John D. Rockefeller on Industrial Combinations (1899)
Rockefeller argues that large corporations brought numerous benefits to the American economy.
Topic: Monopolies
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Q. What are, in your judgment, the chief advantages from industrial combinations(a) financially to stockholders; (b) to the public?
A. All the advantages which can be derived from a cooperation of persons and aggregation of capital. Much that one man can not do alone two can do together, and once admit the fact that cooperation, or, what is the same thing, combination, is necessary on a small scale, the limit depends solely upon the necessities of business. Two persons in partnership may be a sufficiently large combination for a small business, but if the business grows or can be made to grow, more persons and more capital must be taken in. The business may grow so large that a partnership ceases to be a proper instrumentality for its purposes, and then a corporation becomes a necessity. In most countries, as in England, this form of industrial combination is sufficient for a business coextensive with the parent country, but it is not so in this country. Our Federal form of government, making every corporation created by a State foreign to every other State, renders it necessary for persons doing business through corporate agency to organize corporations in some or many of the different States in which their business is located. Instead of doing business through the agency of one corporation they must do business through the agencies of several corporations. If the business is extended to foreign countries, and Americans are not to-day satisfied with home markets alone, it will be found helpful and possibly necessary to organize corporations in such countries, for Europeans are prejudiced against foreign corporation as are the people of many of our States. These different corporations thus become cooperating agencies in the same business and are held together by common ownership of their stocks.
It is too late to argue about advantages of industrial combinations. They are a necessity. And if Americans are to have the privilege of extending their business in all the States of the Union, and into foreign countries as well, they are a necessity on a large scale, and require the agency of more than one corporation. Their chief advantages are:
- Command of necessary capital.
- Extension of limits of business.
- Increase of number of persons interested in the business.
- Economy in the business.
- Improvements and economies which are derived from knowledge of many interested persons of wide experience.
- Power to give the public improved products at less prices and still make a profit for the stockholders.
- Permanent work and good wages for laborers.
I speak from my experience in business with which I have been intimately connected for about 40 years.
11. Q. What are the chief disadvantages or dangers to the public arising from them?
A. The dangers are that the power conferred by combination may be abused; that combinations may be formed for speculation in stocks rather than for conducting business, and that for this purpose prices may be temporarily raised instead of being lowered. These abuses are possible to a greater or less extent in all combinations, large or small, but this fact is no more of an argument against combinations than the fact that steam may explode is an argument against steam. Steam is necessary and can be made comparatively safe. Combination is necessary and its abuses can be minimized; otherwise our legislators must acknowledge their incapacity to deal with the most important instrument of industry. Hitherto most legislative attempts have been an effort not to control but to destroy; hence their futility.
12. Q. What legislation, if any, would you suggest regarding industrial combinations?
A. First. Federal legislation under which corporations may be created and regulated, if that be possible. Second. In lieu thereof, State legislation as nearly uniform as possible encouraging combinations of persons and capital for the purpose of carrying on industries, but permitting State supervision, not of a character to hamper industries, but sufficient to prevent frauds upon the public.
[From U.S. Industrial Commission,
Preliminary Report on Trusts and Combinations, 56th Cong., 1st sess. (30 Dec. 1899) Document no. 476, Part 1, pp. 79697.]
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Henry D. Lloyd on the Lords of Industry (1894)
Lloyd maintains that industrial combinations result in higher prices for consumers.
