast. In this case, also, he took a very opti-
mistic view. With that zeal which accompanies
him throughout, he set up manufactories wherever
the conditions seemed fairly favourable. About
his neighbour's doings he did not trouble himself.

All over the country there is a peculiar ten-
dency to generalize and to jump at far-reaching
conclusions, — a tendency which the geographer
Ratzel has so brilliantly explained by the physical
conditions of the country with its boundless areas
and magnificent distances. It is the necessary



EARLIER PUBLIC POLICY. 5

counterpart to tlie American spirit of specializa-
tion and adaptability to given circumstances.
Therefore, the general belief was that the true
public welfare depends upon a continuous in-
crease of production, and upon a utilization of all
natural resources to the utmost of technical possi-
bility. " The more we produce, the cheaper we
can sell ; the larger, therefore, the consumption.
An increase in the demand provides more hands
with Avork, with higher wages, and consequently
results in a further rise in the consuming capacity
of the nation ; and this again leads to a further
opportunity for extension of production," and so
forth. Similar ideas were upheld in the courts of
the coiuitry. They were not inclined to follow
the example given by the English Bench, which, in
tAvo well-known decisions, had extended the prin-
ciple of lalssez faire so far as to remove the old re-
strictions of common law^ upon combinations and
upon "forestalling, enhancing, regrating, and en-
grossing." 2 From the days of Adam Smith, wlio

1 Most of the older statutes, especially 5 and (5 Kd. VI. c. 14,
had already been abolished by 6 George I. c. 18-28, and 12
George I. c: 71.

2 S. C. T. Dodd, " Present Legal Status of Trust.s" : ]]'. ]]'.
Cook, "Treati.se on Stock, Stockholders, and General Corpora-
tion Law," 3d ed. ; A. Abbott, " Condition of the Law as to
Combinations,"



b INDUSTRIAL COMBINATIONS.

had compared " the popular fear of forestalling "
with "• the popular terrors of witchcraft," public
opinion had inevitably gone in this direction.
Subsequently, in 1844, Parliament recognized the
altered conditions by abolishing definitely all re-
strictive legislation in this direction, except, of
course, the general restrictions of common law as
to offences against public policy.

But in the United States the tendency of public
policy itself was different. The democratic theory
would not admit that the creation of classes or of
a firm economic organization could in any case be
beneficial. And further, the lack of governmental
power and authority made the rise of combinations
a much greater menace to the fundamental demo-
cratic policy. Therefore the courts did not adopt
the English precedents. They u})held the validity
of the unchanged common law and statutory
restrictions; occasionally even of some repealed
in England before the time of the separation. ^
Vet, of course, all this meant a violation of the
principle of laissez faire. We can divide the
decisions into four groups :

1. Cases where the parties to a combination liad
not fulfilled their agreements with one another.

1 Bishoj), " On Criminal Law," sec. 527.



EARLIER PUBLIC POLICY. 7

Here the court declined to protect those who con-
sidered themselves damaged thereby, whether it
were that a member sued the combination or the
combination prosecuted a member. Agreements
of this sort were declared illegal and void. " Illegal
agreements do not exist before the law ; the
court leaves the parties where they are."^

2. Cases where a party to a transaction sought
to have it annulled. Here also, the court refused
to interfere.

3. Cases where outsiders felt damaged and
brought suit. Here the combinations were de-
clared illegal by the courts, and occasionally sum-
moned to dissolve ; but this has never been of
much practical effect.

4. Cases where the public prosecutor proceeded
in the name of the people against the combina-
tion or the parties constituting it. As we shall
see later, such proceedings usually came to nothing.

The decisions of earlier date very often refer
to questions of principle in connection witli our
pro])lem, and explicitly base themselves ujjon the
above views ; whilst, as will be seen, to-day most
of them avoid this carefully, and draw their argu-
ments from formal points and questions of fact.

1 Cases in Cook, "Stock, Stockholders, etc.," 3d ed., pi).
642-5L



8 INDUSTRIAL COMBINATIONS.

Before the beginning of the war there were
not yet many symptoms in public life to fore-
shadow the great change which, in consequence
of a new economic development, was bound to
make its appearance. We only learn of a few
attempts at combination, ^ e.g. in the anthracite
coal trade of Pennsylvania, in the telegraphic
service, and, above all, in the eastern railroad
business.

^ Spelling, "On Trusts and Monopolies."



THE CONDITION OF AFFAIRS.



CHAPTER II.

THE CONDITION OF AFFAIRS BEFORE THE INTER-
STATE-COMMERCE LAW, AND THE ANTI-TRUST
LEGISLATION.

The civil war closed the first great period of
United States history. Its result secured the
contiiiuance of political union and the equal status
of all its iiilial)itants. The extension of the rail-
way system, within the next two decades, brought
the closer tie of economic union, which alone
makes a country a state, by adding to tlie legal
freedom of trade tlie practical possibility. This
second jjcriod came to an end soon after 1880.
Whatever railway building may l)e done in future
between the Mexican and the Canadian Pacific,
will he '■'' intensive " work after the ''extensive'" is
practically completed.

During the progress of railroad ])uilding, the
manufacturers soon became aware that the great
hopes of tlie new era would not all ]tv realized.
Everybody had increased his production, regard-
less of the needs of the market ; and whilst he
victoriously entered the boundaries of distant



10 INDUSTRIAL COMBINATIONS.

zones, a foreign competitor had attacked him
within the range of the domestic hearth.

The crisis all over the world, from 1873 to
1877, clearly displayed the harmful accompani-
ments of modern industrial methods: suffering
industries, and complaints about over-production
and under-consumption. Public opinion was
startled; and up to the present it has not fully
understood what are the reasons and remedies for '
that unexpected result, and why, ever since, our
entire industrial system has been placed under
the strain of a continuous excitement; long crises
following each other with increasing rapidity after
short periods of temporary prosperity.

Business interests, meanwhile, tried to relieve
themselves in their own way. The remedy was
sought in combination, — a realization of the re-
mark of Stephenson : "Where combination is
possible, competition becomes impossible," which
President Andrews,^ fifty years later, expressed in
the still more significant words : " The day of old-
time competition has set. Law or not law, capital
will henceforth march mostly in phalanxes."

It was but natural that business men, seeing
that as individuals they were powerless against

1 "Trusts according to Official Investigations," p. 20.



THE CONDITION OF AFFAIKS. 11

circumstances, tried to meet the danger hy asso-
ciating in "Pools"; for they could not perceive
any other way of relief. The law, however, did
not recognize the legality of these unions. There-
fore the '- Tools " were soon found to be insuffi-
cient. It was the genius of John I). Rockefeller
which suggested a new and more promising sys-
tem. We may rightly ascribe to his initiative


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