ice), or a combination of banking interests seeking the control or regulation of credit or exchange. Thus, while we find that up to a certain point the two terms may be used interchangeably, the term "trust" is the more inclusive. "Trust" is the generic while industrial combination" is the specific term.

But not all industrial combinations are trusts per se, any more than all trusts are industrial combinations.*

Mr. S. C. T. Dodd, solicitor of the Standard Oil Company, says:

"The term Trust in its more confined sense embraces only a peculiar form of business association effected by stockholders of different corporations transferring their stocks to trustees. The Standard Oil Trust was formed in this way, and originated the name 'Trust' as applied to associations. The term Trust,' although derived as stated, has (now) obtained a wider signification, and embraces every act, agreement or combination of persons or capital believed to be done, made or formed with the intent, power or tendency to monopolize business, to restrain or interfere with competitive trade, or to fix, influence, or increase the prices of commodities."†

In short, the one characteristic which differentiates the "trust from the mere "industrial " or other combination is the element of monopoly. When a concern or combination possesses any form of monopolistic power, or is believed to possess or be benefited by such power, it is a trust. When this element of monopoly is not present in a combination, it represents

A definition of the trust which seems specific and has apparently stood the test of time, is that given by the writer in 1904 in the introductory chapters of The Truth About the Trusts.

Quoted in Moody, The Truth About the

Trusts.

a combination of capital and general executive and business ability, but does not constitute a trust.

The truth of this theory can be demonstrated in many ways. Any review or investigation of the trust movement in this country during the past half-century will show that we have " a trust question," not because men have combined their capital and their brains for the purpose of merely reducing operating costs and furnishing products to the consumer with greater efficiency and economy, but because men have combined for the purpose of acquiring or controlling some legislative or natural privilege or monopolistic element. A combination in an industry possessing no important element of monopoly, generates little public ill-feeling toward it. Thus, the department stores in the great cities are combinations of industry, but as a rule they possess no monopolistic power, and are popular with the public rather than the reverse, This is true with combinations of other retail businesses, such as the great mail-order houses, the five-and-ten cent stores, the biscuit manufacturing companies, etc. These great aggregates have been built up without special privileges or monoply. They have thrived because they have lowered costs to the consumer, and if they have capitalized themselves far beyond the amount of money originally invested, this represents the capitalization of their "efficiency and not of some special privilege.

Such concerns are all subject to potential competition and could not hold their patronage or their position in the community without being efficiently operated and furnishing their products to the consumer at low prices and on a purely competitive basis.

On the other hand, we find the "trust" per se, in a very different position in its relations to the general public. The vast combinations which have been built up in this country within the past 50 years, have not been raised on the competitive basis, but on that of monopoly. This is true of the steel, iron, sugar, woolen and countless other primary industries, as well as the many undertakings which are based on them. It is true of the railroads and the public utility interests as well. The vast aggregate of capitalization of "trusts "-industrial, transportation and public service-to-day capitalized far in excess of $40,000,000,000, is a capitalization not of real property, ability, energy or efficiency to any great extent, but of some form of monopoly.

In tracing the history of the rise of industrial combinations in the United States, this central fact will become clearer and clearer as we proceed.

As industrial combinations come only with production on a large scale, which, in turn, depends upon improved transportation facilities, such combinations before the Civil War could hardly assume National importance. There was very little extensive manufacturing carried on then, and the

means of transportation were still rather primitive. Hence, though we may surely speak of the rise of industrial combinations previous to the year 1865, little can be said of their development during this period.

When the United States became a nation in 1789 there was no such thing as a corporation within its domain. The nearest approach to such organized business concerns were three banks and perhaps half a dozen insurance companies. Indeed, as there was little industrial development in this country before the War of 1812 - for it was only with the termination of this war that America began definitely to look to her own manufactures there could then be no question of any industrial combinations which result from such development. Our present division of the subject therefore narrows itself down to the years between the War of 1812 and that between the States.

The development of the factory system being enormously stimulated by the outbreak of the first of these wars, establishments for the home manufacture of cotton and woolen goods, iron, glass, hardware, and various other commodities sprang up, "with mushroom rapidity," throughout the United States. The resulting rapid increase of capital naturally tended toward concentration. Small investors could no longer heat their individual irons, so to speak, in separate ovens, since machinery was rapidly becoming more and more indis

pensible to successful manufacturing enterprise, and its cost grew even faster than its importance. It was inevitable under these circumstances for small investments to be drawn together, first for specific purposes and later to become more permanent organizations of capital. In this perfectly natural and seemingly inoffensive way the first industrial combinations were born, and these were, in a way, the progenitors of our modern "trusts."

The earliest industrial combinations were all chartered separately, and not without considerable heated debate in legislatures. General corporation laws were not enacted until the second, or even the third, stage of industrial combinations was reached -somewhere about 1830. Many of the States adopted such general corporation laws, and gradually one type or another of industrial combination rapidly sprang up.

