wnww nimini>;||i! Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/competitionexOnewOeddyrich THE NEW COMPETITION * Competition Is War, and ' War Is HelV "" * ■-■■— ^— ii^-— -i^— ^^B— i^ •THE NEW COMPETITION AN EXAMINATION OF THE CONDITIONS UNDERLYING THE RADICAL CHANGE THAT IS TAKING PLACE IN THE COMMERCIAL AND INDUSTRIAL WORLD— THE CHANGE FROM A COMPETITIVE TO A COOPERATIVE BASIS BY ARTHUR JEROME EDDY AUTHOR OF "THE LAW OF COMBINATIONS," ETC. FOURTH EDITtoN COMPLETELY REVISED WITH FULL TEXTS OF CLAYTON AND FEDERAL TRADE COMMISSION LAWS, AND COMMENTS THEREON I BEVEasTH EDITION CHICAGO A. C. McCLURG & CO. J ^9*^ 1 f/ ?2^ i/'>!; COPYRIGHT. 1912. BY D. APPLETON AND COMPANY COPYRIGHT. 1913-1915, BY A. C. McCLURG ft CO. Printed in the United Statei of America V. H. f aU |lttatlM0 TO STEPHEN S, GREGORY, ESQ., This book is inscribed as a slight recognition of his unselfish devotion to political and economic ideals, some of which may find inadequate expres- sion herein, and as a memento of many years of personal and professional friendship. The Author FOREWORD This book deals, first of all, with what is now going on — with Facts; secondly, with the Principles underlying ac- tual conditions ; thirdly, with Tendencies so far as they can be inferred from close and impartial consideration of facts and principles. No attempt is made to fit facts to a preconceived theory, or stretch any stubbornly held theory to cover unrelated facts. Such notions as the writer holds have been slowly developed during years of intimate contact with many forms of cooperation, and the best evidence to himself that he has been open-minded in his observations is that nearly all his early ideas regarding competition and cooperation have been forced to yield to the pressure of realities. The reader will also be interested to know that many of the suggestions — even to the most radical — have been tested in practice. In so far as the book has any merit whatsoever it is of as much value to the laborer as to the employer, to the country mechanic and merchant as to the large corporation and trust. Certain chapters — *The New Competition," "The Open- Price Association," "Brutal Competition," and "The Trust Problem, Segregation vs. Disintegration" — appeared in condensed form in The World's Work, FOREWORD TO FOURTH REVISED EDITION The friendly reception accorded this book has been far beyond the expectations of publisher and writer. Better still has been the practical and successful appli- cation of some of its suggestions by keen and progressive FOREWORD business men, who advocate in print and in public ad- dresses the adoption of the open price policy. The passing of the Clayton and Trade Commission Laws marks a radical step toward finer and fairer com- petitive methods; hence the inclusion of those laws in this revised edition. Chicago, June, 19 13. CONTENTS CHAPTER PAGl I. The Old Order Changeth i IL What Is Competition? 12 III. Competition Is War, and "War Is Hell" . . 19 IV. Growth of Cooperation 38 V. Brutal Competition 59^"^ VI. True vs. False Competition 85 VII. The Old Competition 97 VIII. The New Competition 105 IX. The Open-price Policy . . . . . .115 X. Open-price Association 123 4, XI. Harmony 157 XII. Relations with Customers 190 XIII. Relations with Sellers 203 XIV. Relations with the Public 225 XV. Vanishing Industries 232 XVI. What Is a Fair Price? 243^-^ XVII. The Trust Problem — Segregation vs. Dis- integration 271 XVIII. The Labor Problem — Integration vs. Aggrega- tion 293 XIX. Class Legislation and Discrimination . . 319 XX. Constructive Legislation 347 Appendix I. Conditions in Canada Appendix II. Conditions in England Appendix III. Conditions in Germany . Appendix IV. Clayton Law Appendix V. Federal Trade Commission Law Index 359 363 368^ 378^^ 397 C^ 409 THE NEW COMPETITION CHAPTER I THE OLD ORDER CHANGETH ^ "Competition is the life of trade." "Competition is the death of trade." I One proposition is as true as the other according to ! the point of view of him who utters it. { To the man who has downed his competitor competi- ;^ tion is the life of trade; to the competitor who is downed [ competition is death. V. Again, to the purchaser who buys bargains from mer- chants who in their jealous rivalry sell below cost, competi- tion is the life of trade; to the merchants, one or more of whom must go to the wall, competition is fatal. r To the public who buy for cost or less than cost when j rivalry is fierce, competition may seem a good thing, but J when the rivalry results in disaster, and later prices go I up to a point sufficient to make good the losses of the survivors, with a profit added, competition is wasteful and costly. Nothing is more certain than that the community, the country as a whole, bears all the cost and all the losses of wasteful competition; whether it reaps the profits is ^another question. I 2 - TliE NEW COMPETITION The profits may be spent dsewhere, the losses — ^the waste of titrit;;; of e/i^rgy, of iTicn^y, in unsuccessful efforts to get trade, to establish a business, to build up an industry — cannot be shifted, they lodge at home, are borne in the long run by the entire community, and covered in the long run in the prices of products. So that to the community competition, so far from being the life of trade, may be the reverse. II Competition, blind, vicious, unreasoning, may stimulate trade to abnormal activity, but such a condition is no more sound, healthy "life" than is the abnormal activity of the man who has taken a little too much alcohol — one stimulant is like another, exhausting in the end. Competition is a fetish that men ignorantly worship, but the cult has had its day, the sanctity of the god is be- ing assailed, the people are waking up and asking: "What is this competition and why should it be hedged about and preserved ?" The country merchant asks himself ; "Why is it a good thing for me to undersell the man across the way and try to drive him out of business ? Why is it a good thing for him to imdersell me and try to drive me out of business ?" If either succeeds, will not a stranger take the loser's . place? The country mechanic asks himself: "Why should I work for less than others in the foolish effort to starve them out of the village ? Why should they try to take the bread from my mouth by working for less than I must have to support my family? What gain is there in that sort of competition ?" The labor union says to its members: "You shall not THE OLD ORDER CHANGETH 3 compete one against another by offering to work for lower wages or longer hours, that sort of competition is dead." The tendency with the unions is to go a step further and say: "You shall not even compete in the amount of work you do per day, but each man shall do so much and no more." A crude solution of a pressing problem ; a very curt answer to the proposition, "Competition is the life of trade." Ill The Socialist would eliminate competition altogether, a cardinal principle of his philosophy being that it is not only wasteful but inherently wrong, and the Socialist must be reckoned with. He is abroad in the land, he is making himself felt at the polls, he is winning and holding offices, he is causing the leaders of the older parties no little anxiety. Why? Because the people are becoming So- cialists? Not at all. Socialism as Socialism probably has little if any greater appeal to-day than it had a generation ago. It will always have its ardent followers, but in its more logical form it is too abstract a theory to be understood and attract generally. Its practical suggestions are absorbed by older political organizations, with the result that the Socialist party is ever a band of enthusiasts "crying loudly in the wilderness." The strength of Socialism at the moment lies in the fact that some of its demands coincide with the tendencies of the hour. Say, if you please, the world has caught up with Socialism in certain directions, and propositions that seemed revolutionary twenty-five years ago — ^yes, ten years ago — ^are now debated as reasonable, are even turned into laws. More or less unconsciously the labor movement has 4 THE NEW COMPETITION traveled converging lines with Socialism. Each repudiates the other, yet both have much in common, and of late the sympathetic ties are being recognized. Without quite knowing it they are in complete accord on the fundamental proposition that competition, as hereto- fore understood and practiced, is an evil to be suppressed. What partially blinds Labor Unionism to the viciousness of competition is the so-called "conflict between Capital and Labor.** This supposed conflict leads labor to encourage "cut-throaf* competition where capital and profits are concerned, while decrying it where labor and wages are involved — an illogical position. Some Socialists in their hatred of capitalism uphold laws — such as the anti-trust laws — that are supposed to promote competition, quite overlooking the obvious truth that such legislation is contrary to all the tenets of Social- ism, being the over-ripe fruit of individualism. In the main the more philosophical Socialist writers look upon the "trust" as the final stage of "Capitalism," the fore- runner of the Socialistic community. For our present purpose it is sufficient to point out that two very large factors in modem Society are opposed in theory and practice to competition as commonly under- stood. Unionism will have none of it in the world of labor. Socialism would have none of it in the world at all. When to the opposition of these two factors is added the opposition of Capitalists, Society would seem to be pretty nearly a unit to the effect that competition is not the good thing it is said to be. IV In Europe as well as America there is a ferment of new ideas, of protest, of doubt, of discontent regarding THE OLD ORDER CHANGETH 5 this matter of competition. The old ideas do not seem so sound, they do not ring so true as they once did; they do not fit present conditions, there is something wrong. As a matter of fact, they never were true, they never were more than superficially sound. Competition was the life of trade only when trade was piratic, merciless. Competition, good, old-fashioned "cut- throat" competition, belongs to trade's buccaneering days when every industry flew the black flag and the appearance of a competitor meant war to the knife. Conditions have changed, men no longer look upon one another as industrial and commercial brigands. We are far from an era of universal good feeling, of mutual con- fidence, of generous and hearty cooperation, but the world is working that way. Steam and electricity have brought countries, cities, in- dividuals, so close together the old feeling of bitter an- tagonism is softened. (^The real competitor of the country merchant is not the fellow on the opposite corner, but the mail-order store a thousand miles away. The real com- petitor of the mine-worker in Pennsylvania is not the man in the next shaft, but the immigrant boarding the steamer at Naples. The only competition the laborer in California fears is from the Orient.) Within a hundred years the world has narrowed to a very small area. Distance has been well-nigh annihilated; men, once far apart and strangers, are now near neighbors ; in close contact they speak to one another with ease. The competition of isolation is no longer possible, it never was profitable, it has become disastrous; yet a very respectable section of the body politic — louder than all, the politicians — cry out for it; they would stem the tide of progress and restore the obsolete. It is all futile. The old competition is passing beyond recall. The new is coming, coming as surely as the con- 6 THE NEW COMPETITION quest of the air is coming, coming as surely as other and greater inventions and discoveries are coming to weld men closer together. All the King's horses and all the King's men cannot put competition back again. It is fallen, cracked, and forever spilled. In a recent case in the Supreme Court of the United States a Justice, distinguished for his philosophical insight and literary expression, said: "I think that we greatly exaggerate the value and im- portance to the public of competition in the production or distribution of an article, as fixing a fair price. What really fixes that is the competition of conflicting desires. We, none of us, can have as much as we want of all the things that we want. Therefore, we have to choose. As soon as the price of something that we want goes above the point at which we are willing to give up other things to have that, we cease to buy it and buy something else. Of course, I am speaking of things that we can get along without."^ Other courts have said: "Excessive competition may sometimes result in actuai injury to the public, and competitive contracts, to avert per- sonal ruin, may be perfectly reasonable. It is only when such contracts are publicly oppressive that they become un- reasonable and are condemned as against public policy." ^ "While, without doubt, contracts which have a direct tendency to prevent a healthy competition are detrimental to the public, and consequently against public policy, it is equally free from doubt that when such contracts prevent an unhealthy competition and yet furnish the public with adequate facilities at fixed and reasonable rates, they are * Dissenting opinion of Justice Holmes, in Dr. Miles Medical Co. vs. Park & Sons Co., 220 U. S. p. 373- 'People vs. North River Sugar Refining Company, 54 Hun. 354, and N. Y. S. 406. THE OLD ORDER CHANGETH 7 beneficial and in accord with sound principles of public policy. For the lessons of experience, as well as the deduc- tion of reason, amply demonstrate the public interest is not subserved by competition which reduces the rate of trans- portation below the standard of fair compensation." ^ "I think it would be unsafe to adopt as a rule of law every maxim which is current in the counting room. It was said some three hundred years ago that trade and traffic were the life of every commonwealth, especially of an island. ^ If it be true also that competition is the life of trade, it may follow such premises that he who relaxes competition commits an act injurious to trade; and not only so, but he commits an overt act of treason against the commonwealth. But I apprehend that it is not true that competition is the life of trade. On the contrary, that maxim is the least reliable of the host that may be picked up in every market place. It is, in fact, a shib- boleth of mere gambling speculation, and is hardly en- titled to take rank as an axiom in the jurisprudence of this country. I believe universal observation will attest that for the last quarter of a century competition in trade has caused more individual distress, if not more public injury, than the want of competition. Indeed, by reducing prices be- low or raising them above values (as the nature of the trade prompted), competition has done more to monopolize trade, or to secure exclusive advantages in it, than has been done by contract." ^ It is interesting to find such expressions regarding com- petition from the mouths of judges called upon to decide actual cases involving competition. Theirs is no academic theory evolved in the seclusion of the closet, but con- clusions reached in the adjustment of controversies be- tween man and man. There are plenty of courts that have held otherwise, that have talked about competition in the old way, that * M. & L. R. R. Co. vs. Concord R. R. Co., 66 N. H. lOO. ' City of London's Case, 8 Co. 125. •Kellogg vs. Larkin (1851, 3 Pinney Wis.) 123, 56 Am. Dec 178-181. 8 THE NEW COMPETITION have, in short, treated it as a fetish, instead of critically examining its claims to immunity. VI The world is filled with men who repeat, parrot-like, what others have said; that is the easy, the natural, the safe thing to do. It may be just as well that the over- whelming majority of men do this, for stability depends upon tradition, but progress follows in the footsteps of him who challenges, who utters the insistent "Why?" who accepts nothing on hearsay, but goes straight to the root of things and finds out for himself. It is the business of the ofiEce-seeker and holder to curry favor — that is, he thinks it is, and it is this convic- tion that governs his tongue. He speaks the things he thinks the people wish to hear. He does not know they would like to hear the new thing and the true thing. He does not realize that while he is repeating what he has heard and what he has read, reiterating the worn-out phrases, there may be those in his audience who are think- ing about coming things, who are eagerly listening for just one word that will throw some light on the problems of the day, and they are the only ones worth talking to. Of what use is it to talk to the laborer or the small merchant about the glorious benefits of the old competi- tion when they know it is the old competition that is stifling them, when the laborer knows that his Union has absolutely suppressed competition in his particular trade, when the merchant knows that if the competition to which he is being subjected at the moment continues six months, he will be bankrupt ? The man who hires labor or buys goods may applaud the familiar utterance, but even he has his competition in THE OLD ORDER CHANGETH 9 what he has to sell, and while he would like to destroy the labor union and prevent the merchant from cooperating with other merchants, he, himself, has his own interests he would like to protect by some form of combination with his competitors. While these words are being written the Governors of a number of Southern States are conspiring together to devise a scheme whereby their cotton-growers will get' better prices for their cotton, whereby corppetition will be checked, production controlled, and, in the end, the mills- be made to pay more for raw material. A laudable enter-, prise surely — from the point of view of the grower — ^but how about the consumer, and how about the law, and how about the speeches of those very Governors in support of those laws which say competition must flourish unfettered ? Congressmen and Senators from the cotton-growing States are especially eloquent in this behalf, the Sherman law has no more fiery and uncompromising defenders — when Northern trusts are involved. VII Efforts to suppress competition in products of the soil are not confined to the Southern States. In the North high political officials have lent the sanction of their presence and approval to movements to control prices of farm products. In fact, so far as the politician is concerned, he sees no evil in the union of laborers, cotton-growers, to- bacco-growers and farmers — i. e., voters — to absolutely fix prices; they may combine, strike, boycott, pool, store, de- stroy, do anything they please, but let the capitalist, the employer, the manufacturer, do a tithe of these things and there is trouble. To the politician the combination of labor can do no 10 THE NEW COMPETITION wrong, the combination of capitalists can do no right. Only the judge who is called upon to administer the law to all men alike sees no distinction, and, following the letter of the law, impartially condemns combinations of both, thereby proving the futility of the law, for if there is any- thing certain it is that combinations of labor are with us to stay in one form or another, and it is no whit less certain that combinations of employers are here to stay, and it is for society to make the best use of both. ^ VIII Times are changing and, with the times, business meth- ods. Secrecy is yielding to publicity, men are coming out' into the open and dealing more fairly with one another. As an inevitable result competition is undergoing a change, the old is giving way to a new, true competition is taking the place of the false. The country feels that things are happening, but they are happening so fast it does not quite comprehend. The people do not understand the new competition that is slowly but surely taking the place of the old, courts do not under-* stand it, legislatures do not understand it, therefore they oppose it and vainly try to preserve the old and vicious order of things — try to make men fight when they no ' longer wish to fight, to make them destroy one another industrially and commercially when they are striving to establish industrial and commercial peace. The old cry, "Competition is the life of trade," is yield- ing to the new cry, "Cooperation is trade." The old cry is the echo of primitive and barbaric conditions; it never did mean competition on terms of fairness and equality, it meant the relentless suppression of the weak* the merciless THE OLD ORDER CHANGETH ii triumph of the strong, it meant methods so questionable they are now condemned as criminal. The old, with its unfair advantages, its secret prices ' and rebates, its conspiracies to ruin competitors, help . favored parties, localities, towns, at the expense of others, is passing; the new is taking its place, is winning its way in spite of ignorant clamor, regardless of legislative enact- ments, in the face of hampering decisions ; it is winning its way because, fundamentally, it is right — it is progress. CHAPTER II WHAT IS COMPETITION? I What is competition? The man in the street laughs at the question: "Why, everybody knows what competition is.'* "Well, what is it?" "It is the effort of the other fellow to get my job/' the laborer cries. "It is the effort of the other man to get my customers," the merchant and manufacturer respond. "It is the fierce struggle for life and means, the elimina- tion of the weak, the survival of the strong," the biologist says, and dismisses the subject. Is it so? Then competition is not worth preserving; it is a bio- logical rather than an economic, a natural rather than a hu- man condition; it is part of the philosophy of evolution rather than a matter of ethics; it is on a level with those relentless forces with which men are striving; like the familiar doctrine of the "survival of the fittest" it is more than non-human it is inhuman. II Granted that the universe is an evolution, that man is an evolution, that society is an evolution — ^that all are products 12 WHAT IS COMPETITION? 13 of that one fundamental law, the survival of the fittest, which is neither more nor less than competition in its fierc- est form — what then? Do we pass laws to foster this competition, to make it more certain that the weak disappear and the strong sur- vive? Do we bend all our efforts to that end? No, only in the breeding of plants and animals do we try to aid the law of natural selection, and even with animals we are tender toward the sick and old — toward those nature is trying to eliminate. We even pass laws to protect them Snd organize societies to help them. When it comes to human beings only savages permit the law of the survival of the fittest to work unchecked; they expose infants, abandon the sick, kill the aged — ^they are evolutionists without human compunctions, they are biologists without hearts. Civilized man, in his struggle for existence, forgets that law which the evolutionist says is the foundation of progress. Were it not for a few savage examples to the contrary we might say he fights it instinctively. But fight it he does with laws, with customs, with' moral sanctions, with social conventions, with individual standards of right and wrong, with praise for those who sacrifice their lives for others, with words of scorn for the selfish and cowardly — in short, with almost every legal, so- cial, and moral force do men fight for the preservation of the sick, the weak, the helpless, the very beings the cold doctrine of evolution says should be eliminated. Of the struggles for existence in the animal world Huxley said, "The creatures are fairly well treated and set to fight; whereby the strongest, the swiftest, the cun- ningest, live to fight another day." Of the struggle in the human world he says in a later lecture, "Social progress means a checking of the cosmic forces at every step, and the substitution of another, which 14 THE NEW COMPETITION may be the ethical process ; the end of which is not the sur- vival of those who may happen to be the fittest, in respect to the whole of the conditions which exist — but of those who are ethically the best." And the proof of the ethically best, of the purest and loftiest souls, lies in the care taken of, and the sacrifices made for, the weak, the idiotic, the insane, the criminal — if you please. In the language of another, "If it be true that reason must direct the course of human evolution, and if it be also true that selection of the fittest is the only method available for that purpose, then, if we are to have any race improve- ment at all, the dreadful law of the destruction of the weak and helpless must, with Spartan firmness, be carried out voluntarily and deliberately. Against such a course all that is best in us revolts." Ill In his social relations man has made vast strides in ad- vance of the bald biological proposition, progress is a sur- vival of the fittest. In his commercial and industrial relations he is in that ' savage condition wherein the "destruction of the weak and helpless" is carried out, not only "voluntarily and deliber- ately" and "with Spartan firmness," but with precisely the satisfaction a Roman audience watched one gladiator slay another, or a wild beast devour a Christian. A distinguished professor says: "The big company has a right to beat the little one in an honest race for cheap- ness in making and selling goods; but it has no right to foul its competitor and disable it by an underhand blow." ^ That is the theory of the thorough-going evolutionist — ■ ' Prof. John B. Dark, "The Control of Trusts," p. 15. WHAT IS COMPETITION? 15 the "big" fellow" has the right to survive because he has the brute force, the "little fellow" must and should go to the wall in order that the "fittest" may live and the com- mercial race be improved ! Strange how these crude propositions drawn from nat- ural development persist in the field of economics long after they have disappeared from the field of ethics. In all social, mental, moral progress, in their daily lives, men give the lie to the proposition that the strong have the right to elbow the weak to one side ; on the contrary, it is recognized that the most precious privilege of the strong ;f is the succoring of the weak — that is life at its best. If such is the law of man's social, intellectual, and moral development, why should not the same high obligations ob- tain in his commercial and industrial development ? ^ That is a question every writer, every speaker on the subject should ask himself, and remain silent until the answer comes, for at heart it is not a question of making money but of making men. It is a question every legislator should be able to answer before he frames new laws to encourage the old, the nat- ural, the brutal competition. Why pass laws to help one man to get the work, the customer, the livelihood, the very bread of another? Why copy nature in her most drastic mood? IV Nature is merciless, she knows no pity. "Survival of the fittest" is her goal. The way is strewn with corpses of the weak, with the debris of the rejected. Nature has no use for the lame, the halt, and the blind ; her prizes are to the strong, and to only those of the strong who have no heart, who unfeelingly trample on the necks of others. The 1 6 THE NEW COMPETITION slightest hesitation is fatal ; the man who lags behind to lend I a helping hand never catches up; the man who lifts the! weak, carries the old, sits by the side of the sick, is a fool. Nature's competition is a battle in which no quarter is given. Why should man compete so blindly, so mercilessly? Why should we seek to make it a law of the industrial world that only the young, the strong, the vigorous shall find employment? Why should it be a law of the commercial world thatf only the big, the rich, the powerful shall survive? Because that is the natural order of things it does not| follow it should be the human. The human law should be not the survival of the strong, but the survival of all, of the best there is in all, and, oftentimes, there is more of good, more of real value/ to humanity in the weak than in the strong. The decrepit body may be of little use to nature, but to mankind it may possess a priceless content, and even though the aged are a burden from a material point of view, they are needed to develop those qualities of sym- pathy and unselfishness, of devotion, and love that lift men toward the angels. ^No, competition — true competition — is not the mere striving of two men to get the same job, the same customer,! the same material advantage — it must be something finer! and better than that. '' Toward contests for industrial success the attitude of the American public is that of the eager spectator at a prize fight — the fiercer, the bloodier the contest the better; the slightest sign of relaxation on the part of either con- testant, the slightest sign of a disposition to quit is greeted WHAT IS COMPETITION? 17 with howls of derision, the fight must go to the limit, there must be no let-up before the final blow, and the greater the punishment received by both the more successful the event — from a sporting point of view. With just that indifference to the fate of the individual does the public watch two merchants or manufacturers struggle for supremacy. Everybody knows the contest can- not last long, that one or the other, perhaps both men, will go into bankruptcy to the detriment of creditors, employees, families. Everybody knows that when one is disposed of somebody — ^and that "somebody** is the public — must pay' the cost of the wasteful rivalry, that, in the long run, no good can result from men trying to ruin each other by sell- ing goods below cost, yet if the two try to get together to put an end to the disastrous competition they are liable to prose- cution as criminals. If they organize a company to own and operate both their stores or factories the combination is a monopoly, or in restraint of trade, and a violation of law. The public, like the spectator at the prize fight, howls in anger at the slightest sign of cessation of hostilities before a "knock-out.'* That sort of competition is not worth while. It is not worth fostering and preserving. It savors of the dark ages of progress, of those primitive and savage conditions when the weak were abandoned, the old were killed. It is a curi- ous persistence of a natural, a biological law in the indus- trial world long after man in his social and moral relations has advanced to higher and finer ideals. ^Morality has made progress in every department of hu- man thought save that of economics. Ethical standards have been set up in every branch of human activity save that of making money. / V i8 THE NEW COMPETITION VI Of all the rivalries in which man engages brute competi- tion in the production and distribution of wealth is the most contemptible, since it is the most sordid, a mere money-making proposition, unrelieved by a single higher consideration. This is not the fault of competition — of rivalry as such — ^but of ouV industrial economy. There is nothing in- herently wrong in rivalry in the large sense of the term; on the contrary, it is a most powerful incentive toward per- fection, ethical, aesthetic, and material ; it is the most power- ful incentive toward cooperation, which is the foundation of progress. / ^ / Rivalry — competition in its broadest significance — is the earnest, intelligent, friendly striving of man with man to attain results beneficial to both; it is neither relentless nor , indifferent ; it is neither vicious nor vindictive, it is not in- considerate, nor is it wholly selfish; it is not mechanical, but human, and should be, therefore, sympathetic/ CHAPTER III COMPETITION IS WAR, AND "WAR IS HELL" I Academic definitions do not help much toward ascertain- ing what competition really is. One says it is the "aspiration of two or more persons to the same office, dignity, or other advantage," which is about as illuminating as to say it is a — word. A little more specifically it is said to be, "the rivalry which exists between manufacturers, merchants, etc., whether concerning the quality of their products, their mer- chandise, etc., or concerning prices, with a view to sharing the profits of the same branch of commerce, industry, etc." ^ *A writer in the last edition of the Encyclopedia Britannica says: "Competition, in the sense in which the word is still used in many economic works, is merely a special case of the struggle for survival, and, from its limitation, does not go far toward explaining the actual working of modern institutions. To buy in the cheapest market and sell in the dearest; to secure cheapness by lowering the expenses of production; to adopt the less expensive rather than the more expensive method of obtaining a given result — these and other maxims are as old as human society. Competition, in the Darwinian sense, is charac- teristic, not only of modern industrial states, but of all living organ- isms; in the narrower sense of the 'higgling of the market,' as found on the Stock Exchange, in the markets of old towns, in medieval fairs and Oriental bazaars. In modern countries it takes myriads of forms, from the sweating of parasitic trades to the organization of scientific research. Economic motives, again, are as varied as the forms of competition and their development is coeval with that of human society. "They have to be interpreted in every age in relation to the state of society, the other notions or ideals with which they are associated, the kind of action they inspire and the means through which they operate. Apparently the same economic notions have led in the same age and 19 20 THE NEW COMPETITION A better definition is that it is "The effort of different individuals engaged in the same line of activity each to benefit himself, generally at the other's expense, by render- ing increased service to outside parties." ^ A German writer separates the struggle for existence into two divisions, (a) struggles for domination, and (b) struggles for annihilation. "The struggle between buyer and seller in a bargain is of the former sort; each tries to make the other serve him as fully as possible, but does not desire his annihilation. The struggle between different buy- ers, or between different sellers, is of the latter class ; each is desiring to get rid of the other so far as he can. Competi- tion, then, is the legalised form of the struggle for annihila- tion in modern life. . . . Legalized because of its tendency to benefit an indefinite number of third parties, and thus become a means of collective economy of force and of general benefit to society," ^ II Why is it so difficult to define competition? Why are the definitions suggested so vague in terms they include al- most every motive that controls human effort? in the same nation to monopoly and individual enterprise, protection and free trade, law and anarchy. In our own time they have inspired both the formation of trade combinations and attempts to break them up, hostility to all forms of state interference, and a belief in collec- tivism." * "Dictionary of Philosophy and Psychology," edited by James Mark Baldwin, Ph.D. The definition and article are by President A. T. Hadley, of Yale, who goes on to say: "Important as the term 'com- petition' is, there have been few attempts to define it." It is not taken up in Malthus' "Definitions." Mill lays down important propositions about its action, but seems to assume the fundamental meaning of the term as self-evident. Walker defines it by antithesis, as opposed to combination, custom, statement. Marshall says: "The strict meaning of competition seems to be the racing of one person against another with special reference to the bidding for the sale or purchase of any- thing." ' Article above referred to. COMPETITION IS WAR m The trouble is we attribute too much to competition; it is either feared as an evil or worshipped as a fetish, it is held accountable for nearly everything that happens, not only in the industrial and commercial world, but in the de- velopment of society, of even life itself ; it is a biological, a sociological, a philosophical, an economic, a political term, used indiscriminately in a thousand connections, meaning one thing here, another, and fundamentally different thing, there. In short, competition is on a level and practically syn- onymous with terms such as "struggle," "contest," "ri- valry," hence its broadest definition can be no more specific than their definitions. Everybody knows what a competition is, but no one can say off-hand what competition is ; everybody knows what a struggle is, but few could give a definition of the term so comprehensive as to include every conceivable struggle. That is the trouble with defining competition generally. It must be considered, not necessarily defined, in connection with each particular rivalry. In its elements competition is : 1. The effort, 2. To secure, 3. An advantage over others. But the same is true of "contest" and "rivalry." Yet everybody knows, or has the feeling, that competition has a meaning of its own, especially when used in connection with trade and commerce, and so it has, but it is a meaning that cannot be defined because it is not so much a term of specific significance as it is the appropriation by long usage of a particular word to a particular connection. "Contest is the life of trade," or "Rivalry is the life of trade" would answer just as well and mean as much. Biology has appropriated the word "struggle" — "strug- 22 THE NEW COMPETITION gle for existence" — "competition" for existence would have answered just as well. The biologist may lay great stress upon the struggle for existence as a biological fact, he may even go so far as to, elevate the fact to the dignity of a condition of progress, but he does not set up his "struggle" as a fetish to be pro- tected by law, to be preserved and encouraged at all hazards, as political and economic writers insist their competition shall be fostered^ The humane philosopher accepts the "struggle for ex- istence," but he accepts it reluctantly and regretfully; he seeks ways to modify it, he gladly looks to human sym- pathies and human cooperation to alleviate, if not com- pletely nullify, the harsh law. In sharp contrast, the old-school economist — followed by legislatures and courts — magnifies his competition to the proportions of a god, a god like unto those savage idols that demand the blood of human sacrifices, of women and little children. Ill The cry that competition must be preserved, must not be curtailed, must not be suppressed, is a senseless cry; in and of itself it has no more meaning than a cry that "strug- gle must be preserved," "rivalry must not be suppressed." Some competitions, like some struggles, should be rigidly suppressed by law, others by custom, others by voluntary cooperation. Per contra, there are many forms of com- petition that are so beneficial they should be neither sup- pressed nor curtailed. It all depends upon the particular competition, the par- ticular form of rivalry. If the average man were asked the following questions COMPETITION IS WAR 23 he would probably make the following replies — each con- taining a broad qualification : "Do you believe in fighting?'* "Why no — but there are times " "Do you believe in contests?'' "It all depends upon what they are." "Do you believe in rivalry?'* "Of course, when it is '* "Do you believe in competition?" "Generally speaking, yes, but, hold on, what sort of competition do you mean?" The man who says he believes in competition ninety- nine times out of a hundred has in mind the rivalry of those who are trying to sell him goods — he thinks that is a good thing. The man who says he does not believe in competition has quite another sort of competition in mind and ninety-nine times out of a hundred it is his own rivalry with others in the same business to sell goods — he would very much like to modify or suppress that competition. One does not have to go far afield for illustrations of the results of competition in the world of labor, trade, and industry to prove that, so far from being a good thing — much less a sacred thing — it is as disastrous to the material advancement of the community as war, and disastrous in very much the same manner — in appalling waste of time, effort, money, and life, for competition is war, and "war is hell," as General Sherman said. The thoroughgoing evolutionist, the hero-worshipper, the believer in the superman, will argue that war has made man what he is and reason to the conclusion that humanity must be left free to "fight it out." To that argument and that conclusion there is no ade- quate answer, since no man can say what the world would be to-day if there had been no wars, no struggles, no fierce 24 THE NEW COMPETITION competitions resulting in the elimination of the weak; but one thing is certain, that, while there are and will be for generations — possibly forever — wars and struggles, and fierce competitions in which no mercy is shown, the intel- ligence and better impulses of mankind are opposed; the peoples of the earth may fight, but they do not believe in fighting. IV The foundation of society is not competition, but co- operation. The family is a cooperative unit. Cain and Abel com- peted over their offerings and their rivalry resulted in mur- der. To-day the hand of brother is raised against brother as the result of fierce struggles for wages, place, position, power — the slugger and the dynamiter are Cain's succes- sors. The tribe, the village, the state, the nation, are all stages of cooperation, and the perfection of each depends upon the effectiveness of the cooperation. Not until the thirteen colonies were willing to sink, in a large measure, their jealousies and cooperate was it pos- sible to form this Republic, and the very term ''United" States signifies the cooperative basis of our national ex- istence. The competition between the North and South cul- minated in attempted secession — an assertion of individual- ism — and a war that cost the lives of nearly a million men to reestablish federal cooperation on a lasting basis. Without cooperation progress, life itself, is impossible. It is a law of brute nature that animals cooperate for a time to feed and protect their young. Only in the very lowest forms of life is this cooperation lacking; the higher the form the greater the cooperation necessary if the species is COMPETITION IS WAR 25 to be preserved. In the case of man the cooperation of parents is supplemented by that of the tribe, the community, the state, and, in the better days to come, the woefully im- perfect present cooperation of the state will develop into an intelligent and far-seeing interest compared with which that of the parent to-day is ignorant and inefficient. In the world of trade and industry success is the result of cooperation. Division of labor is cooperation. The vital condition that each man may devote himself to the pursuit for which he is best fitted depends upon coopera- tion; Cooperation is interdependence, a sacrifice, and, at the same time, a gain of independence. The farmer depends upon the manufacturer for his goods, the manufacturer upon the farmer for his food, but this very dependence leads to larger individual independ- ence, to broader opportunities for individual development. If each man were obliged to produce all he needs the world would be in a condition lower than that of the lowest known savages, for with even them there is some division of labor, some cooperation. The history of every people of every nation has been / the history of the rise and fall of cooperation. The history of every industry has been a story of the rise and fall of cooperation. Every partnership, every association, every corporation, every trust is cooperation — for what? To produce results, to get larger returns for time and money ^pent. Whether this form or that form of cooperation is right or wrong is not here under discussion ; only the effect of co- operation as distinguished from competition. The terms as heretofore used are diametrically opposed. It is the purpose of this book to show wherein the New Competition is a highly developed form of cooperation, but the New Competition has little in common with the old. 26 THE NEW COMPETITION So far from promoting progress, competition stays and hinders; it generates the bitterness, the jealousy, the dis- trust that disintegrate families, partnerships, classes, states, and nations. Competition is progress only in the sense that the war of the Rebellion was progress, in that it resulted in a stronger cooperative commonwealth; a result that intelligent men should have achieved by peaceful means. Rightfully viewed, there is not a single good result ac- complished by man in politics or economics commonly at- tributed to wars, struggles, competitions, that should not be attained by intelligent and far-sighted cooperation. That it should be argued that the lives of a million men, the tears of more than a million widows and chil- dren were necessary to more firmly cement together the states of this union is a lamentable confession of human in- competency. The argument that it is necessary for countless numbers of men, women, and children to freeze, starve, suffer an- nually in order that competitive conditions in the labor and industrial world may be maintained and society profit by their misery, is again a lamentable confession of human in- competency, The proposition that thousands of merchants and man- ufacturers, of builders and contractors must be encouraged to ruin each other in order that the community may get goods at less than cost is another lamentable confession of human incompetency. The blind worship of competition is the root of all these errors. COMPETITION IS WAR 27 The benefits of competition have been classed as fol- lows ^ : i.v '^As the regulator of prices, this is the one on which the greatest stress has been laid in the past." 2. ''As a stimulus to productive eiHciency and espe- cially to the introduction of new methods/' 3, ''As a means of educating the community in rational egoism, teaching its members that they must seek their industrial success, not in giving as little as possible to those with whom they deal, but as much as possible/' As a matter of fact, competition leads to precisely con- trary results, and the fiercer the competition the more disastrous the outcome. I. Cooperation, whether voluntary or involuntary — compelled by law — is the only regulator of prices. Com- petition, free and unfettered, is absolutely destructive to all stability of prices. Before the Interstate Commerce Law, regulating railway rates, competition reigned and rates varied arbitrarily from day to day, from person to person, from place to place, with countless rebates and secret fa- vors; to a certain extent the railroads, from time to time, cooperated to control conditions by pools and associations, but not until the Government stepped in and called a halt to vicious competition were rates regulated in any permanent manner. The proposition is too simple to call for demonstration since every man knows that it is the appearance of a com- petitor that causes prices and wages to drop, and every *By President Hadley, in the article referred to. 28 THE NEW COMPETITION labor-unionist, and every small manufacturer know that where cooperation is effective wages and prices are more constant. The very theory of our anti-trust laws is that they sup- press cooperation, and, by encouraging competition, pro- mote the widest possible fluctuations in prices — for the sup- posed benefit of the consumer who is — the law forgets — first of all a producer. 2. This error is more firmly grounded. If competi- tion is a disintegrating and wasteful force then it cannot possibly be "a stimulus to productive efficiency," and it is not. Its effect is altogether disheartening and discouraging. It may seemingly result in introduction of new methods and new inventions, but progress in these directions is due to broader influences. The great inventions of the world were not due to com- petitive conditions — competition had no more influence on Watts than on Newton. Bell's interest in the telephone was primarily scientific. Few inventions have been so perfect at the outset that competitors could at once make use of them. On the contrary, it has usually required long co- operation of labor and capital, in the face of jeering op- position, to bring an invention to practical perfection. It is true artificial monopolies resting upon grants from the crown or state have been notoriously indifferent to ad- vancement, but not so with monopolies resting upon the ability of men to hold trade; they are as quick to develop improved methods as if they had many competitors. The Standard Oil Company was charged with having b^en for a generation or more a monopoly, yet no one would claim its methods were not up to date — the actual complaint is that its methods were a little too advanced to admit of competition. As a producer and distributor of oil that com- pany has led the world. The United States Steel Corporation is charged with COMPETITION IS WAR 29 being a monopoly/ and beyond the reach of competition, yet no independent steel man would assert for a moment that the Corporation is indifferent to new methods and processes — in the scientific application of recent discoveries it is a pioneer, its experiments are being watched with interest. It takes capital, strength, courage to try new inventions, new methods, and competition exhausts a man's capital and saps his courage. While the old competition accomplishes none of the good results attributed to it, the cooperation at the basis of the new does. 3. Competition does not educate the community in "rational egoism," but, on the contrary, develops an irra- tional and belligerent individualism — ending in artificial combinations and consolidations. It does not teach that the basis of industrial success is the giving as much as possible, but, on the contrary, the fundamental proposition of competition is to give as little and get as much as possible. Competition is the most pow- erful incentive to selfishness known to man — it is selfish- ness. "Rational egoism," altruism, unselfishness, generosity, have their foundation in cooperation. Cooperation is essentially constructive; competition de- structive. Even war is a conflict between forces, the strength of each of which depends upon the degree of cooperation — of unity — attained, and it is easily discernible from the most casual survey of history that whatever of good comes out of war depends upon the extent to which the successful side is more closely knit together by the force of the con- flict. * As a matter of fact, the two companies referred to were "monopo- lies" only in the sense that they dominated their respective industries; aside from patent, natural, and public-service monopolies few real monopolies exist in this country. 30 THE NEW COMPETITION All there is of good in competition is its tendency to re- sult in closer cooperation, greater harmony, closer and finer relations between the, for a time, conflicting units. ^ Disintegration leads to integration — if not the world would have been doomed long ago. Integration attains a certain degree of perfection and again disintegrates, but each ebb and flow must mark a new high level in human achievement, else there is no real progress. VI A right understanding of what competition is in the world of trade and industry is so important that we will give a few instances, each of which is typical of a large class. In the labor world a small town is dependent upon a large factory, it has grown up with the factory, it is pros- perous because the industry is prosperous. One of two things happens : ( i ) The owners of the factory see an opportunity to increase profits by bringing in cheaper labor ; or (2) the men employed ask for better wages and the owners meet the demand by threatening to employ or actu- ally employing cheaper labor from other places. The foregoing is a bald outline of a situation that often prevails where there is a controversy between employers and employees regarding wages and terms of employment. The strength of the employer lies in the struggle — the com- petition — of men for employment; the weakness of the em- ployees who have grown up with the factory, who own their homes, lies in this competitive condition which imperils not only their places but their savings. COMPETITION IS WAR 31 VII Formerly mines, factories — employers generally — could import labor from abroad; competition was world-wide. The law now forbids that sort of competition. Many state laws go farther and, by ingeniously devised restricr tions, seek to make it difficult for employers to bring in "strike breakers" — i. e., competing labor — and, if brought in, make it difficult to adequately protect the new comers. So much for "competition" in the labor world ; it is not looked upon as the good thing it is supposed to be, and labor unions are doing all they can to absolutely control it; their methods may be crude and brutal, but they are strug- gling with a crude and brutal competitive condition. Near one of the principal hotels in New York there was for years a small and well-managed drug store. In a quiet way it did a very good business. One day two stores next to it were rented and in a few weeks merged into a glass and marble "palace" that sold drugs at "cut rates" and nearly everything else that would attract custom. The em- ployees of the small store were all men except the cashier; the employees of the large are mostly boys and girls. The inevitable result was the disappearance of the small, it closed up; the large is simply one of a "chain" of "cut rate" drug stores operated by one large company; against such competition the individual owner, or even the owner of two or three stores has no chance; the appearance of the big company in a block is a signal for the small to disappear. This is competition ; there is no question about that. It is a very modern sort of competition. It is typical of the department store, the mail-order house, the company with branches here, there, and everywhere — it is the last word in "gut rate" — "cut throat" competition. 32 THE NEW COMPETITION The bloodless economist will say, "Let them alone, it is evolution, the fittest will survive." But that is just the question, will the fittest survive? The strongest may, but fittest! That is another question. If survival means the displacement of men by women and girls, and the disintegration of the family into compet- ing units, if it means a cheapening of quality all around, above all a cheapening of the atmosphere, if it means loss of personal interest and personal touch, then it may not be the fittest for the betterment of either those directly inter- ested or of the community as a whole. VIII Some years ago there was an old and long established company in England the products of which were standard the world over. A powerful American company wished to buy the Eng- lish company and control the business in Great Britain. The English company had no desire to sell and refused all offers. The American company, to force a sale, established a factory in England, flooded the country with an inferior and cheaper product, demoralizing the trade. In the end the English company was forced to sell. That was good old-fashioned competition. The prac- tice is common; it is common in the small town where the large dealer cuts prices to force a small to either sell out or get out. It is done in the world of "big business" when the large corporation deliberately invades the territory of the small and, by selling below cost, compels the latter to dis- pose of its business. In fact, it is part of the every-day tactics of the old competition. "And why not?" some one cynically asks. "Doesn't the COMPETITION IS WAR 33 public reap the benefit in the way of low prices while the war is on?" "Yes, but " What is the use of arguing with a man who thinks that competition of that character is beneficial ? IX Then there is the disreputable competition of those who sell out and immediately go into business again in opposi- tion to purchasers who buy in good faith. The law permits the purchaser to take a limited contract restraining the seller from immediately competing, but, aside from such contracts, and often in evasion of them, men who sell their establishments with good-will take the money they receive and open up in the same town, the same block, to get the very trade they sold. This is dishonorable but — competition, and the com- munity is supposed to benefit economically from a condi- tion that is morally bad — does it ? X The great mass of mankind are both sellers and buyers. As sellers they would stifle competition; as buyers they would foster it. Unhappily, they actually try to do both. The farmer demands freedom to organize his cooperative societies, but, in the same breath, demands laws to prevent other classes doing the same thing. The laborer insists upon his right to organize unions and dictate wages, and, in the same breath, calls for the enforcement of the law against the organization of em- ployers. 34 THE NEW COMPETITION The dealer and manufacturer is caught between the up- per and nether millstones — he is obliged to pay prices fixed by farmers' organizations and wages fixed by labor unions,] but cannot — under the laws of most of the states — organize with others for his own benefit. This is a condition so manifestly unfair and illogical it cannot exist for long, and while it does exist it engenders mischief and class hatred. The problem presented is by no means peculiar to this country, for the nations of Europe are struggling with it, but the condition is more acute here because we have forty- eight states and a federal government passing laws on the subject, and for nearly a generation passing laws — "anti- trust laws" — drawn in most drastic terms to suppress co- operation and promote competition. XI The Sherman Act was passed 1890. Since its enactment many suits have been begun to dis- solve "trusts" — combinations of dealers and manufacturers. Not a single suit has been begun to dissolve any onci of the large combinations of labor or of farmers, thoughJ the existence of such combinations arbitrarily controlling inter-state commerce is a matter of common knowledge.^ What is the net result of the enforcement of that law? A few "trusts" and a number of lesser combinations have dissolved, but where one has been suppressed five hundred have taken its place. No such era of combination and cooperative organization has ever been known in the history of the world as the period of twenty-odd years since the passage of the Sherman act. This movement has not been organized in "defiance" of iSee Chapter XIX. COMPETITION IS WAR 35 the law, but in response to irresistible forces — ^the same forces that brought the partnership, the corporation, the la- bor union, into existence; the forces that compel men to work together in harmony to accomplish the things mod- ern society demands of them. Just as the stage-coach, owned and driven by one man, has given way to the railroad, owned and operated by a hundred thousand men, so the individual laborer, farmer, merchant, small manufacturer, merges his identity in that of his union, his cooperative society, his large corporation, his "trust,'' to secure larger results, to do things on a larger scale, a scale commensurate with the marvelous develop- ment of the world of to-day. XII The country has reached the parting of the ways. It must make its choice, and make it intelligently — either the competitive or the cooperative basis. If the competitive, then no class should be permitted to organize a cooperative movement to get more for what it has to sell; if the co- operative basis, then no class should be prevented from or- ganizing — either one policy or the other, the two cannot exist together. The man who argues for competition must be consist- ent; he must argue against farmers' cooperative societies and labor unions just as vehemently as he argues against combinations of dealers and manufacturers. XIII We are in course of making this choice ; Congress is de- bating constructive legislation to supplement or take the 36 THE NEW COMPETITION place of the Sherman law, which is purely destructive' in its intent. But, judging from the debates in Congress and its com- mittees, this new legislation is not being considered in the spirit it should be. Many of the bills offered are directed against cooperation. There is still a belated cry for a more drastic "anti-trust" remedy, for a law that will purge the country of all combinations — all combinations except combinations of farmers and combinations of labor — no statesman proposes to frame a law that will interfere with them. But while many of our law-makers refuse to see condi- tions as they are, that is by no means true of all, and cer- tain it is that as time goes by the conviction gains ground in Washington that the country is passing slowly but surely from the old competitive basis to the cooperative, and what is needed are not futile laws directed against cooperation, but more legislation in aid of the new spirit that is abroad in the land, legislation that will help men to come together and work together, securing for the public the maximum of good from cooperation, and, at the same time, protecting the people and all classes from abuse of power by combina- tions. Many additional illustrations of unfair, oppressive, and disastrous competition are given in the following chapters, but no reader need go beyond his own experience and obser- vation for facts. The farmer knows that competition means lower prices for his produce, and so all over this country farmers are or- ganizing cooperative societies,^ to enable them to sell what *In addition to the many farmers* cooperative associations enume- rated in Chapter XIX, the following just at hand is in point: "Ken- tucky farmers are preparing to organize a farmers' union covering the entire state, and to establish a central store in every county seat. To date this union has been organized in only a few counties. Wherever the cooperated stores have been established they have given satis- factioix COMPETITION IS WAR 37 they have to sell for more money, to get larger and surer returns. The laborer knows that competition means lower wages, therefore he joins a union to suppress competition and ad- vance wages. The merchant and manufacturer know that competition means "cut-throat" prices for what they have to sell, hence they, too, try to form cooperative organizations to lessen competition ; but the law is not so indulgent to them, it tries to prevent their doing what farmers and laborers do. The only class in the community that profits from unre- stricted competition is the class that has nothing to sell, people who live on fixed incomes; their interest is in low prices. If they can buy what they want below cost they are happy, even though their advantage means ruination to the farmer, the laborer, the dealer, the manufacturer. But this class is small in numbers and importance as compared with the rest of the community, and not a few would have diffi- culty in justifying their right to be non-producers in any fair theory of social organization. "Solicitors for members are constantly at work, and by the time the tobacco, wheat, and corn crops are ready for harvest, many more counties, it is expected, will take up the plan. "A meeting held in Lexington was attended by leading farmers of different parts of the state. Many of these were members of the old American Society of Equity, established several years ago to force higher prices for tobacco and other farm products from trusts, which then controlled these products. "From the agitation started by the American Society of Equity came the Burley Tobacco Society, which now controls the production of more than 200,000,000 pounds of tobacco annually in Kentucky, Ohio, Indiana, and West Virginia." Another instance from Illinois: "Farmers of Cumberland and Cole counties signed an agreement to-day pledging themselves not to raise broom-corn for five years unless the dealers will guarantee them a price to exceed $120 a ton in advance of planting. For twenty years the two counties have been the broom- corn center of the country." President Taft recently advised consumers to form cooperative societies, after the English type, to eliminate the profits of exchange by buying direct from producers. And Colonel Roosevelt, speakinjj to Minnesota farmers, has advised them to form cooperative societies to eliminate the intermediate dealers and sell direct to the consumers. CHAPTER IV GROWTH OF COOPERATION Every railroad, every telegraph, every telephone, means cooperation, and cooperation means combination in one form or another. Before the railroad merchants in towns fifty miles apart did not compete with one another; each could charge prac- tically what he pleased; prices could vary fifty or a hun- dred per cent, without affecting trade appreciably. A low man might draw trade from territory within, say, twenty or even fifteen miles of the other town, depending upon condition of the roads, season of the year, etc., but the high man in the second town would have customers the other could not reach, customers who could not afford to go the extra distance to make the saving in price. A railroad between the towns changes their economic re- lations; now a very slight difference in prices draws trade one way or the other. Theoretically, and, in large measure, practically, the measure of the opportunity of the merchant in one town to charge more than a merchant in another for like goods, is measured by the fare to and fro between the towns, plus the element of loss of time. When an electric line is built, running cars every half hour and carrying passengers at nominal rates, the two 38 GROWTH OF COOPERATION 39 towns, so far as prices and competition are concerned, vir- tually coalesce. As a matter of fact, smaller towns within twenty-five or fifty miles of large cities are placed in positions of great disadvantage by the rapid spread of electric car lines; they are made suburbs, and trade is seriously affected. Cities attract trade with a force far beyond the eco- nomic advantages offered. Men and, especially, women like to do their shopping in the larger places, even though they lose car fare and time by doing so, and pay as much as their local merchants ask for the same goods.