Trusts

TRUSTS. The term "trust" is a convenient though mostly inaccurate label popularly applied to any large business concern, or amalgamation or association of business concerns, which ex ercises some degree of monopolistic power over output and prices in the industry with which it is connected. The "trust," as it first appeared in America in the '8os, was a form of organization in which the shareholders of a number of enterprises agreed to assign the whole of their stock to a small hoard of trustees, re ceiving in exchange trust certificates representing the valuations of their properties. This particular way of bringing a number of rival businesses under one direction has no particular significance nowadays, and it is but by historical accident that it has given its name to something much wider than itself ; but the term has become established, and when a British official committee was appointed in 1918 to enquire into all forms of trade organization and combination it was officially designated "The Committee on Trusts." The subject of this article, then, is not "trusts" in the derivational sense, but the whole movement of which the "trust" proper was and still is one example. That movement has two main aspects. It entails, in the first place, a change in the size of the business unit, a change from a multitude of small separately controlled businesses to a few big businesses; and in the second place a change in the basic principle upon which industry is con ducted, a change from competition as the ruling factor in the fixing of output and prices to deliberate control, fortified by monopoly, on the part of the manufacturing or commercial in terests concerned.

From Competition to Combination.

The system under which goods are produced, distributed and bought is still com monly referred to as the "competitive system," but for the last half century and longer the economic order has been changing and the assumptions upon which it was held that, normally, sup plies, prices, profits, and wages are determined by the free play of competition are no longer entirely valid. For an account of the competitive system and the nature of the change from competition to combination the reader should see the article COMPETITION IN INDUSTRY, where the virtues and triumphs of competition are ex tolled, but it is shown that there are fields in which competition is detrimental to efficiency and obstructive to progress, and also that, when industrialists wake up to the fact that there is an easier way than competition to the ends they pursue, competition frequently gives place to combination.

(I) Gentlemen's Agreements.--Industrial combination in the dual sense of the replacement of many small firms by a few large firms and the substitution of concerted control for com petition takes a wide variety of shapes. In its simplest and most elusive form there is no outward sign of change but a few business rivals meet from time to time and reach an "understanding" in regard to prices, output, division of business, etc. In effect, the competitors agree not to compete : that is all. Nothing is put on paper; a gentleman's word is as good as his bond. Such under standings are fairly common among local coal dealers, carriers, shopkeepers, etc., and are no less a figure in industrial diplomacy on the largest scale. The reader should see the article GENTLE MEN'S AGREEMENTS.

(2)

The Trade Association.—A more advanced kind of com bination is that in which a large proportion of the manufacturers or traders in a particular line of business form a trade association.

Many such associations go no further than to compile and ex change statistical information. Others openly or secretly adopt measures designed for the purpose of regulating the trade. In the latter instance, as in the "Gentlemen's Agreement," there is ex emplified one only of the two aspects of combination : there is no change in the size of the business unit, but something has hap pened to the competitive principle by which the relations of the various firms are supposed to be governed. Associations for the regulation of trade are associations for the limitation of competi tion. This can be effected in a variety of ways; by fixing uniform prices, by apportioning and controlling output, by supervising tenders, by dividing up the market.