Part 7

The necessity for this will be more, rather than less, apparent with the use of underground instead of overhead wires. The cost of placing wires in subways is far beyond the cost of stringing them on poles, and if we are obliged to build our subways large enough to accommodate all the rival wires which may be offered, we have a herculean task upon our hands.

The great question of the monopoly of land can be merely touched in this connection. While the fact that land is natural wealth must be freely acknowledged, it is only where population is most dense that any great monopoly appears in its ownership. The principle is well established, indeed, that private ownership of land cannot stand in the way of the public good. When a railway is to be built, any man who refuses to sell right of way to the railway company at a reasonable price may have it judicially condemned and taken from him. We have already noted in the chapter on railway monopolies the injustice of permitting a single person or corporation to control and own any especially necessary means of communication, as a mountain pass or a long and expensive bridge, and the same principle is apparent in connection with the railway terminals in our large cities. The enormous expense attendant upon securing right of way for an entrance to the heart of the city, makes it a very difficult matter for any new company to obtain a terminus there, except by securing running rights over the tracks of an older company. To give to any single corporation the sole control of the entrance to a city and permit it to charge what toll it pleases for trains that pass through it, evidently places the city at the mercy of a monopoly. Practically the case is not so bad as this, as most large cities have means of water communication, and the railroads are run to the heart of the city through the public streets. But the time is fast approaching when these city grade crossings will be done away with, and in every city of importance the railways will enter the city on elevated viaducts terminating in a single union depot. Evidently it is contrary to the public welfare to sink more capital in these expensive structures than is necessary; and in general, several companies will use a single structure for entrance and exit. It is evident that the control of these terminals, if vested in a single company, may give rise to just the abuse we have set forth; and that the city itself should retain enough control over its railway terminals and freight-transfer lines to ensure that no single carrier or combination shall monopolize them.

In the last analysis it is evident that the monopoly of entrance to a city is really a monopoly in land, or, we might more properly say, in space. We are fortunate in this country in having millions of acres of land still awaiting cultivation; and while it is not intended here to defend the policy of giving away the estate of the public which our government has pursued, there is no danger for a long time to come that an actual monopoly will exist in agricultural lands. The price of land used for business purposes in a city, however, depends almost wholly upon its location. The price at which a single block of land near Wall Street, in New York City, was recently sold was so great that, at the same price, the value of a square mile would be equal to half the whole estimated wealth of every sort in the United States.

Now the question must occur to every thinking man, by what right does the owner of this property receive this enormous wealth? To make the case of those who advocate the public control of the gifts of Nature more clear, let us consider a special case. Suppose a man in an Eastern city chanced to come into possession two-score years ago of a tract of land in what is now Kansas City. We may suppose that he got it by inheritance, or through some chance, and that, except to pay the taxes upon it, he has never given farther attention to it. During all the years of the city's rapid growth he pays no attention to his land and takes no part in furthering the growth of the city. At last, at the height of the real-estate boom, he sells the land, and, whereas it cost him in the first instance a merely nominal sum, perhaps $100, he sells it now for $100,000. This value it has, not because of itself, as is the case with farming lands, but because of its situation in reference to the community around it. In other words, practically the whole value of this land has been given it by the people who have come and built this city around it. It is their labor that has given this property its value, and, in equity, the value should be theirs. A more detailed statement of the arguments for the public control of land incomes cannot be given here. What we are concerned with here is the extent to which land is subject to a monopoly. It appears too evident to require further discussion that, as a general rule, agricultural lands in every section of the country are competing to a greater or less extent with lands in every other section, and that the lands used for business purposes in the cities compete likewise, each city with others neighboring and of similar size, while lands in the same city similarly situated compete with each other.

VI.

MONOPOLIES IN TRADE.

We have now examined the various forces which are destroying competition in the production of goods in our factories, and of raw material from our mines; in the transportation of these goods in their various journeys between the producer and the consumer, and in the supply of the especial needs of the dwellers in our cities.