^ Railroads were slow in building compared with the phenomenally rapid spread of electric lines incident to the development of the trolley. The latter are so easily and in- expensively constructed they have spread everywhere within a few years; they and the telephone, with rural postal de- livery, have brought the farmer into the city, until it is now as easy for the farmer's wife to do her shopping and marketing as it was for the townsman's wife a generation ago. The parcel post will still further annihilate distance; it will place the department store and the big mail order house five hundred or a thousand miles away on a footing of equality vath both the country and the city merchant; it will intensify competition by bringing in new and powerful factors. The country merchant sees this, he reads the handwrit- ing on the wall, and he joins hands with the express com- panies in opposing the parcel post. He is willing it should be tried on rural deliveries because that means he will be able to get his parcels delivered to his customers at a nominal cost while the city house will be excluded. * "Not long ago the merchants of a Wisconsin city made vigorous protests against the low passenger charges to Chicago, in order to keep the people in the city from going to Chicago to purchase supplies." — Prof. R. T. Ely, "Evolution of Industrial Society," pp. 249-250. 40 THE NEW COMPETITION But the parcel post is at hand and it will affect local trade very much as the railroads affected it years ago, very much as the trolleys have affected it in times more recent — in short, precisely as every cheapening of transportation is bound to affect trade, by widening the competitive area. II There are two ways in which the competition of a given dealer or manufacturer may be increased: (a) By the establishment of a rival in the locality — the intensive way: (b) by the widening of the area of com- petition by improvement in facilities for communication and transportation— the extensive way. So far as the local merchant is concerned one may be as disastrous as the other, since both mean division of trade. So far as the community is concerned the effects are different. In the first case a new shop is added to the sum total of all in existence (unless it has been moved from some other place) ; in the second case no new capital is invested or labor employed, save as some additional may be required by the larger establishments to take care of the trade ab- sorbed from the smaller. In times past it was competition of the intensive sort that men feared and resented. The local carpenter, brick- layer, blacksmith, miller, merchant, fought the newcomer as an intruder. The medieval guilds were organized in large part to protect localities against intensive competition — competition within the gates. The modern labor union, with its re- strictions regarding apprentices, its opposition to immigra- tion, and its arbitrary requirement that unionists from other places must take out local cards— if they can — fights inten- sive competition, the intrusion of the stranger. Formerly extensive competition — the competition of dis- tant localities — was a negligible quantity, made so by dif- GROWTH OF COOPERATION 41 ficulties in communication and transportation, by tariffs, taxes, brigandage, etc., etc. Nowadays it is the extensive competition, the competition of city with city, state with state, country with country, that is affecting prices and wages. And it is this competition that must be dealt with in a big way and a broad way. It cannot be suppressed, it cannot be checked, unless mankind wishes to suppress steam, gasoline, and electricity — ^but it may be controlled and transformed. Ill The history of nations shows how the pendulum of progress swings to and fro from perfection in little things to perfection in big things. At the same period one nation may be doing things intensively, while another is doing things in a spirit of extension; one may be living a life of extraordinary fullness within its gates, another may find satisfaction only in conquering the earth. Again at different periods the ambitions of mankind are widely different. For a time the nations are content within their borders, are absorbed in building their cities, their cathedrals, their monuments — in artistic and intellec- tual pursuits ; the conflicts are few and personal or local in character; there is an astonishing development of every trade, every craft. Suddenly there comes a change, due, perhaps, to some great invention or discovery, or, perhaps, to the restless personality of some mighty leader who re- flects the spirit of hia times. The period of intense develop- ment is at an end ; as if moved by one impulse the nations embark on a period of conquest, of discovery, of coloniza- tion; a period wherein local barriers are annihilated and countries come together in one grand clash, one supreme struggle either on the field of battle or in the more bloodless but none the less fierce rivalry for commercial and indus- trial victories. 42 THE NEW COMPETITION We are in the midst of one of those great movements, one of those world-wide conflicts. It is so fierce that again and again are nations on the verge of declaring war for no reason whatsoever except trade jealousy. Projects of ter- ritorial expansion are justified by commercial reasons. Controversies concerning this country or that, over China, Persia, Turkey, are in substance, if not in form, trade con- troversies. The world has gone mad over trade and the problems of trade. Financiers and diplomats exhaust their energies trying to devise new schemes, new treaties, new tariffs whereby one nation can sell the world more than it buys, whereby the "balance of trade" can be turned hither and thither at the will of man — this is the era of "dollar diplo- macy.*' The conquests of Alexander, of Oesar, of Napoleon, were as nothing compared with the struggle that is now on for trade supremacy — a. struggle that is made fiercer from year to year by marvelous inventions and developments in means of communication and transportation. Peoples, heretofore safe in their isolation, are swept into the mael- strom — the globe is a sizzling unit.^ IV Intense competition makes for quality, extense for quan- tity. At this moment the cry is not "how good," but "how much." In the mad race for wealth, for gross production, the beautiful is lost sight of, there is no love or longing for ^ This forecast was written early in 1912 when the world seem- ingly was at peace. The prediction has been quickly realized. The bitterest — and true — cause of the present war is the rivalry of Ger- many and Great Britain for trade supremacy. This country has caught the virulent fever and is ambitious to reach out for the markets of the globe. We, too, seek war, for war will surely follow. Foreign trade is the most dangerous will-o'-the-wisp a nation can pursue; it is the great economic illusion. GROWTH OF COOPERATION 43 perfection — it is "More, more, more — Oh God, give us more !" With an indifference to the morrow that is criminal the earth is mined and denuded; future generations are being robbed of their patrimony; minerals, coal, iron, wood, are being rapidly exhausted. It is true human ingenuity has met every emergency in the past and will probably suffice in the future; new forces, new resources will be discovered, but the surest relief from the present wasteful extensive competition which demands quantity is the return to intense competition which is con- tent with far less but demands greater perfection. Again, extense competition means combination on a large scale ; intense is the opportunity of the individual. The effort to produce quantity leads inevitably to the organization of industry, to the factory system, the large corporation, the trust — a break-neck pace in which to halt is to fall. The effort to produce quality means a reversal of these steps, the disintegration of the factors of wholesale and indiscriminate production until the individual is permitted to emerge and impress his personality upon his work. The change is bound to come, and signs are not wanting that this country is getting tired of the mere production of wealth in gross. It is demanding better things. It is de- manding more sightly things in even the most matter-of- fact industries and enterprises. Take railroading, for in- stance ; the depots and bridges that satisfied everyone a gen- eration ago would not be tolerated in a country town to- day. There is an immense amount of thought and labor given to the more artistic designing of all kinds of machin- ery. There is a growing appreciation of the efforts made by owners of factories to cultivate their grounds and build their buildings so they will please rather than offend the eye. 44 THE NEW COMPETITION The value of structures well built and perfectly kept, as an advertisement, is being recognized. Compare the fronts and interior arrangements of the shops of to-day with those of a few years ago, the ef- fort to make them look better is obvious even if the ef- fect is often blatant. There is a growing effort to make our cities and towns and all they contain more beautiful. This effort is crystal- lizing in the appointments of commissions, the organiza- tions of societies and public bodies; it finds expression in laws and appropriations; it may make many attempts that are failures; it may produce ugly where beautiful effects were intended ; but the point is, the cry for quality is mak- ing itself heard above the din of the demand for quantity. Beauty is not a wholesale proposition; it dislikes the partnership; it avoids the corporation; it flees the trust. It is essentially personal. When America really demands beauty, demands it as loudly and insistently as it now de- mands wealth, many of the problems of to-day will find so- lution in the changed conditions, but, for the present, we have competition in the most extensive form the world has ever known, and the problems presented by that competi- tion must be dealt with; we cannot wait the slow chang- ing of ideals, the evils of the hour must be corrected; all that is false, vicious, unfair, must be eliminated. The race for wealth, for quantity, must be made a fair race in which all will have as nearly equal opportunities as human in- genuity can provide. As already stated, this inevitable tendency of competition in the production of quantity is combination of forces, of strength, of capital and labor, in large units to secure greater results per dollar invested and per man employed. GROWTH OF COOPERATION 45 This cooperation takes the following familiar forms: 1. Partnerships — association of individuals, the sim- plest and most primitive form of cooperation. 2. Corporations — in reality only a legal form of a large partnership, the chief advantage of which is the limit- ing of the personal liability of the partners — i. e., the stock- holders. 3. ''Trusts"— as they are popularly called; they are simply partnerships of partnerships or corporations; con- solidations in one form or another of a number of existing companies. The three forms are so many steps in the evolution of organized industry, and organized industry is absolutely es- sential if the maximum of quantity is to be produced at a minimum cost. Inherently there is no objection, economic, moral, or legal, to any one of the three forms. A partnership of companies — the trust — is as logical and legitimate a development of corporate organization as is the corporation from partnerships of individuals. The trusts do not originate anything in novel and op- pressive competitive methods; they are rather backward and clumsy — literally elephantine — in their attempts to do what individuals do. They suffer from a multitude of counselors, and those in control, however unscrupulous, lack the decision, the alertness of the equally unscrupulous individual in devising ways to promote his own busi- ness. No unfair, oppressive, or illegal practice has been charged against a corporation or a partnership that did not have its origin and practical demonstration in the methods of the individual. This is no plea for either the trust or the corporation; it is simply a suggestion that, before we charge upon legal entities of our own creation vices that are the common prac- 46 THE NEW COMPETITION tices of individuals, we take an inventory of and frankly acknowledge our own shortcomings. For instance, when the employees of the American Sugar Refining Company were found guilty of smuggling large quantities of sugar by tampering with the scales a great cry went up against the "trust," and, by induction, so to speak, against all trusts, as if cheating the government by smuggling was a new offense devised and practiced only by them. The records of the custom house show that smuggling is the pet failing of American citizens who cross the borders. From time immemorial people have felt at liberty to "beat the customs" if they could. All the sugar smuggled by the trust in a year probably does not equal in value articles smuggled into New York every six months by our "best people," by families, by children, by rich and poor, by high officials. The practice is notorious. In the year ending June 30, 191 1, the United States District Attorney in the City of New York instituted seventy-four prosecutions and collected over two millions of dollars in fines and duties on smuggled goods. Not a day passes that the customs officials do not discover goods people "failed to declare," and collect the duties without prosecution; yet, with all their vigilance, probably nine travelers out of ten get by with dutiable goods that escape observation. It would be easy to take up every specific charge made against a trust or large corporation and trace its origin to practices of individuals and small firms, practices that, in the case of individuals, are often looked upon by the trade as "shrewd" or "sharp," and, on the whole, rather cred- itable. Many a laudatory funeral sermon is preached over an unconscionable rascal.^ *In this connection Herbert Spencer's essay on "The Morals of Trade," though written half a century ago, is timely reading. GROWTH OF COOPERATION 47 The writer holds no brief in defense of either the trusts or the practices referred to — as subsequent chapters will disclose — ^but the hypocrisy of those who assail large cor- porations, while at the same time asserting or assuming on the part of individuals virtues they do not possess, is so distasteful that the temptation to expose it cannot be re- sisted. The demagogue who makes the welkin ring with de- nunciations of the trusts is silent regarding the short weights and measures, the adulterated goods, the poisoned milk used and sold by men in his audience. He never says to them, "The heads of trusts may cheat and defraud, but they only do on a large scale what you do on a small ; they cheat the public, you cheat the women and babies in your neighborhood — people who know you and trust you. You buy goods of the trust and, in the main, you get the quality you order and you get full weight and measure. You dole out these same goods by short weight and measure, as of- ficial records show." The man who should say such true things might im- peril his reputation as a "trust baiter," but he might also gain votes and high office in the end, for the people like the truth even when it cuts. The large corporation, the "trust" — call it what you will — is here to stay so long as competition, national and in- ternational, is to produce quantity. It is here to stay be- cause it is an economic evolution. When quantity is the object men will cooperate together up to the point where cooperation ceases to produce the maximum of results by the expenditure of a minimum of effort — that is a self-evi- dent proposition. Any law that tries to check cooperative growth is a law against maximum efficiency and, therefore, contrary to the spirit of the age which demands, above all things, quantity, which demands labor- and capital-saving devices in all in- 48 THE NEW COMPETITION dustries, and, in the last analysis, the trust is a labor- and capital-saving device. VI In so far as the "trust" is a monopoly, that introduces another and artificial condition, which must be dealt with by itself.^ But a monopoly is a monopoly whether possessed by a "trust," a partnership, or an individual, and, of all forms of monopoly, that of the large corporation is probably the most vulnerable, the least stable. Missouri has a law limiting the size of corporations permitted to do business in the state to a capitalization of ten millions. The amount may have seemed abundantly large to the legislature that passed the act, but the law is as absurd as it is futile, except for mischief. A distinguished political leader proposes to arbitrarily limit any one corporation's control of an industry to 50 per cent.; if it controls 51 per cent, it is a bad trust — a proposition without a shadow of reason. Aside from its fundamental unsoundness it has its ridiculous aspects. The corporation that is anxiously trying to keep within its 50 per cent, might find itself in the clutches of the law by the unexpected retirement of a distant competitor, or a number * "We must sharply distinguish between large scale production and monopolistic production. This is something that the author has been iterating and reiterating for the past fifteen years or more. Many others have also been saying the same thing, and it seems now to be generally understood. It is indeed strange that it should ever have been difficult to understand the difference between vast production and monopolistic production. One of our great retail stores, like Marshall Field's or Mandel Brothers', in Chicago, or Wanamaker's, in Philadel- phia or New York City, represents very large scale production, but along with the large scale production there is the sharpest kind of competition." — Prof. R. T. Ely, "Evolution of Industrial Society," pp. 96-97. GROWTH OF COOPERATION 49 of competitors in dull times might close down for the pur- pose of leaving the "trust" in control of more than 50 per cent, of the trade; their plea would be they were forced to shut down by the larger competitor — a sympathetic prose- cuting officer would quickly institute proceedings. A great majority of the states have so-called "anti-trust laws," which, while aimed at trusts and large combinations, hit practically all combinations, including partnerships and labor unions. More of these laws in detail farther on. Here it is suf- ficient to say that, in so far as they attempt to check co- operation, they have proven disastrous rather than bene- ficial. Combinations of forces to accomplish the things men wish to accomplish will continue to be made so long as such combinations are essential to the economic and speedy achievement of those objects. When men cease to desire the things that large co- operative forces can produce most economically, then, and not till then, will such large organizations disappear. VII There are two distinct cooperative forces at work in every country. A. Cooperation to increase production and lower prices. B. Cooperation to control production and increase prices. The two may, and frequently do, but need not neces- sarily, come in conflict. 50 IHE NEW COMPETITION VIII Cooperative associations, such as partnerships, corpora- tions, trusts, are ordinarily formed to increase production, to get larger results for the same outlay in time and money. They are the logical, the inevitable outcome of old com- petitive conditions. When two men who are competitors see they can do better, make more money, by working together, they form a partnership. When more men see they can do better by joining forces they form a corporation; when a number of competing corporations see they can do better by consolidat- ing they form a large corporation, a trust — all so many steps toward securing larger results at lower costs.^ * "Competition between rival producers and distributors — plain, old- fashioned competition — tends to build up larger and larger enterprises, and ultimately to leave only one, or at most, a few great producers in the field. There are, indeed, exceptions to this rule — counter tendencies —but the proposition in the main is correct, and will rarely, if ever, be questioned. * * * It is the rule rather than the exception that trusts produce more cheaply than the individual producers whom they displace, and therefore they can make the cost to the consumer less than the individual competitors can. The cost of an article to the consumer — its ordinary retail selling price — depends not only upon the expense of making, but of marketing it. The great individual combi- nations cheapen their product, not only by lessening the cost of making, but infinitely more by saving expenses in marketing. * * * in the struggle of competition it is always the weakest that is trodden under foot, and it is generally the smallest that is the weakest. The process is continuous and cumulative. The little goes down before the large, and the large runs above and upon the little. This is not the result of trusts. It is the result of competition. It is not the result of trusts, but the cause of trusts. The underlying cause is the irresistible force that has never yet ceased and probably never will — the demand for cheap production. * * * Competition — ^the old-fashioned competition that weeds out the weak and inefficient — gives battle, then, first to the partnership, afterward the corporation, and in our day the gigantic cor- poration. The story of economic progress, from the dawn of industry until the present moment, is the record of the concentration of effort and the combination of productive capital. Cooperation, concentration, and combination— these are the results of competition." — "The Trusts," by William M. Collier, Chapter III. GROWTH OF COOPERATION 51 While certain classes of the community are coming to- gether and cooperating to produce larger results for the money, other classes are organizing to get more money for less effort. Labor Unions. Farmers' Cooperative Societies. The objects of these two great movements are to con- trol supply and advance prices. Labor unions seek to fix wages, and control the hours and conditions of employment. Farmers' cooperative societies seek to do the same thing — control, as far as possible, both the amount and the marketing of output with a view to getting better prices. As between the two great cooperative movements A and B, the consumer — the man who pays the price — has less to fear from the former than the latter. Partnerships, corporations, trusts, are all in the direc- tion of more for less money; labor unions and farmers' organizations are all in the direction of less for more money. IX There is still a third class of associations springing up. While the large corporation and the trust are the natural results of competitive conditions, each is simply a more powerful competitive unit; competition, if curtailed at all by the organization of a trust, is curtailed only for the time being, soon it is keener than ever, and consolidation may follow consolidation to lessen its disastrous effects, or pro- ducers, large and small, may form associations to control in a measure the competition, and these associations may at- tempt to do what labor unions and farmers' societies do — control outputs and fix prices. 52 THE NEW COMPETITION We have, then, three well-defined cooperative move- ments : 1. Consolidations — partnerships, corporations, trusts — to more effectively compete by lowering costs and prices. This is the only cooperative movement the direct object of which is to serve the consumer by giving him what he wants at lower prices, though they may also be for the purpose of securing control temporarily and exacting for a time arbi- trarily high prices. 2. Unions of labor and unions of farmers — to lessen competition and advance prices. 3. Associations of competing manufacturers and deal- ers to lessen competition and advance prices — to do exactly the things unions of labor and of farmers seek to do. It is plain from the bare statement that consolidations (i) stand on a very different footing from unions (2) and associations (3). They have nothing in common with the latter; in fact, may be antagonistic to them. A consolidation the prime object of which is to secure results at lower costs, naturally stands in opposition to or- ganizations the object of which is to advance both costs and prices. So long as the public demands quantity at a low cost it should promote the formation of large producing units, simply exercising such supervision over their operations that they will not be permitted to take advantage of any temporary monopoly to arbitrarily advance prices. If, as is so commonly assumed in speech and print, the public were made up of buyers — i. e., consumers exclu- sively — then it should be friendly to ( i ) consolidations and opposed to unions (2) and associations (3), but the "pub- GROWTH OF COOPERATION 53 lie*' is made up of all these classes. Practically all men are both sellers and buyers, there is no buying class as distin- guished from a selling, hence the interests of each particular individual are divided. One moment he is cooperating with others in his own line to get better prices from those to whom he sells, the next he is crying for laws to prohibit the cooperation of those from whom he buys; labor com- bines to get better wages from employers, but complains loudly if employers combine to get better prices; farmers combine to get better prices for cotton and wool, but com- plain loudly if the manufacturers to whom they sell com- bine to get better prices for cotton and woolen goods. Labor and farmers have so many votes that their com- plaints are heard in legislatures, and laws are passed to pre- vent manufacturers and dealers from combining, and, at the same time, encourage labor unions and farmers' cooperative societies. These laws are so unfair, so unjust, so opposed to constitutional guaranties that they have given the courts much trouble ; they are discussed more at length farther on.* Few people realize the extent of the cooperative move- ment in this country, but there is not a branch of trade or industry that is not influenced in some degree by associa- tions and organizations. The country merchant buys a bill of goods; the labor that produced the goods is unionized; the manufacturers who shipped the goods are in a strong organization ; the trav- eling salesman who made the sale is a member of an asso- ciation ; the railroads that carried the goods are all members of traffic associations that fix rates. We are reciting facts : Labor unions exist, Employers' organizations exist, Sellers' organizations exist. Railway associations exist, *See Chapter XIX. 54 THE NEW COMPETITION and, under present conditions, the sole interest these organ- izations have in the ultimate consumer is to extract from him the highest possible price. Viewed from the soil. Farmers* cooperative societies exist, Fruit and produce growers' associations exist, Marketing organizations exist, and the sole interest these organizations have in the cus- tomer is to make him pay as high a price as possible for the food he buys. XI The trouble with all these organizations is that each is founded upon a thoroughly selfish basis, each is concerned solely with getting as much as it can for itself. Each union and association %hts all the others to get a larger fractional share of the price the consumer pays : — the labor union fights for higher wages ; the manufacturer's association fights labor and the railroads to retain higher profits; the railroads unite to fight both the others to get higher freight rates. This condition cannot last, because it is not sound funda- mentally. The conflict between the organizations of the several classes, with its spirit of distrust and antagonism, is bad. The periodical patching up of differences for the pur- pose of uniting and more effectually fleecing the consumer is worse. The remedy lies not, as many urge, in the way of more drastic laws against combination, but in the development of more perfect cooperation — of cooperation along right lines, as distinguished from false, of cooperation that takes in the consumer. From the broad economic standpoint there is only one sound combination, and that is the combination of GROWTH OF COOPERATION 55 the man who produces goods and the man who uses them; within this comprehensive cooperation there may be on both sides any number of lesser combinations, associations em- bracing- this class and that, but all must lead to a com- mon ground, an association — a cooperative movement — • wherein the man who buys has just as much to say about both goods and prices as the man who sells ; no other form of cooperation is destined to survive. While this book, in using actual instances by way of il- lustration, will refer more often to certain large industries, it will be simply because the writer is personally more famil- iar with conditions in those industries, but there is not a proposition laid down that is not as applicable to the small industry — to the mechanic, to the tradesman, to the village merchant, to small lumber yard and coal dealer, to the farmer and the laborer, as to the large manufacturer and the big corporation. In fact, the large corporation, with its facilities for meeting and controlling competition, has less need for what is contained in this book than the small pro- ducer — save, as is undeniably true, that the large corpora- tion stands in very great need of good advice and better methods if it is to gain public favor. XII There is a large movement under way to organize the retail trade of the country into local, state, and federal as- sociations with a view to protecting the retail dealer from the disastrous effects of unfair competition and preserving for him the trade that he can economically serve. Against the cry, "Eliminate the middleman," the mid- dleman proposes to put up a struggle to justify his ex- istence as an economic factor in distribution. We speak of this movement in the retail world only S6 THE NEW COMPETITION from hearsay, but have no hesitation in saying that its only chance for success depends upon : Whether the middleman, the retail dealer, .is a valuable economic factor; And the extent to which consumers are taken into the proposed associations and convinced of their value. An association of retail dealers in a given town should have on its executive committee (a) representatives of their employees duly named by the employees; (b) representatives of tfi'eir customers, named in some open manner satisfactory to the buying public. And to this body should be referred all differences aris- ing between employees and employers, all differences arising between the dealers themselves, and all differences arising between dealers and buyers. Such an association would have as its prime objects : 1. The enforcement by their own voluntary action of pure focyd laws, the use of correct weights and measures. 2. Sanitary and hygienic conditions. 3. Fair, frank, and straightforward competition. 4. Plainly marked prices, and one price to all. 5. Perfect frankness of statement regarding conditions under which goods are bought. 6. No sales below cost except under exceptional con- ditions. 7. No advertisements or statements that are not ab- solutely true. If any tricky competitor refused to cooperate in such a program of frankness and publicity the law should permit the association to "list" such a man. The term "black list" sounds formidable, and is not in good repute because "black lists" have been abused, but the "black list" is the only place for the "black-leg" trader, who is as great a menace to the consumer as to the honest dealer. GROWTH OF COOPERATION 57 XIII To the above program the average retail merchant will be quick to raise three objections : First, to including his employees in the proposed associ- ation. "What's the use?" he will ask. At the foundation of this attitude is the old "Master and Servant" notion which is being so rapidly exploded that in not a few indus- tries the "servants" have become masters and dictate con- ditions arbitrarily. The true relationship of joint interest is being recognized, and, if there is joint interest, there should be cooperation in all that has to do with the welfare of the business. Second, the average man will object to mcluding his customers in his deliberations regarding prices, but the cus- tomers are the parties vitally interested, they pay the prices, and it is as clear as the noon-day sun that, if they have no voice in the adjusting of prices, they will not be satisfied whether prices are low or high ; they will welcome new com- petition, however unfair it may be, even though it demoral- izes trade and is costly to the community in the long run. The great defect of combinations — of labor and employers both — in the past and at present is, that they ignore the man who pays the price they establish. Third, while many merchants will agree to the one- price, plainly-marked policy, treating all customers alike, few will agree to make only true statements concerning their goods — in other words, each will wish to reserve the right to continue the ancient trade practice of lying to his customers and the public. In their announcements and ad- vertisements merchants delight in saying they are selling "below cost"; the advertisement deceives only the gullible; sometimes they do have a "bargain day" and sell some goods at or below cost to create a run and sell other goods 58 THE NEW COMPETITION at more than enough profit to make up the loss. All these practices are "tricks of the trade/' devised to induce the public to do something it would not do under normal condi- tions ; these tricks inure to the benefit of the sharp and un- scrupulous dealer, especially to the dealer in second-rate and damaged goods, who rents a store for a week or a month, disposes of his inferior stock, and moves on before the public finds out it has been swindled. Rightly speaking, no man should be permitted to advertise or say that he is selling goods at cost unless it is true, or to say anything else to induce a customer to part with his money unless it is true, and an association such as described should make it its business to bring out the truth regarding every statement made in the trade, to establish the practice of telling things as they are. CHAPTER V BRUTAL COMPETITION In a recent speech Senator La Follette said : "An example of unfair and discriminatory prices is the practice so brutally employed by the Standard Oil Com- pany of cutting prices in local markets invaded by small competitors while keeping up prices in other markets not so invaded. Another example is that of making a lower price to the purchaser who does not buy of a competitor than the price demanded if he buys also of a competitor." Never mind the "Standard Oil Company** for the mo- ment; in this connection it is only an epithet and epithets lead nowhere. The practices complained of are right or wrong irrespective of the parties who resort to them. Now, what are those practices in plain, un-Senatorial English ? 1. That a manufacturer or wholesale dealer who finds a new competitor in a locality quoting low prices meets the local competition without reducing his prices in other places. This practice was hoary with age before "*trusts'* or corporations were dreamed of, it began with the beginning of trade and prevails in every country on the face of the globe. 2. That a manufacturer or wholesale dealer makes spe- cial terms to the customer who will agree to buy exclusively from him. 59 6o THE NEW COMPETITION This, too, has been done from time immemorial and is the practice of every ordinarily keen manufacturer and jobber. In short, the practices complained of are the very A, B, C, of the old competition, of that "free and unfettered" competition that the Sherman and state anti-trust laws are popularly supposed to protect and foster. II The smallest country dealer is quick to cut his prices on the appearance of a competitor and, if he can afford it, he will cut until he has driven the competitor from the field. The peddler who tramps half a dozen villages will sell at cost or less than cost in one village to drive out a rival and recoup his loss by charging more for his wares in places where he has no competition. The most insignificant jobber or manufacturer in Sen- ator La Follette's own state of Wisconsin will gladly make a specially low price to the customer who will agree not to buy of a competitor, for that is the simplest way of securing a man's entire trade. These things, which have been done the world over from the beginning of trade, strike the popular orator as "vicious" and "brutal" only when done by some very un- popular corporation. To the small competitor who is ruined it does not mat- ter much whether he is ruined by the Standard Oil Com- pany, or by a mail-order house, or by a department store. And probably more small dealers are driven out of busi- ness every year by mail-order houses and department stores than the Standard Oil Company has ruined in its entire existence. BRUTAL COMPETITION 6i III But the fact that practices condemned by Senator La Follette are both old and universal does not make them fair and just When he calls them "brutal" he is right, but they are brutal whether practiced by the small dealer in a fight for custom or by the large corporation in a fight for trade ; they are brutal because they are the methods of the fighter who is mercilessly trying to down his opponent; they are brutal because they are natural, instinctive, ele- mental; they are brutal because they are human, and hu- manity in its struggle for existence is, and ever has been, brutal. Big corporations have not made these practices one whit more brutal, they have simply made them more con- spicuous, thrown them into high relief, so that the peo- ple see and understand them better. What the individual has always done instinctively and viciously, the large cor- poration does systematically and indifferently. A blacksmith borrows a little money and opens a shop in a country village. To get a start he shoes horses for a little less than the shop across the street. The established smith meets the new competition and goes it one better by cutting prices to cost, for the express purpose of driv- ing out the new man. In a few months the new man is done for, closes up shop, and goes away "dead broke," whereupon the successful smith gets even by asking a lit- tle more than he did before, his charges being limited only by fear of inviting more competition. That is the old, familiar, "cut-throat" competition in a nutshell. When the individual crushes his rival by "brutal" methods the cry of the insignificant rival is too weak to be heard in Congress, but when the large corporation 62 THE NEW COMPETITION crushes rivals in every state by precisely the same methods, the united cry is heard; there is no difference in the **bru- tality," but simply in the number affected, and numbers make all the difference in the world — about election time. IV But the question is broader than one of mere political or legislative, or even economic, expediency. It is a question of progress toward higher ideals in the industrial and commercial world, of the suppression of unfair, oppres- sive, "brutal" methods, in so far as it lies in the nature of man to suppress them. It is the question of the substitution of a new competition for the old. It is conceivable that the time may come when even the individual — the village blacksmith — will feel that there should be, must be, some better way of dealing with a rival across the street than ruining him; but before the individ- ual attains a moral and economic outlook so broad as that the world will have to progress far beyond its present com- mercial creed. Oddly enough, it is far easier to induce large producers and large corporations to make experi- ments along the new lines; they realize the folly of the methods of the old competition and are only too glad to try the new, to try any kind of cooperation the law will permit. When one looks back with dispassionate eye over the last fifteen years — fifteen years of unparalleled financial, commercial and industrial turmoil and upheaval, the con- clusion is inevitable that whatever there has been of prog- ress in the world of trade and industry toward higher BRUTAL COMPETITION 63 ideals, toward franker and more straightforward meth- ods, has been due directly or indirectly to the development and operations of large corporations, the so-called "trusts." They devised nothing new in "brutal" trade methods, but they have done things on such a large scale that the public begins to see and understand the unfairness, the oppres- siveness, o^ common, every-day trade customs. The large corporation has been a wonderful magnifying mirror in which the people for the first time see — themselves; it has set the entire legislative, executive, and judicial world groping for remedies for economic ills that have their roots in the selfishness of the individual. Senator La Fol- lette thinks he is after the Standard Oil Company, the Steel Corporation, the large — and friendless — combination. He will find in the end he is prodding the small manufacturer and jobber in his own state, for they are guilty of the same "brutal" practices, only on a lesser scale. A senator who is also a scholarly writer, in an inter- esting book ^ says : "If a large combination can produce and sell articles at a less price than its competitors, and employs no unfair methods against them, is not the public benefited rather than injured?" The question, of course, carries the assumption that the large combination does undersell its competitors, and that involves the elimination of some or all of the competitors. What consolation is it to the bankrupt competitor to be assured he was disposed of gracefully and honorably, that no unfair means were used to effect his suppression? Might he not reply : "What do I care about your motive? You undersold me and put me out of business — that's all there is to it." As a matter of fact the public may be a very great * "Corporations and the State," by Senator Theodore E. Burton, of Ohio. 64 THE NEW COMPETITION loser in the long run by getting goods for a time so cheap from one or a few large producers that small ones cannot exist and, though the elimination of competition by unfair and oppressive means is wrong — mainly as between the parties immediately concerned — the economic effect on the community is very much the same when the competition is suppressed by fair means ; the net result is the disappear- ance of the small competitor. VI Senator La Follette need not have stopped with two instances of ''brutal'' competition, above all with two that are almost innocuous as compared with others that are incomparably more unfair. For instance a manufacturer sells a retail merchant a stock of goods sufficient to last six months. The next day or week the same manufacturer sells a rival merchant in the same town similar goods for enough less to enable the second merchant to make a profit at the first one's cost. Or, a manufacturer sells a retailer a six months' stock and then sells the customer of the retailer at either the same prices or at prices so close the retailer is unable to dispose of his stock except at a loss. These two abuses are so common there is not a trade free from them, nor a town in the country where dealers are not to be found who have been victimized. The middleman may be an evil, a superfluous luxury, and it may be he is destined to be eliminated, but, what- ever fate has in store for him, there is no reason why he should be ruined by practices that are so unfair no one would think of defending them. Every producer has the right to sell direct to the con- sumer, or to the trade, or to both so long as he does so ot^ BRUTAL COMPETITION ^5 terms that are open and aboveboard and not unfair to either, but no producer has the right to sell to the trade and the consumer without informing both of his intentions and his terms so that both may buy with full knowledge, and when terms are announced and prices made to both, no producer has either the moral or the economic right to arbitrarily change them to the detriment of either class of buyers. VII Another illustration: the glib agent of some concern that makes an attractive special line of goods visits one vil- lage after another and persuades a local dealer in each place to buy a large stock under the promise he will have the exclusive sale. A few weeks later, and long before the dealer has disposed of his stock, he finds others selling the same articles in the territory for less money. The others may or may not have secured their stocks direct from the maker, but they have them, the maker has taken no steps to protect those who bought in good faith and in the end they are losers. Some of these practices are so glaringly wrong the law reaches them, but for the most part the law is unable to lay its hand upon any breach of contract or wrong that it can remedy; the individual who invested perhaps all his money upon the glowing assurance he would make some money is helpless. The big lumber company "loads up" retail yards in a number of towns, then sells direct to carpenters and build- ers in the same towns thereby making it impossible for the dealers to sell their stocks except at losses. A manufacturer sells a line of highly advertised spe- cialties to dealers all over the country, suddenly these deal- ers find department stores and mail-order houses selling 66 THE NEW COMPETITION the same articles at less than they, the dealers, paid. One of two things has happened — either the manufacturer has sold the department stores and mail-order houses the goods at lower prices than he sold the regular trade, or the de- partment stores and mail-order houses are selling the goods below cost as an advertisement. Both these things happen daily. Department stores and mail-order houses resort to every expedient to get standard and highly-advertised specialties for the express purpose of cutting prices. They offer manufacturers all sorts of inducements, tempt them with offers of orders far beyond those received from the regular trade, and many a manufacturer is weak enough to yield, even though he knows the department store and mail-order house will im- mediatel}^ cut the retail price and make it impossible for other dealers to dispose of their stocks at a profit. If the manufacturer does not yield the mail-order house will often list the goods at a cut price just the same, and when an order comes in go out and buy the article from the regular trade at the regular retail price and fill the or- der at a loss. A well-known camera is not sold to mail-order houses under any circumstances, nevertheless it is listed by them and serves to make their printed lists more attractive. When an order comes in the effort is first made to induce the customer to take instead another camera ''just as good," the sale of which the house controls and on which it makes a profit. If the customer insists, the house sends out to a regular dealer, pays the regular retail price and delivers the camera at a loss. "Poor business," some one exclaims. Not at all, it is one of the "shrewd" and "cunning" forms of competition. It is fair to neither the trade nor the public. "But the customer gets his camera at a lower price." BRUTAL COMPETITION 67 While fifty other customers are persuaded to take the "just as good" cameras at prices out of all proportion to their real value. The one customer who insists may flatter himself he gets a standard article at less than the regular prices, but it goes without saying no mail-order house would sell one thing at a loss if it could not more than make up in other directions. In the end the public pays and pays well, as the annual statements of the big houses show.^ VIII Both department stores and mail-order houses have their places in the economy of distribution; it is even ar- gued they are destined to supplant the retail dealer entirely and in the end largely reduce the cost of handling from producer to consumer, all of which may or may not be true. The point here is that the competition described is in- defensible from any point of view. As an economic proposition no store — ^whether depart- ment, mail-order, or retail — should be permitted to sell any undamaged article below cost for the purpose of at- tracting custom, for the purpose of getting the trade of others, or of inducing the public to buy things it does not want; the practice is a vicious one and contributes its share ^It is decidedly encouraging when the Supreme Court of the| State of Washington uses such language as this in a decision favoring the right of a manufacturer to fix the price at which a staple article shall be sold at retail: "Finally, it seems to us an economic fallacy to assume that the competition, which in the absence of monopoly benefits the public, is competition between rival retailers. The true competition is between rival articles, a competition in excellence, which can never be maintained if, through the perfidy of the retailer who cuts prices for his own ulterior purposes, the manufacturer is forced to compete in prices with goods of his own production, while the retailer recoups his losses on the cut price by the sale of other articles, at, or above, their reasonable price. It is a fallacy to assume that the price cutter pockets the loss. The public makes it up on other 68 THE NEW COMPETITION toward "the high cost of living/* for the cost of living de- pends not so much upon what we pay as upon what we buy. From time immemorial "trade'* has been synonymous with trickery, and in many countries the "trader'* is of doubtful social standing. It would be easy to fill a small volume with accounts of "tricks of the trade," of habits, customs, practices, petty frauds, deceits, of over-reaching and cheating reduced to a fine art, but all each reader has to do is to appeal to his own experiences from childhood up — a life-time of con- flict of wits against wits in a game the rules of which have been exceedingly lax. But the signs of change are numerous and significant. IX How far and how rapidly the country has drifted from the fundamental propositions of the old competition is in- dicated in the terms of a decree entered last October in the Circuit Court of the United States at Cleveland, the case of the United States vs. General Electric Company, and other makers of electric lamps. An important point concerning the decree is that it was not the decision of the judge interposed between con- tending parties, but the defendants withdrew opposition and agreed to a decree satisfactory to the Government and the purchases. The manufacturer alone is injured, except as the public is also injured through the manufacturer's inability, in the face of cut prices, to maintain the excellence of his product. Fixing the price on all brands of high-grade flour is a very different thing from fixing the price on one brand of high-grade flour. The one means the destruction of all competition and of all incentive to increased excel- lence. The other means heightened competition and intensified incentive to increased excellence. It will not do to say that the manu- facturer has not interests to protect by contract in the goods after he has sold them. They are personally identified and morally guaranteed by his mark and his advertisement." (Fisher Flouring Mills Co. vs. . C. A. Swanson, 137 Pac. 144, 76 Washington 649, 51 L. R. A. New i Series 522.) — ^ BRUTAL COMPETITION 69 Court. It marks a meeting of contending minds upon certain propositions that are as vital to the new competi- tion as they are fatal to the old. X The crucial propositions are as follows: I. ''The defendants and each of them are enjoined from making any contracts with parties from whom they pur- chase supplies and machinery used in the lamp business, whereby such parties shall bind themselves not to sell such supplies and machinery to other parties, or whereby such parties obligate themselves to sell to defendants at differ- ent prices than they sell to other customers/* This and all similar practices fall within the province of the new Federal Trade Commission. It is a curious fact that the courts, which are commonly supposed to be ultra conservative, have taken the lead in denouncing unfair com- petitive methods ; Congress has lagged far behind. It was with difficulty Congress was induced to pass the Trade Com- mission act and include therein, Section 5 making unfair methods of competition unlawful, by far the most important provision of the act and the one destined to do the country the most good if it is administered wisely. It will be of the greatest benefit to both sellers and buyers. It will tend to- ward uniform prices and to equal treatment of all. Rightly enforced it means the end of cut-throat competition, and, while Congress may not have foreseen it, this clause should mean that manufacturers and sellers may fix re- sale prices in order to protect and maintain the quality of their goods and protect the fair trader from the un- fair competition of the trader who makes the agreement when he buys the goods and then breaks it almost always for the express purpose of injuring others and pro- moting the sale of other goods. Turning to the decree it will be observed that the injunction runs not only 70 THE NEW COMPETITION against the combination of defendants, but against the liberty of each to do things that have been done from time immemorial under the old competition. In fact, until recent years no one has thought of questioning the right, moral and legal, of a group of manufacturers to take the output of a given maker of either the machinery they need or the raw material they use. But whatever may be said of the right of a combination to do this no one has dreamed of denying the right of the individual — person or cor- poration — to make a bargain with a manufacturer for his entire output, or for a large percentage of it, at a certain figure, providing the manufacturer would agree to sell to no other at so low a price. That is the very essence of in- numerable contracts entered into daily between jobbers and manufacturers. It is a part of the old creed that a man has the right to sell his goods to whom he pleases, at the prices he pleases, on the terms he pleases; that he can sell the bulk of his output to one customer at a special price and agree not to sell the balance at less than a certain per cent, higher ; that he can sell a part of his output to one purchaser and agree to sell to no other purchaser in the same locality; that he can build up the business of a customer one year by giving him low prices, and ruin him the next by refusing to sell to him at any price ; in short, that he can use his own judgment or whim in making prices and in disposing of his product. Such are some of the sacred tenets of the old competi- tion; the decree makes sad havoc of these notions. XI 2. ''Defendants and each of them are enjoined from entering into any contract with dealers or consumers who - BRUTAL COMPETITION 71 buy certain improved filament lamps whereby such deal- ers or consumers must purchase all the ordinary filament lamps they need as a condition to obtaining the improved; nor can any one of the defendants discriminate against any dealer or consumer who wishes to purchase improved fila- ment lamps because such dealer or consumer buys either ordinary lamps or other improved filament lamps from other dealers." What has become of the good, old-fashioned belief that a man who has an improved or patented article may use it as a lever to force the sale of his ordinary line ? If an electric lamp manufacturer has an improved fila- ment lamp, either patented or of secret process, why may he not say to a dealer or a consumer, "I am under no obli- gation to sell you my improved lamp. If I do sell to you it will be at my price and on my terms, and the first con- dition is that you buy of me all the lamps of all kinds that you sell" ? Up to the entering of the decree who would have be- lieved it possible that any court would intervene and say the manufacturer could not make such a contract? The decree does not say that the individual may not refuse to sell at all ; it says that he may not refuse on the ground that the dealer or consumer is also purchasing else- where. The loop-hole for evasion may be large, but the intent of the Court is plain — it is to give the customer the widest possible latitude in purchasing and to take from the seller the right to lay down conditions that will tend to hold the customer. If there were any possible doubt about the intention of the Court it is dissipated by the following language: "The defendants and each of them are perpetually enjoined from utilizing any patents which they have or claim to have or which they may hereafter acquire or claim to have ac- quired, as a means of controlling the manufacture or sale 72 THE NEW COMPETITION of any type or types of lamps not protected by lawful pat- ents." Apply that, say, to the maker of a razor that is pat- ented, who also makes a line of razors that are not pat- ented ; according to old-time notions he could sell all or any of his goods to any one willing to buy, or he could refuse to sell with or without a reason, or he could say, "I won't sell you my patented razors unless you buy from me all the barber's supplies you need." Under the new theory he may be enjoined from "utiliz- ing" his patented razor as a means to force the sale of his supplies and unpatented articles. To be sure, this particular decree does not go so far as to lay down the corollary of its proposition, namely: that any party desiring the patented article shall have the right to come into court and compel the maker to sell it to him at a reasonable price ; but logically that right is implied in the proposition that no maker shall refuse to sell for a particular reason, since, as already suggested, he may re- fuse and give no reason. As the matter now stands the aggrieved buyer of electric lamps can bring these particu- lar defendants into court only when they refuse to sell and give a bad reason for refusing to sell, to wit: the reason the court holds objectionable. XII 3. "The defendants and each of them are enjoined from offering or making more favorable prices or terms of sale for incandescent electric lamps to the customers of any rival manufacturer or manufacturers than it at the same time offers or makes to its established trade where the purpose is to drive out of business such rival manu- facturer or manufacturers * ♦ ♦ provided that no de* BRUTAL COMPETITION 73 fendant is enjoined or restrained from making any prices for incandescent electric lamps to meet, or compete with, prices previously made by any other defendant, or by rival manufacturers" The very essence of the old competition, the competi- tion that the public thinks the law is trying to protect, is the freedom to undersell, freedom to sell at cost, at less than cost, at any price at all, or to give away goods, to down a competitor. That has been the one resource of the old established house to protect itself against the aggress- ive new comer; it has been the right of the new comer in his fight for a share of the trade. XIII It is the theory of the old competition that the consumer, and inferentially the public, profits from this warfare. It is the theory of the new competition that in the long run neither the customer nor the public profits from con- ditions that mean disaster to individuals. In a sense, therefore, the very unusual provisions of the decree are along the new lines but they are unconsciously so, and therefore uncertain in their general application, however pertinent to the facts of that particular case. In its general application the decree overturns the theory of the old competition; it limits a man's right to sell what he owns to whom he pleases on such terms as he pleases. It says, in so many words, that in all he does he must con- sider his rival — that is the striking novelty of the decision. The theory of the decree is, that whereas under the old competition A was free to sell to B on such terms as B was willing to accept, under the new, the interests of C must be considered: if the bargain between A and B in- 74 THE NEW COMPETITION jures C it is no longer legal, even though C has in the transaction only the indirect interest of a competitor. This regard for the interest of C is a legitimate eco- nomic interest. It is more, it is an ethical interest that the old competition ignored. In a crude way, courts are com- ing to realize this broader interest; coming to understand that commercial fights, like cock fights and prize fights, are far behind present day standards ; that nothing is gained by encouraging two manufacturers to fight one another until both are bankrupt. XIV Legislatures still cry out : "Go at it ! Hands off ! Let *em fight it out!" and if the two combatants show signs of making up their quarrels, of getting together in a friendly way, a large majority of legislators, state and national, raise a cry of angry protest — the fight must be to a finish. What will the radical upholders of the Sherman law say to a court decree which commands a manufacturer not to compete with a rival by underselling him ? The decree is crude in that it attempts too much and ac- complishes too little. For instance, each of the defendants is ordered not to undersell a rival "where the purpose is to drive out of business such rival." Who is to determine the seller's purpose? By the terms of the decree he may undersell a rival until the latter has no customers and neces- sarily goes out of business, and each transaction will be right and proper providing at no time can it be proved that there was an intention to eliminate the unfortunate com- petitor. On its face the decree does not pretend to re- strain a man from going after all the business he can get, even to the getting of all there is, but he must do it politely and with no provable intent to injure those he gently el- bows off the earth. BRUTAL COMPETITION 75 Furthermore, suppose the new rival — who, by the way, is not restrained in his actions by the decree — in the spirit of the old competition "goes after the business" and, to get a foothold, makes "any old price," what are the de- fendants to do? Assume that this particular rival is mak- ing serious inroads, that he is quoting cost and below cost, or that he has an improved lamp that he can sell for less than the cost of other lamps and yet make money. There are but two things for an older company to do: either make terms with the rival or fight. To make terms whereby prices are fixed or territory apportioned is a sup- pression of competition and illegal; to fight by engaging in a trade war, by going out and underselling in the rival's territory, for the express purpose of suppressing him, is contrary to the decree, though such a course is instinctive and natural and is the old competition in its most familiar form. • XV Texas has a law that provides : if any person engaged in the manufacture or sale of any article of commerce or consumption shall, with the intent of driving out competi- tion, or for the purpose of financially injuring competi- tors, sell within this state at less than cost of manufacture or production, or sell in such a way, or give away within this state, their products for the purpose of driving out competition or financially injuring competitors engaged in a similar business, said person, resorting to this method of securing a monopoly within this state in such business, shall be deemed guilty of a conspiracy.^ * "Contracts entered into for the purpose of creating an agency whereby the agent is to sell the goods of the principal as its agent do not come within the terms of the anti-trust act; but contracts regulat- ing and controlling the purchase and sale of goods whereby parties are given exclusive right to handle the goods in question do come within the statute," 76 THE NEW COMPETITION This statute recognizes broadly certain propositions that are fundamental to the new competition : 1. No man has the right to give away goods to injure competitors. 2. No man has the right to sell goods at less than cost to injure competitors. 3. No man has the right to sell goods "in such a way" as will injure competitors. Under the old competition it is considered not only legitimate but cunning and commendable to do all these things. And furthermore if any association of manufacturers, engaged in interstate commerce, should agree among them- selves not to do the things forbidden by the Texas stat- utes — in short, to obey that law — they would be liable to prosecution and imprisonment under the Sherman Act — such is the delightful confusion of our laws upon the sub- ject. XVI Massachusetts has a statute which makes it a criminal offense for any person or corporation to "make it a con- dition of the sale of goods, wares, or merchandise, that the purchaser shall not deal in the goods, wares, or mer- chandise of any other person, firm, or corporation." The agent of a tobacco company sold goods to a dealer with the agreement that if he bought only the tobacco company's goods a rebate of 6 per cent, would be allowed. The Supreme Court of Massachusetts held the statute constitutional and sustained the conviction of the agent of the company, saying, ''It is intended to make it impos- sible for a seller to say to an ordinary purchaser who buys to sell again, 'You cannot buy my goods except on condi- tion that you zvill not sell goods obtained from others. If BRUTAL COMPETITION 77 yoii sell like goods manufactured by others you cannot have mine: ''^ And the court very rightly remarks, "There is no doubt that the statute puts a limitation upon the general right to make contracts," but justifies it as an attempt to meet modem conditions. When a similar contract made by the same tobacco com- pany was presented to the Federal Circuit of Appeals in St. Louis the three judges — one of whom. Judge Van Devanter, is now a Justice of the Supreme Court — held that the right of the tobacco company to dictate the terms upon which it will dispose of its products ''is indispensable to the very existence of competition. Strike down, or stip- ulate away that right, and competition is not only restricted but destroyed:' ^ That which is forbidden by decree of court in Ohio, and is a crime in Massachusetts and Texas, is legitimate business practice in Missouri. What is the trouble? Nothing but the conflict that is now on between the Old competition and the New; the old finds expression in the judgment and opinion of the court in St. Louis; the new finds utterance — not as clear and logical as might be — in the decree of the court in Cleveland and in the judgment and opinion of the Supreme Court of Massachusetts and in the laws of that state and Texas. XVII Iowa and Minnesota have statutes making it a criminal offense to sell a commodity at a lower price in one locality than is charged in another. Nebraska has a statute prohibiting the reduction of * Commonwealth vs. Strauss, Mass., 74 N. E. Rep. 308. 