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the low manufacturing costs, which were due mainly to the
large output. This advantage was held to apply almost
exclusively to harvesting machines. In no year from 1903
to 1911 did the output of any independent company exceed
12 percent of the output of grain binders or 16 percent of
the mowers from the McCormick plants. 21 But the output
of the Deering and McCormick plants in no year subse-
quent to the consolidation was larger than in the years
prior to 1902. 22 The factory cost of binders for the com-
pany in 1910-11 was $56.32 as compared with $70.83 for
the independents. 23 But this difference, though great, was
no greater than between the factory cost of the company's
own plants. 24 It will be agreed that the International was
a merger of the best plants, but to prove that its monopo-
listic position resulted in greater productive efficiency it is
necessary to show that its plants have greater efficiency since
consolidating. Nowhere is there any evidence tending to
show more efficient production. The iron and steel produc-
tion carried on by the company proved to be profitable by
supplying raw materials directly. The selling expense of
the combination was much higher than for the independents
because the former sought a large volume of sales without
reducing prices to the consumer. The company's selling
organization consisting of 92 general agencies, about 800
principal salesman, from 850 to 1600 canvassers, and nearly
40,000 retail de'krs, was expensive, but it was a powerful

21 Report of Bt^ .<;, p. 257.

22 Ibid., p. 258.

23 Ibid., p. 262.
21 Ibid., p. 263.



216 Trust Dissolution

means when used by a monopoly to sell its products and to
secure a dominant position in other branches of the trade.

The second important source of power is its financial
support. This came through the act of consolidation itself,
which brought together the business and financial resources
of nearly all the large harvesting machine companies. The
promoters, the Morgan interests, and Mr. Rockefeller, fa-
ther-in-law to one of the McCormicks, each contributed large
financial aid. 25 One way in which the financial resources
were used with telling effect was in extending unusually long
terms of credit. Farmers and dealers were given credit fre-
quently extending two and three years and sometimes longer.
Such a policy aided greatly in selling machinery to farmers
who generally were unable to pay cash. Competitors with
small working capital were in this respect at a disadvan-
tage. Exceptional resources are not objectionable, but if
they are used in connection with a monopolistic control to
insure domination over new lines they may become a public
menace. In this case this advantage was secured largely
through an act of combination alleged to be unlawful.

The third chief source of power through which the Inter-
national not only protected its monopolistic position, but
also extended its business rapidly into newer lines was in the
use of improper methods of competition. Among the meth-
ods, regarded as objectionable by the Bureau, the manufac-
turers and the dealers, were: 26 (1) The maintenance of pre-
tended competition in the earlier years. Many competitors
were secretly purchased and operated as independent com-
panies. This was of commercial advantage since many buy-
ers were opposed to patronizing the International. (2) The
common practice of allotting its desirable brands of harvest-
ing machines so as to secure the co-operation of an undue
proportion of the dealers. By limiting each dealer to only
one brand of its machines, the company could monopolize
the services of a large proportion of the desirable dealers in
any locality. (3) The coercion of dealers to handle some
lines of the company's machines exclusively under the pen-



26 Report of Bureau, p. 163.
28 Ibid., pp. 290-326.



Important Cases Awaiting Supreme Court Decisions 217

alty of having their contracts cancelled. (4) Full-line forc-
ing, which required dealers to order additional lines of prod-
ucts as a condition of retaining the agency of some desir-
able make of harvesting machines. (5) The use of sug-
gested price lists. Prior to 1905 the retail prices were
stipulated in the contracts with the dealers. After that
year, to avoid illegal price fixing, suggested price lists, either
printed or oral, were frequently circulated among the deal-
ers. While the dealer was not compelled to observe these
prices it is generally believed that the suggested price lists
served to prevent dealers making concessions in prices in cer-
tain lines. (6) The granting of special and discriminating
prices and terms. Such a policy was practiced through local
price regulation, unequal freight charges or through the
grant of unusually good terms of credit. In the newer lines,
such as harrows, wagons, spreaders, gasoline engines, local
concessions in prices and terms were found in various parts
of the country. Still more important was the practice of
establishing over large areas unusually low prices, or of
granting better terms of credit than were customary. This
method of defeating competitors was possible because of the
monopolistic profit derived from harvesting machines. (7)
Misrepresentations by salesmen regarding competitors. The
most important of these was the assertion that the purchas-
ers of competing harvesting machines would be unable to
secure repair parts, the implication being that competitors
could not remain long in the business.