It is an old and well-worn adage that "competition is the life of trade"; and if this be true, we shall certainly not expect to find the men who are earning their living by the purchase and sale of goods endeavoring to take away the life of their business by restraining or destroying competition. At first sight it seems as if it would be a difficult matter in any case to destroy competition in trade. The buyer and seller of merchandise has no exclusive control over natural wealth; no mine or necessary channel of transportation is under his direction; nor does he in his trade produce any thing, as does the manufacturer. He only serves the public by acting the part of a reservoir to equalize and facilitate the flow between the consumers and producers; and if necessity requires, the two can deal directly with each other and leave him out altogether. But in dealing with the question of monopolies we must not conclude that the absolute control of supply is at all necessary to the existence of a monopoly. While there are monopolies, as we have seen, which have the keys to some of the necessities of civilized life, there are others which control merely some easier means for their production, carriage, or distribution; and to this latter class belong the principal monopolies in trade. To be sure that this constitutes a monopoly, we have but to turn to the case of the mountain pass mentioned in a former chapter. The use of that particular pass for transporting goods is only an easier means of transportation than the detour to some other pass or by some other route; and the degree of power of the monopoly depends directly on the amount which is saved by the use of its facilities. So with the monopolies in trade. Brokers and jobbers and retail merchants form a channel through which trade is accustomed to pass, and through which it can pass more readily than by any new one.

It is to be noted that under modern conditions the power of middle-men has been greatly reduced from what it was formerly. As we have already seen, manufacturing was then carried on only in families and small workshops, and the mines which were worked were principally in the hands of the king. The merchants were the wealthy men of olden time. They controlled largely the transportation facilities of that day; and while, as we have already noted, the commerce which then existed was but a trifle compared with the present, the principal exchange being in local communities, yet the trade in all articles which were imported, and all domestic commerce between points any great distance apart was in the hands of the merchants.

It is natural, therefore, that we find monopolies in trade to have been among the first which existed and to have been of importance and power when manufacturers' trusts were not dreamed of. The guilds which flourished near the close of the Middle Ages, while not devoted to the establishment of a monopoly, did nevertheless aim, in some cases at least, to hinder competition from those outside their guild.

But turning to the present, let us examine the conditions under which competition in trade is checked to-day. Let us take, first, the case of retail trade in any of the thousands of country villages and petty trade centres in the land. The history of the life of the country store-keeper is a constant succession of combinations and agreements with his rivals, interleaved with periods of "running," when, in a fit of spite, he sells kerosene and sugar below cost, and, to make future prices seem consistent, marks down new calico as "shop-worn--for half price." It is true the sum involved in each case is a petty one, but when we consider the enormous volume of goods which is distributed through these channels, the total effect of the monopoly in raising the cost of goods to the consumer must approach that effected by monopolies of much wider fame. But perhaps it may not seem evident that this is a monopoly of the same nature (not of the same degree) as a manufacturers' trust or a railroad pool. It certainly seems to be true that the merchant has a right to do as he chooses with his own property; and that if he and his neighbor over the way agree to charge uniform prices for their goods, it is no one's business but their own. And, indeed, we are not yet ready to take up the question of right and wrong in this matter. That the act is essentially a "combination in restriction of competition," however, is self-evident. The degree of this monopoly may vary widely. If the merchants who effect this combination raise their prices far above what will secure them a fair profit on the capital invested in their business, and if it is difficult for their customers to reach any other source of supply outside of the combination, the monopoly will have considerable power. On the other hand, if the stores of another village are easy of access, or if the merchants who form the combination fix their prices at no exorbitant point, the effect of the monopoly may be very slight indeed.

We find this class of trade monopolies most powerful and effective on the frontier. Wherever railroad communication is easy and cheap the tradesmen of different towns--between whom combinations are seldom formed--compete with each other. The extension of postal, express, and railway-freight facilities to all parts of the country, too, have made it possible for country buyers to purchase in the cities, if necessary. Thus the railways have been a chief instrument in lessening the power of this species of monopoly in country retail trade, which was of great power and importance a half century ago.

Of retail trade in the cities, it is not necessary to speak at length. Combination here has seldom been found practicable because of the great number of competing units. There is, however, a noticeable tendency of late to the concentration of the trade in large establishments, which by their prestige and capital are able to take away business from their smaller competitors. It does not seem likely, however, that this movement will result in any very injurious monopoly among city retailers.