'Whitwell vs. Continental Tobacco Co., 125 Fed. Rep. 454. 78 THE NEW COMPETITION price of a commodity in general use in any particular lo- cality for the purpose of destroying the business of a com- petitor in such locality, also forbidding discrimination be- tween different sections, communities or cities. In upholding the constitutionality of this law the Su- preme Court of Nebraska^ said: "When we take into consideration that it is not the act itself, but the act coupled with the purpose of destroy- ing the business and property of others, which is declared criminal, we find little trouble in arriving at the conclusion that the statute is within the power of the legislature and is, therefore, valid/' South Dakota has a statute to substantially the same effect: it provides "that any person, firm, or corporation doing business in the state, and engaged in the production, etc., of any commodity in general use, that intentionally, for the purpose of destroying competition of any regular established dealer in the commodity, or to prevent competi- tion of any person who, in good faith, intends and at- tempts to become such dealer, shall discriminate between different sections of the state by selling such commodity at a lower rate in one section than in another section, etc., shall be deemed guilty of unfair discrimination." In a case ^ wherein a lumber company that maintained a chain of lumber yards in several localities was charged with selling lumber in one locality at a lower price than in another for the purpose of driving out a competitor, the Supreme Court sustained the conviction. The court said: "The statutes of most states, up to very recent years, were aimed only at monopolies brought about through com- binations, so that, in treating of the subject of monopoly, both text-book writers and judges have spoken of them "State vs. Drayton, 82 Neb. 254. * State vs. Central Lumber Co., 24 So. Dak. 136. BRUTAL COMPETITION 79 as though monopoly and combination were one and the same, thus causing many to consider that there could be no monopoly except there was combination, while, as a matter of fact, combination is simply a means, and but one of the many means, by which a monopoly is acquired; monopoly being the end sought, combination a means therefor. "To get rid of competition, and thus acquire a mo- nopoly, the man, firm or corporation possessed of, or con- trolling, large capital no longer said to his competitor: Tet us combine, and thus obtain a monopoly of the busi- ness we are engaged in, and by so doing increase our profits by raising prices to the consumer/ N'o, that would be criminal, and might lead to trouble, and, too, it was a crude way of acquiring the thing sought. Now he says to a competitor, if such competitor be weaker than he: 'Get out of my way. Sell me your business, or I will de- stroy it by unfair competition.' — or, in many cases, with- out giving his victim a chance to sell to him the business he has, he sets about destroying it, and by a method as certain as the passing of time, a method that need bring to him not even an immediate financial loss. He puts the price of the commodity handled so low at the point where his victim is in business as to make it impossible to meet such price except at a loss, and, to ofifset what loss he suffers at that point, he raises prices at one or more other points. As soon as this practice became quite prevalent, the public realized that an old evil was being brought upon them by a new method ; a method that not only tended as its natural and necessary result to place a monopoly into the hands of the strong, but did not, as before, permit the competitor to share in the fruits of the wrong — an evil bringing loss to the public and wrong and injustice to the weak tradesman. Again human experience, recognizing the laws of God and nature, controlled and guided by an aroused public conscience, evolved a new law, and placed it upon the statute books of this and many other states, a law aimed at monopolies obtained through unfair com- petition." * *This opinion is interesting reading in connection with Chapter xvn. 80 THE NEW COMPETITION XVIII The plain truth is that the very theory of the old com- petition, free and unfettered individualism, has received its severest blows at the hands of its professed friends. In curtailing the liberty of the "trust," the liberty of the lesser corporation, of the partnership and of the individual, disappears; what is unconscionable for one is unconscion- able for another. The "brutality" of a given act does not depend upon the size of the trust that commits it; it de- pends upon conditions as they exist between the parties to the act; and there may be — usually is — far more of vi- ciousness in the conduct of an individual toward his com- petitor. It goes without saying that courts cannot intervene and regulate all the large corporations of the country, to say nothing of large manufacturers and dealers that are not corporations. That being true, why should not competi- tors be permitted to get together voluntarily and adopt rules for the regulation of competition along the lines laid down in the cases and statutes referred to? Voluntary cooperation with a minimum of state super- vision is far better than compulsory action with a maximum of supervision. In the present uncertain state of the law the attitude of Congress would seem to be that of forbidding the voluntary association that is absolutely necessary to eliminate those "brutal" features of competition the courts and Senator La Follette agree must be eliminated. r XIX Since the foregoing sections of this chapter were writ- ten the Clayton and Trade Commission Laws have been passed. Inasmuch as these laws are printed in full farther on BRUTAL COMPETITION 8i (see appendices IV and V, for the laws and comments thereon) only the sections immediately in point will be referred to here. They provide: 1. Unfair methods of competition are unlawful.^ Rightly administered this ought to prove the pure food law of commerce. Up to the present time the phrase, "Unfair Competi- tion," has had a limited and special application in both English and American law,^ but the new law is intended to reach a much wider range of unfair methods. 2. It shall be unlawful for any person to either directly or indirectly discriminate in price between different purchasers, where the effect of such discrimination may be to substantially lessen competition, or tend to create a monopoly; provided, however, that discrimination in price may be made on account of differences in grade, quality, or quantity, and also to allow for difference in the cost of selling, or transportation, and also where made in good faith to meet competition, and providing further that noth- ing in the Act shall prevent persons from selecting their own customers.^ It is needless to say the exceptions after the word "provided'* deprive this section of nearly all its force, since they open the door quite freely to about all the discrimina- tory practices that now exist. In this respect the act is far more favorable to discriminations than the laws of many of the states, for the state laws punish with fine and imprisonment discriminations in prices between parties and localities for the purpose of injuring a competitor. As drawn, most of the state laws are too drastic to be literally enforced, while, possibly, the Clayton Act is too lenient in its broad exceptions. * Sec. 5, Trade Commission Act. 2 See page 400. ' Sec. 2, Clayton Act. 82 THE NEW COMPETITION The vital point, however, is that it is to the interest of every man engaged in commerce to obey this law in letter and spirit, since it tends toward stable and uniform prices and makes for fair dealing. If this section of the Clayton Act could be enforced, regardless of its exceptions, it would be a boon to both sellers and buyers. Instinctively men who are accustomed to "run their business to suit themselves" will denounce the law as med- dlesome, mischievous, etc., etc., but it is not, it is a step in advance because it is diametrically opposed to the de- structive, "cut-throat" spirit of the Sherman Law, The spirit of the Sherman Law is unrestricted compe- tition, and that means unrestricted discrimination, the bit- terer and more vicious the better ; the spirit of the Clayton Act is, treat all men fairly, do nothing to injure your competitor. Under the Sherman Law it is almost a presumption of guilt if your prices are the same as your competitors; under the Clayton Act it is almost a presumption of guilt if they are not the same. Under the Sherman Law you run the risk of being found guilty if, before making your own prices in a given town, you ask the local dealer what his prices are, and charge the same. Under the Clayton Act you run the risk of being found guilty if you go into a town and make prices without first learning what the local dealer asks, for the Clayton Act simply permits you to meet competition. In short, the Clayton Act makes it essential for a man to act very cautiously lest he injure a competitor by wit- tingly or unwittingly discriminating in prices. As for deliberately taking an order below cost to get business away from a competitor, that is quite without the pale of the Act. BRUTAL COMPETITION 83 Time will demonstrate the significance of this important section. It is no new declaration; Congress lagged many years behind a number of the states.^ 3. Unlawful for any person to sell or lease anything, whether patented or unpatented, or give a rebate or dis- count on condition that purchaser or lessee shall not use or deal in the goods, machinery, etc., of a competitor, where the effect of such lease, sale or contract, etc., may he to substantially lessen competition or create a monopoly.^ Sections 2 and 3 of the Clayton Act provide no crim- inal penalty. Their enforcement are left to the Federal Trade Commission.^ But it is expressly provided in section 4 of the Act that any person who may be injured in his business or property "by reason of anything forbidden in the anti- trust laws may sue in any District Court of the United States in the district where the defendant resides or is found or has an agent, without respect to the amount in controversy,'* and recover three-fold damage, with costs and reasonable attorney's fee. XX The broad provisions of the new law are in line with the spirit and argument of this book. Following the lead of many of the states, Congress has taken advanced ground in the endeavor to correct unfair and vicious competitive practices. Above all, it has pro- vided a tribunal to bring these practices into the light of publicity and to correct them before they have gone so far as to become criminal. * Arkansas, Idaho, Kansas, Louisiana, Massachusetts, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Texas, Utah, Wis- consin, Wyoming, have laws against unfair practices. ^ Sec. 3, Clayton Act. *See Sec u of the Clayton Act. 84 THE NEW COMPETITION The Trade Commission Act is preventive in letter and spirit. It is made the duty of the Commission to guide and forbid rather than punish. Punishment is left to the proper authorities if the admonitions of the Commission are unheeded. This does not mean that the Commission stands between the criminal and punishment. All the criminal provisions of state and federal laws remain intact. But whenever the Commission is appealed to in time and in good faith, practices that might become criminal will be forbidden. In short, there is a tribunal — composed of lawyers and business men^ — ready to hear complaints and adjust same before there has been any flagrant violation of law. ame i CHAPTER VI TRUE VS. FALSE COMPETITION "Then your argument is that all competition should be suppressed?" someone says. "No.'' "But if competition is war " "Yes." — "And war is " "Yes." "Should not men stop competing?" "In a false way, yes ; in a true way, no, "What do you mean?" "We will see." II Two runners engage in a race. The distance is a mile. They start, side by side, at the crack of a pistol. They do not start at top speed but reserve their strength. They keep close together and each gages his efforts by what the other is doing. For nearly the entire distance they may run shoulder to shoulder, neither leading, or one may set the pace, the other following close at his heels. At the finish there is a spurt and it often happens the race is won, not by the one who can actually run faster for the entire dis- tance, but by the man who has used the better judgment 85 86 THE NEW COMPETITION and husbanded his resources for the final dash, surprising his opponent. Or, a strong runner may take it easy and win without being obliged to exhaust all his energy. It is all a matter of knowledge of past performances, watchfulness during the contest and the exercise of good judgment at each stage of the race. In such a race the competition is keen, real, and bene- iiciaL --- Suppose, however, the two runners, instead of running on the same track where each may know what the other is doing and govern himself accordingly, are started on sep- arate tracks. Each knows he is to run a mile against the other, but as neither can see what the other is doing, the only prudent thing is for each to run the entire distance as fast as he can, to run to the point of exhaustion. In such a race there is no real, no true competition. The runners are not competing one against the other, but each is running against himself, doing the best he can re- gardless. At the end when records are compared they find that both expended a large amount of energy needlessly — the winner in running faster than necessary, the loser in making a hopeless contest. To make the point still clearer — suppose the two run- ners start at the same moment on the same track as under the first h)rpothesis and for the first half they are side by side and the competition is real and keen. At the end of the half mile the track divides, the diverging lines are separated by a barrier so high neither runner can know what the other is doing. What is the inevitable result? From the moment they lose sight of one another all real competition ceases, each man puts forth all his strength and runs until he collapses. That is false or pseudo com- petition. A man may run against time, jump to beat a record. TRUE VS. FALSE COMPETITION 87 play golf against Col. Bogey, but all such attempts are called competition only by courtesy. They lack the vital, the stimulating elements of knowledge against knowledge, strength against strength — of man against man — that make real competition, competition that is worth while to those who compete and to those who look on — to competitors and public. Ill From the foregoing it follows that true competition ex- ists only where (A) There are two or more competitors, (B) Competing under conditions that enable each to know and fairly jud^e what the others are doing. The essence of competition lies in the element of knowl- edge, it is real, true, and beneficial in proportion to its openness and frankness, its freedom from secrecy and underhand methods. IV A carpenter in a small town is asked to make a bid on a piece of work. The owner says he intends to get other bids and will let the work to the lowest; as a matter of fact he may have no intention of asking for additional bids. To get the lowest possible figure the carpenter is led to believe he is competing with others ; he is in the position of a runner in a walled track who is falsely told some one is running against him in an adjoining track. The carpenter needs the work, he labors over his esti- mate, he makes a figure so close to cost there is barely a living wage in it. What happens ? The tricky owner looks at the bid, and shakes his head. "Too bad, you're too high." The poor 88 THE NEW COMPETITION man is crestfallen. "I — I figured it as low as I could and do it right." After a few more discouraging remarks and references to other and lower offers, the owner says magnanimously, "ril tell you what I will do, if you'll throw off fifty dol- lars, the job is yours." Thef^ is no use protesting ; the shadow of the unknown quantity, of the other fellow whose figure is a "little under," is over the whole affair; the man is helpless, he has no means of ascertaining the truth of the owner's statement, he is on a footing of jealous distrust with the other car- penters in the village, he would not think of asking them, he takes the contract, does an honest piece of work and comes out a loser. Is there any real, any true competition in that transac- tion? None at all — only false or pseudo competition. The one bidder — like the one runner — thinks he is com- peting with others ; the owner knows he is not. "But,** says the man in the street, "it was the possibility other competitors might bid that made the price so low." No, the figure bid was based upon the man's own neces- sities; if he had not been in desperate need of work he would not have made that final reduction which occasioned, the loss. The public is saturated with the notion that potential competition is true competition, that competition, like bogey men, should be present in the dark to frighten prices down, that anything like friendly intercourse between competi- tors is a step toward the suppression of competition and reprehensible. Potential competition is competition, but it is not true competition ;^ it is false competition of the most demoralizing nature. But suppose the owner does get estimates from other carpenters, the situation remains unchanged; each carpen- ter prepares his estimate under precisely the same condi- TRUE VS. FALSE COMPETITION 89 tions of secrecy and jealous distrust, and the bid of each is based upon his own needs; if he has considerable work in hand he names an arbitrarily high figure on the long chance he may get it; if he is badly in need of work he names an absurdly low price to the detriment of himself and his creditors — in either case there is no true, healthful competition. It is this false or ps eudo competitio n that prevails in the contracting^Hdnmanufacturing worlST It does not prevail in those sections of the labor world controlled by unions. The unions fix and make known rates of wages and conditions of employment. It is only with unorganized labor that the employer is able to say truth- fully or untruthfully "You ask too much, I can hire any number of men as good as you for less." But even with unorganized labor the prevailing scale of wages in any given employment is soon known. A man may go to work for two dollars a day but if he learns that others doing the same work get two and a half, he soon demands more or quits. Employment bureaus, even those run by unscrupulous proprietors, are so many effective agencies for the dissemination of knowledge regarding work and wages. It is impossible to employ a cook or a maid at less than the prevailing wage. Unhappily, a poor cook asks and gets as much as a good, not because she is worth it, but because she has been told what others get and will not work for less. In the labor world, organized and unorganized, wages do not fluctuate greatly. There may be a general and steady advance as of recent years or slight recessions from time to time, but there are no violent fluctuations. Twenty-five per cent, of the labor employed in a given 90 THE NEW COMPETITION industry may be laid off without wages dropping one per cent. The period of depression must be very prolonged and very severe to materially affect the rate paid those who are kept at work; they will consent to work for less hours per week before they will accept a less sum per hour; while the unemployed, however desperate their condition, are loath to offer to work for less than what they formerly received. These conditions show how much better informed and better fortified certain sections of the labor world are when it comes to competition than are contractors and manufacturers. The contractor has no union, no employment bureau to which he can appeal for information before he makes a contract. He is obliged to make his offer in the dark and when it is accepted he is bound to do the work though it ruin him ; he cannot demand more or quit. When he finds he was deceived regarding the bids of other contractors and that they are getting more for similar work and pos- sibly from the same owner, he must stand by his contract. VI Between the blacksmiths of a small village the competi- tion may be more real, it may be so open, so true that the charge for shoeing a horse is practically fixed. Why should a false and vicious competition prevail among carpenters and a truer form among horseshoers? The answer is found in the conditions under which each class does business. The carpenter bids on jobs no two of which are alike and each bids with reference to his own particular needs and with little or no knowledge regarding the bids of others. TRUE VS. FALSE COMPETITION 91 The horse-shoer has his shop to which his customers must come, it is open to the street, his competitor can see who the customers are and the amount of work he is do- ing. While waiting for his horse to be shod a farmer may drop into the other shop just to see whether charges are lower or work better. The competition is so open that every blacksmith in the place is afraid to cut either his own or a competitor's charge. If he cuts a competitor's his action will be known so quickly he will reap no advantage; if he cuts his own price of the day before, his customers will hear of it im- mediately and those who were overcharged will resent it and those he favors will distrust him. The only safe course is to do as retail merchants do, treat all alike, charge a fair price and a price that is known to everybody, deal with customers so frankly and openly that they know they are in good hands — the man who does this may get even higher prices for his work than the shifty competitor who works for less but who in his short-sighted efforts to get trade, makes different charges to different customers. True competition begins with the development of con- ditions that tend to eliminate secrecy in bidding and charg- ing. It is not that horse-shoers are better or more forbearing than carpenters; on the contrary, they are, as a class, far more pugnacious, far more prone to "down" the other fel- low if they can, but conditions compel them to work in the open, experience teaches them the commercial advantage of keeping track of what others in their trade are doing and charging; that is the first inquiry a new man would make; before opening a shop he would go around, take a good look at shops already doing business and find out all he could about them. In the light of the information so 92 THE NEW COMPETITION gathered, he would have to decide, first, whether the vol- ume of business warranted another shop ; secondly, whether to get the business it would be necessary to cut the prevail- ing schedule of charges. In just the proportion that all this information is avail- able, is the competition real and intelligent. When one man knows what another is doing he is in a position to com- pete with him; when he does not know, the competition, so-called, is mere blind rivalry wherein both may ruin themselves to the detriment, in the long run, of both cus- tomers and the public. VII What is true in the letting of small contracts to masons, carpenters, painters, and all other trades, is equally true in the letting of large. A railroad is in need of a crane. It requests bids of a number of crane builders, fixing a day and hour by which the bids must be delivered at the office of the purchasing agent. The several companies are located in different cities in different states ; they have no connection and no commu- nication one with another ; each is a jealous and independ- ent unit. According to popular notions the competition is ideal — it is the familiar "cut-throat" variety. At the hour named sealed bids are handed in, but the work is seldom let in good faith to the lowest bidder. The filing of the bids is but the dealing of the cards in a game wherein the purchasing agent is given five aces ; he takes the bids, com- pares them, and three times out of five, begins more or less secret negotiations with one or more of the bidders to secure reductions. Favored bidders are told what others have bid, or a bidder is sent for and told, "If you will TRUE VS. FALSE COMPETITION 93 knock off $500 I will give you the contract right here and now/' It is the offer of the contract then and there that is so effective ; few salesmen for companies in need of work can resist the "take it or leave it" threat. The president of a large manufacturing company said : "When I need a crane I write for bids; when the bids come in I send for the representatives of the companies whose cranes I am willing to use. I put one man in one room, the other in another where they can't get at each other, then I go from one to the other, giving each a chance to underbid the other, but I do not name any fig- ures. All I have to say is, 'Well, have you any other offer to make ?' and each will cut his price again and again, sometimes when he is already low." The result of this bidding in the dark is that the pur- chaser gets a crane for less than it is really worth, often — in dull times — for less than cost ; the men who use the crane get a piece of machinery that has been cut and pared until the margin of safety is reduced to the danger line — no one has profited by the transaction. In all respects the letting of the crane contract parallels the letting of the carpenter's job — the same secrecy, the same distrust, the same ignorance, the same playing into the hands of purchasers quick to take advantage, the same wide differences in prices — differences that alone prove ab- sence of true competition. VIII The point is made that a wide difference in bids on work of standard character demonstrates the lack of true com- petition. Given a piece of work that presents no unusual features and it goes without saying that ten intelligent con- tractors would come to substantial agreement about its 94 THE NEW COMPETITION cost if they conferred together and compared data; their bids would not vary greatly in true competition and such differences as there were would be normal, easily explained and justified. But where two bidders vary so widely in their figures that each looks upon the other as "wild" in his estimates, something is wrong, either the one is too high or the other too low, the intelligent bidder in between is the sufferer. In false competition the honest and intelligent bidder is always at a disadvantage when there is little demand for work. When there is more than enough work for all it does not matter so much what the ignorant bidder may do ; he may bid high and make more than he should, or he may bid low and lose money, the intelligent bidder pur- sues the even tenor of his way, knowing his costs he makes sure of a fair profit on each contract taken. It is in the dull times that the intelligent bidder feels the competition of ignorance and unscrupulousness. He is caught between two fires, that of the man who does not know his costs, and bids recklessly in the dark, and the man who knows his business, but bids low, with the intention of working out a profit in some tricky way — of the two the ignorant bidder is the more troublesome factor, his com- petition is disastrous because blind and reckless. IX In transactions such as those outlined, the factors of true competition are present — (a) work to do; and (b) a number of parties able and anxious to do it; but some ele- ment is lacking, some element the presence of which would transform the false and vicious competition into true and healthful. That element is knowledge, such knowledge of qonditions and considerations affecting the price of the TRUE VS. FALSE COMPETITION 95 work as would place all bidders on a footing of something like equality in the preparation of their estimates. In proportion to the fullness and accuracy of such knowledge is the competition keen, intelligent, and bene- ficial to bidders, purchasers and the community. To pre- cisely the extent that ignorance, jealousy, deceit prevail is the competition apparent rather than real, disastrous rather than beneficial. As a further step toward ascertaining what true com- petition is, as distinguished from false, carry the illustra- tion to the other extreme. Suppose the bidders get together and agree upon the price all shall bid, or agree that one shall have the work, the others to either refrain from bidding or put in "pro- tecting" bids. Competition is suppressed; the agreements are illegal. Between the two extremes of bidding in the dark as individuals, without cooperation — false competition, and bidding in combination an agreed price, suppressed compe- fion — must be found the conditions favoring true com- petition. Under false competition the purchaser has every ad- vantage over bidders in the dark; under suppressed com- petition the bidders in combination have every advantage over the purchaser who is in the dark; under true com- petition both deal frankly in the open on a footing of equality. To return to the illustration first used: it is the best informed blacksmith, carpenter or painter who gets the trade in good times because he keeps in touch with what is going on, with what his competitors are doing and charg- ing, so that by reason of his knowledge he is in a position 96 THE NEW COMPETITION to really compete with them, to take the work he wants at the price he wants. It is the man who stays within the four walls of his shop, who fails to keep his ears and eyes open, who asks no questions and gives no information, who bids in the dark, that goes to the wall, or, at best, makes a precarious living; every country town can show plenty of such men, silent and envious, melancholy relics of the old order of things. CHAPTER VII THE OLD COMPETITION I Under existing conditions practically all bids upon con- tract work fall into two classes : A. Collusive — suppressed competition. B. Secret — false competition. In neither case is there any true competition. Where bidders conspire together and agree upon their bids either for the purpose of exacting an arbitrarily high price, or with a view to throwing the work to some one bidder, at such price as he wishes to charge, the result is the same — suppression of competition. If bidders do not conspire together, but each prepares his bid independently and submits it sealed, there is still no real competition ; each bidder bids against his own fears and necessities. The purchaser who opens the bids has little difficulty in determining whether he is confronted by suppressed competition or false. If suppressed, the bids will be sus- piciously alike; while if the competition is of the pseudo variety the bids will be characterized by spreads that are ridiculous. As a matter of fact, there is comparatively little col- lusive bidding. Collusion calls for a large degree of con- fidence in one another on the part of the bidders, and it is a familiar fact that no sooner do men come together in 97 98 THE NEW COMPETITION agreements to suppress competition than the very act of conspiring" tends to destroy the little confidence that may have existed. Collusion begets distrust. As a body of keen competitors once said: "We no sooner combine and agree upon prices than it is a race to the telephone to see who can book orders first at prices a little under those fixed.^' Attempts are made to give force to these combinations by depositing large amounts to be forfeited in case of cut- ting, but these penalties are altogether ineiifectual. Now and then one hears of a "pool," or combination, an association in some particular trade or industry that is effective and that has existed for many years, but these instances are few indeed in comparison with the number of lines wholly uncontrolled, and where combinations are suc- cessful in maintaining uniform prices, the interest of the customer is considered and no advantage taken. II The writer has in mind a class of machinery, the prices of which for many years have been established by joint action at the beginning of each year. When the legality of the agreement was questioned the purchasers of the machinery protested against the sug- gestion to restore old competitive conditions; they said in so many words: "Do not disturb this association; it is an advantage to us to have prices fixed for the year, and it is even more important that we know that all who buy pay the same price." Again, in the case of a certain railroad specialty, the roads much prefer the sellers should cooperate and main- tain a fair price, and each be content with the customers he has rather than slaughter prices in efforts to extend the THE OLD COMPETITION 99 use of his particular device — experiments that usually cost the roads far more in extra parts and repairs than any- possible saving in price. It would not be difficult to name article after article the consumers of which would vote unanimously, if they could, that prices should be fixed to all alike and main- tained for definite periods without variation. There is scarcely a manufacturer who would not pre- fer to have the prices he pays for raw material — yes, and for labor — ^fixed from season to season. Ill To test their attitude the following questions were put to the representatives of some twenty independent and sharply competing companies engaged in the manufacture and sale of an output, the raw material of which is steel as it comes from the rolling mill. "If you had your choice, which would you prefer, to have the prices of the raw material you buy fixed from season to season, or have the power to combine and fix the prices of what you sell ?" "We can take care of ourselves if given a fair deal by the mills." "What do you mean?" "That no rolling mill shall give one company an un- fair advantage over another." "Explain." "There is a market price for the steel we use ; to-day it is 1. 10 Pittsburg. Everybody is supposed to be paying that price, and when we bid most of us are compelled to use that figure as a base in making our estimates of cost, but we know that certain companies, closely allied to the loo THE NEW COMPETITION mills, get lower prices; they get as low as i.oo, possibly .90. What chance is there for the rest of us?" "You mean you will have to go out of business if you cannot buy your raw material as low as the favored com- panies ?" "Exactly, they are selling below our cost." "But isn't that just the sort of competition the public wants ?" "No, for it means monopoly in the end — it is the rank- est sort of competition, and when we are driven out of business the public will pay the piper for the fiddling." "Then what you want is a uniform price for what you buy?" "Yes, the same price to all, large and small — a square deal, no rebates, no favors." "The same price for how long, a week, a month, a year?" "In our business the price of raw material should be fixed for periods of not less than six months." "With notice in advance of changes?" "Of not less than three months." "These propositions will strike the public as novel ; you gentlemen have come together to devise some way to im- prove conditions in your industry; the natural supposition on the part of the outsider is that your first step will be to 'fix* the prices of what you have to sell, and here you are demanding that the rolling mills fix the prices of what you have to buy." "Yes, if they will do that we can all start even and compete on the same basis; we are not afraid of open com- petition in selling if no one has a secret advantage in buy- ing." "But what you demand means some sort of a combina- tion on the part of the mills." "Yes, and without some form of cooperation whereby THE OLD COMPETIJ.ION loi the same prices are quoted to ajlliuyers^ alike, „cojnpetijion is a farce." , /'\i,,.i;' ^•„^V\:''; i:\ "That sounds like a new proposition." "But it isn't. All we ask from the rolling mills is the same treatment the law says we shall have from the rail- roads — the same rates and the same service to all, with no sudden changes made to help one man or one locality at the expense of another." IV While the prevailing demoralization in the prices they were getting was a matter of serious concern, the usual remedies by way of "understandings," "gentlemen's agree- ments," etc., etc., were dismissed as inefficacious; the dis- cussion invariably came back to the proposition that the prime cause of disastrous conditions was secret and unfair discrimination on the part of those from whom they bought. It was conceded that each of the companies represented could make a good living in its own locality if it could buy its raw material on the same basis as larger companies lo- cated at a distance, but if any large company had an "in- side" price from a mill on raw material, then it had the same unfair advantage it would have if it had an "inside" arrangement with a railroad on freight — the local company is out of the running. It is not from collusive bidding and price fixing that the public suffers most, but from the secret methods of the old, the false competition. It is not that men get together too much, but that they do not get together enough — and in the open. 102 THE NEW COMPETITION It is unfair when the great rolling mill gives a secret price to one customer to enable it to get contracts against competitors who are charged more for their material, but the practice is just as unfair when the lumber yard in a small town gives a secret price to a favored carpenter to enable him to get work as against others who are charged regular market prices for the lumber they need — and this is done so generally that it is often known which carpenters are allied to particular yards. A favored contractor is often in a position to make a bid at what the material costs a competitor, and, if he gets the contract, make his profit on the secret discounts he gets from the parties who supply him. All this is within the experience of every man who has had occasion to build or have any amount of work done. The "tricks of the trade" are infinite in number and variety. "Sharp" buying is by no means confined to the purchas- ing agent of the large corporation; he but practices sys- tematically what the farmer, the carpenter, the mechanic do instinctively. The farmer who is about to build a barn takes his bill of stuff needed and goes from lumber yard to lumber yard, from mill to mill, getting prices ; like the purchasing agent, he does not hesitate to say, "I've got lower figures than yours," or, "I can do better 'n that," "You're too high by a good deal," when he has no better prices. The carpenter does the same thing, he plays one yard against another until he gets a price below what the lumber should be sold for, all depending upon conditions at the time. In some towns the lumber yards are shrewd enough to THE OLD COMPETITION 103 meet this sort of buying by a secret agreement to inform one another regarding prices made to certain contractors. Coal yards are subjected to the same misrepresentations by buyers who contract for winter suppHes, with the natural result that as prices are cut lower and lower inducements to give short weight and inferior coal multiply, Blame for false measures, inferior and adulterated goods is laid at the door of the maker and dealer, when buyers are themselves responsible; they make it difficult for the absolutely honest merchant to make a living. True, in time a reputation for squareness, for honesty, for good goods at fair prices, becomes a man's most valu- able asset, but it takes time and money to build up that reputation, and many men in business are not in a position to wait; unless they can make money at the start they must give up — they are the ones the public, by unfair and unscrupulous buying, literally force into unfair and un- scrupulous selling. VI All this is apropros the proposition that whatever evils are found in the management of large corporations are not peculiar to trusts, but have their roots in human nature and the legislation that reaches them will probe deep. The open-price policy — explained in succeeding chap- ters — of the new competition will help greatly to expose and correct some of the more glaring evils. When all prices, all bids are made openly so that both customers and competitors may examine and analyze same, it will be exceedingly difficult to hide agreements intended to favor some to the detriment of others. Just now the people are crying for "More Competi- tion," what they want is more cooperation. Competition has run mad, it is responsible for nine-tenths of the eco- I04 THE NEW COMPETITION nomic abuses that exist, it is responsible for the trusts themselves; it was the old "cut-throat" competition, with its countless secret practices, that gave the Standard Oil Company its opportunity. It was the threat by the Carnegie Company of still more drastic and relentless com- petition that led to the formation of the U. S. Steel Cor- poration. It would be difficult to point to a trust that did not have its birth in competition so merciless that combination seemed the only way out. CHAPTER VIII THE NEW COMPETITION The basis of the old competition is secrecy, the strength of the new is knowledge; the essence of the old is deceit, the spirit of the new is truth. Concealment characterizes all the dealings of the old; frankness is vital to the new. The old looks with suspicious eye on all associations and combinations; without cooperation the new is im- possible. II Suppose all the carpenters in a place, instead of acting as jealous and independent units, meet weekly in an asso- ciation, the sole object of which is the frank interchange of information. Suppose they disclose and discuss freely: 1. Every element that enters into the cost of their work. 2. Work in hand, the terms and conditions upon which it is being done. 3. Work in prospect ; all requests for bids, with frank interchange of information regarding such proposed work, and the conditions under which it must be done. 4. All bids actually made on work. 5. Conditions affecting their general welfare. 105 io6 THE NEW COMPETITION Such an association implies a degree of frankness here- tofore unknown in the industrial world, but a condition toward which the industrial world is progressing. So long as its members enter into no agreement to fix prices or control competition, the legality of such an association could hardly be questioned. The effect of competition under such open and straight- forward conditions would be stability of prices at normal levels. Competing in the open with full knowledge of all the conditions influencing others, no man would make a ruinously low price or an arbitrarily high one. The com- petition would be real, keen and healthful. Prices would vary, but they would not vary widely; men needing work would bid to get it ; others with plenty of work would not try ; in dull times prices would approach cost, but the educa- tional value of the association would tend to deter ruinous bidding; open criticism of work inefficiently done would expose the tricky bidder. As there would be no secrecy about such an association, the public would understand its workings ; customers would reap the benefits of true competition, and, at the same time, lose the unfair advantages of false. Ill Every town should have its Industrial Exchange, a place of meeting for all trades, and every contractor in all lines of work should be a member of this exchange. In larger cities the exchange would have as many dif- ferent sections as there are different trades, each section with its own headquarters or room for meeting. There would be no hard and fast lines, no barriers of antagonism, of jealousy and distrust. The competition, the rivalry, would be friendly and open. THE NEW COMPETITION 107 While general contractors would have their own sec- tion, they would also participate more or less in the de- liberations of all the sections in which they were inter- ested, and there should be no rule that would deter mem- bers of any section from attending the meetings of an- other, or from participating in such meetings if they de- sired. Divisions into sections and the meeting of each on its own day would be for convenience only, and not to draw any line of separation. In a small town it might be more convenient for all trades to meet together one evening a week and discuss all matters in open meeting. A representative central body would govern with a light hand in an advisory rather than an arbitrary manner. Coercion should not be used, and no rule adopted to con- trol individual action and initiative — other than the one rule of reporting all bids and prices; that would be the basis of the Exchange. These details are more fully discussed in the chapter on Open Price Associations, but they are briefly mentioned here because it is important to call the attention of the labor world and of small contractors to the advantages of such associations. In addition to labor unions there are now in existence Builders* Exchanges and organizations of manufacturers and employees generally, but they operate in a spirit of an- tagonism and under conditions of secrecy; each meets be- hind closed doors; hardly any two would be willing to come together and discuss fully all matters that concerned them. These organizations can be readily transformed into open price associations, but the change would be a revolu- tion — a revolution in methods and a revolution in rela- tions. The experiment is worth trying, on this hypothesis, if io8 THE NEW COMPETITION no other, present conditions of distrust and antagonism, of bitter and disastrous competition, could not be any worse, then why not try a plan that at least promises freer inter- course and more friendly cooperation? Keep in mind the goal to be reached is a central ex- change, so open, so public that labor, employers, customers will resort to it for information regarding work, wages, prices and all conditions affecting every trade and industry represented. Carried to its final realization and perfection every per- son working for wages — man, woman, or child — would be registered together with conditions of employment. This alone would do more to correct the evils of child and woman labor than all the laws the State can pass. Pub- licity is the greatest corrective agent known to society. Every contract for work or material would be regis- tered; prices of material would be filed from day to day; there would be no secret rebates and discounts, no unfair preferences; in the open debates and opportunities for sharp questioning there would be no chance for concealment. Customers would have opportunities to come in and make their complaints regarding both charges and char- acter of work done. The public would be free to avail itself of the infor- mation afforded by the association, for it would be in the best sense of the term, a public body, a representative body, more vital to the welfare of the town than the Common Council or Board of Aldermen. The development of the idea to such a degree of per- fection may be a far look ahead, but there is no reason why there should not be a beginning, why small associa- tions should not be formed along the lines suggested, why, for instance, the carpenters and building contractors in a town should not get together in a frank and open way to exchange information. THE NEW COMPETITION 109 The medieval guilds were supremely selfish in their ob- jects, and had very little in common with the new ideas, but they prove the strong tendency inherent in man to co- operate, and there is no reason why they should not be revived in other and better forms, there is no reason why the trades of a locality, the industries of a country, even the industries of the world, should not be grouped each in its special organization. There is no reason why cordial, friendly and genuinely social cooperation should not take the place of vicious, vindictive and unfriendly competi- tion. There is no reason why a desire that all should pros- per should not take the place of the present hope that all but self shall fail. There is no reason why industrial peace should not take the place of industrial war. IV It is almost needless to point out that the danger ahead of such frank and friendly cooperation is — as the law now stands in this country — the agreement that suppresses com- petition. Given an association in any trade or industry based upon the single agreement to exchange information there would be the temptation for groups of members to agree upon their bids, to apportion work and so secure for the time being arbitrarily high profits by suppressing compe- tition — a policy that always "kills the goose that lays the golden tggJ' But this temptation to go wrong is inherent in every movement toward perfection ; it must be recognized and re- sisted; it is no argument against systematic effort toward the establishment of better conditions. At present men are possessed with the idea that the moment they are brought together in any sort of an as- no THE NEW COMPETITION sociation they must arbitrarily advance prices. If they will do precisely the reverse, namely, encourage true com- petition, leaving* each man theoretically and practically free to quote such prices as he pleases and to change them as he pleases, prices and profits will take care of themselves; they will be normal and reasonably constant. It should be again noted that in the labor world the unions do many of the things suggested, they gather and spread information regarding conditions of employment, so that even the ignorant immigrant is quickly told the hours he should work and the wages he should get; but in at- tempting to arbitrarily fix hours and wages the unions check individual initiative and suppress competition. The strength of the labor movement lies in the element of co- operation; its weakness in the element of repression. If it is right and legal for an association of laborers to ar- bitrarily fix wages, it is equally right and legal for an association of employers, who are compelled to pay the wages, to fix prices — the truth is that in both cases com- petition may be suppressed, but not necessarily, for the regulation of wages and prices from time to time may be not only beneficial but essential to the development of true competition. The public recognizes the fact that wide fluctuations in wages are an evil, but it does not yet see that wide fluctuations in prices are equally bad. The retail trade in this country is on a vastly better basis than the manufacturing. America led the world in the one-price policy. Even in country villages customers know that it would be useless to "dicker," to "bargain" in the retail stores. The prices are fixed; they may be changed any day, but if changed they are plainly marked THE NEW COMPETITION iii and changed to all ; no clerk has power to make the slight- est reduction; if the proprietor should do so, it would cost him his reputation and his trade. Shops with two prices are run by a class of more than doubtful standing. As the traveler approaches the Orient he leaves behind the "one-price-plainly-marked" system; he enters cities where no shopkeeper expects to get what he first asks and every trade is a trial of wits. In retail trade a merchant may go through the estab- lishment of a competitor, examining goods and noting prices; often the prices of large classes of goods are pub- lished in advertisements each morning. With full informa- tion people trade where they like, many going to stores where they know prices are higher rather than to others justly famous for their very "real" bargains. The ex- travagantly high-priced shop on Fifth Avenue holds its own against the seller of goods just as good on the side street. VI The secret price has fallen into disrepute in America and England. It has been abandoned by the best dealers on the Continent, though even in Paris there are compara- tively few places where one is absolutely sure the price asked is the only price ; offers bring responses and there is a pretty general conviction that tourists pay more than natives. In the most reliable places of business in this country goods are marked in plain figures, and both customers and competitors are free to note and use these figures. Here and there a perfectly reliable merchant clings to the old habit of marking the price in cipher. Why ? It would be difficult to say, since his cipher is known to every employee, to every competitor who cares to give the matter ten min- 112 THE NEW COMPETITION utes* investigation, and to every bright customer who prices a dozen articles and compares the letters that stand for the figures. The cipher is a relic of the old furtive policy, and is bound to go; customers resent it because they are be- coming accustomed to plain marks and distrust the man who looks at a few cryptic letters and says the price is so and so— if it really is so and so, why not mark it for every- body to read? Why make a confidant of every cash-girl and alienate every customer? In the manufacturing and contracting world the old, discredited policy prevails. Manufacturers and contractors, large and small, still do business on a par with the wily Oriental. Each is mortally afraid his competitor will find out what he is doing; nearly all have as many prices as they have customers; they ask one figure, but, like the Oriental, are ready to take almost anything offered. Pur- chasers know this, so it is not surprising that ordinary transactions are attended by unscrupulous representations. From the president down to the least important sales- man everybody is clothed with "discretion," everybody can "make" or "shade" a price; if a list is published no one expects to get the prices therein named, there is always a discount, and discounts upon discounts, with a further con- cession for cash, or an added inducement in terms, and so on endlessly, depending upon the resourcefulness of the salesman, the flexibility of the employer and their desire to "land the order." The buyer is never certain when the last word is said, even after the contract is closed he has the feeling he might have done better if he had held off a little longer — it is all a gamble, and demoralizing to everyone concerned. No men should have more respect for their calling or stand higher in the commercial world than the able repre- sentatives of great manufacturing and contracting com- panies, but — ^judging from what they themselves say of one THE NEW COMPETITION 113 another — few men command so little confidence in their own circles as successful salesmen. This is the fault of the system. VII It is the aim of the New Competition to change the conditions which produce these results, to establish the trade of manufacturing goods on the same sound and straightforward basis as the trade of retailing them, and the fundamental step is the adoption of the Open Price Policy. There is no reason why the American manufacturer should not do business as the American merchant does, why he should not throw his shop open to customers and competitors, why he should not mark everything he makes in plain figures and let everybody know what those figures are, changing them as he pleases, but changing them to all alike, making such discounts as he pleases on large orders, but making them openly. Manufacturers suffer the disadvantage that, for the most part, they are widely scattered, each more or less influenced by his locality, and almost all look upon one another with ill-disguised hostility. The first step toward the development of the new com- petition in any given industry is to bring the hostile units together, make them acquainted, allay their distrust, induce them to abandon the played-out policy of secrecy, and to agree to exchange information along the lines enumerated — in short, to do business on a frank and straightforward basis. To the small or the isolated manufacturer this sort of cooperation is of far greater importance than to the large concern centrally located. In many industries the 114 THE NEW COMPETITION time is at hand when the small producer will be able to exist only in cooperation with the large. The new competition helps the small producer by giv- ing him the benefit of information and valuable data pos- sessed by the large; it shows him where he can rightfully and successfully compete, it marks out the field that is legitimately his. VIII It is not easy to get rival manufacturers to agree to file for the benefit of all interested the bids and prices they make, but it has been tried, and the new competition works better than the old. It is not easy to make* men who have habitually re- ferred to competitors as rascals and liars admit that they are not — but it has been done, and herein is the new com- petition better than the old. It is not easy to persuade men that bidding below cost to beat a competitor is poor policy, but it has been demon- strated, and in this respect the new competition is better than the old. It is not easy to convince courts and legislatures that rivals in the same trade or industry can get together with- out entering into illegal agreements, but they do, and that is another of the good results of the new competition. CHAPTER IX THE OPEN-PRICE POLICY I The basis of the new competition is the open-price policy. II What is meant by an ^'open" price? Exactly what the word signifies, a price that is open and aboveboard, that is known to both competitors and cus- tomers, that is marked wherever practicable in plain figures on every article produced, that is accurately printed in every price list issued — ^a price about which there is no secrecy, no evasions, no preferences. In contract work it means that every bid made and every modification thereof shall be known to every competitor for the order; it means that even the cunning and unscrupulous competitor may have this information. In short, the open-price policy means a complete reversal of methods now in vogue. Many strongly established manufacturers who make a practice of adhering quite closely to their prices will say, "Why that is what we are doing now." A dozen search- ing questions will convince them they are not, and a half dozen crucial propositions to reform their methods along the new lines will lead a goodly number of them to settle back in their chairs and say, "No, no, that's too advanced 115 ii6 THE NEW COMPETITION for us." The writer's experience has been that the men who are loudest to insist they follow the open-price policy- are the last to adopt it. What they want is a ''fixed"' price policy. Ill The secret price is the mark of the old — false competi- tion. The fixed price is the mark of the illegal combination — suppressed competition. The open price is the mark of the new— true competi- tion. IV The secret price must go, it has had its day, it does not belong to the twentieth century, it is part of the old order of things that is giving way to the new. Men are just beginning to learn that it is easier to make money by straightforward methods than by devious, that truth is a commercial asset. Before the days of steam and electricity men had plenty of time for lying. The slower the means of communica- tion the greater the opportunity for deception — a letter is an exacse; a telegram an answer; a telephone a fact. Many a man declines to use the telephone because it is devoid of opportunity. Many a woman exclaims in annoy- ance, "Why did she invite me over the phone? I just had to accept. I could not think of a thing to say." More business is done to-day by word of mouth than ever before. Men have no time to make contracts, draw up memoranda, call in lawyers; it is "yes" and "no," and millions change hands. In the great world of finance, of stock aTid grain deal- ings, of big transactions rarely does a man "go back on his THE OPEN-PRICE POLICY 117 word/' When he does his reputation — his biggest com- mercial asset — is gone forever. Were it not for this confidence it would be impossible to transact more than a tithe of the business done in any of our great cities. Men who are known to be devoid of in- tegrity in other directions keep their word in financial and commercial matters for the same reason they keep their credit good — it pays. Truth is a labor-saving device. The open price is a labor-saving device. The secret price is cumbersome and ineffective. When each merchant ran his own stall and made a sale or two a day the secret price was a part of his calling, it gave him his opportunity, it was his recreation, it roused him from his lethargy and sharpened his wits, it was the life of the bazaar; mark prices in plain figures and the merchant goes home and leaves his goods in charge of a boy. As trade increased and the merchant was obliged to em- ploy others to help sell, some sort of a price became nec- essary, not a fixed price, not a price that could not be "shaded" to the shy customer — Oh! no. But some price that would guide the salesman in his extortions. This price, together with other useful information regarding a hypo- thetical cost below which the salesman should not go, was marked in cryptic figures on the article. That was the next step, and the double marking survives to this day in some of our best shops. Some mark both cost and price in cipher, others mark the price in plain fig- ures, but the cast in cipher ; still others mark only the price and in plain figures — three steps toward the one-price cus- tom. ii8 THE NEW COMPETITION The advance has been due less to any deliberate inten- tion to do what is right and fair by customers than to neces- sity; the retail trade has developed to such an extent that the merchant himself needs the protection of the one-price- plainly-marked system to enable him to do the amount of business he does. The manufacturing world has just about reached a stage of development where it, too, needs the one price system for identically the same reasons — self-protection and to ex- pedite trade. VI There is not a word to be said for the secret price save that it has long been a custom — and that is not in its favor. Why should not one man know what another pays for an article? "Because it*s none of his business," some one says. But if a farmer is about to buy a plow or a reaper is it not of interest for him to know what his neighbor paid for the same implement? If he is charged one price and his neighbor another is it not the business of both to find out the facts? If you are a merchant is it not of the utmost concern that you should know whether you are paying more or less for your goods than your competitor next door? If you are a jobber does not your existence depend upon your getting what you handle at least as cheap as other jobbers? From the point of view of the buyer, whether consumer, retailer, or jobber, the secret price is an evil; only those buyers favor it who cunningly think they get better terms than others. It is the business of every buyer to find out, if he can, what others pay; that is the secret of good buying. Any THE OPEN-PRICE POLICY 119 fool can pay what he is asked ; it takes a clever man to pay what the other fellow is asked, or less. VII The secret price must go, because It is opposed to the 'Vapid fire" business methods of to-day. It is a cloak for fraud, deceit, and unfair discrimination. It fosters distrust between seller and buyer. It is of no advantage to either seller or buyer. VIII When the proposition is laid down that "the fixed price is the mark of the illegal combination — suppressed com- petition" — it is so generally true that it might be left with- out comment, but it is not invariably true. Under the old competition, with its secret prices, cuts, rebates, etc., etc., when a buyer is suddenly confronted by more or less uniform prices, cessation of rebates, discounts, etc., he knows that competition has been suppressed in some manner and he looks for the combination ; nine timec out of ten where the change in terms is sudden the combination exists. But where conditions in any given trade or industry im- prove gradually as the natural result of the adoption of franker and more straightforward methods prices tend to become uniform without concerted action. Price storms, like wind storms, tend to subside — but also to blow up again. Violent fluctuations are abnormal and destructive. If subjected to no outside influences prices in every industry seek and find their levels. Prices are not I20 THE NEW COMPETITION "fixed" in the active sense of the verb, but they become stable as the result of normal conditions. In rare instances they may become and remain for a time so stable they bear all the ear-marks of being ''fixed/* but they are not ; there has been no agreement, no combina- tion. Where prices are stable, in a normal sense, it is nearly always in those industries where each competitor knows what others ask and each refrains instinctively from cutting because he knows if one cuts all will; the industry has probably been through more than one disastrous trade war and is ever on the brink of another. "Fixed" prices in this sense — stable — are due to the ex- tent to which the open price prevails. The more open the price the stronger the tendency to- ward stability and that, too, without combination. The open quotations — prices — of stock exchanges support our theory. But, while many long established industries — especially those controlled by a few conservative and well managed companies — have worked toward more or less openness and frankness in quoting prices and gained corresponding ad- vantages in the way of greater stability in prices, the condi- tion is not one of any degree of permanence ; it rests on no well defined policy; its sole basis is fear of a trade war, a fear that is apt to yield to the pressure of "hard times." IX The open price policy of the new competition is a policy that demands concerted action for its adoption and promo- tion. It has taken the retail trade a century to grow into the one-price-plainly-marked policy. Even now its advantages THE OPEN-PRICE POLICY 121 are not fully recognized. The policy was not worked out as a great economic step. Merchants adopt it or not, as they please, and to-day the general impression is that the matter is wholly a question for the individual dealer to decide for himself — if he thinks it pays he uses it, otherwise he sticks to the secret price — an irrational mode of doing business. Enough has been said to show that the issue between the secret price and the open is both economic and ethical. The secret price is wasteful and wrong, the open price is saving and right. That being true, the adoption of the open price should not be left entirely to the whim of the dealer. There are two large classes as vitally interested in his action as he is himself — other dealers and all his and their customers. The dealer or manufacturer who asserts his right to quote secretly such prices as he pleases asserts his right to demoralize a trade as he pleases ; that right does not exist; he is a trade anarchist. In even the retail trade it would be possible to promote the systematic adoption of the open price policy by con- certed action; customers should insist upon it; dealers should form associations to develop it; eventually the law should aid it The growth of large establishments, the almost infinite number of sales by salesgirls and salesmen to whom it would be impossible to give any discretion regarding prices — these are the conditions that have brought about the use of the one-price system in the retail trade. The big mer- chants could not conduct their business on any other basis. The little have followed because compelled. To a certain extent the same forces are operating in the manufacturing world. Establishments are becoming so large, salesmen so numerous, that more or less fixed rules regarding prices and discounts must be adopted, otherwise agents and salesmen quote in opposition to one another. It 122 THE NEW COMPETITION requires no little ingenuity on the part of the manage- ment of a large corporation to keep its own agents in line ; if a price is changed all must be notified. But, while there is a certain tendency toward more open prices, the tendency is so feeble and confined within such narrow limitations that little progress will be made without concerted action. The advantages of the open price policy, as a policy, as a definite economic method^ must be recognized and its systematic adoption urged. The interest of the public must be aroused to the ethical significance of the step, to its Tightness, its fairness. Manufacturers and contractors must be convinced of its economic significance, its value as a labor-saving device, its natural influence upon stability of prices. In retail trade the open price may prevail to a certain degree by the mere marking of goods in plain figures, but in the manufacturing, and especially the contracting, world, where orders and contracts are for products to be made and work to be done, no system of marking prices can be util- ized ; an entirely diflFerent method must be adopted if prices are to be open. Cooperation in the form of open price associations is necessary. CHAPTER X OPEN-PRICE ASSOCIATION I In these days of uncertainty regarding the law it is not uncommon to hear men say, *'We have a little association, but we never talk about prices." "Then why do you meet ?'' "Oh, just to lunch and talk over things generally." "You don't agree upon prices ?" "No, sir r "You meet for the fun of the thing?" "That's about it." "Some of you travel a thousand miles once a month just for the pleasure of lunching together ?" "Um — m — , well, you might put it that way." Such child-like pretenses deceive no one, and no self-re- specting lawyer would permit clients to make such futile statements to a court. II It is almost as common to hear men say, "We have an association, but we don't agree upon prices." "What do you do?" "Why, I get up and say, 'My price is so and so'; and the others get up and say their prices are so and so." 123 124 THE NEW COMPETITION "And the result is, the price of everybody is *so and so'/' "Naturally, but we don't agree they shall be, we just exchange views and let prices take care of themselves." This set of men is much franker than the former. They do admit they come together to help conditions, that they freely discuss prices, and, so long as there is no agreement fixing prices or otherwise suppressing competition, their ac- tion is probably legal even though as the result of their in- terchange of information prices are more or less constant; but the danger lies in the argument that the several state- ments that "My price is so and so" amount to indirect promises or moral assurances that the prices named will not be changed, and this indirect or moral obligation may* be inferred from results. To go a step further — it probably would not be illegal for men to meet in good faith and compare costs and prices for the purpose of preventing, if possible, disastrous compe- tition and of getting reasonable returns for their products, but to what extent such frank and straightforward efforts to do only what is reasonable and fair from a sound business point of view will be held legal in this country depends upon the application the courts may make of the general prin- ciples laid down in the Standard Oil and Tobacco cases. ^ However, no man whose aim in life is to bear himself creditably among his fellows cares to split hairs with the law, to take any chances on a court's decision as to whether his acts are "reasonable" or "unreasonable." *In a bill filed last year (iQii), to dissolve a certain "pool," the members of which met periodically to discuss prices and trade condi- tions, the Government said : "It is not here alleged that merely assem- bling and mutually exchanging information and declaration of purpose amount to an agreement or a combination in restraint of trade." OPEN-PRICE ASSOCIATION 125 III Until the law is changed the one safe course is to have nothing to do with any conference or association the ob- jects of which are not clearly expressed in black and white, and the proceedings of which are not fully preserved. If the prime object is to help trade conditions then that object should be set forth frankly, and the means adopted to attain the object should be described so fully that judge and jury can see they are fair and legal beyond question, and quite sufficient to attain the end without resorting to any unexpressed agreement, any moral obligation, or "gen- tleman's understanding." It is believed the open price policy supplies the means; that it is sound, sensible and legal ; it involves no action, no agreement of any kind or character that is not well within a man's constitutional rights. The right to publish prices, exchange bids freely and openly, to deal frankly with cus- tomers and competitors, are rights that cannot be curtailed by any legislative body in this country. Congress and legis- latures may so provide that the exercise of these rights shall not be abused; that sound and healthful cooperation shall not take on the features of arbitrary and oppressive combination, but cooperation itself cannot be prohibited. IV It is one thing for men in a meeting to say, one after another, "My price is so and so," with the result that after the meeting all their prices prove substantially the same as the figures mentioned. It is quite a different thing for the same men to come to a meeting and each report, "My actual sales for the past 126 THE NEW COMPETITION month have been so and so, and here are the details of each transaction." In that statement there is no direct or implied agree- ment to maintain prices, no obligation of any kind to re- frain from cutting. The right of a body of men to say what they will do may not be clear under the many anti-trust laws, but we have yet to hear of a law that tries to prevent men telling what they have done. When men meet and each gays, "My price is so and so," and all say the same, a promise to maintain that price may, perhaps, be inferred from subsequent events; but no such promise can be inferred from frank statements of past transactions ; and yet more in the way of stability of prices and elimination of unfair and vicious competition will re- sult from the mere interchange of information than from an agreement to maintain prices. The open price plan is the frank statement of actual transactions, and actual transactions interest competitors far more than assurances regarding future — the facts speak for themselves, the assurances^rrespective of their legality — are seldom kept. The theoretical proposition at the basis of the open price policy is that, Knowledge regarding bids and prices actually made is all that is necessary to keep prices at reasonably stable and normal levels. No agreements to maintain prices are necessary, they are not only unnecessary but detrimental. They do not work satisfactorily in countries where not forbidden by law, they have never worked here. They give rise to more distrust, more bad feeling than any amount of cut-throat competition, and, in so far as they are effective for a time in advancing prices, they are direct inducements to others to enter the business and so, in the end, make competition all the keener. OPEN-PRICE ASSOCIATION 127 All this is true irrespective of anti-trust laws. In so far as such agreements, pools and combinations have seemed to prove effectual in this country or in Eng- land and Germany, where the law does not prohibit, suc- cess has been due to pecuHar, sometimes artificial, conditions surrounding the agreement, or to state encour- agement, but never under normal conditions have such pools resulted in any permanent good.^ An open price association has absolutely nothing in com- mon with old line pools and combinations. It is opposed to them and cuts the ground from under them. Nor has it anything in common with the many trades associations already in existence — it is a new departure. "The following, just reported from Germany, where the govern- ment favors such agreements, illustrates the utter futility of attempts to control competition and prices by arbitrary agreements and allot- ments, which artificially stimulate production, and in the end increase competition : "Cables told last week of the difficulties the great steel manufac- turing concerns in Germany were having over the renewal of the Ger- man Steel Works Union for another term of five years. This union is nothing less than a trust or pool established with the friendly knowl- edge of the Government to regulate output and prices — a lawful 'com- bination in restraint of trade.' The purpose of the union is to regulate the output of the different companies in the interests of maintenance of prices. "It is now reported that the members of the old union have failed to come to an agreement upon the division of permitted manufacture of the most highly competitive products of the different mills. The big steel makers have agreed to different allotments of *A' products. " *A' products consist of semi-finished steel rails, and other railroad material and structural shapes. The *B' products, which have hereto- fore been sold by the associated workers themselves at their own prices, under allotments fixed by the Steel Works Union, consist of bars, wire rods, sheets, and plates, tubes and castings and forgings. "What has militated against the renewal of the agreement on *B' products was the great activity in the past two years in the building of new capacity by the larger interests, conspicuously Deutscher Kaiser and Geisenkirchen, causing an entire change in the conditions prevail- ing when the agreement of 1907 was made." 128 THE NEW COMPETITION V Employers have been more or less welded together by the attitude of labor. They have been forced to unite to deal with strikes that are called, in many instances, as the result of controversies between union and union, and not between employer and employee. In all trades associations existing at present the mem- bers cooperate for only certain narrow purposes, usually against a common enemy. So far as bidding upon work is concerned they remain independent and distrustful units ; or, if they do discuss prices, it is with no intention of exchang- ing information frankly but with the purpose of suppressing competition entirely. There is, however, no reason why these old offensive and defensive associations should not be transformed into genuine cooperative bodies along the new and less belliger- ent lines. VI Since no two mdustries follow precisely the same meth- ods in marketing their outputs it is impossible to set forth in detail in a single chapter the steps that should be followed by all to establish the new policy. While the fundamental propositions ar^e the same, each industry requires its own reporting scheme. For instance, take the two great divisions in the manu- facturing world, (a) Those manufacturers who produce goods that are sold to jobbers and dealers, (b) those who make only to specifications, each contract differing more or less from all others and calling for special prices or bids. Obviously the steps necessary to establish the open price policy among the former (a) will differ materially from the jsteps required with the latter (b). Furthermore, it may be OPEN-PRICE ASSOCIATION 129 said that with any set of manufacturers or contractors the open price movement must be a matter of growth. How- ever willing, no body of men will take it at a single jump, it is too revolutionary. It requires time to eradicate traces of habits which have become second nature, habits of thought, of speech, of conduct. Even when men are honestly trying to think along the new lines they will talk and correspond along the old, the old phrases will crop out and their letters will bristle with language that heretofore has been used only in ''fixing" prices and suppressing competition. On first impression it would seem comparatively easy to outline an open price scheme for industries belonging to class "A," but difficult to do so for those in class "B." Such is not the case; it is simply a matter of detail in both cases. As a matter of fact, the same scheme — except in general outline — will not fit any two industries however alike they may be in their methods of marketing outputs. VII To form an Open-price Association let the manufac- turers interested call a meeting to discuss the plan. At the very outset they must be made to understand that the meeting is not called for the purpose of entering into any agreement along old lines; it is not called for the pur- pose of fixing prices, allotting business, controlling competi- tion, restraining trade, or creating a monopoly; there is no intention of doing any of these things either directly or indirectly. "Then what are we here for?" some practical man will ask in a tone of disgust. "To get each one of you to tell the truth '' "Ha! If you can do that youVe a wonder." "If you won't tell the truth about what you are doing I30 THE NEW COMPETITION how can you believe in each other when you promise what you zvill do ?" "We don't:' "You mean that " "We've had all sorts of agreements in the past and not one has been lived up to; there isn't a man in the room the others would trust out of their sight." VIII That is no fanciful conversation, but a condensation of things said again and again by different sets of men in dif- ferent industries. Not infrequently they speak so plainly and profanely re- garding one another's unreliability that it is surprising they do not come to blows. The reason why they do not illus- trates an interesting psycho-commercial — to coin a term — condition. In all ordinary walks of life to call a man a liar to his face is to invite a blow, or, if not a blow, at least some very plain resentment of the charge. In commercial life to call a man a liar is a split between an insult and a compliment. This condition of distrust among competitors usually follows years of more or less futile attempts to get together in combinations to fix prices and control competition, com- binations the very nature of which afford opportunities to the more slippery members to profit at the expense of the less slippery. In these combinations disintegration in- variably begins before integration is complete. IX Having convinced those present that they are not called together to do anything they have ever done before, pro- ceed with the next step. OPEN-PRICE ASSOCIATION 131 That is a careful inquiry into actual conditions in the particular industry. This inquiry should take up each plant or company represented with a view to ascertaining and noting briefly in the minutes the establishment of the plant in its particular locality and why; its capacity, labor employed, and its de- velopment generally, with figures showing its maximum output in the best of times and such violent fluctuations as there may have been from that condition. Accurate minutes should be made regarding conditions as they exist at the time of the meeting; if there is secret and unfair competition that should be set forth carefully; if conditions are such that producers are at the mercy of buyers and purchasing agents the situation should be ex- plained clearly. If the association accomplishes no more than induce its members for the first time to institute a systematic inquiry into fundamental conditions it serves a most valuable pur- pose, for it is amazing how even the large industries of this country are conducted more or less blindly, with no central organization the prime objects of which are to ascertain, classify, reduce and report laws, tariffs, wages, prices, trade customs and all competitive practices. Where one, two, or three large companies may attempt something of the kind it is usually in a spirit of opposition to others. The details of the organization of the association and especially of the reporting olan will depend largely upon conditions developed. The extent of the organization will depend upon whether the membership is large or small. In industries where there are only a few companies or 132 THE NEW COMPETITION individuals all that will be needed are a chairman and a secretary, who may also act as treasurer. In larger organizations a full set of officers will be useful. The two essential factors are, 1. A central office or bureau in charge of a 2. Secretary. A secretary must be selected who has no connection with any company in the association; since he receives informa- tion from members that can be exchanged only in certain ways, his position is one of trust. With the development of the open price policy ul- timately all secrecy should disappear, but for the present it is impossible to get men to cooperate beyond certain points — at first to only a very limited extent, later they become more frank and open, but never quite reach the ideal. With a central office in charge of a secretary the associ- ation is ready to establish the open-price by filing with the secretary : ^ 1. All inquiries. 2. All bids. 3. All contracts. XI The proposition is simplicity itself, but, inasmuch as not one of these things has ever been done by any associa- tion of contractors or manufacturers, and each is diametric- *We are here dealing with — let us assume — an industry the work of which is done on contract; that is, bids are called for by the pur- chaser and each job is a special contract, such as the erection of a steel building. The same reporting plan, with minor changes, would apply to an association of builders, or of carpenter-contractors, mason-con- tractors, plumbing-contractors — in short, to any body of men or com- panies who first bid on work and then do it under special contract. OPEN-PRICE ASSOCIATION 133 ally opposed to custom and tradition, the suggestions are certain to be received with opposition. "What! — report all the inquiries we get for business! Never.'' "File all the bids w^e make ! Not on your life." "Hand in copies of contracts with our customers! I guess not." There are two answers to all objections: first, those things must be done if the open price plan is to be tried; second, conditions can be no worse under the open price than under the secret, and they may be better, hence it is worth while to try the plan. It is revolutionary to ask men to file all inquiries, all bids, all contracts for the information of competitors, and on its face it looks like a very foolish proposition, but it is not, and wherever tried it has worked out some good, not much in some instances, more in others, all depending upon how frankly and faithfully the plan is lived up to. XII Upon receipt of the information the secretary proceeds as follows : The information contained in reports of inquiries is not interchanged. Members are not furnished any in- formation regarding prospective bidders. There is no legal objection to giving such information providing it does not lead to collusive bidding; but the safer course is not to give it. From the reports of inquiries the secretary makes up a weekly bulletin containing statistical information. This re- port in itself is of value, especially to the small manufac- turer, who has no means of keeping track of what is going on, and it is of advantage to the large producer since it helps the small to bid more intelligently, and intelligent competi- 134 THE NEW COMPETITION tion is never so demoralizing as ignorant. This summary will give an accurate estimate of the volume of work in sight, together with its general character and other facts that will influence members in bidding. Obviously, if the weekly reports show rapid increase in inquiries, indicating a larger volume of work pending, individual members will not be so quick to fill up with low priced work, there will be a normal stiffening of prices; precisely such as results from crop failure statistics furnished by the Government. XIII On receipt of a bid the secretary does one of three things ; depending upon the rules adopted ; (a) If the member sending in a bid endorses it "sealed" the secretary will so keep it, and no information re- garding that bid will be sent to other members until after contract is let, whereupon all bids are open for discussion. It is needless to say that the member who marks his bid "sealed" gets no information regarding other bids; he sim- ply elects to take his chances in the dark, in the old way; for the time being he foregoes the advantages of the asso- ciation. It would be better if the reporting plan did not pro- vide for "sealed" bids, since they are opposed to the spirit of the open price policy, but the writer has found in some instances that the only way to induce the very skeptical to try the open price plan was to give them the right to file bids sealed if they desired; in time they drop the practice because there is nothing in it, it offers no advantage, quite the contrary, it places the "sealed" bidder in a position of disadvantage as compared with other members bidding openly. The argument most often urged in favor of the prac- OPEN-PRICE ASSOCIATION 135 tice is, "Suppose I know the customer and am sure he will give me the contract, why should I make known my bid ?** The answer is that it is these "sure" things that are most uncertain, and by filing the bid open the bidder may be — usually is — surprised to find his "friend" is quietly getting bids from others. (b) The secretary will interchange all bids as received — that is, the first bid is held until the second is received, whereupon copies of the two are immediately interchanged, and so on as each successive bid comes in. Under this plan the filing of a bid is the key that unlocks all other bids on file. The theory of the open price demands the utmost publicity in the making of bids ; the ideal condition would be an open exchange where all bids would be filed and, as filed, marked up on a blackboard — so to speak — where all interested might see; such a condition would work won- ders in the way of saving of time and money to both con- tractors and customers. For the time being, however, it is hard enough to in- duce men to exchange their bids more or less furtively; old habits of secrecy and distrust are too strong. XIV Now comes a fundamental proposition. No bidder is bound to adhere to his bid for the fraction of a second. After ascertaining the bids of others each is free to lower his own bid to secure the work, but, in all fairness, he must immediately file all changes so as to give other bidders chancec to come in and compete further. "That is a rotten scheme," exclaims the man who has come to the meeting with the sole purpose of "boosting" prices. 136 THE NEW COMPETITION "Talk about competition! That will throw the doors wide open," protests another, and so on. As a matter of fact, the frank interchange of bids with liberty to cut as members please does not result in fiercer competition; on the contrary, while it does not lessen tru« competition, it takes out the ugly elements that go to make up the old "cut-throat'* competition. To restate the matter concretely, — if Smith bids on a piece of work and, after receiving from the secretary copies of the bids of Jones and Robinson, finds he is the high bid- der he is at liberty to put in a lower bid to get the work, but he must notify Jones and Robinson what he is doing, and, in all fairness, notify them in time to permit them to revise their bids if they care to. Speaking from experience the writer can say that for a time after an association is organized the impression may prevail that there is an implied, a moral obligation not to cut bids, and members are reproached bitterly for cutting. This feeling is a survival of the old agreements to maintain prices, it springs from conditions where men did agree, di- rectly or indirectly, to stand by their bids — the more indi- rect the agreement the greater the acrimony when cuts were discussed, and, sooner or later, those old combinations would fall to pieces, disintegrated by distrust. Men will cut to get business when they need it, and they will cut all the more if they suspect others are cutting. No agreement strong enough to prevent this has ever yet been drawn. That being true, the safe course is to provide for cut- ting, remove all restrictions, so that under the rules of the association no member can so much as question the right of another to bid as freely, as often, and as low as he pleases. At first men are inclined to make cuts at the eleventh hour and close a contract before there is time to notify OPEN-PRICE ASSOCIATION 137 the other bidders. The plea is, "I had no choice, it was either reduce my bid then and there and take the contract, or lose it altogether." In some instances the plea is good, in most it is not. In some cases circumstances and the attitude of the owner are such that the bidder is given but a moment in which to decide, he may even be told that unless he makes the re- duction on the spot and signs the contract his opportunity is gone. Until this condition of things is remedied — and remedied it will be — bidders will be tempted to make cuts and take contracts without notifying others as they should. The practice is wrong and contrary to the spirit of the New Competition, but it will take time to abolish it. In the great majority of instances where men, avowedly committed to the open price policy, make cuts and close contracts at the eleventh hour without notifying other bid- ders, the plea of necessity is a subterfuge, they take the work because they want it and do not notify others be- cause they fear the others would cut still lower. XV But, while members are free t6 change their bids as often as they please, the practice is a vicious one for this reason — it is not fair to the customer. The man who makes one bid to a customer with the in- tention of making a lower if necessary is gambling on the chance of getting more than he is willing to take, he is do- ing precisely what the tricky second-hand clothes dealer does when he asks one price and before the customer can get away calls out a lower. The Government does not permit that sort of thing, cities do not permit it. When a man bids on public work he 138 THE NEW COMPETITION must put in his best figure and stand by it; if he is high he cannot change it. Every retail merchant of any standing marks his best and only price on his goods. In the end the open price poHcy will bring about the same conditions in the manufacturing and contracting world — the man who tries to change his bid will be looked upon as on a par with the second-hand clothes dealer. XVI Since members are free to bid as they please it removes the one prolific source of complaint and recrimination inci- dental to old-time associations namely, that "some one is cutting'* and thereby violating an agreement expressed or implied to observe some price. It is impossible to keep men to a fixed price, therefore why waste time trying to? It is possible to keep them to an agreement to tell others what they have done. Note the distinction — the fixed price means an agree- ment of some kind to maintain a price, to do something, to live up to something. That sort of an agreement is never kept for long; quite aside from questions of legality the agreement is worthless because it is no stronger than each man's belief in the good faith of all the parties to it, and, since every man feels sure that at least some of his competi- tors will be quick to violate it and reap a profit, he secretly violates it himself. The agreement to tell one another what has been done is quite another matter, since, after all, it simply provides for the systematic exchange of information that is sure to come out. This obligation is so fair and works out so many good results that the trickiest competitor in the end sees it is to his advantage to live up to it. OPEN-PRICE ASSOCIATION 139 It takes, however, months of patient effort to educate all to the point of frank and prompt compliance. XVII The filing of contracts as and when closed is the final step in the reporting plan; it marks the termination of the competition. The secretary's office will thus have a com- plete file of each transaction — (i) the original inquiries; (2) all bids and changes in bids; (3) the contract as finally awarded. A report is sent to all other bidders on the work and they are able to compare the contract with the bid of the man who took it. This final report enables other bidders to see whether the owner dealt fairly and frankly with them, or whether he asked them to bid on work to be done under certain conditions and let it to the successful man upon more fa- vorable conditions. So much for the operation of the secretary's office. In the reporting of (a) inquiries, (b) bids, (c) contracts, the central office has been simply the clearing house for in- formation, it has handled all reports in a regular routine as provided in the by-laws, no meeting of the members has been necessary for the operation of the reporting scheme. XVIII With this data the association is ready for an intelli- gent discussion of the business of the month, and the plan is not complete without this discussion. The open price policy means not only open prices but open discussions. To this end regular weekly, semi-monthly, or — at the longest — monthly meetings are necessary, at which mem- 140 THE NEW COMPETITION bers must be represented by those who are familiar with the business and can speak authoritatively; meetings at- tended by subordinate agents who have only hearsay knowledge are a waste of time. The atmosphere may be surcharged with irritation and distrust owing to the manner in which a number of contracts have been closed. Under the old competition this is never cleared, but goes on from bad to worse. Under the new competition it is the business of each meeting to clarify the atmosphere and start each month with a clean slate so far as complaints are concerned. The quickest way is for the presiding officer to call the name of each member and ask whether any other member present has any complaint to make or questions to ask re- garding work taken during the preceding month by the member under fire. As between each member and the party complaining the other members are impartial listeners. Their presence and their neutrality, together with the good sense of the pre- siding officer, prevent the discussions from becoming acri- monious; the fact that each member has to go through the same ordeal is a strong deterrent to personalities. As each member has the right to make any price he pleases there are no complaints on account of cutting, but only regarding the circumstances attending the cuts. Nine-tenths of the complaints will simmer down to fail- ures to live up frankly to the reporting plan. At first the best of men may do things they ought not to do when after work they need or want very badly, but as time goes on all will see that in the long run it is more profitable to observe the rules. At first, and for many a month, not a member at a meet- ing will escape criticism. All the contracts and all the bids will be overhauled and scrutinized. The secretary present with his records will be called upon to show just what OPEN-PRICE ASSOCIATION 141 passed through his office, and such questions as these will be asked : "Why didn't you send in your bid sooner?" "Why didn't you note on your bid that you changed the specifications?" "Why did you put in a second bid?" "Why did you put in a lower bid after you got a copy of my bid?" "Why didn't you notify me of your lower bid?" "How came you to get the contract when my bid was lower ?" "Why should the owner favor you?" "Is there any secret rebate or un- derstanding between you and the owner?" And so on, and so on. The queries are keen and searching. There is no use trying to evade answering; it is foolish to answer falsely. If a member does not disclose the facts they are sure to come out later. The buyer who gets a secret advantage never keeps it secret ; he is so pleased with his own shrewd- ness he courts applause. If it is a purchasing agent he gets no credit for his cunning unless he tells those who em- ploy him; nine times out of ten he will exaggerate the ad- vantage he has gained and no little time is spent at meetings of open price associations in running down and exposing these exaggerations and false reports of agents and owners, reports often made for the express purpose of keeping con- tractors in a state of jealous distrust. As a result of these open discussions members separate with full and accurate knowledge regarding conditions at- tending the letting of all work during the preceding month and will govern themselves accordingly. XIX It is impossible to meet in advance all the objections that will be urged to the plan, but some things, based on ex- perience, may be said. 142 THE NEW COMPETITION In organizing an association it is important to press the open price policy no farther than the most skeptical member is prepared to go. Adjust the strain to the weakest link. The chances are that many present will be more or less familiar with the attempts and failures of price-fixing com- binations; if so, each will have his tale of woe, how this man and that man "did not live up to the agreement," how they promised to maintain prices "and then went out after all the business in sight at any old price,'^ etc., etc. ; the com- plaints are as familiar as the story of an after-dinner speaker. This condition of profound distrust is a fact to be dealt with, not ignored. It is just as well to open the explana- tion of the reporting plan with about these words : "Let us assume that all you think of one another is true and that not a man present is to be trusted outside this room. "By assurning the worst there will be no unpleasant sur- prise in store — events may prove we are mistaken. "Acting upon the assumption that no man will do as he agrees unless he wants to or can't help it, let us not agree to do anything simply because we ought to, but only those things we either want to do or can't help doing. "And when we get along a little farther and generate a little more confidence in one another we will agree to a few things we ought to do, but for the present, no." XX There was a set of men who had been in a price-fixing combination that had fallen apart on account of failures on the part of this one and that one to observe the agreement, the feeling of one toward another was so bitter it seemed impossible to induce them to adopt the open price policy, but it was done and in this way : OPEN-PRICE ASSOCIATION i43 "Will you meet together?" "Yes, but it won't do any good." "Will you file with a secretary and interchange all bids and prices you make?" "No," was the emphatic answer of a number present. "Very well, let's see what you are willing to do; will you file your bids under seal, the secretary not to open same until contract is let?'* "See no objection to that, but what's the good ?" "Wait, will you file all contracts as finally closed ?" "Um — -m — ^yes, for most of them are known anyway." "Will you agree that after a contract is closed and filed all bids on that job shall be opened and discussed at the next regular meeting?" "Yes," one keen man spoke up quickly, "for then we will at least know what each one has been doing; as it is now the purchaser tells us any old story about the bids he has and we have no way of knowing whether he is lying or not." "Then you have made a beginning; you are going to meet together, file all bids, all contracts, and open all bids on each job after contract is closed." "That will bring some of you fellows out into the open," one man remarked with a sneer. "Fd like to check up some of the figures you have been making," the other retorted. And that was as far as that particular set of men would go the first day. The next day two or three were ready to go a step farther. "Why not try the plan of interchanging bids before the contract is let? What difference does it make?" one urged. "And give you a chance to cut my price? Not much." The debate waxed strong until ended by this sugges- tion: 144 THE NEW COMPETITION **Why waste time arguing the matter, a few of you are in favor of the open price plan, most of you are not ; there is no need trying to convince those who are not; the thing to do is for those who wish to try the plan to instruct the secretary to that effect and he will interchange their bids as received but keep sealed all bids filed by members who are opposed to the plan." Four or five then and there told the secretary to inter- change their bids, and before two months had passed all adopted the plan. It is useless to try to coerce or even urge men to adopt a plan they do not fully understand and about which they are skeptical. If they adopt it under pressure they will not live up to it, but if they fall in line of their own accord and because they do not wish to be left behind it is a different matter. XXI Blanks are prepared to fit the industry — one for report- ing inquiries on, say, white paper; a second for reporting bids on, say, yellow paper; a third for reporting contracts closed on, say, blue paper, and blocks of same are furnished members. Each blank should bear on its face plainly printed di- rections for its filling out and use. In many industries it may be more convenient to send in carbon copies of bids and contracts. The secretary on his part will have suitable blanks for reporting back to members bids filed and contracts closed. All blanks should be of a size — say not larger than reg- ular letter paper — so as to drop into a loose leaf file holder and filing cabinet. One association uses a simple folded wrapper of heavy manilla paper that has printed on it the proper form for endorsing dates of each step. On re- OPEN-PRICE ASSOCIATION 145 ceipt of report of an inquiry it is filed in one of these wrap- pers and each report as it comes in and all correspondence relating to that particular piece of work go into the same wrapper and nothing else, so that in the end the complete history of the job from first inquiry to closing of contract is contained in the wrapper and abstracted on its face. XXII The foregoing is a brief description of the working of the secretary's office. The machinery is simple and tends to become almost automatic. So far as daily routine of receipt of inquiries, inter- change of bids and notices of contracts is concerned it can all be done by a competent stenographer, or typewritist, but the success of an association depends largely upon the tact and good judgment of the secretary. He need not necessarily be a man familiar with the par- ticular industry, but his training and experience should have been such as to render it easy for him to grasp details quickly, and he should be a man in whose integrity the members have absolute faith and upon whose judgment they clre willing to place considerable reliance. As he will be in the midst of every dispute that arises the outcome of differences may turn upon the tact he dis- plays. For the first few months he will be busy getting the members into the spirit of the open price policy; his posi- tion will be difficult for the policy is new and revolutionary, and may, for a time, result in even greater competition; members will be dissatisfied because they get no results, be- cause prices are no better, and some may resign or talk of resigning. Whether the association survives this formative period 146 THE NEW COMPETITION will depend entirely upon those advising it rather than upon the members themselves; it is the man who has no interest in the business who is in a position to pour oil on the troubled waters. XXIII No association should be formed for less than one year, and members should be required to either pay in their pro rata share of the expenses for the entire year or so firmly commit themselves there will be no thought of resigning. Men who are suffering from fierce competition are quick to come together at the call of almost anybody and ready to enter into any agreement that holds out the slightest hope of bettering their condition, but. when the hope is not im- mediately realized in higher prices they are just as quick to drop out. The open price policy promises no quick relief ; relief in the way of better prices may be uncertain, hence it is im- portant that an association should be assured sufficient per- manency to give the new departure a fair trial, for better conditions will come, first of all, in the way of friendly intercourse and confidence in the place of jealous distrust and hatred; secondly, in the very great advantages that flow from knowing for the first time the exact conditions prevailing in the industry ; thirdly, in the tendency of prices to seek normal levels and competition to lose its unfair and brutal features. Those advantages will be realized in the order named, and it will be idle to expect any beneficial effects upon com- petition or prices until distrust and hatred have been elimi- nated ; that is why it takes time to bring results. Men who say they would not believe one another under oath cannot be transformed in the twinkling of an eye ; many can never OPEN-PRICE ASSOCIATION 147 be converted, hence not a few associations will be doomed to failure from the start. XXIV The procedure at regular meetings of a large associa- tion should be, generally speaking: 1. The meeting of the executive committee, followed by the meeting of the association. 2. The transaction of all routine business in systematic fashion; the more the association has to do in a general way, aside from reports, bids, and contracts, the better it is, for the broadening of the scope of the organization and the transaction of general business all tend to take the edge off complaints and minimize their importance. 3. Hearing of reports from each member regarding general conditions in the industry, outlook for business, raw material market, etc., etc. In one association these reports have become so frank that each member states not only the condition of his plant as regards work in hand and ahead (facts largely known through the reporting plan), but his purchases of raw material with prices paid. 4. Complaints. Each member who has any complaint to make or questions to ask regarding bids or contracts notifies the secretary in advance of the meeting so the latter may have the required files present. In old-line combinations men never dared mention names or say very much "for fear of disrupting the asso- ciation"; when they knew agreements to maintain prices were being flagrantly violated they did not dare denounce the guilty parties, but would go on damning them behind their backs until the combination collapsed. In an open- price association the reverse of this condition prevails. Many of the evasions of rules are due to salesmen 148 THE NEW COMPETITION eager to make sales, others are due to the fault of members who know better. But, as meeting after meeting is held, and all these prac- tices are brought to light and discussed, they become less frequent. The outcome of nearly every discussion of failure to live up to the spirit of the reporting plan is a promise on the part of the delinquent member to see that his company does better next month. Now and then a member who feels ag- grieved threatens to stop reporting or to mark all his bids "sealed as to the company," naming the offend- ing member, which would mean that those two members would exchange no inform.ation, but the threat is rarely car- ried into execution. The reporting plan is so eminently fair that men find little excuse for failing to live up to its simple provisions. XXV Publicity is a cardinal principle of the new competition. All that is done must be done openly. No more barricaded doors, no more ciphers and cryptic letters, no more numbered price lists passed furtively from hand to hand, no more tame disavowals, no more tacit un- derstandings and gentlemen's agreements — all these eva- sions and subterfuges belong to the past. The new com- petition has no use for them, they are the excrescences of the old. In order to avoid misunderstandings by members, by customers, by the public, it is important that the constitu- tion and by-laws be carefully drawn so as to express in full the purposes of the association and every agreement underlying its organization. This is advisable everywhere, it is doubly advisable in this country where the law regard- OPEN-PRICE ASSOCIATION 149 ing restraint of trade is so strict and the public so suspicious. The purposes of the organization must be so clearly ex- pressed as to leave no room for inference, no room for ar- gument that possibly something of an illegal or sinister character is hidden. The fundamental propositions must be so framed that even a judge not versed in business will be able to under- stand the plan and plainly see that, if lived up to, good to the industry must result and that, too, without any addi- tional act of a secret and unlawful character. Both the safety and the strength of the association lie in publicity. This means that, once organized, the records of all meet- ings, all transactions, must be so kept that they set forth ac- curately every act of the association that has any bearing upon prices, conditions of trade, and the objects of the or- ganization. If the question is asked "What did you do at a given meeting?" the answer must be found in black and white in the secretary's office ; no other evidence should be needed. Hold meetings with open doors — literally, not figura- tively ; invite competitors to attend as visitors, whether they wish to join or not, and urge any curious or doubting cus- tomer to come and observe what is done. Do nothing you are afraid to record; record everything you do, and keep your records where any public official in the performance of his duties may have easy access to them. In short, preserve so carefully all evidence regarding inten- tions, acts, and results that there will be no room for in- ference or argument that anything else was intended, done, or achieved. XXVI Now what are some of the results I 150 THE NEW COMPETITION First of all "vicious" bidding disappears. By "vicious" bidding is meant bids put in by competitors who know they stand no chance of getting the work, simply to "make the other fellow do it for nothing." Of all competition that is the meanest. No purchaser has the right to encourage it, no producer the right to indulge in it; it means the sure elimination of the weak, ultimate monopoly by the strong. With open bidding there is the natural, the automatic tendency for prices to approach normal levels; the wide spreads so frequent under false competition — secret bidding — are minimized. There is less bidding below cost at one extreme and fewer or no arbitrarily high prices at the other. The customer is surer of fairer treatment in the long run, the producer of fairer prices. The open-price policy is both a safety valve and a governor, it works toward stability. By eliminating secret prices it eliminates secret rebates, concessions, and graft ; by bringing all dealings out into the open it ends four-fifths of the fraud and misrepresentations that now attend the letting of the simplest contract ; the pur- chaser will no longer be able to secure a fraudulent ad- vantage by saying he has a lower bid when he has not. In all their deialings both purchaser and producer will be more nearly on a footing of equality. The business will be placed upon a more scientific and rational footing. Instead of competing under conditions of jealous distrust and suspicion, wasting time and money in doing things they either should not do at all, or should do with a fraction of the expenditure, members will cooperate to accomplish as a unit the things they rightfully may do. Finally, the open price policy — the new competition, with the friendly association it involves, tends to make business life a little better worth living. OPEN-PRICE ASSOCIATION 151 XXVII Since the first edition of this book Open- Price Associ- ations have been estabhshed and are in successful operation in many important industries. Meetings are held with open doors; competitors and customers are welcome and frequently attend. Pains are taken to keep customers informed regarding all proceedings; criticism is disarmed by frankness and publicity. All this sounds "too good to be true," but it is far within the truth. To be more specific; one association was so pleased with the operation of the open price plan that it gave a dinner to customers and urged them to adopt the plan. The customers did so, and naturally held their own meetings; but within a year and a half the two associations were holding joint meetings, and the first adopted a reso- lution throwing open to their customers all price informa- tion on file in their secretary's office. When the first set of men first met it was with doors tightly closed, so their customers would not even hear of the meeting; now they meet with customers in the room and each member answers freely and frankly every ques- tion a customer may ask about prices. What have been the effects? Greater stability of prices at normal levels without at- tempting arbitrarily to control prices. Cutting out of secret rebates and discounts. Treating of all customers fairly and on a footing of equality. Lifting the entire industry to a higher level. The helping of competitors who are not members, as those competitors have frankly stated. 152 THE NEW COMPETITION XXVIII In another and very important industry there was an old and practically moribund association of thirty-five members. An open-price association was organized for the free interchange of all prices actually made. Only sixteen of the thirty-five members went into the open-price association. Did that make any difference in the meeting of all as theretofore? Not at all. The usual regular monthly meetings were held, and a visitor would be unable to tell who in the room were in the open price section and who were not. Sometimes an open price member presides, sometimes one who is not. It makes no difference. All the discussions are frank and free. After going along six months, the members of the open price section were so pleased with the plan they passed a formal resolution instructing their secretary to send all open price information on file in his office to all the other members free of cost for sixty days, simply to convince the others that publicity is a good thing. A number favored continuing the distribution, whether the other members joined the open price section or not, but others felt that men who received the open price service ought to bear a share of the expense of same, and the expense is not light in that industry, since the price fluctu- ations are rapid, often hundreds per day pouring in for distribution. XXIX That the open price policy does not result in any arbi- trary or unfair advance in prices is evidenced by the fact OPEN-PRICE ASSOCIATION 153 that nearly all these associations urge the companies from whom they buy to adopt the policy. Would they do that if they thought the plan controlled and advanced prices? Hardly. Several associations have taken the pains to invite the men from whom they buy to attend meetings and become familiar with the plan. Why do they do this? Because the plan leads to stability of prices at fair levels, and it tends to cut out secret rebates and unfair advantages in prices and terms. Every intelligent buyer wishes to reduce the gambling, the speculative, the uncertain element in his business to a minimum. XXX A prominent official of one of the large steel companies ^ has advocated an open price association of purchasing agents of railroads, urging in support of his proposition the following : "A salesman selling a standard article once told the writer that he had sold that same article in one day to the purchasing agents of three great railroads, and at a different price to each. The writer knows of one large railroad system, having two purchasing agents, which buys the same article, a mechanical specialty, for two prices. What chance have the purchasing agents of any industry to throw their influence toward price stability, when such 1 Mr. John C. Jay, Jr., Vice-President and General Manager of Sales, Pennsylvania Steel Co. See his admirable article, "The Pur- chasing Agent and Publicity," The Iron Age, January 30, 1913, Vol. 91. p. 310. Mr. Jay is a consistent advocate of the open price policy, believing that it is as advantageous for buyer and consumer as it is for manufacturer and seller. 154 THE NEW COMPETITION lost motion is found in one corporation? How can such things be? They exist merely because purchasing agents today have no common meeting ground, no contacts with each other, no publicity. The very salesman who boasted of selling his commodity at three different prices was guilty of an economic misdemeanor. The railroads are great public utilities. It is to the advantage of all that they be efficiently and economically managed. As they touch intimately every single industry in a most vital point, their ability to prosper and give adequate service is of interest to all. It is essential that they be competently administered. They should pay fair prices for their equip- ment and maintenance, yet every industry should cooperate in their problems. The remedy for all such abuses is cooperation — cooperation by publicity. Organization to secure such proper publicity and cooperation is necessary, and this implies an association of purchasing agents. No honest manufacturer has anything to fear from such an association of purchasing agents, properly organized, with proper purposes, and with its full publicity and exchange of price information and shop talk. It would aid in the free and speedy operation of the law of supply and demand ; it would check and control speculative buying and the ag- gression of the middleman; it would be a formidable weapon against every form of secret dishonesty, for mem- bership in such an association could be made to mean char- acter. It would raise the tone and morals of every indus- try that felt its contact. "The honest manufacturer welcomes intelligent open buying. The long-established policy of publicity in Gov- ernmental work has hurt no one, the manufacturer least of all. No advocacy is here made of the application to private corporations of the red tape and safeguards neces- sary in Governmental work. The point at issue is that we have traditionally become wedded to the secret price, OPEN-PRICE ASSOCIATION 155 and are ridiculously afraid that our competitor will learn our prices. The absurdity of this lies in the fact that any proper selling organization prides itself on its ability to find out what its competitors are quoting and furnishing. This very ability leads often to abuses, which it is to the interest of the industry to correct. Rather than to fear such an association of purchasing agents, if organized on proper lines, we should recognize that it would create higher stand- ards, that it would strengthen, conserve and stabilize." XXXI T-: While there are a number of associations in open and successful operation, it is also true that more have purported to try the plan and failed — failed mainly be- cause they sought to use the plan as a cloak for price- fixing. Usually these attempts are made with subservient and inefficient secretaries and without counsel — they are fore- doomed to failure. The open price does not control prices and end competi- tion, hence men who wish to do those things are disap- pointed. Only broad-minded and far-sighted men have the patience to follow the plan and look for results in the future. It is the application of scientific methods to competitive conditions, and must be worked out by men of enthusiasm and intelligence, and it requires from three to six months of hard work to get an open price association in even fairly efficient operation; and each year it improves. Old men in business do not take kindly to the new suggestions. It is hard to get it into the head of the man over sixty, almost impossible if he is fifty. It is practically useless to try to convert the man who has "built up my own business in my own way.'* i:- -;i 156 THE NEW COMPETITION They are blind to the truth that no man can build up a business alone. The community is the greater partner. True success is in proportion to the extent the com- munity's interest is recognized. There will have to be a lot of first-class funerals in many of the large industries of this country before any progress is made along new lines. The other day I heard an old man at the head of a large company say: "I go on the theory that if I can't get an order it's good business to make my competitor lose money on it." That man will go to his grave without a glimmer of the great law that a man prospers in business as his competitors prosper. The man who builds on the losses of others is a greater menace to the community than the poor devil who steals a pocket-book. The future of the country depends upon you young men. Don't do in all things as your fathers have done; don't always try to walk in their footsteps; go forward; profit by their mistakes ; follow better and finer ideals ; and begin by revising practically every maxim that has heretofore prevailed in the business or industry with which you are connec ted.! CHAPTER XI HARMONY I Cooperation means a broader outlook than the mere quest of money. It may be said once for all that no organization can live beyond the exigencies of the hour unless it has an in- terest above dollars and cents. The desire to make greater profits may bring men together but it will not hold them long, the motive is too sordid to encourage any large de- gree of enthusiasm, and without enthusiasm no movement can go forward. Heretofore combinations, associations, pools, agree- ments have all been for the one object, higher prices. Men who disliked each other heartily came together for the sole purpose of making money, they were willing to swal- low their aversions for the sake of a few dollars; they would lunch and dine together with a great show of friend- ship only to denounce each other roundly on separating. In these combinations to advance prices the man who had a decent regard for his word was always the loser since he adhered to the understanding longer than the others. There being nothing to hold the members together ex- cept an agreement that few intended to keep, it is not sur- prising the old line associations fell apart about as fast as they were brought together. M7 158 THE NEW COMPETITION II Men, whether in an association or not, should consider the relations enumerated below, but when organized they ffiust consider them. A. Relations of members to one another. B. Relations with employees. C. Relations with those to whom they sell — customers. D. Relations with those from whom they buy. E. Relations to the public generally. Ill If an association is small all it can do is to keep in mind and give some serious thought to the several relations named, especially to (B) relations with employees, (C) relations with customers and (E) relations to the public. It is hardly conceivable that two or three men in a given in- dustry could come together without doing things that would affect those three classes. If an association has a large number of members stand- ing committees should be appointed to deal systematically with all matters affecting these relations. RELATIONS OF MEMBERS ONE TO ANOTHER I Among the duties of the committee having this in charge would be the following : (a) Gather information regarding different methods of cost-estimating used by members. HARMONY 159 (b) Work out a comprehensive and scientific cost sys- tem, to the end that each member will charge against all work all items that should be charged. If the association should do no more than this it would justify its existence. In a meeting of representatives of twelve large manu- facturing companies the matter of costs came up for hot discussion; it developed that no two agreed upon all the items that should be charged against a given piece of work. At length one remarked, "You see, gentlemen, most of our troubles are due to ignorance of costs; we think we are bidding a profit but it is largely guess-work." And another said, "If every man would figure his costs correctly and know what he is doing, there would be no need of any agreement regarding prices." The differences of opinion and practices developed in the discussion were so surprising that a competent commit- tee was appointed to work out a cost system applicable to the industry. At the end of about four months of inquiry and comparison of data a report was made and a schedule prepared that showed every item of cost entering into a piece of work. With that blank in front of him no mem- ber could have any excuse for omitting in his estimates legitimate items of expense; if he did so he deliberately cheated himself. The blank contained no figures, the committee made no attempt to indicate what amounts should be charged under the various heads; the schedule was simply to make sure no proper item should be overlooked. It was recognized that costs differ, but it was plain that actual differences under a scientific system would not be so wide as those under unscientific practices. The adoption of a scientific system of cost accounting i6o THE NEW COMPETITION means more careful bidding, and more careful bidding means more stable prices. II (c) This same committee may, with propriety, care- fully investigate and consider the situation of each com- peting plant with reference to others. It is only by a care- ful comparison of data that it can be ascertained whether a given plant has any territory or customers that naturally depend upon it — in other words, whether it has an economic value to the community. This investigation has nothing to do with any scheme for allotting or apportioning business ; it simply seeks to get at the facts. A plant is located, say, in Minneapolis; it is obliged to buy all its raw material in Pennsylvania; it is in competi- tion with Pennsylvania companies that ship the finished product to the Northwest; on its face the situation seems to look desperate for the Minneapolis company, but there may be local and territorial or transportation conditions which enable it to compete with companies situated near the base of supplies. These conditions should be inquired into and the facts brought out so that members may compete intelligently and fairly. If the Pennsylvania companies are bidding reck- lessly for business they are not fairly entitled to they may depress prices for a time, but in the end the waste must be recouped from the public, and if the local company is driven out the entire Northwest may feel the loss. Such questions are large economic problems calling for depth of insight and breadth of view. The right commit- tee could make a report that would set forth in detail the advantages and disadvantages of every member of the as- sociation, and in so far as it can legally do so it should be HARMONY i6i the effort of the association to help each member to hold the trade legitimately belonging to it, as against unfair and destructive competition. No action would be necessary in most cases, the mere bringing to light all facts and conditions would suffice.