Topic: Monopolies
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Last July Messrs. Vanderbilt, Sloan, and one or two others out of several hundred owners of coal lands and coal railroads, met in the pleasant shadows of Saratoga to make "a binding arrangement for the control of the coal trade." "Binding arrangement" the sensitive coal presidents say they prefer to the word "combination." The gratuitous warmth of summer suggested to these men the need the public would have of artificial heat, at artificial prices, the coming winter. It was agreed to fix prices, and to prevent the production of too much of the raw material of warmth, by suspensions of mining. In anticipation of the arrival of the cold wave from Manitoba, a cold wave was sent out all over the United States, from their parlors in New York, in an order for half-time work by the miners during the first three months of this year, and for an increase of prices. These are the means this combination uses to keep down wagesthe price of men, and keep up the price of coalthe wages of capital. Prices of coal in the West are fixed by the Western Anthracite Coal Association, controlled entirely by the large railroads and mine-owners of Pennsylvania. This association regulates the price west of Buffalo and Pittsburgh and in Canada. Our annual consumption of anthracite is now between 31,000,000 and 32,000,000 tons. The West takes between 5,000,000 and 6,000,000 tons. The companies which compose the combination mine, transport, and sell their own coal. They are obliterating other mine-owners and the retailer. The Chicago and New York dealer has almost nothing to say about what he shall pay or what he shall charge, or what his profits shall be. The great companies do not let the little men make too much. Year by year the coal retailers are sinking into the status of mere agents of the combination, with as little freedom as the consumer.
The coal combination was . . . investigated by the New York legislature in 1878, after the combination had raised the prices of coal in New York to double what they had been. The legislature found that private mine-operators who were not burdened like the great companies with extravagant and often corrupt purchases of coal lands, heavily watered stock, and disadvantageous contracts, forced on them by interested directors, and who have only to pay the actual cost of producing the coal, "can afford to sell at a much less price than the railroad coal-producing companies, and would do so if they could get transportation from the mines to the market." This is denied them by the great companies. "The private operators," says the report, "either find themselves entirely excluded from the benefits of transportation by reason of the high freights, or find it for their interest to make contracts with the railroads, by which they will not sell to others, and so the railroads have and will keep the control of the supply of the private operators." To those who will not make such contracts, rates are fixed excluding them from the market, with the result, usually, of forcing them to sell their property to the lords of the pool. "The combination," the committee declared, "can limit the supply, and thereby create such a demand and price as they may deem advisable." The committee found that coal could be laid down on the dock in New York, after paying all charges, for an average of $3.20 a ton. It was at that time retailing in the city for $4.90 to $5.25 a ton. "The purposes of the combination are solely to advance the price of coal, and it has been successful to the amount of seventy-five cents to one dollar a ton. Its further advance is only a question whether the combination can continue to repress the production." An advance of only twenty five cents a ton would on 32,000,000 tons be $8,000,000 a year, which is not a bad thingfor the combination. [If] any individual or corporate producer, show[s] any backwardness about accepting the invitation to join "the pool," they are whipped in with all the competitive weapons at command, from assault and battery to boycotting and conspiracy. The private wars that are ravaging our world of trade give small men their choice between extermination and vassalage. Combine or die! Competitors swear themselves on the Bible into accomplices, and free and equal citizens abandon their business privacy to pool commissioners vested with absolute power, but subject to human frailties. Commerce is learning the delights of universal suffrage, and in scores of trades supply and demand are adjusted by a majority vote. In a society which has the wherewithal to cover, fatten and cheer every one, Lords of Industry are acquiring the power to pool the profits of scarcity and to decree famine. They cannot stop the brook that runs the mill, but they can chain the wheel; they cannot hide the coal mine, but they can close the shaft three days every week. To keep up gold-digging rates of dividends, they declare war against plenty. On all that keeps him alive the workman must pay them their prices, while they lock him out of the mill in which alone his labor can be made to fetch the price of life. Only society can compel a social use of its resources; the man is for himself.
[From Henry D. Lloyd, "Lords of Industry,"
North American Review 138 (June 1894): 53553.]
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Image: Carnegie Plant at Homestead, PA
Lloyd maintains that industrial combinations result in higher prices for consumers.
Topic: Monopolies
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This photograph reveals the size of some factories in the late 19th century.
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John D. Rockefeller
Rockefeller in his later years.
Topic: Monopolies
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Rockefeller in his later years.
