The first of the industrial trusts was formed in 1879 by the Standard Oil interests under the guiding genius of Mr. S. C. T. Dodd, later vice-president and general counsel of that un usual aggregation of properties and brains. The trust, a unique form of federated union, was invented in order to secure centralized admin istration without at the same time obliterating the corporate identity of the several units of which the organization was composed. The suc cess of the Standard Oil Trust was so pro nounced that it was very soon copied and within the, decade immediately following, a half dozen other trusts were formed' and began operation. The career of the trust as an individual organi zation was, however, short-lived, two of the lead ing examples, the Sugar Trust in New York' and the Standard Oil Trust in Ohio,' being declared illegal organizations on two grounds, first, because it was beyond the power of cor porations, either directly or indirectly, to enter into partnerships with other corporations and second, because it was illegal to form monop olies. As a result of the two decisions above referred to it became evident that either the federated form of financial union must be abandoned or some substitute invented or dis covered. Fortunately for the trust institutions, the path was open. As early as 1833; the Balti more and Ohio Railroad Company was author ized by the State of Maryland to purchase the unsold portion of the stock of the Washington Branch Road, provided a majority of the stock holders should vote in favor of the said pur chase. In due time their consent was obtained and for over 66 years the stock in the Wash ington Branch Road was carried as an asset in the balance sheet of the parent company. Begin ning about 1850 the practice became common among the railways' and later was adopted by the Western Union Telegraph Company and va rious other industrial corporations. The stock holding method of uniting corporations was thus well known among financiers when the trust was declared illegal and would have been immediately adopted by the various trusts except for the fact that at that time express authority must generally be obtained from some legis lature' and naturally legislatures were not in clined to grant the requisite authority where monopolies might thus be created or maintained. At this juncture the State of New Jersey amended her general corporate law by adding a clause providing that corporations incorpo rated under her laws might, with certain ex ceptions, hold stock in other corporations when ever such power was deemed desirable by the board of directors and the right to do so was ex pressly stated in the articles of a corporation." Soon thereafter the American Sugar Company, which after the dissolution of the trust had purchased the assets of the various subsidiary corporations, purchased the stock of several Philadelphia refineries and in a leading case the purchase was held to be legal under the Sherman Anti-Trust Act." The holding cor poration thus having been authorized by one of the States and one such organization ap proved by the highest court, this form of fed erated union was generally adopted by all the greater aggregations of capital from 1894 on for the next decade. During the period 1894— 1904, the new form of federated union was so extensively used by the railways and the in dustrial corporations that the holding corpora tion threatened to serve as the tool of well nigh universal monopoly and on this account the economic literature of the period was largely devoted to a discussion of the growth, develop ment and dangers of the new type of trust.
Curiously enough the turning point came in connection with the creation of a holding cor poration uniting two of the greater railway sys tems. In 1900, Mr. James J. Hill, desiring to consolidate into a more permanent union the vast railway interests of which he was the head, projected a holding company to unite the various railways known as the Great Northern system, and in connection with this scheme the proposal was made to include the North Pacific in the new organization. After a memorable contest in which the Harriman interests played a spectacular part, the project was perfected, the Northern Securities Company was incor porated 12 Nov. 1901 and shortly thereafter the new corporation acquired by exchange of its stock a large majority of the stock of both the Northern Pacific and the Great Northern Railway companies. This union aroused marked antagonism in the Northwestern States and as a result, early in 1902, suits were brought by both the State of Minnesota and the United States for the purpose of securing the dissolu tion of the Northern Securities Company as an illegal trust under the Federal Anti-Trust Law, and after a notable legal contest, the Supreme Court held the new company an illegal com bination and consequently enjoined it from vot stock in the two companies and from ex ercising any control over the companies whose stock it held.' As a result of this decision, the Northern Securities Company as a holding cor poration was dissolved and this type of union was thereafter considered to be of doubtful legality except in those cases when no monopoly was obtained by its means. The decision in the Northern Securities case was later sustained and extended to cover consolidations composed of manufacturing companies by those rendered in the Standard Oil' and Tobacco' cases in 1911.