^ Ill (d) The committee would also deal with all lapses from the frankness and truthfulness that should prevail ; it would endeavor to key members up to high standards in all deal- ings and all competitions ; it would go farther and endeavor to get members to lift their salesmen and representatives to the level of the open-price policy. All these things are of greater value to the small pro- ducer than to the large. Most large corporations have scientific cost systems and means for learning all that is going on in the country. It is the small producer who is at a disadvantage and who will reap the greater percentage of advantage from the association and the work of the committees. The writer often hears the representatives of large corporations say: "What have we to gain by teaching the little fellow how to run his business?" More than one thinks ; first of all the friendship of the little fellow instead of his enmity; secondly, the friendship of the little fellow's friends, and he has a lot of them; thirdly, more intelligent competition and that means dollars and cents. * Some of the practices referred to in this section fall under Sec. 2 of the Clayton Act, and may be dealt with by the new Trade Com- mission. 1 62 THE NEW COMPETITION RELATIONS WITH EMPLOYEES Only an association can deal with the many and complex questions that arise regarding labor. It goes without saying that if employees are organized employers must be — the individual employer is powerless to accomplish the things labor demands of him ; he can neither raise wages nor lessen hours without the possibility of plac- ing himself at a disadvantage as against competitors who get more labor for their money. It is not a question of power, of force, of body against body in a spirit of hostility. The conduct of labor unions may be so arbitrary and op- pressive, their demands so unfair and outrageous that em- ployers must organize to resist, but such fighting organiza- tions have nothing in common with the associations rec- ommended in this book. Under no circumstances should an open-price associa- tion be drawn into any conflict with labor, with the public or with the law. Should employers who happen to be members of an open-price association be involved in a controversy with labor, they must conduct their fights outside the associa- tion, the influence of the association is thrown in the direc- tion of peace and harmony, representatives of labor are not only free to attend its meetings but should be welcomed and the logical outcome of the movement is the participa- tion of employees in many of the deliberations of the asso- ciation. It may be stated with little danger of contradiction that no association that has anything to do with costs and prices HARMONY 163 is complete without the participation of labor, for labor is cost. However unjust and arbitrary some of the demands of labor may be, they are not all so ; however extreme some of the theories of the modern social reformer may sound, many of them are in process of realization. It is the busi- ness of the far-sighted employer to meet all demands for re- form in a spirit of sympathetic cooperation instead of a spirit of stubborn opposition. II The history of labor is one long story of contest and conquest. There have been set-backs in this country or that, in this century or that, but the onward movement has been checked only to gain greater headway. It is disheartening to see how stubbornly employers the world over have resisted this movement, fought it at every turn, blocked it with laws, met it with armies — and all to what purpose? At most the postponement of the inevitable for a half century or so, and the creation of class hatred and ran- cor that will not die for generations to come. One of the objects of the new competition is to alter these conditions. In theory the employer is, and in the end he must be in fact in the attitude of the master workman who uses his brains and experience to direct those under him in such a way that the best interests of all will be served; to do this successfully he must be sure of the hearty cooperation of all, and he cannot be sure of that unless all are welded together in one association instead of being, as now, members of opposed organizations or unions. In taking this far look ahead the open-price association 1 64 THE NEW COMPETITION does not mean a drift toward socialism, which involves the intervention of the state, but rather toward a higher and purer individualism, an individualism developed and re- strained in voluntary organizations, with a minimum of in- tervention on the part of the state. Cooperation stands midway between the rank selfishness of individualism and the ultra-altruism of socialism; it offers a practical middle ground between the two extremes ; rightly developed it will suppress the evils of the one and yield the benefits promised by the other. In a sense it is the only refuge against Socialism. Ill There is much of a practical nature the open-price asso- ciation may accomplish through its committee on relations with employees. Reports should be called for from each member regard- ing: (a) Safety appliances in use. (b) Hygienic and sanitary conditions, including recre- ation facilities. (c) Sex, age and nationalities of employees. (d) Wages paid and hours of labor. (e) Provisions for injury, disability or death, and for pensions. IV Ten years ago nearly all employers would have con- sidered inquiries along the above lines the acme of impertinence; to-day there are comparatively few large corporations that do not spend time and money in sys- tematic investigation and improvements in those direc- tions. HARMONY 165 A few years have worked great changes in conditions and public sentiment and much of the credit is due the large corporation — the individual employer lags far be- hind.^ As a rule he has neither the time nor the disposi- tion to consider broadly the relations between the industry and the labor employed therein; the problem is far beyond him. Only a large corporation or an association has the necessary facilities for making investigations and experi- ments. It is needless to say that money spent in these ways is money saved ; the efforts are sound and business-like rather than philanthropic. In other words it pays to do all these things, A safety appliance may be a better investment than the machine to which it is applied. A hospital returns its cost many times over. A play-ground is the cheapest realty an employer can buy. *Mr. John A. Fitch, author of "The Pittsburgh Survey," in the volume devoted to the Steel Workers, says: "With the appointment of a central Committee of Safety, in April, 1908, the United States Steel Corporation entered upon an energetic campaign to bring safety standards of all its subsidiary companies, not only up to the levels set by the m©st progressive plants among them, but to overhaul all plants from the standpoint of protective machinery, to define safety specifications for all new equipment, and to work out new methods of prevention. Experts employed by the constituent companies are devot- ing their whole time to studying the problem. A system of inspection has been introduced, and the inspectors in each plant make regular reports, with recommendations, to those in authority. In some of the mills committees of workmen cooperate," then, after speaking of the difficulties in the way of needed changes, Mr. Fitch goes on, "No large corporation is manifesting more intelligent determination in regard to accidents than the United States Steel Corporation. Its safety men have a big work before them, one which is rendered trebly difficult by the nature of the industry, by the speeding up and the twelve-hour day, and by the years of inexcusable negligence and downright disregard of human life which characterized the steel industry in the past." Pages 69-70. See also, "Safety Provisions in the United States Steel Corpora- tion," by David S. Beyer, Chief Safety Inspector, American Steel and Wire Co., printed as Appendix III in Eastman's "Work Accidents and the Law." 1 66 THE NEW COMPETITION Good wash-rooms, good dressing-rooms, good work- rooms, good eating rooms, good rest and recreation rooms, in time will be considered just as essential as good floors, good walls and good roofs. It is difficult, if not impossible to force all these things by law against stubborn opposition, but associations can teach men their necessity, their value, and dissipate preju- dice and ignorance. The best way to teach is by example^ and results; when one employer hears another tell what he has done and the good results he has obtained the words sink deep and prove fruitful ; they are worth a hundred ar- bitrary factory inspectors. Systematic inquiries should be made and results tabu- lated regarding ages, sex and nationalities of employees and, in this connection, wages paid and hours of labor. At present this information in a general way is given reluctantly to census takers and other government agents. Strange, is it not, that keen business men should not see the advantage of doing for themselves, and doing thor- oughly, what the government is doing imperfectly and clumsily ? Nothing is more certain than that the ages, sex, nation- alities of employees with wages paid and hours of labor will in time be systematically and accurately ascertained in not only every industry but in every unit of industry and published. The time is rapidly approaching when neither the public nor those directly interested — the employers themselves — will be satisfied with the generalizations of census reports, with totals, percentages and averages, which mean a good deal to the country as a whole but very lit- tle to John Smith in the conduct of his particular business. What John Smith wants to know is what his competitor in HARMONY 167 the next town pays and the labor he employs, whether it is convict labor, child-labor, female labor, or competent able- bodied-man labor. As a matter of fact employers suffer from census sta- tistics, for few things are more misleading- than large gen- eralizations and huge totals; everybody knows how they are used on both sides of every argument — for and against high tariffs, for and against higher wages, for and against shorter hours, child-labor, employment of women, etc., etc. They mean little, prove nothing. When an employer is urged by argument or law to improve conditions in his shop he does not go to census publications or bureau re- ports, he asks himself the one vital, selfish question, how can I improve conditions without losing money? And that question he cannot answer without intimate knowledge of what his competitors are doing and proposing to do. If all act together a great deal can be done without dislocating trade, but if one is forced by law to take the initiative in advancing wages, shortening hours, or improving condi- tions he may find himself in a position where he can no longer compete on a footing of equality. True, the better- ing of conditions means greater production, but the iso- lated employer is afraid his cost of production will advance beyond his competitors', and he dares not risk the change. Labor unions in their fights for better conditions are constantly met by the plea that if they advance wages in one locality and not in all they will ruin those who pay more, and they are urged not to insist upon an advance in one place unless every competitor is compelled to pay the same. In other words the employers ask the unions to do for them what they by cooperation should do for them- selves — ^bring about fair conditions. 1 68 THE NEW COMPETITION VI In equipping factories with safety appliances many em- ployers have already gone far beyond the requirements of any law, and in their discussions of the wisdom and econ- omy of improved sanitary, hygienic, rest and recreation conditions progressive employers are far in advance of legislation. But these same employers, advanced as they are along certain lines, lag behind when it comes to dealing in the same big way with wages, hours of labor, ages, sex and nationalities of employees; they lag behind because these questions cannot be dealt with in a big way without cooperation. They may be dealt with after a fashion by laws which compel all to do certain things, but that is a crude way of working out reforms. Law is a rule of conduct imposed by a legislative body made up of men, not one of whom may have the' slightest first hand knowledge of a given industry, yet they are forced to say how the industry shall be conducted — why? because the men in the industry will not get together and frame their own rules of conduct. In certain branches of the steel industry the twelve hour day prevails. This means that in certain continuous proc- esses the men on each shift are compelled every two weeks to work straight through twenty-four hours. Andrew Carnegie in 1886 wrote, "At present every ton of pig iron made in the world, except at two establishments, is made by men working in double shifts of twelve hours each, having neither Sunday nor holiday the year around. Every two weeks the men change to the night shift by working twenty-four hours consecutively."^ ^ The Forum, Vol. I, 1886, p. 544. This entire subject is ably dis- cussed by Mr. Fitch, in his book, "The Steel Workers"; see especially Chapter XIII. HARMONY 169 Conditions have improved considerably since 1886, but the twelve-hour day and the twenty-four hour turn still exist. A twelve-hour day is bad enough, a twenty-four-hour turn every two weeks seems almost inhuman, but these are conditions that have grown up with and out of the indus- try. No one in particular is to blame. The men them- selves have opposed changes for fear the changes would mean less money in the end.^ In 19 10 the Brotherhood of Locomotive Engineers adopted the following with reference to shorter hours : "Pertaining to the hours of service of 16-hour law, with proposed amendments, and a substitute to reduce the hours to 14, your committee examined the chairmen of several important systems and questioned many delegates from different sections of the country, and find that while there is a general desire for reduction of the hours of service, several favoring a reduction to 10 and even 8 hours per day, the majority are opposed to changing the hours from 16 to 14, for the reason that it would injure a greater number of engineers than could possibly be bene- * Years ago the Amalgamated Association of Iron and Steel Work- ers adopted a very short-sighted policy. "As improvements in steel mill construction made it possible to finish a turn's work in a shorter time than twelve hours, there came to be periods of idleness between the shifts. This is undesirable in a mill of this character, for sheet-iron is rolled so thin that good results can be obtained only when the rolls are expanded by the heat. The rolls are so shaped that when cold they cannot turn out a steel of uniform thickness; consequently, after a period of idleness hot scrap is sent through them until they reach the correct expansion. To avoid these periods of idleness, the manufac- turers tried to introduce an eight-hour day. This was resisted by the union. In 1883 it was reported to the Amalgamated Association that Moorhead, McCleane & Company, of Pittsburgh, were about to force the eight-hour day upon their men. This was cited as an example of the 'encroachments of aggressive and designing capital,' and the execu- tive committee ruled that under no circumstances should a mill go on three turns," John A. Fitch, "The Steel Workers," pp. 93-94, referring to Journal of Proceedings of Amalgamated Association, 1883, p. 171. In spite of the action of the executive committee of the union some of the mills did go on eight-hour turns, and in 1884 the association revoked the charters of two of the local lodges for not resisting. See Journal of Proceedings, A. A. I. and S. W., 1885, p. 1547. 170 THE NEW COMPETITION fited thereby, resulting, as they fear, in unsettling condi- tions, changing runs and lay-overs, reducing incomes, and perhaps breaking up homes." VII The public do not fully understand these things; it thinks the fight for an eight-hour day is a fight between employee and employer. It is not; it is a fight by both against conditions. The day before these words were written the writer heard a prominent steel man say in a meeting, "The eight- hour day with no reduction in wages will be the best thing that can happen in the business, and I am ready for it if you are." Others expressed their hearty assent, but the practical question was how to bring it about, as one man said, "We represent only one-third of the industry, and any- thing we might agree upon would^i't bind the others." "If they were all in our association," the first started to say. "Then it would be different," a member interrupted. The matter under discussion was government work and the proposition of the government to approve no contracts that did not contain an eight hour clause. "That means," as one man put it, "if any of the ma- terial we put into the government work is made by men working more than eight hours the contract is void ; where is the thing to stop? Ore goes into the blast-furnace, and pig iron goes into the steel, the steel goes through the roll- ing mills — mine, furnace and rolling mill work twelve hour shifts ; if you take a government contract for a ton of plates you will have to work eight hour shifts from mine to roll- ing mill." HARMONY 171 An extreme, but entirely logical illustration, and one that shows the absurdity of trying to force the eight hour day by so indirect a method as introducing such clauses in public contracts. VIII The eight-hour day is an economic proposition with large sociological and ethical bearings, — as such it demands rational consideration and scientific treatment. Above all it is primarily a question for the men engaged in the in- dustry — employers and employees — to consider and settle, and neither side is in a position to consider, much less dis- pose of the matter without associations so large and strong that whatsoever is decided as for the best will be adopted by all. The law in this country finds it difficult to deal with particular industries; by a stretch of constitutional con- struction it does reach certain extra-hazardous occupa- tions, but it cannot arbitrarily single out this or that indus- try and establish the eight-hour day even though employers and employees say they want it. One recalcitrant employer or employee, invoking his constitutional rights, may annul the law. How much simpler for the law to first try the experi- ment of encouraging the formation of associations under conditions of publicity and proper supervision, and leave to them and their employees the working out of some of these problems. At the moment the law takes the untenable position of positively discouraging the formation of associations of employers, and yet lays down requirements that can be intelligently met and fully complied with only by coopera- tion and united action. This is illustrated in the manner in which the law tries 172 THE NEW COMPETITION to deal with the railroads of the country; they are not ex- empt from the Sherman law, and yet the practical enforce- ment of the Interstate Commerce law together with actual conditions force the roads into traffic associations the direct object of which is to agree upon and absolutely control freight and passenger charges. The roads could not comply with the inter-state com- merce law and the orders of the Inter-State Commerce Commission without combining and cooperating together. It is equally true that corporations and individuals en- gaged in other industries cannot meet conditions that con- front them and comply with laws directed against them without combining and cooperating together. PROVISIONS FOR INJURY, DISABILITY OR DEATH, AND PENSIONS Under this head associations organized along the new lines will have to consider some of the most vital and in- teresting problems ever presented to the practical mind of man, and again only associations can adequately discuss them, individuals may form theories, but they are apt to be partial and imperfect and even if sound the individual lacks power to put them in practice. II What does an EMPLOYER owe an employee who is injured, disabled, dies or grows old in service? That is the way the question is ordinarily put and that way of putting it is the cause of nearly all the confusion of ideas and laws that prevail. HARMONY 173 The question so put raises an ethical problem, whereas the problem is essentially economic. The question is not "What does the employer owe an employee?" but ''What does the INDUSTRY oive the em- ployee zuho is injured, or disabled, or who dies or grows old in service?" Ill The employer owes the employee only what he agrees to pay him, and the rate of wages is largely fixed by con- ditions over which the individual employer has little con- trol. But the obligations of the industry toward men who give their health and lives to its advancement are very different and it is these obligations society and, in a meas- ure, the law are beginning to recognize. What stands most in the way of their recognition is the prevailing idea that it is the employer, the individual who happens to be at the head of the business, who owes the obligations as moral duties. The law of torts as between master and servant is based upon this theory of moral responsibility, of personal blame, for the accident, the injury, or death. And as the master is not to blame for a servant's growing old in service, the law has never given the employee compensation for old age, though so far as he is concerned old age may be more disastrous than the loss of both legs — in the end it is equivalent to death, as regards productive effort. The very phrase "Employer's liability" which heads all chapters on the subject in law books shows the personal, the ethical character of the responsibility assumed to under- lie the claim for compensation. According to the common-law the employer is liable only for injuries caused by his own negligence, direct or 174 THE NEW COMPETITION indirect, and the master may be negligent, but if the serv- ant's own negligence contributes to the accident or injury he cannot recover. Later ^ it became the law that if one servant is injured by the negligence of a fellow servant he cannot recover. This arbitrary and artificial ruling grew out of the theory of personal responsibility and it found many of its modifi- cations in refinements upon that theory — such as that if the master were negligent in the employment of an incompetent servant and the damage were caused by such incompetency there might be a recovery, unless the injured servant knew of the other's incompetency and "assumed the risk," etc., etc. In England and in many states in this country the "fellow-servant" doctrine has been modified or abolished by statute. Congress has passed laws concerning it for the protection of employees of inter-state carriers and of de- partments of the government. Unhappily all legislation on the subject is based upon the supposed moral responsibility of the employer ; the sub- ject is still debated as if it were an issue between individ- uals; not a little of the ill-feeling that exists between em- ployers as a class and employees as a class is due to this fundamental misconception of the true relationship of labor to its industry. IV If a man is injured while in the employ of John Smith there may or may not be a moral responsibility on the part of Smith, who may or may not have been at fault person- ally, but whatever his moral or ethical responsibility to the injured man, his economic relation remains the same. *This doctrine had its origin in this country in Murray vs. So. Car. Rd. Co. 1841, i McMull. L. 385. HARMONY 175 Whether Smith carelessly hits one of his men on the head with a hammer, or whether a hammer accidentally falls from the floor above and occasions the injury makes all the difference in the world with the moral responsibility of Smith, but does not alter one iota the economic rela- tion, which is that of a man working in a given industry, and an injury in the course of the employment. In the one case the law says Smith is liable to the man for all damages sustained ; in the other neither he nor any- one else is. If the man is paralyzed from the blow and has no savings the community accepts the burden and sup- ports him for life in a poorhouse. It does not take much of a mind to see there is some- thing wrong here. Why should not the industries that reap the benefit as- sume the cost of caring for their human debris f The world is progressing and of late the economic view is obtruding itself in laws that depart so radically from the old notions that it is surprising legislators, and keen ob- servers do not see that the entire theory of employers' lia- bility is overturned. One English writer on the old theory does mournfully remark, "By the Employers' Liability Act 1880, such ex- ceptions have been grafted upon the common law, and by the Workmen's Compensation Act 1906, principles so alien to the common law have been applied to most employments that it is impossible now to present any view of this branch of the law as a logical whole." What a confession! That the law has lost its logical and scientific side because it has yielded to the dictates of humanity ! How much more courageous to doff one's coat 176 THE NEW COMPETITION and set about ascertaining why the law has changed, and find the thread of logical development which must run through all changes. As a matter of fact the law of negligence has been changing for at least a generation, it has changed greatly in the recollection of the writer, it changed from year to year while the writer was actively defending personal in- jury cases, and it changed so fast it was difficult to keep up with the Courts. With few exceptions the changes were in the direction of broader liability and more liberal compensation. Courts still cling to the old theory of personal respon- sibility, resorting to sophistry to make it appear the em- ployer was negligent, — i. e., morally responsible — when he may have had no more to do with the accident than a man in Mars. Legislatures pass this or that modification of the com- mon law, but always on the old assumption of negligence direct or indirect. Neither courts nor legislatures realize they are award- ing damages upon an entirely different theory, the theory of the liability of the industry, but things have gone so far now that the true theory must be recognized or in truth it will be impossible "to treat this branch of the law as a logical whole." ^ * "The trend of recent legislation and attempted legislation through- out the country, until the introduction of so-called compensation laws, has been to make the master liable for all accidents that arise in the business, due to negligence of anyone in his service; to change the burden of proof so as to require the master, where defects exist, to show that there was no negligence, and also to change the burden of proof so as to require the master to show that the injured employee was negligent; to remove all limits whatsoever that exist upon his liability, leaving him open to such damages as the juries may see fit to assess, without any certainty of what such damages may cost him at any moment ; to require all questions of negligence to be left to the jury; to prohibit any contracting out of such liability; and to increase the body of law aimed directly at preventing accident. HARMONY 177 VI The modern, the economic theory is based upon the proposition that, Each industry must hear all its costs, direct and indi- rect, and cover those costs in its charges. From a purely economic point of view the compensa- tion of an employee for damage sustained in the course of his employment is not a question of legal or moral liabil- ity, but wholly a question whether all damages incidental to the operation of a given industry shall be borne by the industry and covered in its charges, or whether only a cer- tain portion shall be borne by the industry and the bal- ance by the community. The damage cannot be dissipated, it is a positive, physi- cal fact; if a man's arm is gone, it is gone, and no amount of learned argument as to who is to blame for its going will restore it. The legal debate may go on, as it often does, for years from court to court, up and down, and back again, but all the time the arm is gone, some one is bearing the damage; the industry, or the individual out of his savings and fu- "Verdicts have been growing in amount until some have become greatly excessive, though others are inadequate. "There is no doubt that under the development of the negligence law the present system has become intolerable and entirely fails in its purpose, in the greater number of cases, of compensating the injured employee, or administering justice in practice or according to any reasonable theory. "This negligence basis for compensating industrial injuries has not only been tried and proved a failure in the United States, but it has proved to be a great factor in widening the breach between employers and employees, creating hardship on both sides with resulting bitterness. This hardship has been spread throughout the wide area involved in industrial and constructive undertakings and has consequently affected an enormous proportion of our citizens." From Report of Employers' Liability and Workmen's Compensa- tion Commission, 62nd Cong., 2nd Session; Document No. 338. 178 THE NEW COMPETITION ture earnings, or the community in charitably supporting the individual if he is rendered helpless. Heretofore, where the employee could not show that the employer was personally to blame, directly or indirectly, the community has either meekly accepted the burden or brutally compelled the employee to bear it if he had the means saved up, even to the extent of degrading him and his family to the level of beggars and paupers. VII More enlightened views are finding acceptance. The public is beginning to see that in the last analysis the com- munity as a whole must bear all its burdens, that while one man may escape responsibility he can do so only at the ex- pense of some one else; that if in a given industry so many men are killed and injured each year the loss is the loss of the community no matter how the question of responsibility is adjusted. And in addition the community now spends an enormous amount of time and money in supporting courts to settle questions of responsibility between individuals — the settling of which does not lessen by a penny the dam- ages sustained. During the year ending June 30, 191 1, there were 3,163 railroad employees killed and 46,802 injured. Con- ditions will improve but there always will be a certain num- ber killed and injured — these are factors in the cost of rail- roading, just as much so as injuries to road-bed and equip- ment. It would be interesting to know how many of the deaths and injuries resulted in claims and law-suits — it is safe to say a great majority. But whether the men injured were at fault or the com- panies does not make the slightest difference from an eco- HARMONY 179 nomic point of view, the cost to the community is the same; the question is, who shall pay the cost? And to that there can be but one answer — the industry. The matter is one for actuaries rather than lawyers, for scientific solution rather than a law-suit.^ VIII We in the United States have made money so fast and human life has been so plentiful and so cheap that we are far behind nearly every civilized country in dealing with the great problems of workmen*s compensation and age pensions. Compensation laws have been passed in the following countries : Austria Transvaal Belgium New Zealand Denmark New South Wales Finland Queensland France South Australia Germany Western Australia Greece Italy Hungary Luxemburg Great Britain Netherlands * "According to the mortality statistics for 1908, published by the U. S. Census Bureau, there were 19,970 fatal accidents to wage earners in that year. Mr. F. L. Hoffman estimates the number of non-fatal accidents during the same year at 2,000,000. Mr. Seager esti- mates that there are not less than 30,000 fatal accidents among wage earners e^/ery year in this country; as a result of which 20,000 families are reduced to destitution ; and that, in consequence of these accidents, some 15,000 widows and 45,000 children are forced to accustom them- selves to a hand-to-mouth existence, which necessarily crowds employ- ments where competition is keenest and wages are lowest." — "Old Age Dependency in the United States," Lee W. Squier, p. 26, citing "Social Insurance," by Henry R. Seager, and Bulletin of U. S. Bureau of Labor No. 78, September, 1908. i8o THE NEW COMPETITION Alberta Norway British Columbia Russia Quebec Spain Cape of Good Hope Sweden and in a few of the States in the United States.^ The failure of the personal responsibility theory is con- ceded in the following brief summary of conditions that led to the English Employer's Liability Act of 1880 and the Workingmen's Compensation Acts of 1897 and 1906: "So long as an industry was conducted on a small scale, and the master worked with his men, or was himself the manager, its (the common law regarding negligence) hard- ship was perhaps little felt; his personal negligence could in many cases be established. But with the development of the factory system, and the ever-growing expansion of the scale on which all industries were conducted, it became increasingly difficult to bring home individual responsibil- ity to the employer. As industry passed largely into the control of corporations, this difficulty became almost an impossibility. The employer was not liable to a servant for the negligence of a fellow-servant, and therefore, in most cases of injury was not liable at all. It is not surpris- ing that the condition of things thus brought about, fol- lowed by the growth of modern industry and partly by the decisions of the courts, caused grave dissatisfaction. The justice of the doctrine of common employment was vigor- ously called in question. In the result the Employer's Lia- bility Act of 1880 was passed." This Act did not meet the situation. "In 1897 Parlia- ment took the first step in what has been a complete revolu- tion in the law of Employer's Liability. Up to that year, *A valuable examination of the European compensation systems appears in the twenty- fourth Annual Report of the (Federal) Commis- sioner of Labor, and of various State Gjmpensation Acts in Bulletin 93, etc, of the Bureau of Labor. HARMONY i8i as has been seen, the foundation of a master's liability was negligence, either of the master himself, or, in certain cases, of his servants. But by the Workmen's Compensation Act, 1897, a nezv principle zvas introduced whereby certain servants in certain employments were given a right to com- pensation for injuries, wholly irrespective of any consider ch tion of negligence or contributory negligence. As regards such servants in such employments the master was in effect made an insurer against accidental injuries."^ IX As the doctrine of personal responsibility disappears the economic theory of insurance naturally makes its appear- ance. Germany has a compulsory system of state insurance which protects practically all classes of workmen except do- mestic servants and artisans working on their own account. "The provision of compensation for accidents falls entirely upon employers, and in order to lighten the burden thus falling upon them, and at the same time to guard against the possible insolvency of an individual employer, associa- tions or self-administering bodies of employers have been formed — usually all the employers of each particular branch of industry in a district. These associations fix the amount of compensation after each accident, and at the end of the year assess the amount upon the individual em- ployers. There is an appeal from the association to an arbitration court, and in particularly complicated cases there may be a further appeal to the imperial insurance department." ^ *From Encyclopedia Britannica, Eleventh Edit, 357. This same article also contains brief summaries of the laws of some of the differ- ent countries. ' "A German laborer may begin life attended by a physician or 1 82 THE NEW COMPETITION The voluntary cooperation of all the employers is of in- terest, and shows the necessity of the formation of asso- ciations to work out these large economic problems. In Austria there is compulsory insurance administered by special insurance institutions, each embracing particu- lar classes of industries or workers. "The institutions are managed by committees, one-third of the members of each nurse paid by the State; he is christened by a State clergyman; is taught the rudiments of learning and his handicraft by the State. He begins his apprenticeship under the watchful eye of a State inspector who sees that the safeguards to health and limb are faithfully ob- served. He is drafted by the State into the army, devoting two of his best years to the drill sergeant. He returns to work from the rigor of this discipline ; the State gives him license to marry, registers his place of residence, and follows him from place to place wherever he moves. If he falls ill, his suffering is assuaged by the knowledge that his wife and children are cared for, and that his expenses will be paid during illness, and he spends his convalescence in a sumptuous State hospital. If he falls victim to an accident, the ample insurance, even if he be permanently injured, is a balm to his suffering. If he unfortunately becomes that most pitiable of all creatures, a man out of work, city and State unite to find or make work for him. If he wanders from town to town in search of work, the cities through which he passes offer him free hospitality. If he wishes to move to another part of his town, the municipal bureau will be glad to help him find a house, or even lend him money to get one of his own. "If he is in dispute with his employer, the Government furnishes a court of arbitration. If he is sued by his master or wishes to sue him, the State has provided a special industrial court. If he is in trouble the city places a lawyer at his disposal. "And if by rare chance, through the grace of the State's strict sani- tary regulations and by careful living, he reaches the age of seventy, he will find the closing day of his life eased by a pension, very small, to be sure, but yet enough to make him more welcome to the relatives or friends who are charged with ministering to his wants. "Two hundred thousand dollars a day is the price that Germany pays for this system of industrial pensions alone. More than 16,000,000 workmen are insured under the accident, old age, and sickness acts. This does not include the vast horde of officials who are pensioned in army and navy, preachers, teachers, judges, the national and local civil lists — policemen, firemen, janitors, and all the rest. There is only one considerable class of workers left out — the private salaried employees — such as clerks, stenographers, etc. There is a law now in the Reichstag extending the pension acts to this class. Then only a minority of the 65,000,000 inhabitants will be without the benefit of some public stipend. Germany is the pensioner's pSLTzdise.**— World's Work, June, 1912, p. 148. I HARMONY 183 committee being chosen by the Minister of the Interior, one-third by the employers and one-third by the workers." France and Italy have had systems of compulsory state insurance since 1898. Norway and Holland also require insurance. In Denmark, Spain, Sweden, Russia and Belgium em- ployers may relieve themselves from some or all of the provisions of the liability acts by insuring their workmen. The old theory of moral responsibility with its per- sonal liability doctrine has influenced the passing of much of this legislation and influenced it detrimentally; the true theory of economic liability is not explicitly recognized, yet every law providing for compulsory insurance, or compen- sation irrespective of question of negligence of employer must rest on that theory and that theory alone. Such are some of the wonderfully interesting problems it is the privilege and duty of associations to consider.* Much of what has been said applies to the establishing of disability and old age pensions. Some industries consume life faster than others; the cost of human beings is as legitimate a charge as that of coal. The charge for depreciation is a constant and import- ant element of cost in every industry. In addition to depre- ciation every mining company charges off each year a cer- tain amount based upon the estimated exhaustion of its mines. *The subject of compensation for injuries is now before Congress in concrete form in the Sutherland bill. At least one open-price asso- ciation has taken an interest in the framing of that act, for while it applies only to inter-state carriers, it is recognized that the law will probably be used as the model for many state laws — laws certain to be passed within the next few years. 1 84 THE NEW COMPETITION These are the A, B, C, of cost accounting. Why is it not of equal importance to the community that every indus- try should set aside each year the proper amount to take care of aged employees? If the industry itself is not large enough or long lived enough to do this it should be compelled to participate in some insurance plan operated under the sanction of the government. XI As regards economic thought and progress this country occupies a position of isolation from the rest of the world, the isolation of arrogant prosperity. We are so rich me don't care—thdX is the trouble. "Why should we bother about the aged, the feeble, the help- less, when we have more men than we need, more money than we want, more resources than we know what to do with? If the old man isn't rich it's his own fault." That is our attitude — the callous indifference of rapidly acquired wealth. But when we consider the long and careful thought other and poorer countries have given these great economic problems, the sacrifices they have made in contributions and taxes to provide funds for the support of the maimed and helpless, we cannot but feel humiliated. It is humiliating to realize we are nearly a century behind Russia.^ **T[t seems remarkable that the United States, which has led the world in compulsory education at public expense, should be far be- hind other countries in making provision in the law for the support of worn-out and aged teachers. Russia established such laws in 1819; Saxony, in 1840; England, in 1848; France, in 1858. Other countries in which laws prevail are Ireland, Spain, Servia, Italy, Austria, Bel- gium, Sweden, Norway, Finland, Australia, Japan, Mexico, Chile. Ar- gentine Republic, Ontario, Quebec, and nearly all the cantons of Swit- zerland."— "Old Age Dependency in the United States," Lee W. Squier, p. 139. HARMONY 185 We have paid out over four billions of dollars — $4,230,- 380,730 — in pensions to soldiers, sailors, marines, and their widows and children,^ but this prodigality has been inspired by political and patriotic notions rather than sound and ra- tional economic theory. An old man is an old man, with a stomach to feed and a body to clothe, whether an ex-soldier or an ex-cabman; a widow is a woman, whether the widow of a man who was shot in battle or one killed in the service of a railroad. The final justification for old age and disability pen- sions lies in the needs of the beneficiaries, the character of the occupation is of incidental importance. Cities have done something, but not very much, toward working out pension schemes applicable to limited classes of municipal employees, mainly police and fire department — always first and foremost classes that have votes. A few corporations have taken up the matter in a more or less tentative way, but the following summary made as the result of most careful inquiries, shows how little has been accomplished: "It is to be regretted that only about a score of the thousands of manufacturing enterprises in the United States can be included in this summary of those who have crystallized thought for the relief of worn-out workmen. "In nearly every instance letters from the managers who have furnished information concerning pension schemes indicate that the efforts at relief have been dictated as largely by economic considerations as by altruistic. Leaving worn-out, incapacitated men on the pay roll is an economic waste. To turn such adrift is not humane and exercises a depressing influence upon workers still in the prime of life. "Many corporations report that individual provisions have been made for worn-out, or incapacitated workmen — * Report of Commissioner of Pensions, 191 1, page 11. 1 86 THE NEW COMPETITION each case being dealt with on its merits. This plan, how- ever, is recognized by advanced thinkers in the employers' domain as open to many serious objections — the principal of which is the impression among employees that favorit- ism and partiality may determine the fact and amount of pension, which impression seriously affects the content- ment, loyalty, and industry of workmen growing old in the corporation's service. "The few systems of pensions that have been devised by industrial corporations are almost without exception in- spired by economic motives. These systems are usually ac- cepted by the employees with favor, the pensions being recognized as in effect deferred wage dividends available in the event of incapacity or old age. Inquiry among em- ployers and employees in corporations in which the pen- sion system is recognized and operating sustains the a priori argument that the pension system has already done much towards bringing employers and employees together in the recognition of the principle that the interests of both classes are identical, thereby reducing the likelihood of discontent- ment, strife and strike, and cultivating harmony, loyalty and efficiency."^ There can be no question that the adoption of compen- sation and pension plans will go far toward bringing about the integration of labor urged in a subsequent chapter.* XII In this connection it should be noted that the payment of old age pensions by the state is not a logical development of the modern theory that each industry should take care of its costs. *"01d Age Dependency in the United States," Squicr, pp. 105-6. •See Chapter XVIII. HARMONY 187 The government should compensate its own employees for injuries and pension them when old and infirm, but why should it compensate and pension my workmen, or the em- ployees of the Standard Oil Company, or the Pennsylvania Railroad ? Everybody sees that compensation for injuries should be paid by the industry that gets the benefit of the serv- ices and occasions the injury; is it not equally plain that the industry that consumes a man's youth and vigor should take care of him in his old age ? The proposition is too plain to call for discussion yet many public men support the suggestion that the govern- ment should pay old age pensions. It is a purely socialistic proposition, and weakly begs the question of real responsibility and scientific adjustment. It is not easy to work out a scheme whereby industries that may go out of existence or become bankrupt shall es- tablish the proper fund for the care of their aged employees, and it is easy to call upon the government to do what the industries should do, but because the problem is a difficult one, the solution is all the more worthy the minds of able and disinterested men. The radical political leader sees an opportunity to curry favor by adopting the socialistic plan since it relieves em- ployers of responsibility and puts employees on the pay-roll of the state, but progress in that direction is attended with grave consequences; the man who takes the first step can- not consistently refuse the adoption of the entire socialistic program. XIII No man should be permitted to employ another without providing for all the contingencies of the employment, nor should labor be permitted to bargain away insurance fea- 1 88 THE NEW COMPETITION tures for more money in hand. The intervention of the government is necessary for the establishment and protec- tion of the necessary fund, but the details can best be worked out by associations of employers and employees. While the individual employer in a given locality may virith reason object to this or that charge against his busi- ness because it places him at a disadvantage in competition with others who do not include the item in their costs, all objections vanish when all in the industry are obliged to make the same allowance, and far-sighted employers should welcome any plan or law that would reduce an uncertain element in their business to a certain. Industrial progress must mean the gradual elimination of the speculative, the gambling element in business, the gradual substitution of carefully and scientifically calculated factors in costs for prevailing hazards. The parties interested must work out their plans; it is folly to leave this to committees of Congress and legisla- tures, to men whose first interest is political rather than economic. And only associations covering substantially entire in- dustries can do the work properly. The steel industry should not wait for the twelve hour day to be condemned by some drastic law, the men who know the industry — employers and employees — should get together and devise their own plan for meeting the situa- tion and then appeal to Congress only in the contingency that some company or companies will not voluntarily carry out the reform. The question is a practical one demanding the attention of practical men, but most of the agitation at the moment is by politicians, and the entire industry is on the defensive, it is being placed in the false attitude of opposing much- needed reforms. As it is now, representatives of employers appear be- HARMONY 189 fore congressional and legislative committees and fight rep- resentatives of their employees, they are at sv^ords' points, they agree upon nothing, they eye each other with distrust, each is ready to oppose everything the other suggests. It should be the aim of the open-price association to better these conditions, to make it possible for committees of employers and employees to work together with one end in view, the helping of both. CHAPTER XII RELATIONS WITH CUSTOMERS There is just as much "brutal" buying as there is "bru- tal" selling — perhaps a little more, since three times out of five it is the buyer who has the seller at his mercy rather than the reverse. One has but to note the relative attitude of shop-keeper and customer; the obsequiousness of the tradesman is pro- verbial, he solicits, begs, implores custom; he dares not re- sent a harsh word lest he lose favor, his salesmen are trained to keep silent under insult. On a bargain day watch the angry, struggling mob on one side of the counter and the pale, tired salesgirls on the other — is the mob human? It matters not how small or how large the transaction, the buyer knows he has the advantage, he does not hesitate to say "money talks." Now and then conditions favor the seller and he can be as independent as he pleases, but these golden periods are of short duration; if buying does not fall off, the inrush of new vendors, attracted by favorable conditions, soon re- stores the old state of dependency. In a given locality there may be so much building that all the carpenters, masons, brick-layers, painters, etc., are employed and dictate terms, but most of the time the man who wishes to build can make contracts that result in losses to those who Wdertake the work. 190 RELATIONS WITH CUSTOMERS 191 II When it comes to sheer brutality is there any worse than that of the man who "beats" a contractor down until he knows the poor devil cannot get out even and then holds him to a losing contract ? That is common custom under the old competition. One day a young man who had made millions — and boasted of it — pointed to the tiled roof of his new house and said, "The fellows from San Francisco who did that lost three thousand dollars on the job." "Then your house is not paid for ?" "Every dollar." "Except three thousand on the roof." "I paid them all their contract called for.** "But not all their work called for." "Hah ! I don't see it in that light." "And never will — ^that's the sad part of it." Ill Brutal buying is manifest in so many forms. Railroads and large corporations insist that work shall be subject to the arbitrary inspection of and satisfactory to their own engineers; while most engineers are both able and fair, their interest is that of the companies, and not a few feel they can best demonstrate the value of their services by getting as much as they can out of contractors who are helpless. This is a one-sided arrangement imposed upon the seller by the buyer. It is a manifestly unfair arrangement. And it is an arrangement that the buyer in the end pays for in one way or another. Where engineers have the reputa- 192 THE NEW COMPETITION tion of being arbitrary and unreasonable, bids and prices are made accordingly. The following illustrates the argument: 'The Company reserves the right to suspend operations on the work under this contract or any particular part or parts by giving the Contractor twenty (20) days' notice, and in the event of such right being exercised, the engineer shall grant to the Contractor an extension of time equiva- lent to the time of suspension of work. It is further under- stood and agreed that on such suspension the Contractor may have the option to close and settle up for the work done according to the estimate of said engineer; such sus- pension or settlement of the work, however, shall not entitle the Contractor to any claim for damages; or if the Company shall postpone or suspend the work under this contract indefinitely or altogether, which it reserves the right to do, then in that case the engineer shall pre- pare a final estimate of the value of the part of the work done, such estimate to include any materials purchased and delivered to the Contractor, or especially designed and ordered for the work under this contract the same as if the work had been completed, and this contract shall there- upon be terminated. All materials paid for and included in such final estimate that are not of the property of the Company shall be delivered to the Company before such estimate is paid. The canceling of this contract shall not entitle the Contractor to any claim for damages or for an- ticipated profits on the unperformed portion of the work; but the Chief Engineer may, at his discretion, determine upon a fair and equitable compensation to be paid, in case such canceling inflicts an undue hardship on the Con- IV In the following clause the railroad seeks to make the contractor responsible for "the negligence of the com- pany'' : RELATIONS WITH CUSTOMERS 193 "The Contractor agrees to indemnify and save harm- less the Company for and from all claims, demands, pay- ments, suits, actions, recoveries and judgments of every name and description, brought or recovered against it, for, or on account of, any injuries or damages received or sus- tained by any party or parties, by reason of any act of the said Contractor, or of any sub-contractor hereunder, or of any agent or servant of either said Contractor or Sub- Contractor, in the construction of said work, or by or in consequence of any negligence or carelessness in guarding the same; or on account of the death of or injury to the person, or damage to the property of the Contractor, or of any Sub-Contractor hereunder, or any of the agents, ser- vants or employees of the Contractor, or of any Sub- Contractor hereunder, who shall be engaged in or about the work to be performed under this contract, or any sub- contract hereunder, zvhether such death, injury or damage shall be caused by the negligence of the Company, its agents, servants or otherzvise, and so much of the moneys due or to become due to said Contractor, under this agree- ment, as shall or may be retained by the Company until every and all of such claims, demands, suits, actions, re- coveries and judgments shall have been settled and dis- charged, and evidence to that effect furnished to the satis- faction of said Chief Engineer." In this clause the Company throws on the contractor all loss due to delays caused by the Company : "It is expressly understood and agreed that the Con- tractor shall not be entitled to claim or receive from the Company any sum whatever in excess of the contract price for the work provided for herein, by reason or on account of any delay caused in such work by the Company." In this clause damage caused by the mistakes of the rail- road's engineers is cast upon the contractor : "And if the contractor in the course of the work shall find that the points, grades and levels which are shown upon the plans are not conformable to the physical condi- tions of the locality of the proposed work or structure, it 194 THE NEW COMPETITION shall be the duty of the Contractor to immediately inform the Chief Engineer of the Company of the discrepancy be- tween the points, grades and levels shown on such plans and the actual physical conditions of the locality of the proposed work, and no claim shall be made by the Con- tractor against the Company for compensation or damages by reason of the failure of the Company to represent upon said plans the points, grades and levels conformable to the actual physical conditions of the locality of the proposed work." These one-sided conditions must be done away with and they can be remedied only by concerted action on the part of sellers. No one contractor can help matters by saying he will not sign contracts that are drawn entirely in the interest of the buyer ; that would simply result in de- priving him of work. Nor is it a situation that can be met in this country by legislation, since it is the constitutional right of the adult citizen to sign such contracts if he wishes to, and once signed the courts will enforce them, unless there is fraud. Contractors as a unit must say they will not accept con- tracts that contain unfair provisions. Another illustration of "brutal" buying is the calling for bids on work to be taken practically when the pur- chaser pleases, often not at all. The writer has before him copies of two requests from railroads for bids on certain steel work. One road asks for proposals for ^'approximately 3,000 tons, more or less," it will agree to take not less than 2,500 tons during the year, but insists the contract shall cover a possible maximum of 6,000 tons. The other road asked for bids on its "probable require- RELATIONS WITH CUSTOMERS 195 ments from 1912 to 1914 inclusive" — three years. It did not commit itself to the purchase of any minimum amount. In other words, it asked for blank contracts that would pro- tect it if steel should go up, and let it out if steel should go down. The fact that roads do not often take advantage of these one-sided agreements is no argument in their favor — on the contrary, it is a strong argument against making agreements that are harmful when not superfluous. Railroads are no worse offenders than small companies and individuals. It is human nature to demand of the seller all he has agreed to deliver if prices go up, and to wriggle and twist to get out of taking what one has agreed to take if prices go down. Men in all walks of life are quick to seize a profit, and equally keen to evade a loss. The trouble is with the system — it is altogether one- sided, it does not give the seller a fair chance. Purchasing agents cannot be blamed for drawing con- tracts in favor of their roads when sellers are only too eap-er to sign them. VI In the erection of steel buildings the owner usually asks for bids on the entire work from general contractors. In order to make up his bid it is necessary for the general contractor to get bids upon the different parts of the work, cement work, stone work, steel work, tile work, wood work, etc., etc. Some parts of the work the general con- tractor may do with his own men, but a great deal of it he must sub-let to others. As a rule the entire steel work is let to some steel fabricating company. The general contractor asks a number of fabricating companies to bid on the steel. When the bids are in he uses the lowest in preparing his own general bid to the 196 THE NEW COMPETITION owner. If he gets the contract does he, in good faith, let the steel work to the steel fabricating company whose bid he has used? Not at all. On the contrary he takes that bid and uses it as a club to get a lower bid from some other company. If the first bidder says to him: *1 was the lowest bidder, you used my bid in making up your own." "Yes, but that was before I got the contract." "Don't you think we ought to have the work?'* "Not if I can get some one else to do it lower." And in dull times the steel fabricating company meekly asks the privilege of competing again for the same work. This is one of the conditions that can be remedied only by concerted and firm action on the part of the sellers; they should refuse absolutely to bid to a general contrac- tor unless he agrees that if he gets the contract he will, in good faith, sub-let to the one whose bid he has used in mak- ing his own estimates. To call for bids with no intention to let on the lowest is a fraud upon bidders. VII To make an estimate on even a simple job, costs time and money, and to ask for bids should carry the assurance, express or implied, that barring unforeseen contingencies the lowest bidder will get the contract. Except on public work that rule does not generally pre- vail — ^quite the reverse is the practice. And even where it is the intention of the buyer to give the contract to the lowest bidder, he seldom refuses if a higher bidder comes in at the eleventh hour and revises his bid to make it the lowest. That is to say, if the buyer does not negotiate to secure such revisions, he seldom de- clines when they are thrust upon him. RELATIONS WITH CUSTOMERS 197 ' It should be, if not the law, at least the hard and fast custom that when bids are called for the award must go to the lowest, and further, that no revisions will be received, unless for good reason the entire bidding is again thrown open. A little reflection on the part of the buyer will satisfy him that the surest way to get the lowest price is to ask for but one bid from each bidder with the clear understanding that under no circumstances will a second proposition be re- ceived. The comparatively few purchasing agents w^ho pursue this policy insist they get better results in work, deliveries and prices than do those who "haggle" over each contract. The bidder in need of the work, v^ho knows he will have but the one chance, makes a lower proposition than he would w^here he knows he, as well as others, will have op- portunities to bid lower. Both courses are phases of the old competition, of the vicious system of secret bidding, but the one and only one bid custom is incomparably more straightforward than the other ; it js a step in the right direction. So long as members of an association are free to bid what they please and do so independently of one another, v/hy may they not resolve in advance that having once made their bids in good faith they will not revise or change them ? Once more it may be urged, "The resolution is in re- straint of trade, the law will not permit." But why? It is one thing for a combination to agree upon the bid or bids that shall be submitted, that controls the freedom of each member to compete ; it is quite a different thing for the same combination to simply agree that where a buyer calls for and accepts bids he must, in good faith, act upon them, for that in no wise affects a member's freedom to 198 THE NEW COMPETITION bid what he pleases; but having made his bid, if he finds he is not the lowest, he must not rush in with a new bid to get the work away from the man fairly entitled to it. Suppose the government let work in such a tricky man- ner, what would the public think? Suppose on opening bids — say, on supplies for the army or navy — received from all parts of the country, the gov- ernment agents should step around to nearby contractors, give them the tip their bids are not the lowest, and permit them to revise! What is right and legal in the letting of public con- tracts ought to be right and legal in the letting of private. There is no good reason why an association should not be permitted to impose upon its members the same restric- tions regarding revised bids that the government imposes upon bidders, and there is every reason in the world why customers should approve such restrictions, for they are in the direction of the one-price-to-all policy. Buyers and purchasing agents who pursue the fair pol- icy are, however, comparatively few in number. Two things are done, both of which are manifestly un- fair. 1. Bids are called for as if contracts would be let on the lowest, but with no intention of doing so, the real in- tention being to compare the bids as they come in and use them as a basis for further negotiations to get lower fig- ures. That is one practice, the other is still more unfair — not to say fraudulent. 2. A buyer calls for bids but intends to give the order to a favored party; the others do not know they have no chance, but spend time and money in making up their esti- mates; if the favored party's bid is not the lowest he is told what figure he must meet to get the order. In this case, getting bids from others is usually for the purpose of "keeping up appearances," of seeming to buy in open RELATIONS WITH CUSTOMERS 199 competition; sometimes the other bids are used to keep down the price of the party who is really to have the order. It not infrequently happens that some of the other bid- ders learn that a certain party is to have the order and to make him take it at cost they put in bids they would not care to have accepted — this is a combination of "brutal'' buying and "vindictive" bidding — vicious all around. VIII We come now to a practice the law might reach, though not so effectually as an open-price association. We refer to the habit buyers have of saying they have lower offers when such is not the fact. The average purchaser prides himself on his ability to get the better of sellers, hence he does not hesitate to make any statement that will bring a lower offer. He takes the lowest bid he has and coolly says to the bidder, "You're way up; I've half a dozen offers better'n yours." The average reader whose walk in life does not bring him in contact with large buying will be amazed to learn that such practices prevail so generally and that they are not condemned by law, for they are a shock to the moral sense of mankind, to the sense of fair play. The law should condemn them, but it is feared it does not reach even the grossest. The trouble begins in the country village. It is easy to say the purchasing agent of a railroad is a liar when he says he has a lower bid and has not, but when we trace the practice home to every buyer and every seller of butter and eggs, potatoes and cabbages; to every farmer, horse- dealer, cattle-raiser; to every carpenter, painter and paper- hanger, we see that it would be hard to so draw the line as to condemn the railroad buyer and not touch the others. 