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Cartoon: Monopoly snake, 1881
This cartoon claims that economic monopoly is a threat to democracy.
Topic: Monopolies
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This cartoon claims that economic monopoly is a threat to democracy.
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Story of a Monopoly (1881)
Lloyd looks at the effects of railroad monopolies.
Topic: Monopolies
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During the last half of the nineteenth century, American capitalism was transformed by the emergence of massive new industrial trusts. The federal government had little interest and even less power to regulate their behavior, but journalists and social critics including Henry Demarest Lloyd labored to awaken popular outrage against this new threat to liberty. In this excerpt, Lloyd described his plan for curbing the railroad trusts and restoring American liberty. As you read this document, consider whether the laissez-faire liberalism and passive federal government was sufficient to control the new monopolies.
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Our experience in the riots of 1877, in the countless cases of excessive and unfair railroad taxation fairly represented by the case of the Standard Oil Company, and in pools, which have culminated in the Great Trunk Line Executive Committee, makes it clear that an adequate power must be called in to secure these things: --
(1.) Railroad charges must be public. Publicity is the great moral disinfectant.
(2.) They must be stable. In transportation, as in currency, taxation, and the law, it is indispensable that the citizen know what to count on.
(3.) They must be reasonable. They must be based on the cost of the service, not on what people will stand. The community will not be taxed to pay dividends and interest on the $54,507,000 of water in the New York Central, the $63,963,881 in the Erie, the $13,000,000 in the New York Elevated roads, and so on through the list, or to fatten corrupt railroad officials, like the secret stockholders in the Acme Oil Company.
(4.) They must be equal; for similar services, similar rates. If the absolute equality of the post-office, which sells stamps at the same price by one or one million, is not practicable, and there must be wholesale and retail rates, let the additional charge -- as in the case of the single harvester of the small farmer along the Northern Pacific -- in no case exceed the actual additional cost of handling and hauling.
(5.) Railroads and railroad men must exercise their public functions. No road shall voluntarily stop running, as several roads did in July, 1877, and no railroad man or multiple of him shall desert his post or interfere with the operation of any road.
(6.) There must be a national board to hear the complaints of citizens and railroads, with power to take testimony, to investigate abuses, to publish the results, and to call upon the legal officers of the government to prosecute where prosecution is needed.
(7.) Under the constitutional right of Congress to pass laws and levy taxes, "to establish justice," there must be such amendment of the law and its processes that all violations of the duties of common carriers, "in commerce among the States," can be prosecuted by civil or criminal proceedings promptly and cheaply.
The costliness, the delays, and the technicalities of our law amount to a denial of justice that is eating deep into the hearts of the people. Only the rich can get justice; only the poor cannot escape it.
In less than the ordinary span of a life-time, our railroads have brought upon us the worst labor disturbance, the greatest of monopolies, and the most formidable combination of money and brains that ever overshadowed a state. The time has come to face the fact that the forces of capital and industry have outgrown the forces of our government. The corporation and the trades-union have forgotten that they are the creatures of the state. Our strong men are engaged in a headlong fight for fortune, power, precedence, success. Americans as they are, they ride over the people like Juggernaut to gain their ends. The moralists have preached to them since the world began, and have failed. The common people, the nation, must take them in hand. The people can be successful only when they are right. When monopolies succeed, the people fail; when a rich criminal escapes justice, the people are punished; when a legislature is bribed, the people are cheated. There is nobody richer than Vanderbilt except the body of citizens; no corporation more powerful than the transcontinental railroad except the corporate sovereign at Washington. The nation is the engine of the people. They must use it for their industrial life, as they used it in 1861 for their political life. The States have failed. The United States must succeed, or the people will perish.
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Photograph: "Commodore" Cornelius Vanderbilt
Vanderbilt made a fortune building as a railroad baron.
Topic: Monopolies
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Vanderbilt made a fortune building as a railroad baron.
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