The International company has not resorted to grossly
unfair methods so frequently as have some of the other well
known industrial monopolies. The company denies that it
has within recent years practiced the objectionable methods
which it admits were used in the earlier years. The Bureau
believed this claim was to some extent true, but the numer-
ous complaints received with respect to conditions in recent
years clearly convinced it that these objectionable methods
had by no means been eliminated. 27 In the course of the
Bureau's investigation concerning complaints against the
methods employed by the company, its agents visited over
"Report of Bureau, p. 326.



218 Trust Dissolution

eight hundred retail dealers in about six hundred towns scat-
tered throughout twenty-seven states. Securing statements
as representative as possible, the results showed 25 percent
favorable to the trust, 20 percent non-committal, 50 percent
specifically unfavorable, and 5 percent unfavorable without
specific complaint. 28 Normally a large proportion of deal-
ers doing business with a large company will be favorably
disposed towards it. The fact that 50 percent of the dealers
made specific complaints against the methods of the com-
pany indicates good ground for complaint. The considera-
tion of the chief sources of power of the International show
that the company has not shared the advantages of combina-
tion with the consumer but used them to safeguard its monop-
olistic control and to extend its operations into new lines.

In April, 1912, the Government brought suit to dissolve
the International Harvester Company, charging the acquisi-
tion and maintenance of a monopoly in harvesting and ag-
ricultural machinery and twine. Admittedly on account of
this suit the company made a division of its plants and busi-
ness. 29 In January, 1913, it organized the International
Harvester Corporation of New Jersey, to which were trans-
ferred all the foreign plants and business of the company,
together with all the domestic plants exclusively engaged in
the manufacture of the so-called new lines of machinery.
The capital stock of the Corporation was $70,000,000, of
which $30,000,000 was preferred. The capital stock was
exactly one-half of that of the parent company and was
divided into the same proportions of preferred and common.
In the following month the International Harvester Com-
pany reduced its capital stock to $70,000,000, of which $30,-
000,000 was preferred. The stockholders turned in their
shares for cancellation and received in exchange new stock
of one-half the amounts of preferred and common so turned
in, together with equal amounts of preferred and common
stock in the International Harvester Corporation. At the
same time, the name of the old company was changed to the

28 Report of Bureau, p. 291.

29 Ibid., pp. 169 et seq.



Important Cases Awaiting Supreme Court Decisions 219

International Harvester Company of New Jersey. In the
division, the companies claimed that the assets and liabili-
ties were equally divided between them. The Bureau found
the statements of the two companies too condensed to prove
this claim. The domestic plants and properties conveyed to
the Harvester Corporation included all the transportation
companies and six manufacturing plants, the Akron, New-
ark Valley, Milwaukee, and the Piano, Tractor and Weber
plants at Chicago. These plants manufactured gasoline
and oil engines, tractors, auto-wagons, cream separators,
wagons, manure spreaders, tilling and planting implements.
Nothing was stated about discontinuing the manufacture of
these or other new lines at certain other plants retained by
the Harvester Company, or whether the International Harv-
ester Company of America, the sales company, would be
continued, or, if continued, whether its numerous warehouses
and selling organizations would be attached to one of the
companies or divided between them.

If this division was intended as a proposed plan of dis-
solution it was entirely unsatisfactory. Both the Bureau
and the Government disapproved of it as such. The new
companies represented all the interests of the old company,
and the stock control remained in the same hands and in the
same proportions as before. The one company, the Har-
vester Company of New Jersey, retained all the harvesting
machine plants, thereby perpetuating, without the semblance
of a division, the monopolistic position in this branch of the
business.

