The Problem of Industrial Monopoly 1

§ 6. Advantages of corporate organization. The cor porate form proved itself to be well adapted to enterprises for the construction and operation of canals and railroads, requiring a larger amount of capital than usually could or would be risked by one person. The investor in a corporation bought shares, and his liability for debts and losses was lim ited by charter to his share capital. It is an advantage that permanent enterprises of that kind are owned by corpora tions with charters perpetual or for long periods. It is pos sible for corporations to make investments running for longer periods than would be safe for individuals. The corporation with an unlimited charter has legally an immortal life. Sale and change of management are not necessary on the death or failure in health of any one owner. As the factory system, and large production developed, the corporate form of organization was found to have these same advantages in manufacturing. It appeared in textile, iron, mercantile, and other industries. After 1865 the corporate form of organiza tion increased at a cumulative rate, until now it is applied to many enterprises of small extent and local in operation. Of the 300,000 corporations making returns to the United States Commissioner of Internal Revenue in 1915, 70,000 were manufacturing corporations, which were 26 per cent of the whole number of manufacturing establishments, but which employed 76 per cent of all wage-earners and turned out 79 per cent of the whole product.

With the corporations came the "corporation problem," a single name for a complex of problems—legal, political, moral, and economic—which arise out of the relations of corporations to their individual stockholders, to their employees, to the state, to the general public, and to their competitors in busi ness. The problems differ also in corporations of different sizes and in different businesses. Of the various forms of cor porations, banks first presented problems calling for eco nomic legislation and regulation. This is explained by the fact that it was the first kind of business corporation to be come important, and further by the fact that its work was in various [ways closely connected with coinage and regulation of money, which had already become a governmental function. The railroad was the form of corporation next, in point of time, to become a great problem—this because of the pecul iarly vital and far-reaching effects that such railroad trans portation has upon all other kinds of business in the com munity. Finally, industrial monopoly loomed before the American people threatening the very existence of our demo cratic society.

§ 7. Growth of large industry in the nineteenth century. The great recent growth of the monopoly problem is in part to be explained as the result of the growth of large industry as a favoring condition. Before the middle of the last cen

tury a tool-using household industry, on farms and in homes where the greater part of the things used were produced in the family, was still the typical organization in the United A family produced somewhat more than it needed of food and cloth, and exchanged with its neighbors; so with shoes,. candles, soap, and cured meats. The early factories growing out of the household industry were small. Since that time two counter-forces have been at work to affect the ratio of manufacturing establishments to popu lation. The number of small establishments has been in creased by the many industries producing the things once made on farms, and by increasing demands for comforts 5 See ch. 27, 1 3; and ch. 28, f 7 and 18.

and luxuries. Many establishments producing the staple products that can be transported have been consolidated or have been enlarged, so that the unit of production now averages much larger. The number of cotton-weaving factories was about the same in 1900 as it had been seventy years earlier, while population had grown sixfold. Iron- and steel-mills were fewer in 1900 than in 1880. In industries having local markets or local sources of materials, such as grist-mills and saw-mills, the change in numbers was less, for many small establishments were started in outlying dis tricts at the same time that the mills became larger in the great population centers. But the average number of em ployees and the average capital per establishment increased in every period between census enumerations.

§ 8.

Trusts and combinations. In the discussion of monopoly, misunderstanding has resulted from lack of definite ness in the use of words, which have rapidly shifted in mean ing. The word trust was originally applied, and still in legal usage applies, to a particular form of organization, that of a board of trustees holding the stock, and thus unifying the control, of two or more formerly separate enterprises. The Standard Oil Company at one time had this form of organiza tion, which was declared by the courts to be illegal (ultra vires) for corporations. Now trust often is used in the sense of a corporation having monopoly power in some degree : either broadly, of any monopolistic corporation (including railways and local public utilities), or, oftener, limited to manufacturing and commercial monopolies, otherwise called "industrial trusts," in contrast with franchise trusts and rail roads.° The word combination referred originally to a more or less thorough "merger," with a view to attaining monop olistic power, of a number of formerly separate organizations, as in the case of the United States Steel Corporation. But the word is often used as if it were a synonym for trust (in 6 As in the list in 10 and 11, below.