Though not unfriendly to such corporations at first, their unprecedented increase in the 30's made the Government rather uneasy. This is clearly shown by Andrew Jackson's fight on the United States Bank (in 1832), in which he foresaw so early the danger of corporate control. Between JackBetween Jackson's second administration (ending in 1837) and the war over slavery, the growth of industrial corporations was much hampered by the Government's refusal to charter any combinations outside the District of Columbia or the Territories. Even so, several

Pacific railroads and a number of National banks were incorporated during the Civil War, when already the era of railroad consolidation was ushered in that ultimately resulted in such gigantic combinations as the New York Central, the Pennsylvania, and other great systems too well known to need enumerating. But with all these beginnings, the development of industrial combinations prior to 1865 did not reach the fourth, fifth, and sixth stages the more recent monopolistic phases of these corporations.

Sometime after the close of the Civil War the word "capital" took on its present significance in the business world. Nor until the late 70's did the roots of what is known to-day as "trust control " 66 or big business" begin to spread and get that hold in the ground which, after 40 years, has resulted in the formation of a well-night impregnable structure of capitalization and business organization extending across the continent.

"

It is interesting to trace the evolution of the capitalist" or man with capital, from the earlier days of the Nineteenth century. Not until civilization began to be equipped with power-machinery and modern invention changed the whole aspect of industry and the production of wealth, do we note much change in the connotation of the word "capitalist." Even as late as 60 years ago a "capitalist" was a man who, like George Washington, "was worth" so much in property, cash or real estate.

As an economic term, this is still the meaning of the word. But in its practical everyday use, "capital has, within the last 40 years, taken on a far larger meaning. For no sooner did the modern corporation arise in response to the demand for production and distribution on a large scale, than the seeds were sown from which has grown the world-wide custom of capitalizing earning power- that is, massing in concrete forms, in the shape of stocks and bonds, the value of the potential possibilities of wealth production under the newly invented processes.

Where in the earlier days, under the cruder methods then prevailing, a given manufacturing plant could produce only enough goods and sufficient profit to show net earnings of perhaps 10 per cent. on its invested capital, with the introduction of improved processes and the development of efficiency among the workers, this net profit could be increased to the extent of 25 to 40 per cent. on the invested capital. The discovery was then made that, through the instrumentality of the corporation, a concrete valuation could be put on this increased earning power, and the value of a given property, instead of being based on its original or replacement cost, could in this way be meas

ured by its capacity to show increased profits.

66

which

Thus, capitalization,” formerly had been regarded as genuine only when backed by an equal amount of property, became a new thing. Corporate capitalization, as represented by the creation of stocks and bonds, was now measured by earning capacity, or labor power. On this new basis capital began to be created by leaps and bounds. As the industry of the community became more efficient, and the unit of effort created greater results, corporate securities were created in practically the same ratio.

As this new custom became more firmly established, it was found that the limit of capitalization was by no means reached when current earning power alone was considered. In a growing country like the United States, with a population practically doubling every generation, the future growth in the earning power of general industry was a foregone conclusion. So the process of corporate capitalization quite naturally took the further step, and future or potential earning capacity also began to be represented by the creation of corporate securities.

Naturally, this modern method of preëmpting or capitalizing probabilities of the future was at times overdone. Of necessity such a process invited speculation, and during "boom" periods the possibilities of future earning power were often

overestimated and much overvalued. Therefore recurring lapses and setbacks, interspersed with rapid upward movements, became a distinct characteristic of the times. Finally the capitalists themselves began to recognize that this new capitalism, which represented the current and future earning power of corporate activity generally, must be bolstered up and insured by some artificial process. It was all well enough to be satisfied with the normal growth of labor power and the normal increases in wealth-producing population, as long as corporate capital had not over-appraised these things; it was fairly satisfactory to absorb through the creation of stocks and bonds the apparent probabilities in labor power of the coming decade or generation; but when industrial crises appeared or crop failures and other accidents took place, it would not do to have earning power fall to such a basis as would seriously jeopardize the continuance of this new system of reaping the fruits of industry.

So this situation naturally led to a widespread demand among capitalists, large and small, for legislation that would protect the integrity of the values which had already been capitalized and would continue to be capitalized for generations to come. To prevent foreign competition from entering the field tariffs were made more rigid than before; legislation in State and Nation was advocated

for preserving the status quo of this new dispensation. Thus the railroads, which in the decade after the Civil War were the most conspicuous beneficiaries of the new process, were given enormous grants of land; their rights of way were guaranteed to them in many ways; terminal sites were encouraged and treated with great leniency in the matter of taxation, etc.; natural resources were in every possible way surrendered by the people and given to the railroads for development.

Of course the railroads profited enormously by these special privileges and quickly capitalized their growing values, just as they had previously capitalized their ordinary rights of way, the industrial results of the population to whom they catered, and the definitely growing tendency of population along their lines.

But the tendency did not stop here. As new inventions came in, such as the telephone, the electric light, and electric traction, the profits from the operation of these undertakings were likewise capitalized. And, as in the case of the railroads, it was promptly discovered that not only current but future earning power could very easily be capitalized in this new field of public" utilities." Here the franchise value was made the basis of capitalization, and in the 20 years from 1890 to 1910 the total capitalization of public service corporations grew from less than $200,000,000 to nearly $20,000,000,000.