The wholesale trade is on quite a different basis from the retail. The number of competitors being so much less, combination is vastly easier. The tendency toward it has been greatly fostered and strengthened by the formation of trusts among the producers. These combinations made the manufacturer more independent in his treatment of jobbers, and disposed him to cut their profits to the lowest point. Naturally these men combined to resist this encroachment on their income. They refused to handle any goods for less than a certain minimum commission. It might be possible in many cases for manufacturers to sell directly to the retail traders, but in general the difficulty of changing old commercial channels is such that the friction and expense is less if the goods are permitted to pass through the wholesaler's hands. It is to be noted that one cause for ill-feeling between manufacturer and wholesaler is the fact that before the days of trusts the latter often reaped much greater proportionate profits than the producer himself. But in time this cause of dissension will be forgotten, and the trust and the wholesalers' association will work in harmony.

The point of greatest interest in this is the fact that combinations among this first class of middlemen are fostered and made possible by the combination of producers. Nor does the series end here necessarily. The increased price which the retail dealers are obliged to pay for the goods, with the fact that others are making larger profits, makes them eager to do the same; and by the aid and co-operation of the wholesale merchants they may be able to do much toward checking competition among themselves and increasing their profits. Thus by the operation of the combination at the fountain-head among the producers, there is a tendency to check competition all along the line, and grant to each handler of the goods between producer and consumer an abnormal profit. An excellent example of this is found in the sugar trade. The wholesale Grocers' Guild of Canada, which includes 96 per cent. of the Dominion's wholesale traders, entered into a compact with the Canadian sugar refiners, who agreed that dealers outside of the guild should be charged 30 cents per 100 pounds more for sugar than those who were in the guild. In November, 1887, fourteen members of the guild were expelled and were compelled to pay the higher price. The executive committee of the guild fixed the selling price for the retail dealers. The guild was so successful with sugar that it extended its operations to starch, baking powder, and tobacco, fixing prices for those goods as well. The committee of the Dominion Parliament, appointed to investigate the guild, reported that it was a combination obnoxious to public interest, because it limited competition, advanced prices, and treated with gross injustice those in the trade who were not its members. In New York State there are two associations of wholesale grocers which are working to prevent competition in the sugar trade. They have fixed a uniform price for sugar, and have tried to make arrangements with the managers of the sugar trust by which that organization shall discriminate against all grocers who are not members of the association by refusing to sell them sugar or charging them a higher price. In some other sections an attempt has been, or is being, made by which the retail grocer sells only at certain fixed prices determined by a committee of the wholesalers who issue each week a card of rates. It is urged in defense of the movement that sugar has been sold at an actual loss by both the wholesale and retail trade for a very long time. The Grocers' Association, at its first meeting, passed a resolution declaring that it was opposed to combinations for the purpose of extorting unreasonable profits from the public, and that all that was sought was to prevent the evil of handling certain staples below the cost of doing the business. But if we inquire why these staples have been handled at a loss, the answer is, because of the strong competition which has prevailed. The organization, then, is a combination to limit competition, to suppress it, in fact, and the difference between its purpose and work and that of the Sugar Trust is a difference of degree and not of kind. The reason for its moderate demands may be because grocers are more liberal-hearted than refiners, or because they understand that their power over the trade is more limited than those who control the original product, so that an attempt to exact too large profits would offer a tempting premium to competitors of the Association.

Another staple article of consumption in which combinations are known to exist is meat. It is affirmed that a combine of buyers and slaughterers controls the markets of Chicago and Kansas City, and both depresses the price paid for cattle in the market, and raises the price of beef to the retail dealer. This monopoly proved so oppressive, and attracted so much attention, that in February, 1889, Gov. Humphrey of Kansas, called a convention of delegates from the legislatures of ten different States and Territories to devise a system of legislation, to be recommended for adoption by the several States, which should destroy the power of the combination.

One of the combinations investigated by the New York State Committee appointed to investigate trusts and similar organizations, was an association of the retail butchers, and the brokers buying sheep, lambs, calves, etc., from the farmers. The purpose of the association is to prevent competition among its members and keep control of prices in its own hands by charging a higher price to outsiders than to members of the association. The ultimate effect is to increase profits by paying less for the animals and getting higher prices for the meat sold.

We might go on at indefinite length to examine the various monopolies of this sort, but it does not seem necessary. The salient fact which is evident to any one at all conversant with business affairs is, that in almost every line of trade the restriction of competition is in force to a greater or less extent. Those monopolies are strongest, indeed, which have control of production; but in so far as they can control the market, the men engaged in buying and selling are equally ready to create minor monopolies, and an acquaintance with the general markets convinces one that these monopolies are numerous enough to have a very important effect in increasing the cost of goods to the consumer.