The Government in its suit against the International
Harvester Company and others obtained a decree of disso-
lution from the Circuit Court in 1914. 30 The court held
that the International Harvester Company was from the
beginning an illegal combination and that all the defendant
subsidiary companies were parties to it. The decree or-
dered that "the entire combination and monopoly be dis-
solved, that the defendants have 90 days in which to report
to the court a plan for the dissolution of the entire unlawful
business into at least three substantially equal, separate,
30 214 Fed. Rep. 987-1012.



Trust Dissolution

distinct, and independent corporations, with wholly sepa-
rate owners and stockholders." 31 The court detained fur-
ther jurisdiction of the case. The defendants appealed to
the Supreme Court where the case was argued early in 1915
and is still pending.

NOTE Soon after the above decree was entered the
Court modified it so that instead of requiring a division of
the assets among three corporations it required that the
division be "in such manner and into such number of parts
of separate and distinct ownership as may be necessary to
restore competitive conditions." During the summer of
1918 the defendants withdrew their appeal to the Supreme
Court and asked that an order be given to carry the above
decree into effect, and in accordance with the provisions of
the decree they filed with the Court a plan for the division
of the assets. On November 2, 1918, the Court entered the
final decree in the case. It provided that the defendant
corporations, the International Harvester Company (for-
merly of New Jersey) and the International Harvester Com-
pany of America, and the individual defendants and their
agents should dispose of the harvesting machine lines made
and sold by them under the trade names of "Osborne,"
"Milwaukee," and "Champion," respectively, together with
all patterns, drawings, trade names, etc., pertaining to these
three lines of machinery, and likewise to sell to the pur-
chasers the "Champion" works and plants at Springfield,
Ohio, and the "Osborne" works at Auburn, New York. The
decree provided that the sale of these properties be made
at fair and reasonable prices with approval and supervision
of the Government or Court and to approved purchasers,
none being defendants, who are responsible manufacturers
of agricultural implements. Should the purchaser be a cor-
poration none of the defendants were allowed to hold sub-
stantial stock interest in it. The defendants were pro-
hibited from having more than one representative or agent
in any city or town in the United States for the sale of
harvesting machines or other agricultural implements. Fi-
31 214 Fed. Rep., p. 1001.



Important Cases Awaiting Supreme Court Decisions 221

nally, if eighteen months after the close of the present war
these measures have not proved adequate, in the opinion
of the Government, to restore competitive conditions in the
industry the Government is to have the right to such further
relief in the case as may be necessary. As a result of the
withdrawal of the appeal by the defendants, the important
issue of law raised by the Harvester case did not come before
the Supreme Court for a decision.



THE UNITED STATES STEEL CORPORATION 32

Consolidation in the steel industry came later than in
many others. The early nineties were unfavorable to large
consolidations but in 1898 an active movement in that direc-
tion took place in the steel industry. Within three and one-
half years this movement culminated in the organization of
the United States Steel Corporation which brought about
three-fifths of the steel and iron industry of the country
under a single management. 33 This concentration in one of
the most basic industries, including also the ownership of one
of the most important national resources, iron ore, materially
concerned the welfare of the whole people.

Three periods may be distinguished in the history of
combination in this industry. The first period led up to
1898. 34 The steel industry during this period was charac-
terized by the competition of many independent companies.
Although there was a gradual tendency toward larger com-
panies, both through expansion and combination, near the
close of the period, the depressed business conditions did not
greatly favor the organization of great corporations. The
Illinois Steel Company, organized in 1889 with $18,000,000
of issued stock, was a consolidation of three previously com-
peting steel concerns. 35 The Carnegie Steel Company, or-
ganized in 1892 with a capital stock of $25,000,000, was the