200 THE NEW COMPETITION The law is made to fit the average man, consequently it must be a little blind to his habitual failings — it does not arrest him when a little drunk, but only when so noisy as to disturb others; it does not interfere with a little lying and a little rascality, but only with conduct so notorious it cannot pass unnoticed. IX The open price movement deprives the tricky buyer of his advantage. To refer to an actual instance: The member of an open-price association called at the office of the purchasing agent of a large railroad to see about a certain order for which he had put in a bid. The purchasing agent pretended to look through a file of papers, then said blandly, * 'Sorry, but there are two or three lower bids than yours." The bidder was surprised, "I don't see how that can be, I am sure my bid is the lowest." "Not by a good deal, but I am willing to give you a chance to come down " "Hold on," the bidder interrupted, "either you are stringing me or some one else is. Here are all the bids you have received," and he drew from his pocket an abstract of bids. The agent looked surprised. "Where did you get that ?" "I am a member of the Open-Price Asso- ciation, and every bid made on work is reported to the secretary the moment it is made and he sends this ab- stract to every member bidding. According to this re- port I am the lowest bidder. If you have a lower bid, whose is it?" "That's my afYair." RELATIONS WITH CUSTOMERS 201 "All right, let me use your telephone and I will call up the secretary and tell him what you say; he will get in communication with all who have bid and get at the truth of the matter.'* The agent smiled, "I guess you got me cornered — you may have the order." X It cannot be reiterated too often that it is just as im- portant for buyers to understand and approve the open- price movement as it .is for sellers, and therein it differs fundamentally from all associations under the old compe- tition. The cooperation 'of buyers is needed when the attempt is made to draw standard forms of contracts that will be just to both sides. A combination of buyers must decide what it — for them — wants; a combination of sellers must decide what it — for them — wants. There is no other way to accomplish anything. Yet in the face of this practical necessity, many good lawyers will express doubts regarding the legality — under the Sherman law — of a combination that in any manner restrains a man's freedom to make a fool of himself. When a body of men draw a standard form of con- tract and say, for instance, that they will not make bids in such a manner that the purchaser may take the material if it pays him to do so, or not take it if it pays him to back out, or that they will not sign contracts which leave all differences to the decision of the purchaser or his agent ; or that they will not make bids to a general contractor un- less he agrees, in good faith, to sub-let on the lowest — in a sense all such agreements restrain the freedom of bidders, restrain their right to bid recklessly, and to enter into con- tracts that are unfair and one-sided. 202 THE NEW COMPETITION But in a broader sense such agreements extend and ex- pand trade, for they place it on a sounder, healthier foot- ing. They do not curtail competition. Given a standard form of contract, it matters not how minute the provisions covering every detail of the work, so long as the final price is not fixed, competition is not only as free as before the adoption of the contract, but freer, since each man knows precisely upon what all the others are bidding; the competition becomes a matter of price with no opportunity for evasion, no chance to get the better of either the pur- chaser or other bidders by cunning in the drafting of this provision or that. XI To summarize the argument: Into any given transaction such as the letting of a con- tract a great many elements enter. Practically all of these elements fall under: I. Time of performance; 2. Manner of performance; 3. Terms of payment. Either side may combine and dic- tate any two of these elements and so long as one is not fixed competition may be as keen as before. This is es- pecially true when terms of payment are left open. An association of sellers may adopt the most stringent rules regarding, (i) Time of performance, and (2) Man- ner of performance, without affecting competition or re- straining trade, so long as each is left free to bid as he pleases regarding (3) Terms of payment. The very theory of the open price movement is to leave each member free to fix his own price on his products or his work, but to reduce to a minimum every other eletnent of uncertainty in the trade. CHAPTER XIII RELATIONS WITH SELLERS What is true of the relations of the individual to cus- tomers is true — in reverse sense — of his relations to those from whom he buys his raw material ; one day he is in the ascendancy getting material at less than cost, the next he is on his knees begging supplies at any price ; he is the vic- tim of sudden and violent market changes. Business is a lottery; there is no game of chance with so many elements of uncertainty; in every other gamble the player may calculate to a fraction of one per cent, the odds for or against him and take the risk with his eyes open ; in commerce men "go it blind.*' The Science of Trade is yet to be written; some day it will be, for there must be a thread of reason in what men do to make money, there must be some fundamental prin- ciples the discovery and observance of which will clear up many of the uncertainties attending business transactions, there must be some basic propositions the truth of which cannot be gainsaid. For instance, the proposition, ''No man should sell goods below cost," is one of the first dictates of common business sense, it is an elemental rule of business conduct, but it is only a bit of advice and has nothing to do with either a science or a philosophy of trade, for it simply means that if a man does sell below cost he will lose money. But the proposition, "No man should be permitted to 203 204 THE NEW COMPETITION sell helozv cost," is fundamentally different and its discus- sion is impossible without some general convictions re- garding a science of trade — the validity of the proposition depends upon the theory of business of which it is a law or rule of conduct. II Again, "A man will buy where he can buy the cheapest and sell where he can sell the dearest/' is simply a state- ment of a natural tendency when individuals are free to do as they please; it is one of the natural conditions that a science of trade must take into consideration, but in it- self it amounts to no more than the statement, a man will eat when hungry. A philosophy of living must start out with the assump- tions that men will drink when thirsty and eat when hun- gry, just as they will do a thousand other things if left to themselves — the philosophy of right living lies in ascer- taining those rules of conduct which should control natural impulses and by preventing men from drinking whatever they please whenever they are thirsty and eating as much as they please whenever they are hungry, make better men of them. In the same way the philosophy of trade when written will seek the principles that underlie commercial conduct and, finding them, develop laws and rules of conduct, the observance of which will make men better manufacturers and merchants. The attempts of political economy in this direction are fitful and feeble; it is a "dismal science" because for the most part it contents itself with observing facts and draw- ing therefrom generalizations which it calls "laws** but which are still no more than facts. When the academic political economist finds that men. RELATIONS WITH SELLERS 205 if left to themselves, tend to buy where they can buy the cheapest, and sell where they can sell the dearest, he promptly elevates the natural tendency to the place and authority of a law, and an entire school of economists pro- claims the irrelevant proposition that this "law'' must not be interfered with. Whether a man should be permitted to buy where he can buy the cheapest and sell where he can sell the dearest is a question which involves both a science and a philosophy of trade. The mere fact that nearly every one will respond, "Why, of course he should," does not alter the truth that the question calls for some systematized conceptions, other- wise how is it possible to answer so positively in the affirm- ative ? When we discuss the rights, ethical and legal, of the individual as an individual, as against society as a whole, we are on ground every square inch of which has been trodden smooth, but when we discuss the economic and practical rights of the individual in trade, as against com- petitors and the public, we are in territory where little sys- tematic work has been done and notions are hopelessly con- fused and contradictory. Conditions in the United States are especially interest- ing in this connection. Generally speaking, the people of this country in com- mercial intercourse among themselves are firmly commit- ted to the proposition that the life of trade depends upon the freedom of each man to buy where he can buy the cheapest and sell where he can sell the dearest. The theory has the force of an obsession; laws are framed to support it and men are even prevented from contracting away the precious right. The theory of anti-trust legislation is that trusts, by controlling competition and restraining trade, interfere 2o6 THE NEW COMPETITION with this sacred right of the individual to buy and sell wherever he pleases. But if a merchant in Detroit crosses the river to buy cheaper woolens in Canada he finds this "fundamental maxim of trade" shattered at the border. In its domestic commerce the United States threatens to imprison men who restrain the individual's liberty to buy where he can buy the cheapest; in its foreign com- merce it threatens to imprison a man if he tries to exercise the right. A man's philosophy of trade must be narrow indeed if he can so much as attempt to justify the proposition that trade must flow freely along one side of a business street, but not across the street because an invisible geographical line runs through the center of the street marking the bor- ders of Mexico and Arizona.^ The man who succeeds in adjusting his philosophy of commerce to this political condition, wakes up some fine morning to find that the geographical line has moved or disappeared, that trade flows freely where it was ob- structed before — what becomes of his philosophy? Like the geographical line, it moves or disappears ; he is obliged to confess that his so-called philosophy was nothing more than a theory of political expediency or, more likely, simply selfish considerations framed in high-sounding, pseudo- patriotic phrases. It is not intended here to argue for or against the doc- trine of protection, but only to point out the fact that in domestic commerce free trade is guaranteed by constitu- tional provision and a variety of laws, while in foreign commerce it is prohibited in all but a few articles, and *The line dividing Mexico from this country runs through the center of the business street of Nogales, Arizona. The stores on one side are Mexican, those on the other American. Custom officers are stationed on each side of the line to see that no thrifty housewife passes with a paper of pins. RELATIONS WITH SELLERS 207 forbidden not for the sake of revenue, but deliberately for the avowed purpose of preventing men from buying where they can buy the cheapest. Ill The brief story of an industry will suffice to illustrate the argument. "The legislation for the establishment of the tin-plate industry rests upon three ideas: first, that seventy mil- lions of people should not depend upon Welsh works for tin plate; second, that the foreign tin plate is poorly made and does not meet our particular wants; third, that the country needs a new industry in which more labor can be employed. In these three statements we have a blending of the commercial, the economic, and the political.*' ^ It will scarcely be urged that these "arguments'* are based upon any philosophy of commerce, either profound or superficial; they sound, rather, like the reasoning of men with "axes to grind," and so they were, for "behind the scenes another class, the men who owned supposed tin mines, endeavored to secure the attention of Congress. They were anxious that the tin-plate industry should be encouraged, provided that block tin was put on the tariff list." "Prior to 1890 no tin plate had been made in this coun- try. The McKinley tariff of that year, w^ith its high duties on plate and pig-tin, was the beginning of the industry. The growth of the industry was due to many favoring conditions. Capital was attracted, and by 1898 there were *forty-one plants operating 235 mills.' ^ * William Z. Ripley, Ph.D., "Trusts, Pools and Corporations," pp. 295-296. The chapter on the Tin-Plate Industry is by Frank L. Mc- Vcy, of the University of Minnesota. 'In March, 1898, Tin and Terne said: "The market has continued 2o8 THE NEW COMPETITION "The excessive competition of the many tin-plate plants established under the hot-house influences of the tariff of 1890, in company with the rising prices of materials, has brought about the formation of a combination known as the American Tin-Plate Company." ^ "It will be seen from what has been already said that the tin-plate industry was in far from a healthy condition. Everything pointed to demoralization. It was very natural that, under these conditions, repeated attempts should be made to form a combination." The combination was formed and proceeded to re- organize the business. The organ of the trade said in 1899 * ^ "-^t the present time a number of the plants have been closed down. Among them are some of the largest and best equipped mills in the country. The company now owns every tin-plate plant in the United States making a product for the general trade. Just how long these estab- lishments are to remain closed is impossible to say, but un- doubtedly the company is trying to find out to just what extent it is necessary to operate the different plants to supply the demand. If it is discovered that all or nearly all are necessary, two lines of policy are open to the di- rectors: first, to operate all the mills owned by the com- pany; second, to close the more poorly equipped 'and badly situated mills and to increase the producing power of the better plants. It is more likely that the second, or at least a modification of it, will be followed." The combination was very successful, and in 1901 was taken over by the United States 'Steel Corporation. As this chapter is being written the Government has a suit pending to dissolve the last-named corporation on the very unsettled and unsatisfactory to both buyer and seller alike. War and rumors of war, trusts and rumors of trusts, are having a disturb- ing influence, and in no branch of metal industry have prices been as unsettled and confusing as in tin-plates." * Tin and Term, February 23, 1899. RELATIONS WITH SELLERS 209 ground that it was organized to restrain and monopolize trade contrary to the Sherman law, one of the industries being the tin plate. In its various attitudes toward the industry the Gov- ernment has "boxed the compass." Several millions of people were buying tin plate where they could buy it cheapest — to wit, England. The Government, at the urgent solicitation of interested parties, makes a law to the effect that the people shall not buy where they can buy the cheapest, but must buy where tin plate is dearest — to wit, at home. Then, when competition at home reduces prices to cost and below, the manufacturers naturally combine to get what the tariff promised them — profits ; whereupon the Gov- ernment steps in and asks that their combination be dis- solved because it controls competition and restrains trade — precisely the two objects Congress had in mind when it passed the McKinley, the Dingley, and the Payne tariff bills. The apologist for the Government will urge that in erecting a tariff wall against outside competition the least protected manufacturers inside the arena can honorably do is to slaughter one another by cut-throat competition — an argument that does not appeal with irresistible force to the fellow on the verge of bankruptcy. IV Whatever may be said for or against the policy, it is undeniably true that the theory of protection is diametri- cally opposed to the proposition that a man should buy where he can buy the cheapest and sell where he can sell the dearest. It is based upon the fundamentally different proposi- 2IO THE NEW COMPETITION tion, namely, that a man's freedom to buy and sell may be controlled and restrained in the interest of the community, that even the entire community may be prevented from buying what it needs where it can buy the cheapest. Whether this proposition be sound or unsound need not be discussed here, suffice it to say it has been at the foun- dation of the commercial policy of this country since the adoption of the first protective tariff, and in one form or another it has influenced the commerce of the world so long as we have any record of men's actions. From time immemorial trade has been restrained and hampered in many directions, as some restrictions fall into disrepute and disappear others appear, until there is not much left of the doctrine that a man should be free to buy where he can buy the cheapest and sell where he can sell the dearest. If this freedom is restrained as between nations and localities, may it not be possible that it should be controlled as between man and man? Those who say it should not be restrained as between nation and nation, and locality and locality, will quickly say it should not be restrained as between man and man, but the conclusion by no means follows: It is one argument — and a strong one — that nations should interfere as little as possible with the flow of trade from country to country, locality to locality, since such interference is largely wholesale and undiscriminating, mak- ing paupers here and millionaires there; but it is quite an- other thing to say that the people — employers and em- ployees — whose fortunes and whose bread hang upon the prosperity of an industry, shall not be permitted to meet conditions and by united action avoid the disastrous ef- fects of irrational competition ; it is a very different thing to say they shall not unite and demand, as an economic right, that those from whom they buy shall sell at fair, uniform RELATIONS WITH SELLERS 211 and stable prices, and that those to whom they in turn sell shall pay fair, uniform and stable prices. At all events, these questions are open to discussion, and certainly in no country that maintains a protective tariff can the discussion be foreclosed by any appeal to so doctrinaire a proposition as that "men should be free to buy where they can buy the cheapest and sell where they can sell the dearest." A man may have an ^'unalienable" right to "life, liberty, and the pursuit of happiness," as the Declaration of Inde- pendence puts it, but whatever that sounding phrase may mean in the abstract, it is certain he has no "unalien- able" right to buy goods below their cost of production and sell them above their fair value, he has no abstract right to ruin either those from whom he buys or those to whom he sells, nor has he any "unalienable" right to ruin com- petitors. He has no divine right to hire, children to run his ma- chines, women to do men's work in his factories, men to labor twelve hours per day. Our fancied "rights" to do all these things have the force of custom, nothing more. Every relation in life is open to investigation, discussion and readjustment on a right, or righter, basis. Rights result from and are entirely dependent upon re- lations. What one man's rights are as against another turn upon his relations to the other; the rights of father against son, brother against brother, friend against friend, partner against partner, employer against employee, com- petitor against competitor, buyer against seller, all depend upon and vary widely with those relationships. In most of these relationships, and particularly in trade 212 THE NEW COMPETITION relations, the world has been too long content to go on from generation to generation upon the assumption that vague propositions of a superficially philosophic character are all that are needed, whereas the truth is that each of these relationships — especially every trade relation — demands critical and exhaustive inquiry to ascertain the rules that should govern to secure the best results. This inquiry must be approached with an open mind, one must disabuse one's self of preconceived notions and prejudices, and be pre- pared to follow the logic of facts whithersoever it leads — it is most certain to lead far afield from prevailing theories and practices. VI To return to the particular relations under discussion — those of buyer to seller — there must be propositions of a general and practical character that should be observed by both sides, but, so far as the writer knows, no attempt has ever been made to work out these propositions on a scien- tific basis. Before the ancient and anarchistic assumption that every man has the right to buy where he can buy the cheapest and sell where he can sell the dearest — all rights disappear ; it is each man for himself, regardless. There is scarcely a man in business who would not gladly give up this so-called "right" to buy where he can buy the cheapest if he could be assured of the following: 1. That he is paying no more than a fair profit on what he buys. 2. That his competitors, buying substantially the same quantities under substantially the same conditions, pay the same prices. 3. That the price of what he buys will be changed RELATIONS WITH SELLERS 213 only after sufficient notice to enable him to adjust his stock accordingly. In other words, what every buyer — especially every buyer who buys to sell — wants to reduce the elements of uncertainty of trade are : 1. Fair prices. 2. Uniform prices. 3. Stable prices. Of those requirements, uniform prices, and stable prices, are of far more importance in eliminating the uncertainties of business than fair prices. In fact, a fair price must be also a uniform and a stable price, else it is not fair. VII A may be able to sell a ton of pig-iron at $10.00 and make $1.00 profit. B, because he owns a mine or by rea- son of the better location of his furnace, may be able to sell a ton at $9.50 and make $1.00, but the maker of steel who buys pig-iron is not interested in the relative costs of A and B, nor is he vitally interested in getting his iron at $9.50 instead of $10.00; what he is interested in is to be certain that he pays no more for his iron than competing steel makers pay. There is not a steel maker in the coun- try — aside from those who love the "gamble" in the busi- ness — who would not • rather pay a iixed price — whether high or low is immaterial — than pay one price to-day and another to-morrow, and know that possibly competitors are getting some secret concessions that give them an ad- vantage. As things now are the purchasing of pig-iron is one of the big risks of the business, one of the elements of un- certainty that should be eliminated if possible. 214 THE NEW COMPETITION The speculative elements may be reduced to a minimum in two ways: A. By concerted effort on the part of the parties in- terested to frame their own rules of conduct. B. By law. The law should intervene only after failure on the part of the parties themselves to act. It cannot be too often pointed out that the law should be a last resort, since at best it is the intervention of un- skilled legislators to do for industry what skilled operators neglect to do. Unhappily, as has been remarked, the law in this coun- try makes it exceedingly difficult for the men interested to do anything at all. The law literally says, "You shall not cooperate to help conditions," and it says this under threat to prosecute them as criminals. For a period of years this country has tried the experiment of persistently scattering business men who come together to better conditions. Most of their efforts were undoubtedly directed toward regulation of prices and competition, and in many instances were arbitrary, oppressive and wrong — ^but whether right or wrong the law objected and said, "Separate, go back to your offices and factories and fight along the old, wasteful lines." At the moment there is a pronounced reaction ; the pub- lic sees that some sort of regulation is necessary to miti- gate the evils of the old competition, that unless these evils are mitigated the strong will surely eliminate the weak, and monopoly result. But does Congress propose to repeal the law that for- bids cooperative effort ? Not at all. A certain element has a very different programme; it proposes to leave in force, and even make more drastic, laws against codperation, to create a federal commission, to do what business men would RELATIONS WITH SELLERS 215 like to do, and in large measure could better do for them- selves. What will be the result? Precisely what has happened with the railroads under the Interstate Commerce Law. The Interstate Commerce Commission shuts its eyes to the fact that the roads, regardless of the Sherman law, meet regularly and absolutely stifle competition so far as rates are concerned; only through the Traffic Associations can the law be enforced. If Congress creates a Federal Commission to supervise interstate industries, the Commission will be .powerless to accomplish anything in a large way without the systematic cooperation of associations of parties interested. A federal law of a constructive character covering in- terstate industries is a necessity, a federal interstate indus- trial commission like unto the Interstate Commerce Com- mission is also a necessity, but the prime object of both law and commission should be to encourage the formation of associations, each embracing an entire trade or industry, as practical instrumentalities to suppress abuses and work out reforms. VIII There are two classes of buyers : A. Those who buy to consume. B. Those who buy to sell. The relation of the ultimate consumer to the seller of what he needs or wants is different from that of the pro- ducer or dealer to the seller of the goods or raw material he needs in his business. It is commonly assumed that the ultimate consumer has but one interest, to buy where he can buy the cheapest — if a farmer is forced to sell his produce, or a bankrupt shop- keeper his goods, below cost, that is supposed to be the con- 2i6 THE NEW COMPETITION sumer's golden opportunity — per contra, if farmers or mer- chants combine to get a little profit on what they have to sell the consumer complains so loudly the law takes notice. Even the ultimate consumer might be better off if he could be assured of fair, uniform and stable prices, if wide and sudden fluctuations could be checked, but however opinions may differ on this point, there can be no question that the producer, the merchant, the contractor, the manu- facturer, would be incomparably better off if he could know that prices are uniform and will remain stable for given periods of time. The consumer's first interest is in what he himself pays; the producer's first interest is in what his competitor pays. A carpenter contractor in a small town likes to buy his lumber as cheap as he can, but whether he pays a dollar per thousand feet more or less is of slight importance as com- pared with the certainty that no other carpenter in the place is buying for less. What chance does the painter stand if in figuring on a job he is obliged to figure his paint at one price, while a rival gets a secret discount of ten per cent, from the paint dealer ? These are no hypothetical illustrations, but conditions that prevail everywhere. The merchant is far more vitally concerned in what rival competitors pay for their goods than he is in what he pays for his own. Under secret competition he cannot find out what they pay, so there is but one thing for him to do, go ahead in the dark and protect himself by buying as cheaply as he can, even to the extent of buying in- ferior goods and passing them off for better. Shoddy, adulterations, short weights, fraud, deceptions, are all the logical results of buying under the old compe- tition. RELATIONS WITH SELLERS 217 Profit is largely an individual matter, price is of social concern. That A should make a living out of his business is of importance to the entire community, but whether he makes much or little over his living is of slight importance as com- pared with the effect of the prices he places on his goods. IX Has a manufacturer the right — ethical or economic — to sell a dealer a six months' supply of goods at one price and the next day or week lower the price to others in the trade ? The answer to that and similar questions will depend upon one's philosophy of business. Those who believe that ''All's fair in trade and war" will have no scruples, and that is the maxim of the old competition, but those who see that a new competition is coming, that the old, with its sharp practices, merciless methods, is passing, will have no hesitation in answering that a man has no right — moral or economic — to sell what he produces at such prices as he pleases regardless the effect his conduct may have upon the welfare of others. Many buyers are strong enough to insist the seller shall agree to give them the benefit of any lower prices he may make in six months or a year. The small buyer is not in a position to demand this protection, he is helpless and loses if prices go down. Many a small merchant and manufacturer is driven out of business because he cannot command the terms, the re- bates, the concessions, the protection given his large com- petitors. The big jobber is always well ''taken care of" by the manufacturers whose products he handles. The open-price association, pressed to its logical devel- 2i8 THE NEW COMPETITION opment, will bring all these things out in the open — every price, every rebate, every discount, every discrimination, and once out in the open, every price, every rebate, every discount, every discrimination that is unfair will go. The tendency will be toward fair prices, uniform prices, and stable prices. That means that sellers and buyers will cooperate to- gether to control fluctuations in prices ; prices will be quoted and maintained for definite periods; purchases will be made and sales made with reference to price-changes that will be announced such periods in advance as different trades and industries require. These are practical propositions of wide-reaching im- portance, and can be worked out only by the men actually concerned, but they will be worked out under the super- vision of some Government commission or agency the first duty of which will be to see that prices are maintained pre- cisely as agreed, that there are no evasions, no secret con- cessions by unscrupulous makers and dealers eager for trade. In short, the influence of the Government will be ex- ercised to Hx prices and keep them fair and stable instead of, as now, to demoralize prices and make them more un- fair and less stable. The suggestion sounds revolutionary, but it is not new, for that has been the course of events in the railroad world. The railroad situation is far more complex than that of any industry. The cost of transporting a passenger or a ton of freight per mile is not the same to any two roads, or to any one road for two succeeding nxjuths. Yet the roads are compelled by law and aecessity to get together to Hx rates and maintain thbse ilB-tes, making no RELATIONS WITH SELLERS 219 changes without due notice in advance — and all this under the supervision of the Interstate Commerce Commission. Nobody complains because rates are £xed, and main- tained for long periods regardless of fluctuations in cost of service; nobody asserts the right of each company to charge what it pleases, to carry freight and passengers at a loss if it sees fit — those notions have long been relegated to the scrap-heap; they belong to the good old days of railroad buccaneering, when *The public be damned" was the motto that hung on every wall from the president's office to switchman's shanty.^ The new theory that is gradually making headway is that while rates must bear a certain relation to cost, includ- ing fair returns on investment, the question of profit is of far less importance than the question of uniformity and equality in distribution of charges. In other words, so long as the building and operation of railroads is left to individual enterprise, it is conceded that there is a minimum return to stockholders below which the service will be impaired, but whether the profits exceed this minimum one per cent, or ten per cent, is of less im- portance to shippers and the public generally than the^d^ues- tion of uniformity of rates. At present in every rate controversy two distinct ques- tions are raised and argued with great heat, with the result that true issues are obscured. ^The Government even sees the wisdom of calling a halt to ruin- ous competition: "San Francisco, March 31.— A cut in sea freight rates of from 25 to 40 per cent, for cargoes shipped from San Francisco to New York has been announced by the American-Hawaiian Steamship Com- pany. The company offered to contract with San Francisco shippers at 30 cents per 100 pounds. "The reductions follow a cut recently made by the Pacific Mail Company, which was prohibited from further rate-slashing by the United States government, which Hxed definite commodity rates. The action of the American-Hawaiian Company is believed to be the result of competition by independent steamers." 220 THE NEW COMPETITION The question whether a proposed rate is sufficiently above the cost of service to yield a fair return on invest- ment ; the question whether a proposed rate is fair to ship- pers and localities affected. The two questions are not necessarily connected. A rate may be below cost of service and manifestly unfair to certain shippers and localities; or a rate may be double what it should be, and yet be so fair to both shippers and localities that no one wishes to disturb it. The ideal rate is one that is fair to all parties, but the ideal rate will ever remain an *'ideal," approachable but never attainable. In the rate controversies that constantly arise, the at- tention of the public is too apt to be diverted from the con- sideration of adjustment and distribution to that of cost and returns to the roads. The contest between the roads clamoring for higher rates and this or that interested body of shippers or this or that locality crying for lower rates, is an entirely selfish one; the particular shippers and towns will be highly de- lighted if they get reductions that ruin other shippers and other towns — their real object is to get an advantage over their rivals; they rouse the public by talking loudly about the profits of the roads, etc., etc., but all that is "sand in the eyes"; the same shippers and towns will fight just as strenuously if the roads propose to reduce freights to other localities. Time was, and that, too, in the recollection of every man of fifty, when the railroads of the country did openly and believed they had the right to do the following things : 1. Make such rates as they pleased and change them as they pleased. 2. BuiJd up favored localities and ruin others. 3. Build up favored shippers and ruin others. RELATIONS WITH SELLERS 221 4. "Get even" with villages, towns, cities that did not pass such ordinances as they wanted. 5. Ruin competing lines by savage rate wars — wars that frequently reached the stage of carrying passengers for nothing. But all these conditions have changed, not a railroad in the country is permitted to do any one of these things. But the merchants and the manufacturers of the coun- try, the large corporations not only may, but are encour- aged by law to : 1. Quote such prices as they please and change them as they please. 2. Build up favored localities and ruin others. 3. Build up favored customers and ruin others. 4. Get even with any place or any buyer by selling to rivals at lower prices. 5. Ruin competitors by savage price wars — wars that frequently reach the stage of selling far below cost. How long will this anomalous condition last? How long will it be before the country insists upon the same supervision of unfair and vindictive prices that it demands regarding rates? Possibly the Clayton and Trade Com- mission laws are answers to this question. XI One thing is certain in this connection, the power of the individual to run his business as he pleases is going to be greatly curtailed, curtailed in much the same way the power of the railroad company to run its road has been curtailed. As already said, there are but two ways for this re- straining influence to be exercised, by law — along social- istic lines ; or by voluntary cooperation — ^along more highly developed individualistic lines.^ 1 The following description of the workings of railway traffic asso- ciations is by a man prominent in the railroad world. In operation they 222 THE NEW COMPETITION are not unlike the workings of the Open-Price Associations advocated in this book: "Conferences between railroads on subjects affecting the general interest are conducted by means of the so-called Traffic Associations. These associations are voluntary, non-incorporated organizations, the membership of which consists of the railroads occupying the same or contiguous geographical territory. Each organization has a printed constitution and by-laws, the special feature of which is that any mem- ber of the organization who proposes to make any change in any existing practice, will notify his associates at least thirty days in ad- vance of the taking effect of the proposed change. In other words, he obligates himself to give to his associates the same notice that the federal law requires he shall give to the Interstate Commerce Commis- sion. He is free at all times to do any and all things he may desire, but has obligated himself that before making same effective he will give the notice referred to, to the other members of the association. "Covering each of these geographical divisions above referred to, there are two organizations, one handling matters relating to freight traffic and the other handling matters relating to passenger traffic. The Trunk Line Committee, consisting of two bodies, one devoted to freight matters and the other to passenger matters, covers the terri- tory between the Atlantic Ocean and Pittsburgh and Buffalo, and north of the Potomac River. "The Central Freight Association and the Central Passenger Asso- ciation cover the territory from Pittsburgh and Buffalo to Chicago and St. Louis, from the Great Lakes to the Ohio River. "The Western Freight Association and the Western Passenger Association cover the territory from St. Louis and Chicago to the Missouri River; and the territory west of that point to the Pacific Coast is covered by the Trans-Continental Association. "In the South the territory is covered by the Southeastern Asso- ciation and the Southwestern Association. "In addition to these major associations, there are innumerable smaller associations, handling local matters, some of them working in- dependently, and others as sub-committees to the main organizations mentioned. "These associations have paid officers and large clerical forces. The principal officers consist of a Chairman, generally called the Com- missioner, and a Secretary. The salary paid to a Commissioner will in most cases be higher than the average salary of the railroad repre- sentatives who attend the meetings; from which you will understand that in a well-organized traffic association the Commissioner is some- thing more than a mere presiding officer. In fact, he is supposed to be an expert on traffic matters, and expected to thoroughly guide and control the actions of the individual roads, although you will under- stand that such efforts on his part are frequently questioned by the membership, and oftentimes the cause of strenuous debate and ani- mated discussion. "The exact procedure in each of these organizations differs, on account principally of the difference in size of the various associations. RELATIONS WITH SELLERS 223 The Trunk Line, for instance, consists of but seven members, whereas the Central Freight or Passenger Associations have a membership of "forty to fifty railroads. The general procedure, however, is the same in all of these organizations, whether it be a freight organization or a passenger organization, and is about as follows: "An interested member introduces a subject for discussion. This may be a change in an existing rate, or it may refer to a change in classification of a certain article, which amounts to the same thing as a change in the rate, for the reason that transferring an article from one class to another class either lowers or raises the rate, according to the class in which the transfer is made. "The question raised may also refer to some change in existing rules under which traffic is handled. It may refer to loading, demur- rage, minimum carload weight, or any one of the thousand and one questions of mutual interest which are constantly arising in the rail- road business. "For the purpose of bringing the subject before the meeting, a resolution is introduced, which is generally worded: 'Recommended, that so and so be done.' If the resolution is seconded, it is then be- fore the meeting for discussion. If the association is a large one, the resolution will, in most cases, be referred to one of the sub-committees' that has this particular subject in its charge, which committee will return the resolution to the main body, with its recommendation. After the subject is thoroughly discussed by the organization, it is then put upon passage, and if carried by the majority vote, is declared by the chairman to be the recommendation of the body, and so appears in their printed proceedings. "No member is bound by any agreement to make effective the recommendations so adopted, but he is obligated to notify his associates if he decides not to adopt the recommendation. Such notices are very frequent, and follow immediately after the declaration by the Commis- sioner that the resolution has been adopted, although they may be given by mail later on; in fact, at any time. "These methods secure uniformity of action on the part of all rail- roads occupying the same territory, because either the recommendations are adopted by all lines, or one line serves an individual notice of what it proposes to do, and all the other lines are compelled, of course, to take the same action as the individual. "Stenographic reports are taken of all proceedings, and while the debates are not published, the proceedings of each meeting are issued in printed form at great length, and such proceedings, when published, become public documents, and, while not given open circulation, access can be had to them by interested parties, through some means, at all times. They are, I think, in every instance, filed with the Interstate Commerce Commission. "Beyond such steps as might be taken to exclude curiosity seekers, there is no secrecy about these meetings, their actions, their member- ship, or their officers. Interested parties frequently appear before these bodies, the passenger associations particularly, to urge the adoption of some suggestion which they desire to have made effective. Officers of 224 THE NEW COMPETITION the commercial travelers* organizations have frequently appeared before the passenger associations to urge the adoption of certain rules or regulations, regarding mileage tickets, baggage rules, stop-overs, etc. "These associations meet, as a rule, monthly, although some of them have bi-monthly meetings, and special meetings are of frequent, in fact, almost continuous occurrence. Meetings are attended by the chief traffic official of each railroad company, or, in his absence, by the next official in authority, or some officer designated to act. "These traffic associations are as old as the railroad business, and came into existence with the construction of railroads, and have en- dured ever since. Some of them are now over fifty years old, but the practices, the constitution, rules and by-laws have been continuously modified from time to time, principally to meet changes in federal or state laws. "These associations were originally founded on the basis of abso- lute agreements between the contracting parties to do or not to do specified things. Heavy money fines were provided for in case of vio- lation, and in those days most of a railroad man's time was spent 'test- ing* the other fellov/'s freight and ticket offices, to see if he could not find him violating his agreements, and when such cases were discov- ered, which was continuously, set trials were had, evidence was intro- duced, and the Commissioner, as judge, imposed the penalties. "All of this was abolished with the passage of the Interstate Com- merce Law in 1887, and other radical changes were made in the consti- tution and by-laws of these organizations, following the decision of the Supreme Court in the Trans-Missouri case. Further changes were made with the passage of the Hepburn law, the result being that in the minds of the railroad men and their legal advisers, these associa- tions follow the law, and only through these organizations can all the requirements of the law be observed, and the railroad business handled in the stable manner which is necessary to permit proper development of the resources of the country." In U. S. vs. Trans-Missouri Freight Association (1896), 166 U. S. 290, and in U. S. vs. Joint Traffic Association (1898), 171 U. S. 505, the Supreme Court held traffic associations organized to regulate rates contrary to the Sherman law. Notwithstanding these decisions, the associations exist, and operate, in effect, the same as before. Why? Because they are absolutely necessary to the conduct of railroad busi- ness and the Interstate Commerce Law could not be administered with' out them. CHAPTER XIV RELATIONS WITH THE PUBLIC What the public does not understand it distrusts; what it distrusts it condemns. These reactions are instinctive. Heretofore, combinations in the world of commerce, in- dustry and transportation have been primarily selfish in their objects and secret in their methods. They have met behind closed doors and clothed their deliberations with mystery. What more natural than that the outsider — the public — should feel that something is being done to his disad- vantage ? The press is a power — it is the ears, the eyes and the tongue of the public. What it is not permitted to hear and see it will talk about; nothing can silence this active and often reckless tongue; the best way to gain its favor is to give it ample opportunity to learn the truth. Nine-tenths of the things that are now done in secrecy in commerce, industry, and transportation, could be done, and done better, in the open, in cooperation with all parties interested and with reporters present. More than nine-tenths of the things now done behind closed doors are known anyway very quickly to the parties interested, and sooner or later to the press and public, but everybody is alienated by the methods adopted. If railroad men meet to discuss rates, why should they not invite shippers? If steel men meet to discuss prices, 225 226 THE NEW COMPETITION why should they not open the doors to customers and the press ? If they do not, they are charged with doing and saying the things they should not, and no one will accept their word to the contrary. If they try to fix prices, the trade knows it before the day is over, and the papers the next morning contain more or less exaggerated accounts of what transpired. The atmosphere of secrecy serves only as a red flag in the face of — the public. There is no reason why men should not discuss their own affairs with as much secrecy as they please, but when they meet to discuss and settle matters that concern others, it goes without saying the others should have the oppor- tunity of being represented if they choose. Every man who has ever attended a meeting called to help conditions in a trade knows the influence the presence of an outsider has upon both discussions and actions. If no outsider is present, propositions of the most arbitrary and oppressive character are invariably made, and often adopted; there is no restraint, and the association usually does things it afterwards regrets. With customers, or even neutral parties, present, it is impossible to speak with only one side in mind, and the framing of every resolution will be influenced, every action taken will be fairer. Manufacturers who meet to debate prices are fortunate if they have with them a few keen customers and observers; they are more apt to do the fair thing and the right thing — which means in the end the more effective thing. II Whatever may be said regarding old-line combinations, the relation of the open-price association to the public is of RELATIONS WITH THE PUBLIC 227 vital concern, for its usefulness depends upon the sympathy and favor of the public. The theory of the old competition is that no one class or individual can profit except at the expense of some other. The theory of the new competition is that no class can proUt in the long run except as others prosper. Under the theory of the old it was inevitable that each class should organize within itself to gain all it could at the expense of the community. Under the theory of the new, each class will organize in cooperation with other classes to increase the prosperity of the entire community and secure only its fair share of such increased prosperity. All of which means that the open-price association can be effective only in so far as it advances not only the in- terests of the trade, but the more general interest of the public. Ill Why does public opinion favor labor unions and farmers' unions and oppose unions of manufacturers? Each reader will have his own answer, but when sifted to the bottom one very good reason will be found in the tactless manner with which manufacturers have run their combinations. If dealers and manufacturers endeavor to advance prices they are in direct conflict with customers — ^the public — and to avoid trouble they must permit those to whom they sell to have some voice in the discussion. If in certain industries it is better prices should be fixed for given periods as a rational economic step, it can only be done with the full understanding and approval of cus- tomers; if prices are to be left to fluctuate within normal limits under the operation of the open-price policy, the pub- 228 THE NEW COMPETITION lie should understand why they fluctuate and why it is bet- ter they should. When all these things are discussed in a spirit of frank- ness the public will be quite as much in favor of fixed prices for fixed periods as it now is in favor of cut-throat com- petition; it will be as quick to see the economic advantage of stable prices in certain industries as it is to admit the union principle of stable wages and limited hours of em- ployment. IV The organization of an open-price association has noth- ing to do with fixing prices in the old sense of the term; its first and principal object is to bring prices and competi- tion out in the open ; whether it is better for the community that prices should be fixed and controlled in certain indus- tries, very much as wages are, is an economic proposition that may be discussed profitably by everyone interested after the open-price association has done its first work of making known the conditions of the problem. Up to the point of trying to regulate prices the mem- bers of an open-price association are well within their indi- vidual rights ; they can dig and delve until every practice is brought to the surface ; but when they endeavor to formu- late a broad price policy, a policy that will lessen the waste of the old competition, they are on ground where they must proceed with caution, and be sure of the sympathetic support of the public, and the only way to be sure of that sympathy is to take their customers and the public into their confidence. V Frequent references have been made to the practice of the Government in purchasing supplies and letting contracts — calling for bids and letting to the lowest without discus- sion and without revisions. RELATIONS WITH THE PUBLIC 229 The practice is fair but not right, since it often results in getting both supplies and work for less than cost. One of the fundamental propositions of the new com- petition is that, in so far as human sagacity can prevent, no man shall be permitted to sell labor or material below cost. One of the first steps of the new economy will be to de- vise ways and means for ascertaining costs of both labor and goods, and men who buy to sell either will be taught to know their costs and make their prices accordingly. If it is a fundamentally sound proposition that no man should be permitted to sell below cost, then it follows that the Government — the community — of all parties should be the last to adopt a system of buying and contracting that is a direct inducement to men in need of work to bid be- low cost. The Government cannot afford to appropriate either labor or property by paying less than it costs. The Government method is fair in comparison with the vicious practices of most private buyers, but it is not right because it encourages a man to make a losing contract and then holds him to it. Between the young millionaire who boasted that the tiled roof of his house cost the contractor three thousand dollars more than was paid for it and the Government who compels a poor devil of a contractor to finish a job that costs him three thousand dollars more than he gets for it, there is not the slightest difference — both get and enjoy something that belongs to some one else. Under existing conditions it is not uncommon to hear and see in print, boasts by Government, State and city of- ficials how they closed contracts so low the contractors lost money, and the public is so blind to what is right in buying that it unwittingly applauds such bargains. In fact, the attitude of the public is that if any man 230 THE NEW COMPETITION makes money on a Government contract "there must be something wrong somewhere." VI All this must change. It should be the duty of the Government — federal, State, municipal — of every public body — to make sure of two things in all its purchases: 1. Good work and good material, at 2. Fair prices. Inspection of prices is just as important as inspection of work and material. As it is, the Government inspects to make sure work and material are up to standard; it makes no inspection to see that prices are up to standard; on the contrary, the only effort is to depress prices, which is as rational as a like effort to depress quality of work and material. It is to the credit of many private buyers that they refuse to buy below cost, that they will not permit con- tractors to do work at less than cost — this is true of far more men than the public knows. No right-minded man cares to accept a present from a man he does not know and who cannot afford to give it; to accept work or ma- terial at less than cost amounts to the same thing — only worse. That contractors try to and do get even on public work by poor work, "extras" and other fraudulent devices, is so notorious it is expected; every public contract has its shadow of evasion and dishonesty. This is so true that many men and companies who make a business of Govern- ment contracts have a doubtful reputation; there is always the tacit assumption that their contracts are due to a "pull" and their profits, despite low bids, depend upon practices that will not bear the light. It goe^ without saying no public commission can reform RELATIONS WITH THE PUBLIC 231 this system by arbitrarily rejecting bids it thinks below cost and letting work to the bidder whose bid it thinks is fair ; that would lead to conditions still worse. It may even be true that all the Government can do is accept the lowest bid, but it should not accept any offer that appears to be be- low cost without calling the attention of the bidder to the figures and securing from him the assurance — with, if nec- essary, some demonstration — that he can furnish the goods or do the work at the price and make money. If he cannot give the assurance, or make the demon- stration, his offer should be rejected. And it should be open to every higher bidder to chal- lenge the lowest bidder's ability to do the work required at the price and get out even. The practical difficulties in the way of the Government's taking the initiative are obvious, but the work can be done, and done effectually, by open price associations, if the law would permit. Such associations would have no trouble whatsoever in checking up bids and disclosing those that did not cover cost plus a fair profit. CHAPTER XV VANISHING INDUSTRIES I When the expert is called in to see what, if anything, can be done for a given industry the first inquiry should be whether the industry is a diminishing or a growing indus- try. If it is diminishing or vanishing the case is desperate, little can be done ; it is not a question of bringing prosperity to all, or even of the survival of the strongest, the problem is how to make death easy, how to gradually close shop after shop, plant after plant, with the least possible loss to owners and community, or how to transform plants and shops into factories for other products. When the question is put to a group of men, "Is your industry going forward or backward, what is the demand to-day for your products as compared with a few years ago?" it is disheartening when they are obliged to reply, "Ten or twenty years will see our finish," disheartening not so much on their account, because the good business man discounts the inevitable, lays up against what cannot be helped, but on account of the labor and localities involved. Sections of cities, small towns, entire localities, may be af- fected, even depopulated by the closing of factories, the ex- haustion of mines, and it is not so easy for labor and lo- calities to discount the future — they have neither the means nor the foresight. 232 VANISHING INDUSTRIES 233 True, of late years towns and smaller cities are making systematic efforts to diversify their industries so that they will not be wholly dependent upon the prosperity of some one large enterprise. Still there are cities and towns every- where which depend more or less upon one or more large companies engaged in the same line ; if they shut down the entire community feels the loss, if there is a strike all the people suffer. The cotton and the woolen, and the boot and shoe mak- ing towns of New England are illustrations ; as are also the wagon making, implement making, automobile making towns farther west, and the mining towns of the far west. It is bad enough when these industries that are grow- ing shut down temporarily, but the outlook is worse when it is apparent to all interested that an industry is slowly dis- appearing. II It is needless to say that a given industry may be a grow- ing one, and yet factories in particular localities be in a position, either with relation to the supply of raw material or sale of outputs, where they cannot go on; this happens constantly; the condition is akin to that of a store that has to close or move on account of change in neighborhood, or effective competition of establishments more centrally located. This condition may be helped by the expert; by wise cooperation life may be prolonged or death rendered painless. But where the entire industry is a vanishing one the sit- uation is difficult indeed. Given a group of men — say ten — representing all the companies engaged in a particular industry, careful inquiry will disclose one of the following conditions : 234 THE NEW COMPETITION A. A vigorous youthful industry in which, all the plants are growing but in widely varying degrees. B. An established growing industry in which most of the plants are expanding and fighting vigorously, some sta- tionary and struggling to make fair earnings, others losing and on the edge of bankruptcy — this is the normal condi- tion of three-fourths of the industries of the country. C. A diminishing industry in which a few plants are fairly prosperous, others barely living, and many in des- perate condition. D. A vanishing industry the end of which is in sight, no one making money, all closing one by one, with as little loss as possible. Each class presents its own problem — economic and ethical. Those of the first and second are the problems of pros- perity, those of the second and third the problems of ad- versity. The problems of prosperity are mainly economic — ^material; those of adversity are mainly ethical — human. Not that prosperity does not have its great human prob- lems — it does, and they are too litde considered — but the point is that when men are prosperous, well fed, well clothed, well housed they give little thought to anything be- yond their immediate happiness ; it is when adversity comes, when the pressure of life is felt, when work is not so easy to find and wages are not so high, when profits fall off and bankruptcy stares in the face, it is then the profoundest problems of existence demand solution, big, human de- mands that must be answered. Ill Natural gas is struck in a prosperous farming section; the entire locality is transformed into manufacturing cen- ters; the farmers get big prices for their farms and are VANISHING INDUSTRIES 235 happy; the various industries prosper on cheap fuel; for the time being everybody is so absorbed in making money that no one takes thought of the morrow, of the day when the flow of gas will cease and all the industries be left high and dry for the want of the cheap fuel that is their one ad- vantage. The more far-sighted among the owners provide against the day of shutting down by laying up money, by accumulat- ing what is, in reality, a sinking fund that takes care of the cost of their plants when they become worthless. But the men and the communities dependent upon the industries, they have no sinking fund, no saved-up earnings to fall back upon; the end of the gas supply means ruin to them, very much the same sort of ruin an earthquake or a vast con- flagration would mean, only prolonged. During the growth of these new industrial centers the problems were mainly economic, largely questions of get- ting the quickest and largest returns from the natural re- sources — in short, of making money. As the supply of gas rapidly, perhaps suddenly, dimin- ishes, and plant after plant is obliged to suspend, the human problem becomes acute. In press and print stress is invariably laid upon the great loss to capital, etc., etc. — the phrases are familiar; in reality the one feature of the situation worth considering is the human and sociological, the effect upon the individ- ual, the family, the community of the shifting of industrial activity to some distant locality where fuel can be had. The individual may follow, but the family cannot go far, while the community, disordered and disintegrated, is left behind to recover as best it can. "But these things can't be helped," the puzzled reader exclaims. Perhaps not, but if not — that is a confession of weak- ness. 236 THE NEW COMPETITION Given economic conditions productive of poverty and misery, only the thorough-going pessimist has the right to say they cannot be helped, and — whether we realize it or not — most of us are optimists, our lives are ordered upon the conviction that things which are wrong not only can be, but will be helped. To return to the question in cooperation presented by the four classes of industries. IV With group A the problem is to devise a plan of co- operation that will eliminate the waste of competition and assure the plants less advantageously situated the work they can do economically and that they are normally entitled to do by reason of their location. The problem is not how to most speedily dispose of the weaker to the end that the larger — and, logically, perhaps one large one — shall control the trade; that might result for a time in a fractional sav- ing on each unit of product, but in the end it would mean a very great loss to the community and disaster to many localities. With group B the problem is more difficult. Many of the losing plants may have to go, it may even be difficult to preserve all those that are neither losing nor making, but with every man in the business before him the expert will think long and seriously before he says to this man or that man, "I can do nothing for you or the town the prosperity of which depends upon the keeping open of your factory.'