We are accustomed to think of competition as a force which always tends to keep prices down, and of a monopoly as always raising prices; but it should be understood that this is true only of the competition and monopolies among sellers of goods. It must be remembered that the competition among buyers, is a force which acts in the opposite direction and tends to raise prices; and that it is quite possible to have combinations among buyers to restrict competition and keep prices down. Of course, where the buyer is the final consumer, this is almost impossible, for the great number of competitors forbids any permanent combination. Also where the product concerned is a manufactured article or a mineral product, the mining or manufacturing company or firm will generally have capital enough and business ability enough to defeat any attempt of the wholesale merchants to combine to reduce the prices paid for their output. This he can easily do by selling to retail dealers direct. But in the case of products gathered from the farmers the case is different, and the producer can less easily protect himself against combinations among buyers to fix the price he shall receive. The power and extent of these monopolies varies with the distance of the farmer from markets, and also, it must be said, with the intelligence and shrewdness of the farmer. In districts remote from railways and markets the farmers are often dependent on the travelling buyers for a chance to sell their cattle or produce. In a thinly settled region there may be no more than two or three times in a season when a farmer will have an opportunity to dispose of his surplus products; and, realizing his necessity, he is apt to be beaten down to a much lower price than the buyer would have given if other buyers had been competing with him to secure the goods. In the chief markets, too, there is often a combination of buyers formed to keep down prices. The combine of cattle-buyers in Kansas City and Chicago has just been noted. The New York Legislative Committee discovered that a milk trust had control of the supply of milk for New York City, fixing the price paid to the farmer at three cents per quart, and the selling price at 7 or 8 cents per quart. According to the suit brought by the Attorney-General of Louisiana against the Cotton-Seed Oil Trust, that monopoly has reduced the price paid to the planters for seed from $7 to $4 per ton. As the total amount of cotton seed which it purchases is about 700,000 tons a year, it is evident that this feature of the combination alone puts into the pockets of the owners of the Trust over two million dollars per annum, over and above the profits made through its control of the cotton-seed oil market. Evidently the combinations which lower prices by restricting competition among purchasers are not to be overlooked because of unimportance.

In the chapter on monopolies of mineral wealth it was stated that the French copper syndicate is not a "trust," but a "corner." It has not been common to consider "corners" as a species of monopoly, except as they have, like the latter, acquired a bad reputation with the general public from their effect in raising the price of the necessaries of life. But if we look at the matter carefully, it becomes plain that the aim of the maker of corners is the same exactly as that of the organizer of trusts,--to kill competition. The difference lies in the fact that the "corner" is a temporary monopoly, while the trust is a permanent one. The man who forms a corner in, let us say, wheat, first purchases or secures the control of the whole available supply of wheat, or as near the whole supply as he can. In addition to this he purchases more than is really within reach of the market, by buying "futures," or making contracts with others who agree to deliver him wheat at some future time. Of course he aims to secure the greater part of his wheat quietly, at low figures; but after he deems that the supply is nearly within his control, he spreads the news that there is a "corner" in the market, and buys openly all the wheat he can, offering larger and larger prices, until he raises the price sufficiently high to suit him. Now the men who have contracted to deliver wheat to him at this date are at his mercy. They must buy their wheat of him at whatever price he chooses to ask, and deliver it as soon as purchased, in order to fulfil their contracts. Meanwhile mills must be kept in operation, and the millers have to pay an increased price for wheat; they charge the bakers a higher price for flour, and the bakers raise the price of bread. Thus is told by the hungry mouths in the poor man's home, the last act in the tragedy of the "corner."

Fourier tells of an event in his early life which made a lasting impression on him. While in the employ of a mercantile firm at Marseilles, his employers engaged in a speculation in rice. They purchased almost all the available supply and held it at high prices during the prevalence of a famine. Some cargoes which were stored on shipboard rotted, and Fourier had to superintend the work of throwing the wasted grain, for the want of which people had been dying like dogs, into the sea. The "corners" of the present day are no less productive of discontent with the existing state of society than were those of Fourier's time.