83 Report of the Commissioner of Corporations on the Steel Industry,
Parts I, II and III.

83 Ibid., Part I, p. 63.

84 Ibid., pp. 63-78.
35 Ibid., pp. 63, 120.



Trust Dissolution

largest single company in the steel industry at this time. 36
All the plants of the latter company were near Pittsburg. It
acquired several competing concerns and held a large inter-
est in the H. C. Frick Coke Company, the largest company
in the coke industry. The Colorado Fuel and Iron Company
was organized in 1892 as a merger of the Colorado Fuel Com-
pany and the Colorado Coal and Iron Company. This
company, with a capital stock of $13,000,000, was the only
important concern in the industry at this time in the far
west. The chief interest of the company was in coal min-
ing although it has iron ore lands and a small steel plant.
With these it entered into extensive steel operations in the
late nineties. The Tennessee Coal, Iron and Railroad Com-
pany, beginning as a coal company in the early fifties, en-
tered the iron business in 1881. It later acquired other im-
portant coal and iron interests which made it the leading
company in the southern iron district. The Cambria Iron
Company and the Bethlehem Iron Company were also dis-
tinguished by extensive operations before the close of the
period.

Most of the above concerns were engaged chiefly in the
production of the simpler and heavier forms of steel prod-
ucts, such as rails, plates, and beams, or of billets, slabs,
bars and other kinds of semi-finished steel used in making
the more elaborated steel products. They sold their output
mainly to the manufacturers of the finished steel products,
such as nails, wire, tin plate and tubes. Seven concerns in
1898 controlled no less than fifty percent of the total pro-
duction of steel ingots, the chief form of crude steel derived
from pig iron. 37 However, the concerns were owned inde-
pendently and, despite the existence of some price agree-
ments, active competition was the distinguishing feature of
the industry.

In general the manufacture of finished products was dis-
tributed among a large number of small concerns, the big
exception being the Consolidated Steel and Wire Company.
Except where hindered by pools and price agreements, com-

16 Report of Bureau, Part I, p. 64.
87 Ibid., p. 65.



Important Cases Awaitmg Supreme Court Decisions

petition was very active among the makers of finished prod-
ucts. 38 Similar conditions of scattered ownership and com-
petition existed in the industry of iron mining. 39 Among
the few large iron mining companies were the Minnesota Iron
Company and the Lake Superior Consolidated Iron Mines.
Each of these owned very valuable ore properties and rail-
way facilities.

Integration in the steel industry, which became so promi-
nent later, was comparatively rare in the early nineties.
Each principal branch was largely under separate ownership
and control. Iron mining was generally a business by itself
and few steel companies held important ore lands or coal.
Most of the coal used in the industry was produced under
competitive conditions. Likewise nearly all the iron and
steel companies depended upon separate concerns for the
transportation of their products. The tendency toward in-
tegration was most marked in the east and south where iron
and coal deposits were found near each other. The Illinois
steel interests acquired considerable coking coal land in
Pennsylvania and extensive interests in iron ore deposits and
ore railroads and vessels in the lake region. 40 The Carnegie
Company, through the H. C. Frick Coke Company, held enor-
mous reserves of coke and coal but owned very little ore land,
and during the early nineties depended almost wholly upon
others for its supply of ore. Near the close of this period
the Carnegie Company completely reversed its policy as to
owning ore lands. The far reaching effect of this change will
be noted later. Integration, therefore, during the early nine-
ties was not highly developed and was limited to a few of
the larger concerns.

Although competition was the dominating feature in the
iron and steel industry during this period, pooling agree-
ments were repeatedly entered into. Many of these were of
short duration and ineffective. The steel rail pool, wire nail
pool, billet pool, and ore pool were examples. Of these by
far the most important was the steel rail pool, formed in

88 Report of Bureau, Part I, pp. 65-fl.

89 Ibid., p. 66.
40 Ibid., p. 67.



224 Trust Dissolution

1887. The manufacturers of more than 90 percent of the
country's output of steel rails entered into an agreement
by which their combined output was to be controlled and al-
lotted to each party upon an agreed percentage basis. 41
The pool was well organized and advanced the price of steel
rails to $28 per ton. The large investment required for the
production of steel rails helped to maintain this pool by
discouraging the rise of competitors. The agreement was
broken in 1893 but was quickly renewed. In 1897 it again
collapsed, causing steel rails to sell freely at from $20 to
$15 per ton. 42