Although the single corporation has been used at intervals throughout its history' as an agency for uniting independent business establishments into more or less completely consolidated fi nancial unions, such use was of small importance before 1890 and even since then the federated union has been more widely patronized.' While
the space available for this article is too limited to go into details, it may nevertheless be pointed out that in the beginning of its history the Standard Oil Company made extensive use of this device and it was only when this corpora tion began extending its scope so as to in clude pipe-lines and other allied interests whose identity it was desired to preserve that the trust and the holding corporation form became the favored instrument of consolidation. In the later history of the trust movement two cases may be mentioned. When in 1891 the Sugar Trust was dissolved as a result of the court decisions, a new corporation, the American Sugar Refining Company, was organized and it proceeded to purchase the properties which the trust had formerly controlled' During the later period of consolidation the International Harvester Company has been the most import ant aggregation to make use of the single cor poration as a means of uniting a group of allied business enterprises. This union was formed in 1902' and in 1912 the United States filed a petition' in the District Court, district of Minnesota, alleging that the single corpo ration thus formed was a monopoly and asking that the combination be decreed to be in re straint of trade and a monopoly under the Anti Trust Act of 1890. Here then we have a case presented for adjudication' in which the union is neither in the form of a combination, a trust, a holding corporation, but in the form of a consolidation consummated by the purchase by a single corporation of the tangible properties of competing economic units.
The language of the Sherman Anti-Trust Act is seemingly as comprehensive as possible. contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations* is declared to be il legal. But the language of a statute must be interpreted by the courts before its meaning is certain and the Sherman act is not an ex ception. For the first two decades of its his tory it was strongly asserted by counsel for various combinations that the combining of competitive units by purchase" was not prohib ited no matter what the effect upon competition, since otherwise Congress would have intended to place a limit upon the acquisition of property. It was early intimated by the Supreme Court that this contention would not be sustained wherever the effect of sustaining it would mean the nullification of the act. Thus as early as 1905 it was stated that the °possession of the power, which if exercised, would prevent competition, brought the case (the Northern Securities) with in the statute, no matter what the nature of the title was?" The view here indicated in a general way was confirmed and made so specific that all reasonable doubt as to the attitude of the Supreme Court toward the meaning of the first clause of the act was removed by the lan guage used in the Standard Oil case of 1911' and later in the Tobacco' and Union Pacific' cases. In the former case, in a passage which was devoted specifically to an examination of the first and second sections of the act with a view to determining their meaning, it was stated °that in view of the many new forms of contracts and combinations which were be ing evolved from existing economic conditions, it was deemed essential by an all-embracing enumeration to make sure that no form of con tract or combination by which an undue re straint of interstate or foreign commerce was brought about could save such restraint from and °undoubtedly, the words `to monopolize' and (monopolize) as used in the section reach every act bringing about the prohibited results)) 'Thisjudicial interpreta tion of the meaning of the first two sections of the act, growing out of the adoption of the °rule of reason adopted in the Standard Oil deci sion of 1911, reaffirmed and made even more specific as to the purchase of either properties' or stocks,' has made the single corporation which has established a monopoly by the pur chases of the various necessary properties, an illegal combination in restraint of trade and, therefore, subject to all the pains and penalties of the anti-trust law. The adoption of the rule of reason by the Supreme Court, it should be noted, has accomplished two desirable results. In the first place it has made the formation of monopolies illegal whatever the method or de vice adopted, and in the second place, by plac ing the emphasis upon results rather than on form, it has removed the ban upon the formation of financial unions of related enterprises when such union does not result in the establishment of consolidations of monopolistic power. Pro prietors of small economic units are thus free to combine for the purpose of gaining the ad vantages of large scale operation provided they stop the process of combination before monop oly powers are gained. The proprietors thus gain the advantages of more economical pro duction and at the same time the major portion of such advantages accrue to the consuming public by reason of the fairer and more normal competition which necessarily follows.