§ 789]

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657 ever, not from nature alone but directly from some franchise grant by society; and so they are even more generally looked upon as suitable for control by society.

But modern" Big Business" creates a still different sort of monopoly. A great manufacturing "trust" calls for so much capital that a competitor can hardly afford to try to build factories and secure machinery, with the uncertainties of the certain commercial war before it. If the attempt is made, the stronger enterprise kills off the other, if necessary by selling below cost, recouping itself afterward by plundering the public when it again has the market to itself. This kind of monopoly is recent, and in outer form it resembles the competitive business of former days. Society awakened only slowly to the need of regulating it effectively for the common good. Even to-day such combinations are sheltered from public control, and sometimes from public investigation, by the legal principles of an outgrown age of individualism.

789. The first famous illustration of this sort of monopoly was the Standard Oil Trust. Crude petroleum ("rock oil") had been used for many years as a liniment ("Seneca Oil"), and about 1860 it began to be used, in a refined form, for illumination in place of the older "whale oil." Companies were soon formed to produce and refine it on a large scale.

In 1865 the Standard Oil Company was organized in Cleveland with a capital of only $100,000. Under the skillful management of John D. Rockefeller it soon began to absorb the other like companies in that city which was already the center of the industry of refining crude petroleum. Thus it grew powerful enough, and its management was unscrupulous enough, to compel railway companies to set up secret discriminations for it, and against its rivals (§ 781), until it absorbed or killed off most of the oil companies in the country. In 1870 the Standard Oil was one of 250 competing companies, and its output was less than one twentieth the whole in 1877 it controlled nineteen twentieths the output, and of the few remaining companies the leading forty were "affiliated," and took orders from it. By grossly unfair and piratical methods it had made broken men or suicides of honest competitors. A powerful lobby long prevented legislative interference, and the Standard Oil attorneys were generally successful in the courts.

Meantime its capital had been increased to 90 millions — on which it paid the enormous dividend of 20 millions of dollars. A few independent companies, however, were still putting up so stiff a fight that a closer organization seemed needful to insure success for the monopoly; and, in 1882, Rockefeller invented the "trust." The forty affiliated companies turned over their property to one board of nine trustees, each stockholder in an old company receiving proper certificates of stock in the new organization. This board of trustees managed the whole business. The arrangement was secret and exceedingly informal and elastic. The trust was not incorporated. trustees, when convenient, could easily deny knowledge of the doings of subordinate companies, or disavow responsibility for them; and, with better reason, the companies could throw responsibility upon the intangible "trust."

The

790. Other industries seized at once upon this new device for consolidating management and capital. It proved eminently satisfactory to the average stockholder, though, in the process of organization, many small companies were squeezed out of their property; but it abolished competition, which had always been regarded as the sole safeguard (1) of the consumer, (2) of the small producer of raw material, and (3) of the laborer. The Standard Oil Trust bought from the owner of an oil well at its own price, being practically the only buyer. So the Meat Trust bought from the cattle raiser. Then the trust sold its finished product at its own rate, which was sometimes an advance upon former prices, and which was never reduced enough to correspond with the decreased cost of production. The profits to the stockholders have steadily mounted, even when prices have been somewhat lower; and the "cost of living" has been made unduly high. Sometimes, as with tin and steel plate of some sorts, the absence of competition, together with the prevalent low business morality, led to scandalous deterioration in the goods put upon the market, and so robbed the consumer doubly.

791. Finally people took alarm. States enacted anti-trust legislation (for the most part, futile); and, in 1890, Congress

§ 791]

AND REGULATION

659

passed the Sherman Anti-trust Act,' forbidding "every combination" in restraint of interstate commerce. Again the Standard Oil led the way. With cheap, superficial obedience, it dissolved into twenty companies; but one and the same group of capitalists retained the controlling interest in the stock of each company, and composed the twenty "inter-locking " boards of directors. Other trusts followed this method of

maintaining "community of interest and management," as the railways were to do later (§ 787); or they reorganized openly as huge corporations. The term "trust" was abandoned as a technical business term; but it remains properly enough in popular use to describe either of these forms by which aggregated capital monopolizes an industry.

1 So called from Senator John Sherman of Ohio, who, however, had little to do with drafting the law, though he advocated it in ardent speeches.

792. Indeed, the monopolistic movement had only begun. In 1890 there were a score of "trusts" in the United States with an aggregate capital of a third of a billion dollars. In 1899 there were about 150, mostly organized within two years, with a total capital of over three billions. In 1901 came the organization of the United States Steel Corporation, with a total capitalization of $1,400,000,000, of which-acording to a later government investigation $400,000,000 was water.1 Between 1900 and 1904 it is generally estimated that the number of trusts was multiplied

by eight or nine, and that the capitalization rose from three billions to over thirty billions. Of this immense sum, a huge portion was in seven companies, and these had manifold and intricate ramifications; SO that three or four men, perhaps, held real control.

793. Attempts at State regulation of trusts to lessen the evils of monopoly have taken the form of State laws which permit incorporation only on condition (1) that there shall be no stock-watering, (2) that publicity of management shall be secured,

and (3) that officials may be held strictly to account. Such legislation, though characteristic of nearly every State, was long rendered of no account by three "trust-owned" States,

1 An ominous fact was that this "trust " held title to more than four fifths of all known iron-ore lands in the Appalachian and Superior districts.

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New Jersey, Delaware, and West Virginia. These three merely opened the door wider than before to incorporations of every sort. A corporation organized in any State can do business in all, and can be deprived of its charter only by the home State. Accordingly, by 1907, 95 per cent of the American trusts had found refuge in these three States. In 1913 their citadel in the favorite State of New Jersey seemed overthrown by the resolute democracy of the governor, Woodrow Wilson; but their opportunity to pick any one of forty-eight States in which to corrupt a legislature still makes it almost impossible for other States to control them.

794. Some States began an attempt to curb the power of monopoly, and to take back for the public at least a small part of its unreasonable profits, by taxing great corporations higher than ordinary individuals were taxed. This line of operation was also stopped at once (1882) by the Supreme Court, under authority of the Fourteenth Amendment. That Amendment forbade a State to discriminate among persons. In the Case of California vs. the Southern Pacific Railroad the Court held that a corporation is a "person" in the meaning of the word in this Amendment, though no one thought of such a thing when the Amendment was being ratified. Accordingly no taxation can be applied to corporations, even to specially favored public-service corporations, other than to other citizens.2

1 On his last day of office, after a splendid two-years battle, Governor Wilson signed seven "trust-proof" bills; but these have all been rendered void by later legislation or by the courts.

2 In no other civilized land is the government so powerless to deal with aggregated wealth as this decision makes the States of the Union. The Fourteenth Amendment had been robbed of its intent to protect real persons, of dark skins, by previous decisions of the Court (§ 710). By this decision it was converted into a shield to protect artificial persons, in the shape of dangerous monopolies, from needful regulation by the people. The Southern Pacific Case is to be coupled with the Dartmouth College Case (§ 355) as explaining how the Constitution has been made a shelter to property interests against public control far beyond anything comtemplated even by the founders of the Constitution. For the next thirty years the Southern Pacific was "king" in California - until Hiram Johnson's victory in 1911.