The wire-nail pool of 1895 included a large portion of
the manufacturers of wire and cut nails. The pool imme-
diately advanced prices and in less than a year the base
price had risen from $1.20 per keg to $2.55. 43 The ex-
cessive prices tempted competitors to enter the trade, espe-
cially since only a small investment was required, and as a
result the nail pool collapsed after eighteen months of ex-
istence. The steel-billet pool likewise ended after eight
months of stormy existence. The latter failed to include
several large manufacturers of billets. The ore pool also
had a stormy career and owing to important changes in the
ore industry was forced to lower its standard price from $4*
to $2.75 per ton. 44 Similar to the above pools were the
structural steel and the cast-iron pipe pools. The latter
was national in scope and was later dissolved by a decree of
the Supreme Court. 45 Other pool agreements were present
in nearly every branch of the iron and steel industry. 46 Not-
withstanding these repeated efforts to combine, competition
remained the dominant feature of the iron and steel industry
in the middle nineties.

The second period in the history of combination in the
steel industry was very short, extending from 1898 to 1900.
This period was characterized by an active movement toward



41 Report of Bureau, Part I, pp. 69-73.

48 Ibid., p. 72.

48 Ibid., p. 73.

44 Ibid., p. 74.

48 175 U. S., 211.

"Report of Bureau, Part I, p. 75.



Important Cases Awaiting Supreme Court Decisions 225

combination in nearly every branch of the iron and steel in-
dustry. As a result, the great and rapidly growing indus-
try was largely concentrated in the hands of relatively few
concerns, and the manufacture of distinct lines of products
was frequently monopolized by a single concern. Three un-
derlying causes of consolidation were present the restric-
tion of competition, the advantages of integration, and the
profits to be derived from inflated securities. 47 The restric-
tion of competition was the strongest motive. The various
pools had shown what profits could be gained by concerted
action, but it was found impossible to maintain the pools for
any great length of time, and therefore in 1896 and 1897
there was a general abandonment of pools in the industry.
The manufacturers sought more comprehensive and endur-
ing organizations for increasing their returns.

The advantages of integration exerted considerable in-
fluence. Integration, extending from the ownership and pro-
duction of raw materials to the manufacture of the finished
product, had already been introduced by several companies.
Transportation and technical progress stimulated integra-
tion by making possible production on a larger scale. The
combining and co-ordinating of successive stages of manufac-
ture resulted in the saving of fuel for reheating the metal,
of labor and time in moving or handling the material, and
of waste through the better utilization of by-products. In-
tegration also allowed the saving of profits paid to others
for raw materials, as well as being advantageous in securing
a ready supply of such materials. An impetus toward inte-
gration and consolidation was given by the changed policy
of the Carnegie Company respecting the ownership of iron
ore. In 1896 this company, which had been almost wholly
dependent upon others for its ore and transportation, made
a fifty-year contract with the Lake Superior Consolidated
Iron Mines, controlled by the Rockefeller interests, leasing
large ore properties at a royalty of 25 cents per ton. 48 The
contract provided that the ore should be transported on rail-
roads and vessels controlled by the Rockefeller interests.

"Report of Bureau, Part I, pp. 75-9, 82-5.
48 Ibid., pp. 76-8.



Trust Dissolution

News of this transaction caused a demoralization in the ore
industry, the price of ore declining from $4 to $2.50 per
ton. 49 The Carnegie interests, taking advantage of this
situation, soon acquired through other leases a large re-
serve tonnage in the lake region. The acquisition by this
company of coal and ore for years to come aroused other
large iron and steel concerns who felt compelled to follow
the same policy in order to effect the same saving and to be
assured of future supplies on an equal basis. As a result the
bulk of the ore deposits of the lake region was soon under
the control of less than a dozen interests. The best coking
coal fields of the east were leased, largely by the same inter-
ests, with almost equal rapidity.

The third cause of the consolidation movement was the
effort both by the manufacturers who took stock in the new
organization and by the promoters, to secure profits from the
sale of inflated securities. Large profits in the industry fol-
lowed the return of general prosperity and the demand for
securities was good. Each consolidation or reorganization


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