But, returning to our subject, it should be said that the "corner," generally speaking, does much less injury to the public than is commonly supposed. As we have shown, the manipulators of the corner make their chief profits from other speculators who operate on the opposing side of the market; and it is but a small part of their gains which is taken from the consumers. The effect on the consumer of the abnormal rise in price caused by the corner is sometimes quite made up for by the abnormal fall which occurs when the corner breaks. Generally, however, the drop in prices will be slower to reach down to the final consumer, past the middlemen, than will the higher prices. The corner makers also are apt, if they are shrewd and successful, to make the total of their sales for the current supply yield them a profit. Thus suppose that the normal price of wheat is 70 cents per bushel, and that the syndicate secures control of five million bushels at the normal price. If while it keeps the price up it sells two million bushels at $1.20 per bushel, it can afford to get rid of the rest of its stock at an average price as low even as 50 cents per bushel, and still make four hundred thousand dollars' profit.

The operations of corner makers are confined principally to goods which are dealt in upon commercial exchanges. One evident reason for this is that the vast purchases and sales, which are necessary in the formation of a corner are impossible without the facilities afforded by an exchange. It must be said, too, that the plain truth is that our principal commercial exchanges, while they do serve certain useful purposes, are yet practically devoted chiefly to speculation. This, simmered down to its essence, means that the business of the speculators is to bet on the future prices of the articles dealt in,--a game in which the largest players are able to influence prices to accord with their bets, and hence have their "lamb" opponents at an obvious disadvantage. The evil of this sort of commercial gambling is recognized by practical men of every class; but its cure is yet to be effected.

A sort of business allied both to trade and transportation is the business of storage or warehousing, and this has recently shown some interesting cases of monopoly.

The owners of warehouses along the Brooklyn waterfront combined their business in January, 1888, and doubled their rates for storage. In the testimony of one of the members of this trust, before the New York Legislative Committee, he said: "We want to destroy competition all we can. It is a bad thing." The owners of grain elevators at Buffalo, N. Y., have long combined to exact higher prices for the transfer of grain than would have prevailed were free competition the rule. At the session of 1887 the New York Legislature took the bull by the horns and enacted a law fixing a maximum rate for elevator charges; a statute which was based on the popular demand for its enactment, but is hard to accord with the principles of a free government.

There are a number of lines of business auxiliary to trade in which competition is more or less restricted by the fact that the amount of capital controlled and the prestige of the established firms renders it a difficult and risky matter to start a new and competing firm. The insurer of property or life, if he be wise, will demand financial stability as a first requisite for the company in which he takes a policy. The companies engaged in the business of fire insurance have long been trying to agree on some uniform standard of rates and the avoidance of all competition with each other. These combinations, however, are apt to be broken, as soon as formed, by the weaker companies, whose financial condition operates to prevent them from getting their share of the business under uniform rates. Even when this rate-cutting is stopped, there is still competition to be met from the various small mutual companies, who are necessarily outside the combination.

Banks are a necessity to the carrying on of modern commerce, and they have great power over the financial affairs of the business men of the community which they serve. As a general rule, however, they are largely owned by the merchants and others who patronize them, and the instances of this power being abused are, therefore, not common. It is to be remembered, in discussing this, as in other monopolies, that the power of a monopoly depends entirely upon its degree. A bank, trust company, or real-estate guaranty company which has a great capital, an established reputation for safety and conservatism, sole control of many special facilities, and conveniences for obtaining and dispatching business, has a real monopoly, whose degree varies with the tendency people have to patronize it instead of some weaker competitor, if one exists. There is no evil effect from the monopoly upon the community, unless it takes advantage of its power to charge a sum greater than their real worth for the services it renders, or uses it to discriminate to the injury of special persons or places.

In closing our discussion of the monopolies in trade, there is an important point to be noted. In the lines of industry considered in the preceding chapter, the monopoly was easy of maintenance because it held full control of the source of production, or of some necessary channel through which commerce must pass. No gift of nature assists to maintain a monopoly in trade. It must be wholly artificial, and it relies for its strength simply on the adherence of its members to their agreement to maintain prices. Its degree of power can never be great, compared with monopolies which control the original sources of production; for if it is attempted to put up prices inordinately, competition will start up outside of the combination, or the consumer will be led to deal directly with the producer.