TRUST 



f>S92 



TRUST 



protect the organizers from government inter- 

 ference under the terms of the Sherman Law. 



Above are the facts of the development of 

 trusts. A number of questions naturally arise 

 at once: (1) What were the causes of great 

 combinations of capital; (2) what are the ad- 

 vantages of such combinations, and (3) what 

 the disadvantages; (4) what has been done to 

 limit the power of trusts; and (5) what is their 

 probable future? 



(1) Causes of Trusts. Trusts are a logical 

 and entirely natural development of the fac- 

 tory system and of general industrial conditions. 

 In earlier days there were natural monopolies, 

 such as mines, and there were legal monopolies, 

 such as guilds. But the modern capitalistic 

 trust is a consequence of industrial conditions 

 of the nineteenth century. With the develop- 

 ment of the factory system, it was found that 

 most commodities can be produced more 

 cheaply on a large scale than in small quanti- 

 ties. As the factory in itself was the result of 

 combination, it did eliminate competition be- 

 tween individual producers. But in the course 

 of years there arose a competition between 

 factories. This competition was due to expand- 

 ing markets, themselves the result of better 

 means of communication and transportation. 

 The factory system required large investments 

 of capital which could not easily be withdrawn. 

 For example, to construct a great sugar refinery 

 might cost $200,000 ; if for any reason the sugar 

 refining business failed to pay, it would be ex- 

 ceedingly difficult to remodel the building and 

 its equipment for some other business. For this 

 reason, many manufacturers continued to oper- 

 ate their plants without profit, or even at a 

 slight loss, rather than lose the entire value of 

 their property. But competition which has such 

 disastrous results cannot last. The many econo- 

 mies which would result from combination were 

 clear; duplication of plant, of sales organiza- 

 tions, of advertising, would all be avoided. The 

 most efficient manager could supervise all the 

 plants, instead of only one plant, as would be 

 possible under competition, and there could be 

 real standardization throughout the whole com- 

 bination. 



Secondary Causes. An influence often not 

 noted by the public is the desire of the pro- 

 moter or organizer to make a profit for himself. 

 Seeing the economic advisability of combina- 

 tion in many instances, the promoter is the man 

 who brings together the competing interests. 

 For this service he usually receives a large sum 

 in cash or stock. Similarly, the banker or 



financier who underwrites the stock of the new 

 combination, in return for thr risk he assumes 

 makes a large profit. 



It is not an exaggeration to say that the pos- 

 sibility of promoter's or underwriter's profits 

 has been the motive power in the organization 

 of more than one trust granted, of course, that 

 there was economic justification for the com- 

 bination. 



Government favor has often been an impor- 

 tant influence. In the United States, the pro- 

 tective tariffs, shielding home producers from 

 foreign competition, have made possible in- 

 creased profits and have thus indirectly led to 

 combination. Patents, trade-marks and other 

 privileges have exerted a similar influence. 



(2) Advantages. The advantages of trusts 

 might almost be placed among the causes, for 

 they are almost all on the side of capital. From 

 the point of view of capital, a trust is almost 

 ideal. This is particularly true if an industry 

 is of such a nature that its products are uni- 

 form in quality; for example, sugar, kerosene 

 and salt. The quality of these products is 

 easily tested, and the only difference between 

 them is likely to be a brand or trade-mark. 

 Competition in such industries is merely a 

 question of cutting prices. 



The chief advantages to the producer may 

 be classed as manufacturing and marketing. In 

 the manufacturing, a large organization or trust 

 can buy its supplies in great quantities at a 

 lower net cost; it can avoid the duplication of 

 equipment and staff, and can redistribute both 

 men and machines to the best advantage. 

 Take, for example, the United States Steel 

 Corporation. One of its subsidiaries makes 

 nothing but nails and screws, another special- 

 izes in steel nails, a third in steel for buildings. 

 One of the Standard Oil Company's subsidiaries 

 manufactures nothing but vaseline. Such spe- 

 cialized organization is highly economical. The 

 work can be divided among the various plants 

 to insure a maximum efficiency for the entire 

 organization. Another advantage is the use of 

 by-products, the classic example being a great 

 pork-packing plant. It is a familiar saying that 

 nowadays the Only part of the pig not eco- 

 nomically valuable is the squeal. 



The advantages in marketing are equally im- 

 portant. First, a trust can divide the market 

 among its constituent parts, thus accomplish- 

 ing what pools formerly did. It then reduces 

 its selling cost by eliminating salesmen and 

 advertising. It is obvious that it is cheaper 

 for the International Harvester Company to 