* Unsympathetic competitors, heartless theorists and economists may say, "What's the use of trying to keep him alive? He can't make any money where he is located." It may be true that, under the relentless conditions of the old competition, he can make no money and must, VANISHING INDUSTRIES 237 sooner or later, go bankrupt, but there may be a bare pos- sibility that, under the fairer conditions of the new com- petition, some form of cooperation can be devised that will give a losing company sufficient trade to insure its existence and the moderate prosperity of all the people dependent upon it. This cannot be done in all cases, but it can be done in some and without disadvantage to the consumer, and wherever it can be done by the exercise of human in- telligence and human cooperation does it require any argu- ment to demonstrate it should be done, rather than let the brute forces of "cut-throat" competition work unrestrained? In group C we come to a diminishing industry. If it is a question of raw material — as for instance, in certain branches of the lumber business — those who control timber will survive, making perhaps large profits until their tim- ber is exhausted; those that have no sources of raw ma- terial must close. It is difficult to devise a form of coopera- tion that will help this situation. So long as the law recog- nizes the right of individuals to own or control natural re- sources the man who is dependent upon such resources and owns none is in a position of hopeless inferiority to one who does. The one obvious step is the removal of every tariff restriction, every unfair transportation obstacle, every let and hindrance to access to raw material the world over ; the law can and should do at least that much for factories and localities which, through no fault of their own, face certain diminution of business. If the falling off in the industry is due to a falling off in demand for the product a very different situation is pre- sented. With a decreasing supply of raw material prices may ad- 238 THE NEW COMPETITION vance to very high levels, all the higher because factory after factory is obliged to shut down. But with a falling off in demand prices steadily fall and plants close in the order of cost of production — those where costs are highest, all other things equal, closing first. Here would seem to be a group wherein the law of "survival of the fittest" would have to be allowed to take its course. "How can anything be done?" the academic economist asks. Possibly nothing under existing laws and social institu- tions, but look at the situation without prejudice or precon- ceived notions regarding the sacred character of free and unfettered competition. Given ten plants engaged in a particular industry, em- ploying, say, ten thousand men upon whom thrice ten thou- sand women and children are dependent; the industry is a diminishing one; those plants one by one must close; is it to the interest of the community that the death struggle should be so fierce, so vicious, that no one plant shall pros- per? or is it better that all should prosper so long as they can, then one after another drop out with a minimum of loss to all interested directly and indirectly, and under such conditions that the survivors down to the last shall continue to enjoy a certain degree of prosperity ? With a diminishing or vanishing industry competition is fierce because hopeless; it is not a fight for profits but for life; it is a cannibal feast wherein the strong slaughter the weak to feed on their flesh. VI What is true of group C is even more apparent with group D. VANISHING INDUSTRIES 239 It is bad enough when those engaged in an industry see that it is not growing, that it is probably falling off; it is hopeless when they plainly see that it is actually vanishing, that in five, ten or fifteen years it will be no more. The cause may be actual disappearance of raw material, locally or generally; or it may be discoveries or inventions that take the place of older processes. Electricity is playing havoc with steam, and electric devices are supplanting many older machines and tools. In many cases factories are changed over to meet the new requirements, but in others they cannot be and owners face total losses; labor must look ahead to periods of idle- ness and poverty. Under existing social conditions and prevailing eco- nomic theories most of these consequences cannot be avoided, but some might be if the law permitted and helped. Given a situation such as described the law should not only permit, but encourage men getting together to face the situation wisely and intelligently. A government *'by the people, of the people and for the people" ought to look out for the people just a little unless the familiar phrase is bombast; it should make even more careful investigations of all industries and occupations than it now does; it should note and publish the first signs of fundamental changes in both demand and supply; it should give the first warnings of impending trouble. In a measure governments of the most advanced coun- tries do these things — not with any large economic and ethi- cal outlook, but mostly for temporary gain. A wise government would go farther and when it de- tects signs of inevitable decay and dissolution encourage the coming together of all interested so that by cooperation dis- astrous results may be minimized. In this country state and federal laws forbid cooperation the object of which is to restrain trade, yet with a vanish- 240 THE NEW COMPETITION ing industry trade must be controlled and regulated in such a manner that losses will be limited instead of aggravated, conditions ameliorated instead of exasperated. If ten men are adrift in a boat with food and water for only a few days they do not fight and kill one another and in their struggles waste the little store they have — they do not do that unless they are madmen. No, their one thought is to make the food and water last as long as possible ; they cooperate to prolong the life of each. The biologist might say, "Why don't you strong fellows kill the weak? You will have their shares and live longer." But they don't ; a force far above the laws of evolution stays all beastly impulses. Why should the ten survivors of a shipwrecked indus- try engage in a hand to throat struggle to kill one another when by rational cooperation the little business there is may be made to go around until something else can be done ; or until by prudent management plant after plant may be dis- posed of for other uses on fairly favorable terms? All the expert can say to those men is, "Your situation is desperate, if you continue competing for a diminishing business your situation will become more and more desper- ate; you will simply slaughter one another. There is but one thing you can do, get together, face the situation as a unit, combine all your sources of knowledge, exchange all information freely so that each may know all there is to know about what the future has in store, then shape your course accordingly. "The law ought to permit your acting as a unit as re- gards both producing and selling, but it does not. "The law ought to help you save what you can out of the wreck of your industry, but it does not. "The attitude of the law is that of the biologist — 'Kill the weak, you strong ones — and then kill each other,' ha !" VANISHING INDUSTRIES 241 VII Meanwhile these diminishing and vanishing industries can do something to help themselves in open-price associa- tions — not much but something. It will help for each to know what the others are doing, both in the way of business and prices. Losses may be les- sened to some extent. Friendly association will develop a "give and take" spirit that will modify some of the more vicious features of competition. At the same time it must be confessed the outlook will be dismal at best ; without such firm cooperation as the law does not now allow, competition cannot be otherwise than disastrous. Men who must have business to live will bid to get it, considerations of cost will not deter them, much less considerations for competitors — nothing will restrain them. Association will yield this one advantage, where a man knows the condition of his competitors and the extent each will go in a desperate fight for business he will be in a posi- tion to keep out of the fiercer competition, to exercise some judgment, and he will realize the inevitable all the sooner, he will realize the futility of hanging on until all his money is lost. The isolated manufacturer is in a position of serious disadvantage, he seldom meets the men who keep track of what* is going on and often he clings to methods either ac- tually out of date, or that are about to be superseded by im- proved processes; he is at the mercy of all his competitors who are better informed. As a center for information, a place for exchange of views, the association has a commercial as well as a social value — it means a saving of money to all who belong. 242 THE NEW COMPETITION In these and many other ways the open-price association with its atmosphere of frankness and cooperation can help even diminishing and vanishing industries, but by no means to the extent it helps growing. CHAPTER XVI WHAT IS A FAIR PRICE? I What is a fair price? "Cost plus a reasonable profit," the seller will answer. But the average buyer will quickly reply, *T do not care anything about your cost or your profit, the only price that interests me is the market price — ^the price I have to pay." "But," the seller urges, "the market price may be either far above or far below a fair price, it may yield me an ex- orbitant profit, or it may mean a disastrous loss." "I can't help that." "Yes, you can to some extent; if buyers will only co- operate with sellers to control so far as possible the violent fluctuations that are bad for both." And the practical question is, to what extent can that be done? H A great many writers have dealt with the subject of price, but all that has been written on the theoretical side since the days of Adam Smith has been but little more than refinements upon the conclusions reached by him in Book I of his famous work. Natural Price and Cost — "There is in every society or neigliborhood an ordinary or averagie riate, h&da. bi wages 243 244 THE NEW COMPETITION . and profit in every department. * * * There is likewise in every society or neighborhood an ordinary or average rate of rent. * * * These ordinary or average rates may be called the natural rates of wages, profit and rent, at the time and place in which they may commonly prevail. "When the price of any commodity is neither more nor less than what is sufificient to pay the rent of the land, the wages of the labor, and the profits of the stock employed in raising, preparing, and bringing it to market, according to those natural rates, the commodity is then sold for what may be called the natural price. The commodity is then sold precisely for what it is worth, or for what it really costs the person who brought it to market, for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in the neighborhood, he is evi- dently a loser by the trade; since by employing his stock (capital) in some other way he might have made that profit. Market Price. — *The actual price at which any com- modity is commonly sold is called the market price. "The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or tlie whole value of the rent, labor, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectital de- mand; since it may be sufBcient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six ; he might like to have it, but his demand is not an effectual demand. Supply and Demand. — "When the supply of any com- WHAT IS A FAIR PRICE? 245 modity falls short of the effectual demand" some will be willing to give more than the natural price and "a competi- tion will immediately begin among them, and the market price will rise more or less above the natural price, accord- ing as either the greatness of the deficiency, or the wealth and wanton luxury of the competitors, happens to animate more or less the eagerness of the competition. "When the quantity brought to market exceeds the effec- tual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages and profit, which must be paid in order to bring it thither. Some part must be sold to those who are willing to pay less, and the low price which they give for it must reduce the price of the whole. The market price will sink more or less below the natural price, according as the greatness of the excess in- creases more or less the competition of the sellers, or accord- ing as it happens to be more or less important to them to get immediately rid of the commodity. The same excess in the importation of perishable, will occasion a much greater competition to get rid of, than in that of durable com- modities. "When the quantity brought to market is just sufficient to supply the effectual demand and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price. "The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and its continuance, they are eventually tending to- wards it."^ *Book I, Chapter VII. The italics and the words in parenthesis are the writer's. 246 THE NEW COMPETITION III Adam Smith's definition of a fair or "natural'* price is as good as any that can be found in so many words, but while the paragraphs referred to seem to lead to definite con- clusions because they are precise in terms, careful analysis shows they are little more than graphic descriptions of what takes place under the eyes of every housewife who buys of her grocer. She pays the price asked for the things she wants; whether that price covers cost or not she does not know or care, all she knows is that if she sells eggs she receives what she thinks is the highest market price, if she buys butter she pays what she thinks is the lowest market price — she may find out too late that prices vary consider- ably in the next street, or that a neighbor the same day re- ceived more for her eggs and paid less for her butter. IV The "Wealth of Nations" was published in 1776. Let us skip a century and a quarter and see what, if any, ad- vance has been made over Adam Smith's propositions. A recent writer ^ sums up the law of supply and demand as follows: "i. As the price of an article increases the quantity de- manded tends to diminish and the quantity oflFered tends to increase. There will thus in ordinary cases be a certain price which 'clears the market' and makes the two equal. "2. This price will, theoretically, be reached by free competition. For so long as the supply is in excess of the * President Hadley of Yale, in the Dictionary of Philosophy and Psychology, vol. II, pp. 623-4. Compare also article on Value, vol. XXII, Encyclopedia Britannica, nth edition. WHAT IS A FAIR PRICE? 247 demand, sellers will be in danger of having unsold goods left on their hands, and will compete to bring prices down ; but if the demand is in excess of the supply, buyers will be in danger of having wants unsatisfied, and thus competition will force prices up, thus producing an equation of supply and demand. "3. The prices thus fixed tend to be proportional to the expense of producing the several articles in the market. For if the market price of one article offers a higher rate of profit than the market price of another, investors will grad- ually abandon the production of unprofitable goods, and put their capital into the line which promises the higher rate, thus increasing the supply and diminishing the price at which it can be sold. "4. The equation of supply and demand is thus a double process. First, a temporary adjustment of the demand to the supply by the commercial, competition of merchants, which lowers (or, in the converse case, raises) the price until it corresponds to the marginal utility, i. e., until it be- comes just worth while for customers to take the whole sup- ply at the price in question. Then there is a more perma- nent though less accurate and universal adjustment of the supply to the demand, by the individual competition of in- vestors, which lowers, or raises, the price until it becomes proportionate to the marginal expense of production, i. e., until it becomes just worth while for producers to meet the whole demand at the price in question. "This is the theory of supply and demand as developed by the English economists from Smith to Cairnes."^ * President Hadley refers to the mathematical form of expression attempted by Cournot (1838), Jevons (1871), and Marshall (1890). See also "Measurement of General Exchange Value," by C. M. Walsh. 248 THE NEW COMPETITION From the foregoing summary of the work of a century and a quarter it is plain the theory of supply and demand and of price has not advanced a hair's breadth beyond that formulated by Adam Smith ; subsequent writers have simply rung the changes on the theme he furnished; his compara- tively simple propositions have been almost lost in a wealth of ingenious refinement. He was content to describe things as he saw them and formulate certain general propositions; his successors, most of them, have retired from the market place, from actual observations of daily happenings, and in the seclusion of the closet attempted to reduce his generali- zations to mathematical propositions and give them the sem- blance of laws. When the interminable discussion of the "theory" and the so-called "laws" of supply and demand ceases for a moment the producer who is selling below cost facing ruin, or the buyer who cannot get what he needs except at exorbitant prices, asks, "Well, gentlemen, what then? Granting all you say, how does it help my case ?'* The professional economist rouses himself from his ab- stractions long enough to reply, "My dear man, you must not bother me, I am not interested in you individually, you simply happen to be one of the many victims of the free competition that is essential to the proper operation of the law of supply and demand, your ruin is merely an incident of economic progress." "But I don't wish to lose all I have in the world." "Naturally, but it can't be helped, free competition — " "D free competition." "Oh— oh~that is blasphemy." WHAT IS A FAIR PRICE? 249 VI When Adam Smith said, ''It is to the interest of all those who employ their land, labor, or stock, in bringing any com- modity to market, but (that) the quantity never should ex- ceed the effectual demand; and it is to the interest of all other people that it never should fall short of that demand," he was very close to the human, the vital side of the problem he was discussing, but he did not follow the matter further, and from his day to this scarcely an economist has devoted time and thought to the really great problem of intelligent control of so-called ''economic laws." If it is to the interest of the community that supply and demand should be maintained as nearly as possible in a state of equilibrium, then it should be the business of the com- munity to devise ways and means for controlling the violent fluctuations due to free competition. In every country town the prices of small products of the farm are the result of "free competition." When the weather is fair farmers "come to town" in such large num- bers and bring so much to market, prices drop to absurdly low figures ; when the weather is bad little is brought in and prices go np to absurdly high figures. One year there is a shortage of crops and prices soar, the next, under the in- centive of the high prices of the year before, a larger acreage is planted, the season is good, crops are abundant, and prices drop to a level that yields many farmers less than cost. What are farmers doing to help these conditions? Are they meekly submitting to the "law" of supply and demand ? Are they content with the doctrine of "free competition"? Not at all : they read and are guided by government crop re- ports ; they are forming cooperative societies to control com- petition,, to introduce rational and scientific supervision over 250 THE NEW COMPETITION both production and marketing to the end that prices may be more stable and returns more constant. VII "Market price" is a statistical proposition, it has no real, no tangible existence aside from tables of averages. What an article sells for is its price, whether it is the market price for similar articles depends upon an average struck from a number of sales. Tables of averages and variations are of value; they furnish data not only for conducting business, but for con- trolling competition. They should be compiled for every in- dustry and every locality, and carefully studied. To a cer- tain extent the government does this, but on so large a scale the figures, when published, are of little real assistance to the individual farmer and manufacturer, they do not help him to make up his mind what he should do next week, next month. VIII The prevailing price for certain plows may be $20.00. Three makers supply the market, and the plows they make are so alike it is immaterial to users which they buy. Each plow costs A, a new-comer, with his smaller plant, $20.00 to make; B, with a larger output, $19.00; C, with a very large output, $18.00 — what is the fair price for those plows? At $20.00 it is but a question of time when A will go out of business; B is making only fair returns on his invest- ment ; C with his larger output is making large profits. If A goes out of business the price of plows will advance materially ; if he is to remain in business they mtcsi advance. Under free competition A hovers on the edge of bank- WHAT IS A FAIR PRICE? 251 ruptcy; if he closes down temporarily, plows advance to $21.00 and he immediately starts up, when the price drops again to $20.00. He is on the ragged edge of industrial starvation. This is no fanciful illustration. It is the normal condi- tion of the industrial and commercial world; it is the condi- tion described by Smith; it is the "margin of cultivation" of Ricardo and writers upon agriculture and rents; it is recognized in the phrases "marginal increment," "marginal utility," etc. Under free competition fluctuations in supply and de- mand are sudden and wide, as the most cursory study of price charts demonstrates. The inevitable result is that the margin of instability in every occupation and industry is very wide, wide in direct proportion to the freedom of the competition, narrow where competition is controlled. The practical question for the community to consider is, whether it is better to broaden this margin of instability — of loss and disaster — by encouraging still greater freedom and recklessness of competition, or narrow the margin of instability by controlling competition. Is it to the interest of the community that plows should be sold at $20.00 until A is ruined and then go to $22.00 or $24.00, where possibly they were before A started in ; or is it not to the interest of the community to pay $21.00 and keep all three makers in business?^ IX Statistics show that a given steel industry has a "boom" period on an average but once in five years, the four years * Taking, perhaps, some of the increased profits of B and C by an income tax. This means of equalizing conditions is always open, and, in time, will be worked out on a scientific basis. 252 THE NEW COMPETITION range from dull to the point of disaster, the business is a **feast or a famine,"^ yet such is human nature that the one good year invariably leads to a large increase of capacity in additions and new plants; new men and capital rush into the business, all of which means large losses in the "lean" years certain to follow. It is not surprising the individual who is ever sanguine should make foolish investments, but it is surprising that experience has taught the community so little it encourages the individual to do things that mean loss of time, labor and money, and the demoralization of an entire industry. The community does not seem to appreciate that : All losses in unproductive and unremunerative enter- prises are home by the community. The argument that the public may profit by the demor- alized prices that prevail for a time is more specious than sound, it amounts to the proposition that the community profits in the end from commercial savagery, from the ruin of its members, which, if true, would lead to the pessimistic conclusion that the community and its commercial code are both depraved — a conclusion reached by many a teacher of men from Christ down. There is still another aspect to this price question. In the operation of a gas plant for lighting there is al- ways a period in every twenty-four hours, usually the early evening hours, when the consumption of gas is at its maxi- mum — this point of highest consumption is the "peak load." The peak load in a lighting plant is not the same for each * This is true in nearly all branches of the iron and steel trade, as well as in many other industries, far truer than it is in farming, for the farmer can count on more good crops, or high prices, for smaller crops, than any steel manufacturer can upon good years and good prices. WHAT IS A FAIR PRICE? 253 twenty-four hours of the year; it varies, increasing with the short, dark days of winter, decreasing with the days of spring and summer ; the peak for the year may be the three hours from 5 p. m. to 8 p. m. the day before Christmas, but whenever it comes, the plant must be equipped to meet it and the cost of carrying this excess of capacity is borne by the community in the price of gas; the community recog- nizes its obligation to those who own the plant, for whether the plant is owned by the municipality or a private corpora- tion, the cost of maintaining it to meet the maximum de- mand is the same. It is comparatively easy and inexpensive to equip a gas plant to meet variations in consumption, for gas can be stored; the huge gas tanks that loom up in every town are the reservoirs built to hold the gas that is manufactured steadily during the twenty-four hours. An electric light plant is subjected to the same sudden and wide variations in demand, it must be built to carry the same peak load. The plant is costly to install and maintain, the storage of electricity is not so easy as the storage of gas, hence all well-managed electric companies try in every possible way to increase the consumption of electric energy during the day, to encourage the use of electricity as a power. Gas companies are doing the same thing for gas, and between the two builders of small steam engines are having a hard time. But whether a plant is operated at its maximum three hours or fifteen, the cost of operation and maintenance of the extra capacity required to meet the peak load is borne by the community in the prices charged. In these instances the community admits without ques- tion its obligation tu insure a profit upon the equipment necessary to meet wide fluctuations in demand. 254 THE NEW COMPETITION XI The supplying of gas and electricity has been used as an illustration, not because there is anything exceptional about the industries, but because everybody is familiar with the conditions under which they must be operated. What is true of lighting plants is true in greater or lesser degree of every industry. The productive capacity of each must he suMcient to meet its peak load. The merchant must provide floor space, goods, sales- men, delivery wagons sufficient to take care of his customers during "rush" hours and busy seasons, otherwise he loses trade. The manufacturer must provide plant and facihties to meet the demands of his trade during perhaps three busy months of the year, and one good year out of three or four. What is the inevitable result of the tendency in every industry to expand to meet the requirements of ''boom" times ? In all years except those of maximum demand, capacity so far outruns the market that fifty or seventy-five per cent, is idle. Nothing is more common than to hear the complaint mournfully reiterated by intelligent manufacturers. "The trouble is there is too much capacity, too many mills." Yes, but when the peak load comes every mill works night and day and the same men spend millions in addi- tions, only to shut down in a few months and relapse into the chronic condition of over-capacity. If the consumption of electric power and light were con- stant throughout the twenty-four hours no over-capacity would be required, but as it is not constant, the over-capacity WHAT IS A FAIR PRICE? 255 made necessary by variation in load must be provided and is, therefore, normal. If the demand for manufactured goods were constant from year to year, there would be no need for over-capacity, but as the demand is not constant in any industry the over- capacity necessary to meet the peak load is a normal condi- tion. Railroads must have tracks, cars and equipment to take care of "bumper crops"; if they fail, farmers make their complaints heard in legislatures and by railroad commis- sions — laws are passed, fines imposed. Iron and steel companies must maintain hundreds of millions in idle furnaces and mills, waiting for the "boom" that is years in coming; if they do not, and prices soar as the result of unexpected demand, the consumer complains and makes his complaints heard in the press and before in- vestigating committees. XII So far we have spoken of the over-capacity normally necessary in every industry to meet the peak-load as if it were simply a question of plant and equipment capacity — of idle capital during the long periods when the maximum out- put is not demanded; but the matter is more serious, it is not simply a question of idle capital, but also of idle labor. To a certain extent — though only to a certain extent — • the capitalist, the plant owner, can look ahead and provide against the certain coming of dull and bad times, then when such times do come he shuts down and reduces his cost of maintenance to the two items of interest on his investment and depreciation, but how about labor? It cannot shut down, it cannot reduce expenses very much, it must live, and everybody knows how hard it is for labor to get along during the long periods of depression while waiting for 256 THE NEW COMPETITION "business to pick up," for the fires to be lighted and the wheels to be set in motion. So wasteful and improvident is the economic organiza- tion of modern society that to meet its demands, to carry its peak loads — many due largely to whims and unrestrained impulses — a large percentage of the capital and labor in every industry, practically every occupation, must be main- tained in idleness from a quarter to three-fourths of the time. And so indifferent is society to its moral and economic obligations during these periods that it sees capital rust and labor starve with callous indifference, complaining bitterly if both are not ready to respond when the stress comes, when the community experiences what is fundamentally a psychological condition — the "buying fever." XIII Generally speaking prices of farm products rise and fall with cost, while prices of manufactured goods rise and fall inversely to cost. The one is a normal and sound response to conditions, the other is an abnormal and unsound response. If crops are short the cost per unit — per bushel — is high and, other things being equal, prices are high; and vice versa if crops are abundant. If the output of manufactured goods is low, cost per unit is high, but prices are low, and when the output of goods is at the maximum cost is low and prices high. To verify these propositions by appeal to statistics would involve an exhaustive analysis of market conditions through- out the world, for prices of staple agricultural products in a given country are affected not only by the output of the country but by the crops and market conditions in all other countries; but every farmer and every manufacturer knows WHAT IS A FAIR PRICE? 257 the truth without going beyond their own personal obser- vations. The farmer knows that if on the same acreage and with the same labor he produces but two bushels of wheat where the year before he produced three, his cost per bushel is higher, and if farmers throughout the country have had no better success, the price of wheat will be higher, how much higher will depend a good deal upon crops in other coun- tries. Per contra if the same acreage and labor yield five bush- els as against three the year before, the cost per bushel is lower, and, other things being equal, the price will be lower. The manufacturer faces the exact reverse of these con- ditions; his prices move inversely to his costs. It being conceded that a fair price should cover legiti- mate cost plus at least some profit, it follows that prices should vary with cost and thus ordinarily he higher when the output is low, and vice versa. But — as noted by Adam Smith — the exact reverse ob- tains. As demand falls and output is curtailed prices in- variably fall. The condition is a curious illustration of the tendency of men to accept as right and natural any evil, however great, if it is of long duration. That prices should drop as cost advances and rise as cost drops is a fundamentally unsound condition, yet be- cause such has been the result of the old unrestricted com- petition from time immemorial, the very people who suffer most, employers and employees, tamely acquiesce. If the community were organized on a socialistic basis, prices woidd rise and fall with cost; the state would not commit the folly of selling goods cheaper and cheaper as they cost more and more ; nor would the people permit the state to charge higher and higher prices as cost dropped! lower and lower. 258 THE NEW COMPETITION In cities that make any pretence of managing their gas or water plants on a business-like basis, charges for gas and water rise and fall with cost of the service ; in the best mu- nicipal plants this is the case, and in no municipal plant are prices advanced as consumption increases and costs drop. Why should not the same rule obtain in private enter- prise? Why should not men be encouraged to co-operate to control the ancient "law" of supply and demand, and keep prices as constant with relation to cost as cities try to do in their industries? XIV Demand is a desire backed up by the ability to give some- thing to satisfy the desire — it is a psychological and emo- tional state; it is a human longing. Supply is a material, a physical proposition; it is the physical response to a psychological state, the objective re- sponse to a subjective condition. There is no such thing as supply without demand, and there is no such thing as de- mand without supply.^ No man offers a supply of anything in the market with- out wanting something for it, and the amount of goods or services he is willing to part with depends upon the strength of his desire for what he is to receive, money or the things money will buy, and not upon the strength of some one else^s desire for the goods or services in question. "Supply" and "demand" are commonly discussed as if two contending and independent forces were forcing the market this way and that, as if at one period a large quan- tity of goods was being pushed upon a market devoid of "demand," and at another a huge "demand" sprang up in *It is needless to say that it is the "effective" demand, defined by Adam Smith, that is here referred to, as distinguished from vague desires and vain imaginings that are not backed up by the offer of any- thing for their satisfaction. WHAT IS A FAIR PRICE? 259 the absence of "supply," whereas the truth is "demand" and "supply" — strictly speaking — are ever constant and equal, but shift in two distinct ways : 1. From object to object, or from one class of objects or services to another. 2. From all objects and services to money. Changes of the first class occur frequently and are due largely to changes in taste, to whims, fancies. The auto- mobile "craze" is an illustration ; it has seriously affected the vehicle industry. But while these shiftings of "demand" depress certain industries and build up others, they have only a remote bearing on good times and bad, on panics and "booms." It is when, for some reason difficult to ascertain, the public suddenly lessens its demand for all services and all goods and increases its demand for money ; suddenly ceases to spend freely and begins to hoard, that "hard" times are precipitated. It is common to speak of the "public" as if some great body made itself felt in the market; in reality the change referred to has its origin in the individual, the farmer, the laborer, the merchant, the manufacturer. A strange wave of pessimism sweeps over the country — induced possibly by some comparatively insignificant cause — and every man suddenly wishes to sell what he has and hoard the money, accumulate credit, against some catastrophe he fears but cannot describe. XV Changes in demand from this article to that, though at- tended with loss and inconvenience, cannot be helped very materially. Twelve years ago no one could foresee the 26o THE NEW COMPETITION amazing develppment of the demand for automobiles, any more than thirty-five years ago any one could foresee and prepare for the development of the bicycle industry. The flying machine may revolutionize warfare and all the machinery of v^arfare. Some yet undiscovered source of energy may render useless all types of engines nov^ in use; but happily these changes almost invariably result in highly — though often artificially — prosperous times. These changes cannot be helped; they v^ould occur in the social- istic or Utopian community. Far more serious results follov^ the sudden shifting of the demand of the entire community for objects and ser- vices to the demand for money — in other v^ords, from the normal daily consumption of objects and services, to the accumulation of power to command the same; it is this condition that should be studied systematically and rem- edied in so far as it can be; it is the cause of all panics, it is a panic. It is primarily a psychological problem, and not at all one of supply and demand as commonly understood. Actual production has very little to do with the mat- ter. Crops may fail, great disasters occur, immense wealth be destroyed in one way and another without causing "hard" times or dull times; a "boom^' may even follow a serious shortage of crops. Per contra, out of a clear sky, when the country is actually producing more wealth, more food, more clothing, more luxuries, more gold and silver than ever before, there may come in a month, a week, a day, a feeling of fear and, as if by common consent, tlie people from the Atlantic to the Pacific begin trying to get rid of whatever they have to sell and accumulate money. A "panic'' is a money and credit proposition; it could not occur where barter prevails; a medium of exchange is necessary to a panic, for the panic is over the medium of exchange and involves the destruction of credit WHAT IS A FAIR PRICE? 261 Something will yet be done to prevent these "panics," but that is a large subject and aside from the one in hand. For the present it may be assumed that panics, hard times, dull times, good times, and "booms" will follow one another periodically — the circular insanity of the com- mercial world. That being so, the practical question is: What can be done to mitigate the evils of these extreme fluctuations? By legislation very little can be done, by cooperation a great deal may be done, and without cooperation nothing can be done. For instance, an industry equipped with plants and labor to meet a given peak load may do one of three things to bridge the time when its maximum output is not in demand. If the character of its output permits, 1. It may do as the gas company does, continue to manufacture steadily and store its product until the de- mand comes. This can be done, and only in a measure, by comparatively few industries. 2. It can seek new markets, as the electric light com- pany seeks to create a demand for electric power during the day. This is done by quite a number of industries, notably some of the steel companies and a few other large produc- ers who systematically endeavor to develop their foreign trade, even going so far as to sell abroad lower than at home to get rid of the surplus that inevitably accumulates if plants are operated full and labor kept employed in dull times.^ 3. It can shut down and wait — which is what most plants do in whole or in part. * This "dumping" of goods by one country on another is absolutely indefensible from any point of view; it is unfair to the country that sells, and doubly unfair and demoralizing to the country that buys. It works to the disadvantage of the small producer in both countries. It would be exceedingly difficult to reach and suppress the practice by law, but cooperative associations, national and international, with the aid of the law, may suppress it. 262 THE NEW COMPETITION The first two courses imply attempts to maintain prices above ruinous levels, but so few industries can either store their products or sell abroad that in the maintenance of prices generally their efforts are negligible. It is the "over-production" that precedes the shutting down, and the shutting down itself that play havoc with prices; they fall when they should be higher; the unfor- tunate producer is a loser at both ends, in higher costs and lower prices. In a measure this condition may be controlled by the co- operation of all in the industry. An association could regu- late both output and prices ; it could so apportion what busi- ness there is that all plants would be kept in operation to a certain extent, and it could arbitrarily advance prices as costs rise so that for whatever goods were sold fair prices would be realized. As the law now stands such acts would not be legal, but the time will come when they — or some other stringent regulations to accomplish the same ends — will be approved by the public. XVI It will not be long before the country will recognize its obligations, economic and moral, to men — employers and laborers — who, in response to the needs and desires of the country, hold themselves and all they have in readiness" to supply the maximum demand, the peak load. The country will not only permit them to, but will insist they shall, get at all times fair prices for products and services, and fair prices mean prices which cover all the risks and losses in- cidental to the enterprise through both good times and bad. If, by way of illustration, an association of manufac- turers of staple cotton goods steadily advanced prices as out- WHAT IS A FAIR PRICE? 263 put fell off and costs advanced, how long would it be be- fore buying would begin again ? It may sound paradoxical to say buying would be stim- ulated by advancing prices, but it always is under normal conditions; it is human nature for a man to buy when he sees prices are going up and thinks they are going higher; it is also human nature to stop buying when he sees prices dropping and thinks they are going lower. There is, of course, always a point at each extreme where the tide turns, but, generally speaking, there is nothing so stimulating to buying as a rising market, nothing so discouraging to buying as a falling market. In fact, the rising market is largely due to the stimu- lated buying, and the falling market is largely due to the holding back of buyers, each waiting until he thinks the bottom is reached. The arbitrary adjustment of prices to cover costs would do more than any other one expedient to stabilize prices and keep the market at a constant level. With prices adjusted to costs, buyers would know that every decrease in demand would mean higher costs and higher prices — hence, there would be no object in holding off; on the contrary, there would be every incentive to buy and restore the equilibrium. Business will not he on a sound economic basis until prices rise and fall with costs. XVII The word "fair" in connection with price lacks virility; it not only admits but invites debate; it suggests possibil- ities of variations. A fair price is a right price, and the right price depends 264 THE NEW COMPETITION upon conditions that are susceptible to scientific investiga- tion. Price is fundamentally a scientific proposition. The scientific side to the question of cost has long been recognized. Men are being taught slowly but surely that cost is not the haphazard proposition our fathers supposed it was, a mere matter of adding together all outlays and calling the total "cost." The problem of cost is receiving profound consideration, and its difficulties are beginning to be appreciated. What is cost to an individual is not cost to a community ; what is cost to one section of an industry is not cost to another ; what is cost in one locality, or country, is not in another ; what is cost one year is not another — and so on. But the more elusive the solution the more interesting the problem. The outcome depends upon systematic in- vestigation, and such investigation will be best promoted by cooperative organizations, under Government super- vision. Ultimately certain rules will be laid down for the as- certainment of 1. Costs to the individual. 2. Costs to the industry. 3. Costs to the community. 4. Costs to the country. 5. Costs to the world. Standard systems of cost accounting will be adopted and their use required, to the end that individual enter- prises and entire industries may make, when required, re- ports of uniform value, and be subject to easy and speedy investigation. As the problem of cost, which is of first and funda- mental importance, is worked out, the question of price naturally follows. WHAT IS A FAIR PRICE? 265 Whether a man shall be permitted to add little or much to his cost by way of profit, one thing is certain, the right price never falls belozv cost. The community has a direct and vital interest in main- taining prices above cost. When a man is detected selling goods below cost his conduct should be as promptly and rigidly investigated as if he were detected in secreting goods to defraud his cred- itors — the offenses are akin. XVIII When a merchant, a manufacturer, or a farmer fails the public looks upon his misfortune as his own, and passes on. This indifference of the community to the prosperity of its units is a curious phenomenon for one would think that the whole would realize its welfare depends upon the welfare of its parts, that every unit which fails to support itself is a burden upon other units and a debit against the resources of all. The man who watches his neighbor's house burn and congratulates himself that his own has escaped seldom stops to think that, while the loss falls in the first instance on his neighbor, secondly on the insurance companies, if there be insurance, the real loser is the community; if there is in- surance the loss will be distributed in its rates, but whether distributed or not the country is out just that much useful property, property into which the time and labor of the community went. The losses due to wasteful and ruinous competition, to foolish and reckless investments, to selling below cost, are all borne by the community the same as losses by fires. In 1 9 10 $214,000,000 worth of property was destroyed by fire in the United States. In the same year there were 266 THE NEW COMPETITION failures with liabilities amounting to over $201,000,000. The assets probably did not realize more than a small per- centage of that gross amount. On the face of the reports it appears that the losses due to wasteful business methods almost equal losses due to fires ; as a matter of fact they are far greater, for of the men who lose in business and who are driven out by competition, comparatively few publicly acknowledge their failures and plead bankruptcy. By far the larger number manage to pay their debts and retire quietly, but because they "pocket their losses" and say nothing the effect upon the wealth of the community is not changed. The pedler who buys a clock for $10.00 and at the end of the week sells it for what he paid for it, is out a week's time and his support for that period, and the community is out the same. When a man inherits $100,000 and invests it in a farm or manufacturing business he invests v/hat is nominally and legally his, but what is in reality part of the accumulated capital of the community, capital created by the preceding generation; if he loses it all he is no poorer than he was when he inherited it, but the community is poorer by the hundred thousand plus the waste of time and plus, what is of greater consideration, losses due to demoralization of the particular business caused by the ignorant and inefficient ef- forts of the man who failed. In a sentimental way the interest of the community in the welfare of its citizens is recognized and asserted orator- ically and rhetorically, but the time is speedily coming when this interest will be asserted practically. For a long time the community has maintained expensive fire departments to prevent or minimize losses by fire ; in time it will see the wisdom of maintaining departments to prevent or mini- mize losses by failures. As it is now this country does its best to aggravate the conditions that produce failures; laws WHAT IS A FAIR PRICE? 267 are framed that forbid men doing the things that prevent failures; recklessness, wastefulness, inefficiency in business are encouraged, and when failure results, as result it must, an easy way of escape from individual responsibility is pro- vided by the bankruptcy law, which says to the man who has lost his own and his creditors' money and who, by his reckless methods, has caused far greater loss to men trying to do business on a sound basis, "You need not pay your debts, you are free to find other creditors and start in all over, to fail again — and as often as you please." The time will come when the community will take at least as much care to prevent failures as fires, and when a failure does come it will sift to the bottom the question of responsibility. It may yet he made a crime to sell goods below cost. XIX As a matter of law now, officers of corporations who knowingly sell the products of their company below cost run two risks. 1. In those states that have statutes against selling goods below cost to injure a competitor, they run the risk of prosecution. So far, little attention has been paid to these statutes. It is such a common practice for one competitor to sell his goods at or below cost, even give away substantial quan- tities, to secure trade — especially in localities where some competitor has a foothold — that the average business man learns with surprise there is any law against so doing. But these laws may come to life; they may be invoked any day by a competitor who feels aggrieved, and when in- voked they are apt to be enforced. 2. But there is a far wider and entirely different liability for selling goods below cost, tt is the common 268 THE NEW COMPETITION law liability of ih^ agent who wastes the goods of his principal. 0^ Every ma|i knows that if a clerk in a shop wilfully destroys som^ of the goods he is liable to his employer for the full value. If the(derk gives away goods he is also liable for the value. J^-he sells them at a price less than that fixed by his emf^yer, he is liable for the difference. If the clerk is told the cost, and told to get the best price he can over the cost, and he sells below cost, he is liable for the difference. ■^ C The average clerk in a country store, who has never <t -mudied law, knows all these things,— self-evident proposi- ^ tions of common sense and honesty. It is not so commonly realized by officers of large cor- porations that the same propositions apply to them. The very magnitude of their transactions tends to make them feel they can do as they please with the products of their company. Hence it is a common thing to hear officers of corpora- tions say they are taking business below cost. This may be necessary at times and under exceptional conditions, but the officer of a company who knowingly sells its products at less than cost runs the risk of a suit on behalf of the stockholders, and in such a suit he would be obliged to convince a court that each sale below cost was for the benefit of the company, and if the court should think otherwise he would have to make good the difference. Under existing unscientific and vicious competitive conditions, it may seem necessary to sell goods below cost at periods, or in localities, or to particular parties; and so confused are our notions regarding what is right in com- mercial conduct that it is probable most courts would decide in favor of officials who answered that they were obliged to sell below cost because others were doing the same thing WHAT IS A FAIR PRICE? 269 — to meet competition; that is the principal excuse offered for all the tricky, vicious, wasteful things done in business, "I am doing only what others are doing." That excuse will not hold forever; it is losing force rapidly. Any day a wise court, in a suit on behalf of stockhold- ers against officials for selling below cost and causing a large loss, may say, "Because officers of other companies were doing the same thing is no excuse for you; you cannot even introduce evidence to show that others did the same thing; the only question before the court is whether there was anything in the conditon of your own company which made it necessary to dispose of its assets at a large loss; it is no answer for you to say you wished to hold trade, extend trade, or do something else to your com- petitors; only the stockholders, the owners, have the right to say whether they wish to lose money doing the things you wished to do; as agents and employes, it is your duty first of all to conserve the assets of the company and not give them away in pursuance of a competitive policy you happen to think good because aggressive." If these notions were firmly lodged in the minds of all representatives and officials, the seeming need for selling below cost, as a competitive device, would disappear, be- cause they would be afraid to yield to it, and because they would see that in the long run it does not pay. Selling below cost would happen only when other con- ditions compelled it, conditions such as, Over-supply due to honest mistakes of judgment. Under-demand due to conditions no one could foresee, such as depressions, changes in styles, tastes, etc., discov- eries, inventions, etc., etc., any one of which may suddenly affect the prosperity of an entire industry. Conditions affecting the financial strength of the par- ticular company to carry the goods. 270 THE NEW COMPETITION Conditions of the goods themselves affecting their desirability. ♦ * * But even these conditions could be controlled in large measure by scientific cooperation within an industry. Scientific cooperation would mean the reduction of losses to a minimum by the development of more scientific forecasting in business, and scientific adjustment of sup- ply to demand, or rather the scientific treatment and control to a maximum degree of both supply and demand. Where the accumulated experience and the systemati- cally classified knowledge of an entire industry is at the command of the smallest individual producer and where cooperative action compels the individual to be guided by the science of his industry, then will the losses of the indi- vidual be reduced to a minimum, and under no circum- stances will the individual be permitted to say, "I am selling at a loss because the other fellow is,'* or to use the other phrase so commonly heard, and which is the battle cry of the old competition, "I can stand it so long as you can," CHAPTER XVII THE TRUST PROBLEM— SEGREGATION VS. DISINTE- GRATION "What shall we do with the trusts?" "Smash 'em,'* the man in the street cries. "Regulate them," the more conservative citizen re- sponds. "Put them under government control," the politician suggests. But if an independent competitor of one of the great trusts should be asked the question, if a thinking man, he would quickly answer : "Compel them to make money." "What!" "I mean what I say; as an independent all I ask is that the big corporation be compelled by law to make money." "Why, what do you mean?" "That if they make money I can. In fact, I can make money when they lose — if they don't lose too much." "But they do make money." "Yes and no — yes where they have a control — no where they compete with me or some other independent." "I don't understand " "Neither does the public — that's just the trouble. If the public did understand instead of crying for disintegra- tion of the trusts, which is a senseless proposition, the cry 271 272 THE NEW COMPETITION would be for segregation, which is the solution of the prob- lem." II Everybody knows what disintegration means, it means dissolution — "smashing 'em," in the language of the street. The Standard Oil Company has been disintegrated into some thirty-five more or less — chiefly less — independent and supposedly competing companies. The Tobacco Company has been disintegrated into four- teen more or less independent and — supposedly — competing units. The net result to the public so far has been higher prices for many of the products of the one and no lower prices for any of the products of the other. The net result to many small stockholders has been losses. The net result to "insiders" — the men against whom public clamor was raised — has been golden opportunities for profit in the buying and selling of subsidiary stocks long before stockholders and the public could possibly form any accurate notions of their real value. To illustrate — when the Standard Oil Company of New Jersey — the trust — was dissolved by order of court the stockholders of that company received pro rata fractional interests in all the subsidiary companies, and for the first time thousands of men and women all over the country learned of the existence of those thirty-five companies. By no possibility could these scattered stockholders form ac- curate opinions regarding the values of the fractional shares issued to them ; only the men in control of the industry were in a position to know. What has been the result? The stockholders and public have sold and bought in ignorance, losing both ways. Take the Standard Oil Company of In* THE TRUST PROBLEM 273 diana, one of the subsidiary companies. It was capitalized at $i,cxx),ooo; the amount cut no figure so long as all its stock was held by the trust, but when the trust was dissolved its many stockholders received each his fractional pro rata share in the Indiana Company. There was a general im- pression the stock of this company was worth far more than par^ but how much? Only the insiders could tell. As a result many stockholders who were in the dark sold their interests at less than a fifth of what the stock sold for inside a few weeks. A few days ago the Indiana Company voted to increase its capital stock from one million dollars to thirty millions and to distribute the $29,000,000 to its stockholders as a stock dividend, and it now appears that the company is earning at least ten millions a year, or 33 1-3 per cent, on the new capitalization, but it is stated in the press the "Of- ficers refuse to give any information on this point." ^ Disintegration of trusts and large corporations simply because they are large is a senseless proposition, because both are here to stay in some form, both are evolutions, products of modern industrial conditions; like the labor unions, they are simply forms of cooperation and, rightly used, ought to be of value to the community as factors in production. The Sherman law was passed in 1890. For more than ten years few attempts were made to enforce it against large corporations. Then, in response to popular clamor, due to many flagrant abuses, came a period of indiscriminate "trust-busting." Already there are signs of reaction; the Dendulum is swinging back; it is found the Sherman law * Courts should provide in decrees of dissolution that before the plan of reorganization and redistribution of securities is announced, detailed information, verified by independent auditors, regarding each subsidiary company should be sent to all stockholders and published, so that no man would have an advantage in buying or selling the securities affected. 274 THE NEW COMPETITION hits large and small, good and bad, labor unions and capital unions alike. At best the law is a destructive measure, and the demand now is for constructive legislation. But this demand so far has not assumed any very definite shape. Ill What does "segregation" mean? The disintegration of a trust means its dissolution into its component parts and the destruction of all ties between those parts, segregation means simply such an isolation of all parts as will enable competitors and the public to see clearly what each part is doing, without destroying the ties that bind the parts into one whole. Under segregation the trust, or large corporation, re- mains intact, but in the operation of its different companies or branches and in producing and selling its different lines of products it is required to keep its accounts and make its reports in such a manner that each will stand by itself and be subject to easy investigation and ready comparison. Segregation is entirely a matter of accounting and man- agement, it does not necessarily affect ownership. The proposition is simple because every well-managed corporation already segregates its different units and branches in its accounting, but no outsider has access to the facts. The conduct of a large corporation may be so unfair and oppressive as to call for disintegration, forfeiture of charter, as a punishment; but, generally speaking, segre- gation will accomplish far more and with less loss to innocent parties. THE TRUST PROBLEM 275 IV The production of a finished steel product, such as a steel building, may be roughly schematized as follows: ■•lltakl* iroa CAStlnc* nttnly fiav rallroaOs Prodnot tuyi ttMl A«pet nd pUtos and fatrleatM •teel \TlAg»9j Imildlng*, eto. Th* fabrloator Is to th* rolling Bill it^X a oarpenttr li to Um Innbcr yard and planine alll. *The Bessemer process is also used by rolling mills, but not to the same extent as open-hearth, and there is a combination of the Bes- semer and open-hearth, called the duplex process, but it would need- lessly complicate the diagram to show every step and every line of relation. Mngots are "pig-steel," so to speak, but, unlike pig-iron, they are not allowed to cool, but are immediately rolled and cut into billets, blooms and slabs, which are the raw material for various rolled and forged steel products. Reading up, each factor is wholly dependent upon the preceding. E must buy shapes and plates from D ; D must buy billets, slabs, and blooms from C ; C must buy pig-iron from B ; B must buy ore from A. Reading down there is not the same degree of depend- ence save in the case of the mine, A, which has but one customer, B, the blast furnace. The others have several outlets for their production. As between D and E the rolling mill turns out so many different products from tin 276 THE NEW COMPETITION plate and wire rods to rails that it is virtually independent of the fabricator and may deal with him quite arbitrarily. Many mills do not consider it worth while to equip for the making of shapes and plates for structural steel work, notwithstanding the fact an immense tonnage is used — some 2,000,000 tons annually. These varying degrees of interdependence are incen- tives to combination and consolidation — imperative reading up the line, diminishing in strength reading down.^ Under existing competitive conditions the fabricator feels the imperative need of close alliance with some rolling mill. Unless the rolling mill owns an open-hearth furnace it knows it is not in a position to compete with mills that do. The open-hearth furnace wants its own blast furnace and the blast furnace wants its own ore supply. Reading down any one factor may or may not have an interest in a succeeding factor — ownership is not vital, but may be profitable. Reading up it may be a question of existence; reading down it is more a matter of profit, of "branching out" to se- cure business, and, as everyone knows, "branching out" is often disastrous. The blast furnace that buys an open- hearth furnace with a view to making steel in addition to *Mr. Axel Sahlin, of the Millom Works, told the Iron and Steel Institute: "As for the struggling independent blast furnace, marketing a product of Bessemer iron, often through the agency of brokers, and the equally crippled maker of standard grade steel, who looks to the same intermediary and to the warrant yards for his raw material, I venture the prediction that many of these will soon be driven to the wall, unless they sensibly combine forces, each plant becoming a coop- crating link in the unbroken chain of processes which turn the ore into merchantable steel." — (Journal of the Iron and Steel Institute, 1901, vol. i., p. 163). See "The Trust Movement in British Industry," H. W. Macrosty (p. 329). THE TRUST PROBLEM 277 making pig-iron may come to grief, while the purchase of a blast furnace by an open-hearth company in order to get its raw material to better advantage may be a very sound proposition, the motives are fundamentally different, results in the latter case may be quite accurately estimated and forecast, while in the former they are largely guess-work, a gamble on the question whether a company organized to make and sell pig-iron can make and sell steel successfully. To make the point clearer, a blast furnace might very naturally buy a coal mine to get the coal and coke it needs, but there is no more reason why a coal company should buy a blast furnace than why it should buy a railroad or the business of any other large customer. It is one thing for a given industry to buy a plant from which it must get raw material, it is a fundamentally differ- ent thing for an industry to buy a plant to which it sells its finished product. A railroad company may buy a coal mine to get the coal it burns, but a coal mine should not buy a railroad in order to sell it the coal it uses — as an economic proposition the first purchase may be entirely sound, the second is unsound; the first might lead to abuses, the sec- ond would be sure to. VI In response to these incentives to combine and consoli- date in the vertical line — integration — a number of large steel companies in this country own all the factors from and including A to E. While only a comparatively few large companies own all the factors from A to E a great many companies own or control two or more of the factors. The tendency in the iron and steel world — as in every other well-organized in- dustry — is so strong for a company to protect itself by se- 278 THE NEW COMPETITION curing control of the source of its raw material that few stand entirely alone. So far as the U. S. Steel Corporation is concerned it simply does on a larger scale what other companies do on a lesser. To carry the argument a step farther let us make an- other diagram: I. 2. A. MINE — :— Same — :— B. 1 BLAST-FURNACE — :— Same — :— C. D. E. OPEN-HEARTH FURNACE ROLLING-MILL FABRICATORS — . — Same — : — — : — Same — : — — :— Same — :— VII Line A would be extended to the number of mines in operation; line B to the number of blast furnaces; and so on ; each horizontal line being carried out to include all the mines, furnaces, mills and fabricators in active operation. The number varies from time to time. The sign of division is used between units on the horizontal lines be- cause each is normally more or less antagonistic to the others ; there is no necessary interdependence as in the ver- tical line ; all combinations are more or less forced and arti- ficial. In schematizing any particular industry the divisions in the vertical line — the letters — are necessarily limited by the state of the art to the number of process-steps from first raw material to last finished product. THE TRUST PROBLEM 279 In every industry there is a stage of refinement in some last product that calls for the cooperation of the maximum number of preceding processes. These successive steps, each calling for a highly organ- ized industry in itself, may be four or six, or even eight or ten, but, whatever the number it is limited by the state of the art. Whether steel is made in one country or another the processes from ore to a given finished product are substan- tially the same in number, and they remain the same whether one large company operates them all or whether each is operated as an independent factor. While, therefore, a few letters suffice to mark the process steps in any given industry from nature to the last and most highly finished product, varying only with ad- vances in the art, the numerals, representing the number of units in operation at the moment the table is compiled, vary with conditions that affect demand. VIII The perpendicular is the line of normal combination, the horizontal is the line of normal competition. A mine does not compete with a blast furnace but with all other mines that are trying to sell ore to the same furnaces. Many of these propositions may read like truisms but they are essential to the argument. Generally speaking, combinations in the perpendicular line are natural and some inevitable, while those along the horizontal are artificial; the one is for the purpose of con- trolling costs, the other for the purpose of controlling prices — both may fail of their objects. Combinations in the perpendicular line are made to en- 2 8o THE NEW COMPETITION able the consolidation to compete to better advantage ; com- binations along the horizontal line are usually made for the express purpose of suppressing competition. The public is, and for a long time has been, opposed to combinations along the horizontal line ; it is beginning to see that combinations in the perpendicular line may be far more effective in restraining trade and developing monopolies. A combination of all the furnaces in the country would have the power for a time to fix any price it pleased for pig- iron — short of cost of importation — ^but this power would not last long, its arbitrary exercise would prove an incentive to competition. Monopolies along the horizontal line are seldom more than partial and are always short-lived, with reactions that send prices below cost. The monopoly that results from combination in the per- pendicular line — integration — is a very different proposi- tion, it is not due to any control of the industry, as a whole, but to the ability of the combination to kill off competitors instead of buying them, as in the other case. IX If a number of saw mills combine the people object be- cause they foresee an advance in the price of lumber, but if one saw mill buys a tract of timber the people applaud the good business judgment displayed, without stopping to real- ize that the latter step may mean the elimination of compet- ing mills more effectually. "But we get our lumber cheaper," the people urge. Per- haps, perhaps not. The purchase of the timber may cut off the supply of logs to the other mills and the price of lum- ber may be advanced at once in the locality served. Or the mill with timber may cut prices for a time to put the others out of business then recoup all reductions. THE TRUST PROBLEM 281 Consolidations along horizontal lines seldom worry the independent competitor ; if the consolidation advances prices he trails along making more than before ; if it lowers prices to drive him out of business, in the great majority of in- stances he can stand the fight as long as it can — as against combinations in the same line independents usually increase in numbers and flourish, flourish by reason of their better and more economical management, by virtue of the personal element that is such a powerful factor in getting and hold- ing trade. As against a combination in the perpendicular line the independent is at a disadvantage. All other things equal it matters little to a blast furnace that buys its ore whether it competes against a dozen in- dependent furnaces or a number in consolidation — as pointed out it may profit more with the consolidation in ex- istence, but if one furnace secures control of a mine, the position of every furnace that has no mine is seriously af- fected. Why? Simply because the combination is in a position to sell pig-iron at cost or less than cost to down competitors, and make its money from its mine. So long as A, B, C, D, and E are independent units in the production and sale each of its own products, no one can sell at less than cost for any length of time and sur- vive, but when all are united under one ownership the con- solidation is in a position to lose money indefinitely on one or more of its units — departments — until its competitors in that horizontal line are driven to the wall, all the time more than recouping its losses in other departments. 282 THE NEW COMPETITION The independent blast furnace has nothing to fear from a combination between mine and furnace if neither is per- mitted to live off the other. What is true of mine and furnace is true of all combina- tions in the vertical line — the independent competitor stands no chance unless the operations of the consolidated units are so segregated that he can ascertain just what he is obliged to meet. Take the case of the independent steel fabricator. There are a great many in the country; he is to be found in every city of any size, and comparatively few have con- nections with rolling mills. Most of them buy the steel they use — shapes and plates — in the open market. In bidding upon work they are obliged to figure their material at market price — say i.io per hundred pounds or %22 per ton, Pittsburg. Competing with these independent companies are sev- eral companies that are owned by or allied with rolling mills. The following illustrates the situation : ' I. 2. 3- g A. MINE 1 •l B. C. BLAST-FURNACE OPEN-HEARTH 1 '' D. E. ROLLING-MILL FABRICATOR One Cor- poration 1 1 Fabricator (independent) THE TRUST PROBLEM 283 Independent 3 is obliged to buy its steel in the open market, possibly of rolling mills i and 2. Rolling mill 2 is obliged to buy its raw material in the open market, possibly from furnaces owned by i. It is plain the independent (3) can exist only so long as combinations i and 2 compel their fabricating depart- ments to figure steel at market price in making all estimates and to make no bids except at a fair profit. It is equally plain that after disposing of independent fabricator 3 the fight for control may result in combination I selling all the products of its mill (D), and of the fabri- cating department (E), at cost, while still making money in units A, B, and C, and so compel 2 to shut down. In short, the large corporations — there are a number most efficiently organized — which own or control all the process-steps of finished steel productions, are in a position to absolutely dominate the industry; independents in any one branch live only by their sufferance. XI An actual instance will illustrate the point we are mak- ing. A short time ago a contract was let for the fabricating and erection of the steel work on a large building in a western city. About 6,000 tons of structural steel was re- quired. It was a contract worth fighting for and com- petition was keen. At the time the steel was supposed to be selling at i.io per hundred pounds, or $22.00 per ton. On this basis a very close estimate on the completed structure was $36.00 per ton. The contract was let for under $32.50, or $3.50 per ton below cost — figured with steel at i.io. In discussing these figures it clearly appeared that the 284 THE NEW COMPETITION company that secured the work was not in a position to do it cheaper than other competitors; on the contrary, as re- gards certain items of cost, it was in a position of some disadvantage. The competition quickly narrowed down to two com- panies, each backed by a mill. The purchaser negotiated openly with the bidders to get still lower figures, pitting one against the other. As the figures dropped below $36.00 per ton most bidders were out of the race; they could not pay $22.00 a ton for material and get out even. It was no longer a contest between independent fabricating companies as to which could do the work the cheaper, but a competition be- tween two rolling mills as to which was willing to sell the raw material the cheaper, and it was evident that the fabri- cating company which finally secured the contract must have had an understanding whereby it secured the steel at not to exceed .90, or $18.00 per ton; otherwise it will lose heavily on the building and if it pays .90 it can not hope to do better than come out even — in other words at $18.00 per ton for material the company doing the work makes little or nothing and the profit, if any, goes to the mill; there is probably no profit to either in the contract. But whether there is or is not a profit is not material in this connection; the point here is that the combination between mill and fabricating company shut out absolutely the competition of independent companies; they had no chance. So far as competition and the public and fair prices are concerned it makes little difference whether a rolling mill gives a rebate on price paid for steel or whether the rail- roads give a rebate on the freight on the steel, the net re- sult is a secret and an unfair advantage to the favored com- pany as against others. THE TRUST PROBLEM 285 XII The above is not an exceptional instance; on the con- trary, in the demoralized condition of all branches of the steel industry that prevailed in the latter half of 191 1, the contract cited was simply one of many taken under like conditions. In their eagerness to get tonnage, the mills resorted to every device known to the old competition, and, naturally, each helped the company allied to it as against independents. To every protest the mills replied: "Isn't this the competition the people want? Suppose we do sell particular companies material at cost and charge others a profit, isn't that old-fashioned, cut-throat com- petition?" XIII That is old-fashioned cut-throat competition, but it is death to the independent and, in the long run, detrimental to the community, for if logically extended it means monop- oly of this and that branch of the industry by the few pow- erful survivors. Furthermore it must not be overlooked that between certain letters in the perpendicular line there is the big item of freight, especially important between A and B — mine and blast furnace. A combination in this line that also owns carrying facilities may save or make enough on transporta- tion to enable it to sell all its products at competitors' cost and still make money. The independent fabricators are caught between the up- per and nether mill-stones, between the rolling mills from which they are obliged to buy and the structural steel com- panies owned by the mills, with which they have to compete. 286 THE NEW COMPETITION A prominent lawyer connected with a large company was asked: "Given a corporation that controls two or more units of product, has it the right to sell one unit at cost to beat its competitors in that particular line?" "You mean—?" "I mean, has a steel company that owns mines, furnaces, rolling mills, and — say — a fabricating company, the right to do fabricated work at less than cost to beat independent fabricators that have no connection with mills?" "That is competition." "Are you sure?" "If the purchaser gets his building at less than cost, who is going to complain?" "How about the independent that stands no show at all and is forced out of business?" "That's his look-out ; if the people want *cut-throat' com- petition the company that has no mill back of it is going to get hurt." "But does not that mean monopoly in the end by the few big companies that own both mills and fabricating com- panies ?" "That can't be helped. If the big company can do the work cheaper then it is bound to survive." "But it can't do fabricated work any cheaper, not so cheaply as the independent who is well situated locally; the big company can show a profit in its structural department only by charging against that department a low price for its steel." "What if it does?" "That means it charges its own subsidiary company one price and charges the independents so much more they are forced out of business. The big company uses the profits it makes in other lines to get control of the structural busi- THE TRUST PROBLEM 287 "Isn't that competition?" "Not the sort of competition the people will tolerate when they understand." "Ha! it is the sort of competition every merchant in- dulges in when he makes a run on a particular line of goods at less than cost to drive out some competitor." "Perhaps the day of that kind of competition is passing — furthermore all that the individual does the corporation may not do." "What is your remedy?" "Segregate the departments of every large corporation in such a way that every competitor against any department may know exactly what he is up against." "Segregation — ^that is ridiculous." "But less disastrous than disintegration." XIV Let us make the point clearer. The head of a lumber company that owns its 1. Timber 2. Saw mills 3. Planing mills 4. Lumber-yards. insists he has the right to sell the product of any one fac- tor at cost or less than cost if he pleases and make his profit from the other units, that his right to do so is the very foundation of competition, and if he does so and drives competitors of the particular unit out of business that is their misfortune, not his fault. On first impression nearly everyone will agree with these notions for they not only prevail at the present time, but they have been accepted as orthodox by economists since the 288 THE NEW COMPETITION days of Adam Smith, and by commercial peoples the world over so long as we have any record of commercial conduct. This rule of commercial conduct — like many another equally "brutal" — had its origin in times and conditions when the hand of each man was raised against his brother, when trade was almost entirely a matter of gaining and pressing every advantage, of winning by fair means or foul ; it was never a just rule, but so long as the contest was be- tween individual and individual, and only the individual trader was ruined, the interest of the community was not aroused to the relentless and oppressive character of the practice. It is the unparalleled development of organized trade and industry, the growth of what is termed "big business," which followed inevitably the use of steam and electricity, that has demonstrated the vicious nature of many ancient trade maxims. The people feel, and it is beginning to be clearly per- ceived by many thinkers, that the large corporation cannot be permitted to do things individuals have done from time immemorial, not because what is wrong in the conduct of a corporation is right in the conduct of an individual — not at all; but because the consequences of the acts of the one are so far-reaching; the individual kills off only his neigh- bor in trade, the corporation kills off an army of traders. In earlier days the influence of a very rich man or a powerful association for either good or bad did not extend far, means of communication and transportation were too slow ; nowadays it is different, what a rich man or powerful company does in London is felt in New York; a merchant in St. Petersburg may upset the market in Paris ; men are no longer free to do what they like because what they do affects so many more that the many protest and make their protests heard. THE TRUST PROBLEM 289 XV To return to the lumber company that owns timber, mills and yards, many intelligent men will argue it has the right, moral and economic, to sell (a) timber, (b) rough lumber, or (c) finished lumber, at any price it pleases, at cost, if it pleases, for the express purpose of driving out of business a competitor in the particular line. But not so many intelligent men will insist it has the right to use its resources to take contracts for putting up buildings at less than the cost of erection for the purpose of driving out of town all carpenter contractors and con- trolling that work for itself. And still fewer intelligent men will urge that it has the right to establish a paint shop and do painting for less than cost in order to control that trade; and still fewer that it has the right to start a household furnishing store and sell household goods at less than cost to close up all other stores in the town ; and still fewer that it has the right to sell gro- ceries, clothing, automobiles, jewelry at less than cost for the purpose of controlling all those trades. Yet one thing leads to another and no logical line of de- marcation can be drawn. If the saw-mill can own its own finishing factory and make and sell below cost the interior finish of a house, there is no reason in the world why it should not sell furniture and carpets below cost. In short the supposed "right" to sell anything below cost cannot be made to turn upon whether the particular ar- ticle is or is not related to some other article made or handled by the same man or company. If a steel company that owns mines, furnaces, mills, and fabricating companies can put up a steel building at less than the cost of fabrication to control the fabricating industry, it can build brick or wooden buildings at less than cost, it 290 THE NEW COMPETITION can make and sell flour at less than cost — in short it can use its resources and the profits it makes in certain depart- ments to demoralize as many different businesses and ruin as many different competitors as it pleases. XVI Let us bring the matter home to the individual. A man owns a tract of land, he is lucky enough to strike oil, over night he becomes a millionaire many times over, he feels an ambition to be the biggest man in the adjoining town, he starts out to control every enterprise in the town — the bank, the saw-mill, the lumber-yard, the coal-yard, the woolen mill, and the principal stores. There are plenty of towns where things like this have happened. Some of the owners have no desire to go out of busi- ness, they will not sell. He uses the money he is making from his oil-field to start rival establishments and he sells at cost and less than cost until he either ruins his competi- tion or compels them to accept his terms. For the present he has the legal, but has he the moral or economic right to do this? Your answer to that question will depend upon whether you have any philosophy of trade beyond stereotyped tradi- tions and superficial current notions — whether you think or only think you think. There is a feeling that this sort of competition is not right, the sentiment against it is growing in spite of argu- ments to the contrary, in spite of traditions, in spite of all the theories of the economists of the last century. The reason why this sentiment is growing, why convic- tions are changing, is because within the last twenty years THE TRUST PROBLEM 291 combinations have exercised those supposed rights ruthlessly to compel competitors to sell out or go out of business. If a coterie of men wished to buy up a number of plants and form a combination, or if a large corporation wished to buy up certain smaller competitors the mode of procedure was first to make an offer, then if the offer was not accepted, start a ruinous competition by selling at cost and less thp.n cost until the weaker company was forced to beg for terms. So many thousands of men and hundreds of towns and localities have been disastrously affected by just this "com- petition" that it is not surprising the feeling against it is strong. XVII Many remedies have been proposed for the trust prob- lem — federal incorporation, federal supervision, federal reg- ulation of prices and profits, dissolution, but after years of close association with competitors of the trusts, who are also large buyers from them, the writer has never heard any very loud demand for most of these remedies. Dissolution — no one who has any knowledge of industry wants that. Federal regulation of prices and profits is dismissed as chimerical. Federal incorporation or super- vision — ^yes, if you please, but then what? What is to be the practical result of any step proposed? That is the question put to every theorist on the sub- ject. The man who has his fortune, his business, his livelihood at stake wants a practical answer, he wants to know how the proposed remedy will affect him. Again and again the writer has heard from independ- ents who are fighting for existence against the trust the one cry: "We don't care how big the trust is or how many departments it operates in competition with us. We can 292 THE NEW COMPETITION take care of ourselves. On an even footing we can always get business away from it. All we ask is fair play." The one way to get fair play is to insist no company shall do business in competition at a loss. Compel every integrated company to show up the operations of each de- partment in such a manner there will be no chance for unfair competition, and if it appears it is selling its own departments material at less than it charges buyers, compel it to rebate to every customer the excess — or three times the excess by way of punishment. Those demands if carried cut would mean a vast and beneficial extension of the open price policy and a solution of the trust problem with a minimum of interference with individual initiative and freedom. The machinery required would be simple as compared with some of the elaborate schemes now before Congress. The precise steps to be taken are discussed in the last chap- ter. CHAPTER XVIII THE LABOR PROBLEM— INTEGRATION VS. AGGREGA- TION I For the labor spent and capital invested, no two enter- prises yield the same returns. That being true, it would seem to follow that in no two enterprises should the share received by labor — wages, — and the share received by the owner — profits — be the same — unless labor prefers to ac- cept a fixed and uniform wage and relinquish all claim to an interest in the business it has helped establish. But labor is not willing to do that. As has been shown, the trend of modern thought and recent legislation is toward the assertion and recognition of labor's claim to an equitable interest in the industry. The only consistent theory of workmen's compensa- tion and pension laws is that the industry — not the em- ployer-^owts the laborer something. The only logical theory at the basis of the strike and fight against "scabs" is that employees have certain rights to secure which they may not only strike but prevent others from taking their places. The labor movement is based upon the fundamental notion that labor has a proprietary interest in whatever it helps create, and while this interest is not explicitly recog- nized by employers, it is implicitly admitted in the settle- ments of most labor controversies. 293 294 THE NEW COMPETITION Furthermore, it is quite apparent that unless labor does act upon this theory it is in no position to protest if "locked out," or if employers discharge high-priced help and sub- stitute low-priced. If labor has no interest it has no voice. II But if it has an interest, what then? The question is crucial, for the answer is fraught with consequences. If the men employed in a particular factory have an interest therein, their share of the returns from the busi- ness should vary with the prosperity of the business. They may be guaranteed — as many salesmen are — a minimum salary or wage, but over and above this minimum they should take some chances on fluctuations in the re- turns. As a matter of fact, they do take those chances now; when business is dull, their wages are reduced or they are worked half time ; if the business fails, their losses may be greater than the owner^s, they may lose all they have saved. In truth, no class in the community assumes the risks labor assumes, since it stakes its all on every venture. To a certain extent the interest of the employee is being recognized in profit-sharing arrangements, and he takes his profits and his losses pro rata with owners, but, generally speaking, labor occupies this inconsistent position : It claims an interest in the enterprises for which it works, denying to the employer absolute control, but re- fuses to take the chances incidental to such interest. It not only refuses to take any chances, but it demands a flat rate of compensation far above a minimum wage, a rate of compensation that may have no relation whatsoever THE LABOR PROBLEM 295 to the particular industry, but one that is often based upon returns in other and wholly unrelated enterprises. Ill In the labor world wage scales are fixed by conferences and councils of men who make no pretense to investigate the ability of an individual enterprise to pay the rate. Whether an employer is making money or not, he must pay the union scale. A railroad may be in the hands of a receiver; it matters not, it must meet the demands of the unions or they will order strikes. Labor as now organized cannot do otherwise ; it cannot advance wages on A and lower them to B ; it cannot fix the wages of firemen on the New York Central lines at so much and a lower scale on the Pennsylvania, the Erie, the Wabash, although the earnings of these roads and the work on each differ so much that men may prefer to work on one for less than they get from another. Unions are in a difficult and ultimately untenable posi- tion; they are obliged to treat with employers on the theory they have labor to sell, not on the theory that each em- ployee has an interest in the business. Collective bargaining is the only form of contract feas- ible ; the unions cannot deal with individuals ; they must lay down rules and make wage scales for classes; if they at- tempt to do otherwise the fabric of unionism as now built up falls to the ground. The attitude of employers is quite as inconsistent. They deny their employees have any interest — ^much less any voice — in the business, and in the same breath refuse to meet and treat with the heads of employees' unions. If labor is a commodity, like coal, to be bought by each employer as cheaply as he can, employees not only have 296 THE NEW COMPETITION the right to, but should organize to get the best wages they can; their union leader is their representative to make a bargain. The employer who refuses to treat with a union and at the same time denies any interest in the business to his employees has impaled himself on both horns of the di- lemma. But the employer who recognizes the broad economic proposition that all who work to build up a business have an interest therein, not only is in a position to, but neces- sarily must say to all outsiders, "You cannot interfere be- tween this business and the men who are working to make it a success and say what any man or set of men shall receive, because you do not know anything about the busi- ness or the profits we may make this year." Under such circumstances the men themselves would be the first to resent any attempt by outsiders — especially out- siders in the employ of competitors — to say they must take a fixed sum per day in lieu of a share in the profits at the end of the year. Employers deny the interest of employees in the busi- ness, but as against unions act as if the employees had such an interest. Unions assert the interest of employees in the busi- ness, but as against employers act as if employees had no such interest. The trouble lies in an imperfect recognition on both sides of a fundamentally sound theory of labor organiza- tion, a theory based upon the economic proposition that all who help to build up and maintain a business have an in- terest therein. If that proposition is sound, organization of labor must be on lines radically different from existing. For purpose of illustration we give here the labor scheme of a given industry. To include all classes of em- THE LABOR PROBLEM 297 ployees would make the scheme needlessly complicated for the purposes of the argument. The same scheme in outline applies to any enterprise. IV RAILWAY EMPLOYEES N. Y. C. R. R. Penn. R. R. Santa Pe R. R. and so on, - including all c the roads in '•^ the country. 1 Trackmen V : Trackmen : Trackmen : Trackmen li Switchmen : Switchmen : Switchmen : Switchmen i Op Trainmen . Trainmen : Traimnen : Trainmen i w r Firemen -:- Firemen : Firemen : Firemen "rt Engineers : Engineers : Engineers : Engineers ■i V Conductors . Conductors : Conductors : Conductors 1. P and so on through all Union along horizontal lines = classes of employees. Aggregation. It is plain at a glance that two fundamentally different modes of combination are possible: Combination in the vertical line — integration. Combination in the horizontal line — aggregation. The lines of cleavage depend upon the lines of organ- ization. All labor unions are organized along horizontal lines, each is an aggregate of individuals who follow the same occupation, and their power depends upon numbers — the underlying theory is combative, not cooperative. The lines of cleavage are horizontal, destructive to cooperation and harmony within the industry. * Compare this with scheme of industrial cooperation on page 264. 298 THE NEW COMPETITION The firemen of all the railroads in the country are banded together, and the engineers of all the roads are in a brotherhood, but the fireman and the engineer who ride in the same cab are not united ; in fact, their unions are neces- sarily more or less antagonistic ; one may support the other in a demand for higher wages and a threat to strike, but only as a matter of policy. Ask a brakeman or a switchman what he thinks of the demand of the engineers for increased pay,^ and he will give you his opinion in language hardly fit for publication, but his union will keep silent, because it expects to put in its own demand later on, when, in turn, the engineers will be expected to lend their support. It is needless to say a fireman on a road in California has nothing in common with a fireman on a road in Maine ; the work is not the same, the fuel is not the same, the cost of living is not the same, yet the two are linked together each as against not only the company that employs him, but against the engineer and conductor who run the train on which he fires. His wages and conditions of employ- ment are fixed by men he never sees, who live in States thousands of miles from where he lives; he works when they tell him to, strikes when they tell him to, and accord- ingly as he is told he will or will not take his engineer's place if the latter strikes for better wages. The condition is fundamentally unsound, and the stronger the unions become the more clearly do they dem- onstrate the weakness of the theory of combination by ag- gregation. Just as was found in discussing industrial combina- ^ Formulated, April, 1912. THE LABOR PROBLEM 299 tions/ it is integration in the vertical line that is normal and powerful to the extent of even being a menace to non- integrated units. To-day labor unions spread over the country like so many thin strata of slate, the larger they are the greater the danger of breakage; the lines of cleav- age are so well marked that many "shrewd" employers have little trouble in exciting dissensions that split for a time the superimposed layers, and array union against union. Integration is granite in texture; it is the fusing of each industrial and commercial unit into one homogeneous whole. Integration starts normally from within; aggregation starts usually from without. The outsider, the profes- sional agitator, has no interest in integrating a plant or a factory, in welding all its employees, from day laborer to owner, together in one harmonious body — that sort of a union makes no place for him. The outsider finds his opportunity and profitable em- ployment in associations along horizontal lines, in huge ag- gregates, each with its corps of officials. Per contra, the insider, the man who has something at stake in the success of a given plant, has no interest in uniting with workmen employed in a competing plant ; that is folly. As things now are, with labor organized in large ag- gregates on horizontal lines, a union of plumbers, steam- fitters, plasterers, carpenters, engineers — of any given trade — formulates its demands for increased wages; these de- mands have no relation whatever to the special work or the needs of the employees of a particular contractor or com- pany, nor do they take into consideration the ability of a particular employer to meet the demands. If the demands are not complied with, strikes are called, * See page 263. 300 THE NEW COMPETITION not so much for the purpose of coercing employers directly, as for the purpose of so inconveniencing the entire com- munity that the public will compel employers to yield, or arbitrate, which up to the present time has been but an- other manner of yielding. These methods are crude and primitive, and will surely give place to ways that are rational and scientific. The strike has no place in a civilized community, neither has the lockout — they are the weapons of brute man. But so long as labor organizes in aggregates the chief strength of which is brute force, the strike and the lock- out will be with us, and in more and more violent forms, with the inevitable result that employers and employees will get farther and farther apart, feeling between the two will become more and more bitter; even now the friendli- ness, the cordiality that should exist are gone, and gone long ago. The employee acknowledges no loyalty except to his union; the employer acknowledges no interest in his work- men other than that of a purchaser of labor at fixed rates, and no obligation to them other than the law imposes. While integration of labor is the natural development of .organization, and aggregation the artificial, conditions have been such that employees have been compelled to or- ganize along the arbitrary and artificial. Employers have so stubbornly refused to admit their workmen to any voice, much less interest, in the business, that they could not organize within; employers have been so short-sighted they have systematically discouraged that sort of organization. Hence the opportunity of the out- sider, the professional agitator. But employers are becoming a little wiser, and the men are beginning to see that those employed in one factory in one State have no very vital interest in striking to support the demands of men employed in a competing factory in an THE LABOR PROBLEM 301 adjoining State; they are beginning to see that the real interest of each body is in making their own factory so prosperous it can afford to pay more to all connected with it. VI Under existing conditions all negotiations are conducted between employers on one side and employees on the other in a spirit of sharp antagonism. Every controversy over wages is preceded by preposterous claims and state- ments, and by charges and counter-charges of the bitterest nature. Nothing is left undone and unsaid to inflame both sides. Every spring the situation becomes very acute in the building trades in large cities, in coal-mining districts, and between railroads and their employees. The public that bears the cost tamely submits to the ■following programme: Demands by employees. Refusals by employers. Strikes with violence. Arbitration and adjustment. Advance in wages. Advance in prices far more than sufficient to cover the higher wages. Peace for a few months. Repeat. For weeks and months the papers are filled with ac- counts of rioting, slugging, and shooting, entire communi- ties are terrorized, men, women, and children are wounded and killed. Meetings are held at which agitators and anar- chists breathe hatred and defiance toward capitalists, toward the g-overnment, toward society itself. 302 THE NEW COMPETITION Is it conceivable that after such experiences the men, no matter if all their demands are conceded, can return to work with the loyal devotion they should have to the industry and property in which they are far more inter- ested than distant stockholders and upon which they de- pend for a livelihood ? Every observer knows that only the most intelligent are able to overcome the feeling of hatred so systematically engendered, many of the more ignorant actually take de- light in injuring and destroying tools and property in a spirit of "getting even" for real or fancied wrongs. VII At this moment the country is trembling on the brink of a great railroad strike. , On April 22 the following letter was sent the chief of the Brotherhood of Locomotive Engineers, which has a membership of over 70,000. "Dear Sir: We understand that negotiations between the Brotherhood of Locomotive Engineers and the man- agers' committee of the eastern railroads have been defi- nitely broken off, and that the engineers are likely to with- draw forthwith from the service. "If this is unfortunately the fact it is evident that a grave situation has arisen which threatens most serious consequences to the public. In this emergency we are im- pelled by the sense of duty to tender our friendly offices to the contending parties, in the hope that some means may be found to adjust the matters in dispute without the ca- lamity of a general strike. "We are sending an identical letter to Mr. J. C. Stuart, chairman of the committee of railroad managers." MARTIN A. KNAPP, Presiding Judge, U. S. Commerce Court. CHARLES P. NEILL, U. S. Commissioner of Labor. THE LABOR PROBLEM 303 VIII "The mediation of federal officials came immediately after the refusal of the managers of fifty railroads con- cerned to concede the engineers' demands for an 18 per cent, increase in wages, when Chief Warren S. Stone, of the Brotherhood of Locomotive Engineers, had announced that in view of this refusal a strike of engineers would go into effect within thirty-six hours/' "Although Chief Stone had a few minutes before de- clared that his fifty associates on the engineers' committee would proceed to-night to their headquarters to prepare for a strike within thirty-six hours, he was impressed with the letter to the extent that he amended the order, declar- ing the committee would remain intact here to-night to consider the situation. "He said: *No organization is so strong it can fail to hearken to an appeal from representatives of the federal government,' and declared he would place the proposition before the engineers' committee with the recommendation that it be accepted." "Officials of the local Chicago division of the Brother- hood of Locomotive Engineers last night said all traffic, including passenger, freight, and yard, within the strike zone, would be stopped simultaneously. " The men are "sore" because of the inequality of wages,' he said. 'Some of the lines in the east run side by side for miles. The engineers of one line will be receiv- ing 4 cents a mile and those of the other line 43^ cents a mile.' " 1 In threatening to "tie up" 52 per cent, of the railway traffic of the country unless their demands are complied with, the union of engineers is acting in open defiance of the Sherman law. Imagine what would occur if railroad companies com- bined and threatened to stop all traffic unless wages were reduced or freight rates advanced — the rage of the pub- *From the daily press. 304 THE NEW COMPETITION lie, the super-rage of the press — it is all quite unthinkable. Why should the public submit without protest to the threat of the engineers to stop every train in the country unless their wages are advanced? The public has only an indirect and a comparatively small interest in the increase of wages demanded, even if it should lead to a slight increase in rates. But the public has a direct and very great interest in the threat to stop traffic for any cause, and // social progress is not a sham and a delusion, the time will come speedily when the representatives of the public will not beg as a favor that traffic be not stopped, but will command sharply and peremptorily that traffic go on without interruption, and that controversies between individuals and classes of individuals be adjusted without inconvenience to the public at large. That several thousand men in combination should threaten to stop the commerce of ninety millions and have the power to do so, is a proposition so grotesque it does not seem possible a civilized people at the beginning of the twentieth century would tolerate it — yet it is not only tol- erated but meekly accepted as a condition to be dealt with as gingerly as a small boy handles a giant cracker. IX The engineers have scarcely finished presenting their claims when the firemen, through their national organiza- tion, begin formulating theirs, and so it goes, an endless round, as a rule no two unions of national importance formidating demands at the same time} * Seven men of national reputation, composing the Arbitration Com- mission which is to decide if the fifty-two railroads in the Eastern section of the country shall increase the pay of the engine drivers, will m^et to-morrow morning at the Oriental Hotel, Manhattan Beach. THE LABOR PROBLEM 305 Each union enlists the sympathy of the public by mak- ing it appear that its fight is with the companies, whereas it is a self-evident proposition that every increase in the cost of operation is borne in the end by the public. The unions are even cynical ; when the great anthracite coal strike was settled a few years ago by giving the men an advance of so much per ton, it was done with the understanding the companies should profit by the agita- tion by advancing the price of coal far more than the added cost per ton. It was a matter of sober and serious dis- cussion how much both sides could get out of that patient beast — the public — before it would kick. This spring the controversy is renewed with like results. ^ But the public is becoming restive; it is beginning to see that however ardently it takes side with this union and that, somehow it comes out a loser in two ways — it suffers most of the inconveniences and losses of strikes, and in the end pays in higher prices more than all advances in wages. The public is not only beginning to see these things, but it is beginning to inquire if something may not be done to put an end to these periodical "conflicts between capital and labor" — as the phrase goes. There is but one way to bring about peace and har- mony and that is to promote the integration of each indus- try from top to bottom. On their decision depends whether the railroad workers shall divide among themselves annually an additional $7,500,000. It also will be a signal to other labor organizations whether they shall move for more pay. Already the railway firemen have made demands for increases which would amount to $20,000,000 annually. — N. Y. Herald, July 14. ^ Circulars sent out by the great coal operators to-day will bear the glad tidings to the general consumer that the price of domestic an- thracite coal has been advanced 25 cents a ton; and as a result the general public may have the satisfaction of knowing that it, and not the operators, will pay the nominal increase of 10 per cent, recently granted to the striking miners — that and a little more. The little more amounts to about $6,000,000 this year. — From N. Y. Times, May 24th, 1912. 3o6 THE NEW COMPETITION To return to the controversy now on between the fifty odd railroads and the engineers, the following suggestions are offered with the firm conviction they would tend to a clearing up of the present unsatisfactory conditions that exist between the roads and their employees and ultimately lead to an integration of the latter. When any class of employees, high or low, organized or not organized, asks an advance in wages, the demand af- fects (a) the company, (b) all other employees, inasmuch as an advance to one class may, usually does, mean a dim- inution of the fund available for advances, (c) shippers and all patrons of the road since every increase in cost of opera- tion may mean either an increase in rates or a bar to re- duction in rates, (d) the public, since every increase in cost of operation means a reduction of the fund available for betterment of service. All these classes are so intimately concerned in every proposition that means an advance in the cost of opera- tion they should be consulted at the outset whenever such a project is under consideration. As it is, only (a) the company takes any interest in a demand for increased wages until a strike is threatened. Shippers sit back unconcerned until the roads propose to advance rates, then they are aroused, but too late as they will ultimately find, for the time to act is when things are being done with the approval of the public and repre- sentatives of the government that must sooner or later lead to either advances in rates or such curtailment of opera- tions, improvements and extensions, as will place shippers at a serious disadvantage. X The interest of all classes concerned, employees, patrons, the public, can be aroused in this way : THE LABOR PROBLEM 307 1. When any one class of employees asks for higher wages^ let each company address a formal request to all classes, whether organized or not, to formulate their demands, if they have any, and present them by a date named. 2. Decline to pass upon the demands of any one class until all have filed theirs or announced they have none to present. 3. When the demands of all are in, tabulate and ascer- tain the total — the gross amount that would be added to cost of operation. 4. Call an open meeting at which all classes interested shall be represented: (a) the company which is to disburse the amount; (b) employees, both those who demand a share of the amount and those who have filed no claims but whose future opportunities to get advances will be affected by the allowance; (c) shippers and patrons who really pay the amount; (d) the public through some body such as the Department of Commerce and Labor or the In- terstate Commerce Commission, or a commission yet to be established, and the press. 5. Lay before the meeting first of all the total amount of the demands made and ask the representatives of em- ployees the one question, "Can the road, in your opinion, stand the increased cost of operation represented by this total without advancing rates?'' No question of the distribution of the total amount de- manded should be permitted to arise. The total may be so absurdly large that it is apparent to everyone it must be scaled down fifty, seventy-five, ninety per cent, before it is even debatable, and each class may show a disposition to reproach the others for having put in demands that are *The suggestions apply whether the demand is for higher wages, shorter hours, or any other change in conditions of employment that means increased cost of operation. 3o8 THE NEW COMPETITION ridiculous, but that is a matter for the men to settle among themselves. The company, shippers and the public have the right to insist employees as a body shall not present demands the footings of which make an amount so absurdly high that the employees themselves concede it must be scaled down. 6. If the employees concede that the aggregate of their demands is in excess of anything the road could possibly afford, it will be for them to retire and scale their de- mands to a total they think the road can pay. 7. On the presentation of the revised demand it will then be for the company to say whether it can and is will- ing to add the sum demanded to its pay-roll, thereby in- creasing the cost of operation. The decision must have the approval of (c) shippers, and (d) the public, inasmuch as both are affected. 8. If the road with the approval of all parties interested says it will appropriate for wages the additional sum de- manded, the employees — all classes — must then retire and distribute this additional amount among themselves as they see fit, settling all their differences among themselves with- out involving the management of the road, shippers, or the public, in any controversy. When they have made the dis- tribution the company will accept the schedule and pay ac- cordingly. 9. If, however, the road reaches the conclusion it can- not pay the amount demanded without increasing rates, a question for arbitration will result, namely: "What amount, if any, can the road pay in increased wages with- out increasing rates?" In this arbitration all parties interested must be heard. Once ascertained, the amount will be distributed by the employees according to paragraph 8. 10. If the employees decline to arbitrate the question "What amount, if any, the road can pay without increas- THE LABOR PROBLEM 309 ing rates/' but insist upon the justness of their claim, even if rates must be advanced, the question for arbitra- tion then is two-fold in character, "What amount are the employees entitled to irrespective of any increase in rates ?" and, the amount ascertained, "What increase of rates must be allowed to cover the added cost ?" The statement of the question involves the assumption that, all things considered, rates may be lower than they should be, so low, in fact, they do not cover proper cost of operation and maintenance. It is obvious that this question raises an issue between shippers and the public on one side and employees on the other. XI So far so good, but it is plain there is another element involved in all these hypothetical cases and especially in the question last suggested for arbitration, namely, the question of profits to stockholders. The employees may insist that the question to be sub- mitted for arbitration is threefold in character; first, what advance are they entitled to irrespective of rates and divi- dends; second, to what extent, if any, must rates be ad- vanced to pay the amount; third, to what extent, if any, must dividends be reduced to pay the amount. The adjustment of that question, and that is the broad, the fundamental question, presented in every wage and rate controversy, tdtimately involves a valuation of the roads, an ascertainment of their fair capitalization, and the allowance of such interest and dividend charges as are necessary to secure capital for improvement and extensions, a fair allowance being made to stockholders for risks as- sumed, since they, in the first instance, assume all the haz- ards ; their dividends fluctuate from year to year, and often 310 THE NEW COMPETITION disappear entirely long before the prevailing rate of wages is reduced or rates advanced. As things now are both wage controversies with em- ployees and rate controversies with shippers are settled in the dark. This clas« or that class of employees demand and final- ly get increases in wages regardless of the fair claims of other employees and regardless whether the stockholders of some of the roads affected have ever received any dividends. Likewise the Interstate Commerce Commission settles rate controversies for all the roads in vast sections of the country with no accurate data regarding the actual invest- ment in any one of the roads and, consequently, with no information whatsoever whether the stockholders of any particular road are justly entitled to the benefits of the rates demanded. All questions regarding both rates and wages are now adjusted from year to year in haphazard fashion, with no attempt to reach a scientific basis that will attain lasting results. XII What would be some of the consequences of the course suggested ? Take the demand of the engineers; the fifty odd roads affected could not pursue a wiser and fairer policy than the one outlined in the ten numbered suggestions. The demand made by the engineers involves a large amount, estimated at $7,500,000, added to the cost of operation. That additional amount could not be paid without ab- sorbing — certainly with many of the roads — a large por- tion, possibly the entire amount available for making in- THE LABOR PROBLEM 311 creases in the wages of other classes of employees, hence all classes have a right to be heard before any award is made. There is the further possibility that the amount asked by the engineers could not be given without crippling some or all of the roads, unless they are permitted to advance rates, hence shippers and patrons are interested. And there is, of course, the possibility that to add the amount asked to cost of operation would, if rates are not advanced, affect improvements and extensions, hence the public is keenly interested. In any event and under all circumstances every dollar paid out by a railroad comes out of the public directly or indirectly. A demand for increased wages is as much a demand upon the public as a demand for increased rates — except where increased wages or shorter hours mean such in- creased efficiency of service as to counterbalance the cost — that would be one of the questions for arbitrators to con- sider. But when the engineers of one road who are each mak- ing two hundred or two hundred and fifty dollars a month demand 4>^ cents a mile simply because the engineers of another road get that amount, no question of increased efficiency is involved. XIII The roads involved have proceeded to arbitrate the engineers' demand with the certainty that no sooner is that arbitration over than another union will present its claims, and another, and another, and so on in endless chain. The agitation is constant, systematic, and shrewd; the unions "play the game" incomparably better than the roads ; the latter are timid, the former daring; the roads are 312 THE NEW COMPETITION afraid of public opinion, of the press, of adverse legisla- tion—of their own shadows — partly because their shadows have been rather black in the past. If in the present emergency ^ the roads should adopt the course outlined, the Brotherhood of Engineers would hardly be in a position to object to the invitation to all other classes of employees to present their claims, since the move would seem to be a big step in the direction of the federa- tion of labor, the dream of the ardent unionist and the nightmare of the average railroad official. But the ultimate result would be the partial disintegra- tion of labor unions along present artificial lines and in- tegration in the normal vertical line. Public opinion would certainly support the roads in the fair and reasonable requirement that all employees who in- tend to make demands shall do so at the same time so that the sum total may be known by roads, shippers and the pub- lic generally, and so that whatever amount is finally al- lowed by arbitration or by some tribunal shall be equitably distributed among all employees entitled to increases, and not absorbed by some one or two classes to the exclusion of others. Public opinion would also support the proposition that if the amounts demanded foot up to an absurd total, the em- ployees themselves, without troubling either the companies or the public, should scale down their demands until the total is a figure they themselves seriously contend the roads should pay. Again, public opinion would certainly support the prop- osition that after a gross amount has been awarded, the employees should distribute this amount among themselves without troubling the roads or the public; but if the pro- posed distribution is unfair to a class or an individual, ar- * Referring to*the controversy with .the engineers which will prob- ably be settled by the time this book appears — settled only for the time being. THE LABOR PROBLEM 313 bitration would be necessary; the humblest employee must have an opportunity to have his claims heard and con- sidered. XIV It begins to be plain that certain results would quickly follow the adoption of the plan outlined. The requirement that all classes of employees — organ- ized and unorganized — of each road present their claims by a date named would tend to bring the employees of each road in closer contact with one another — national organiza- 'tions could not formulate demands that would fairly adjust wages to conditions and earnings of particular lines. The presentation, for instance, to a board of arbitra- tors of the demand for a gross sum involves first the allow- ance of a sum in gross against all the roads, then its ap- portionment among the roads. A moment's consideration shows that the one question involves the other, for while it would seem comparatively easy to award a sum in gross based upon the gross earn- ings of all the roads involved, it is not easy when that sum is apportioned, for some roads might not be able to in- crease their operating cost by the amount fixed, while others would scarcely feel the added expense. No arbitration, award and apportionment of the gross amount demanded would be fair that did not take into con- sideration the condition of each road. A road traverses a new and sparsely settled section in the far west; its cost of construction, maintenance and operation is an exceedingly large percentage of the gross receipts as compared with an older road in thickly-settled sections ; its stockholders may get nothing for years ; mani- festly it would be wrong to add a large item to the cost of operating such a road in, say, Oregon, simply because 314 THE NEW COMPETITION the engineers of the Pennsylvania Company demand more pay; just as illogical as it would be to arbitrarily increase the pay of clerks in a dry-goods store in Seattle because the clerks in a similar but larger store in New York are given an advance; just as illogical as it would be to in- crease the pay of deck-hands on Puget Sound simply be- cause deck-hands in Boston harbor get an increase — and so on. What a given industry can pay depends upon what it earns, not upon what some other industry pays. There are statistical averages and levels of wages, rents, inter- est, taxes, etc., etc., and every man in business should study these averages and provide accordingly; he cannot hope to get his labor at lower than the prevailing rates in his locality any more than he can hope to get his in- surance below prevailing rates; but whether he can stand a sudden increase of either wages or insurance or of any other item of cost, depends not upon what some other man is making in another street or city, but upon what he him- self is making in his own business. XV Assuming, however, that each company knows exactly the gross sum that must be added to its pay-rolls, it is now for the employees of that road to distribute this amount among themselves. The distribution cannot be made by a national confer- ence, or by labor leaders sitting a thousand miles away; it must be made by the men interested. On one road the firemen may be entitled to a ten per cent, advance out of the fund as against two per cent, for the engineers ; on an- other conditions may be reversed, or the brakemen may be entitled to ten per cent, as against but one per cent, for THE LABOR PROBLEM 315 engineers and firemen — and so on, all depending upon conditions of service. The result would be a strong tendency toward integra- tion of employees of each road and a loosening of the artificial ties that now bind men working for one employer to all of a similar class working for competitors. Under existing conditions labor unions recognize the justice of virtually all that has been said by making differ- ent demands for different sections of the country. They do not treat with all roads at a time, but concede that condi- tions east and west, north and south, are different; what one section of the country can afford to do another can- not. In all their agitations for better wages the unions con- cede that what employers in one city can pay those in an- other cannot. They also concede that what one industry can pay is no criterion of what another industry can pay. Carried to their logical conclusions these concessions mean that in all fairness demands made upon a given rail- road should be based upon that particular road's ability to meet the demands and not upon conditions over which the road has no control, such as the earnings of some older and more profitable company. XVI National organizations would by no means disappear, but they would change radically in character. The integration of employees with their industry is one thing; the cooperative association of employees and industries is quite another thing. The one is the intimate union of ^11 interested in a given enterprise to make it a success; the other is the friendly association of all related industries and all related occupations in national organiza- 3i6 THE NEW COMPETITION tions the prime object of which is the introduction of higher standards and sounder principles in business gen- erally. Each railroad should be completely integrated so that it is an efficient and harmonious economic unit. At the same time all the railroads of the country should be in one great national association, in which employees, ship- pers, and the public through some federal administrative body would be represented. Each class would have its own association, in a spirit, not of antagonism, but of cooperation. Associations of employees and shippers should have their headquarters and meeting places in the same build- ing with the general association, and it should be a funda- mental rule that every meeting of any class is open to all other classes. The result would be that while each road and all interested would be influenced in the consideration of any proposition, primarily, by conditions affecting that road, they would also weigh the effect of their actions upon all other roads and all parties interested in the same. Lines of cleavage which are so sharply and bitterly accentuated now would fade and finally disappear. XVII Unless there is integration the outlook is gloomy, in- deed. As things now are the chasm between employer and employee is widening and deepening; class feeling is be- coming more and more bitter. The stronger the unions the greater the necessity for employers to get together to re- sist demands that frequently have no other basis than the determination to make demands persistently and syste- matically. The time is ripe for a rational and scientific investiga- THE LABOR PROBLEM 317 tion of the entire subject, for the ascertainment of under- lying principles and the formulation of fundamental propositions and rules of conduct that may be given, if necessary, the sanction of law. The strike must go. The lock-out must go. Neither has any place in the civilization of the twen- tieth century. True, the courts have said repeatedly, ^'Employees have the right to strike," '^Employers have the right to dis- charge=lock-out." Legally, yes ; morally, economically, no. We must not permit our notions of right and wrong to become confused by what courts say men have the legal right to do ; what is legal may not be right, and what is right may not be legal. Strictly speaking a man has no more right to throw down his tools and quit work at a moment that will cause some one else loss and trouble, than has an employer the right to ''fire" a man at a time and under conditions that will cause him loss and trouble. When we talk of rights to do these things we are not in the domain of rights at all but in that of lazv — of le- gally punishable acts, and every man knows that what is legally wrong to-day may be made legally right to-mor- row by act of a legislature, or by a supreme court revers- ing its own decision, and every one also knows that what is legally right in one state or country may be legally wrong in another owing to differences in laws or decisions — and so on in endless confusion. But what is really right does not depend upon legis- latures or courts but upon conscientious and intelligent conviction, and it is not too much to say that for a body of men to strike for the express purpose of causing ruin and disaster, cold and starvation to the entire community 318 THE NEW COMPETITION is contrary to conscientious and intelligent conviction and therefore wrong; they have no more right to do it than they have to organize a mob and destroy homes. Courts may be powerless, may feel compelled to hold men have the legal right to strike and paralyze industry and commerce, but in their reasoning they should care- fully distinguish between a legal right, which is a very human and uncertain proposition, and the purer, higher, more abstract theory of right which, law or no law, must finally guide men in all their actions and relations. XIX CLASS LEGISLATION AND DISCRIMINATION I We come now to the most discreditable and, take it all in all, the most disheartening chapter in American history; discreditable because the facts it relates are so opposed to all our ideals of freedom and equality; disheartening be- cause the tendencies disclosed lead straight toward the ar- raying of class against class in bitter conflict, and the dis- solution of democratic institutions. Not that this country will proceed to such extremes and be wrecked on the rocks that have wrecked every at- tempt heretofore made toward popular government — let us hope we have too much good sense to run blindly into disaster, but that is the way we are heading at the moment, and no impartial observer doubts it. The anarchist, the communist, the radical socialist, ob- serve the trend of events with undisguised satisfaction, they say, "We are nearing the crisis," and stand ready with torch and bomb. The average American looks upon Russia as the hotbed of anarchy and revolution, yet there is probably far more dynamite systematically used in the United States than in Russia for the destruction of life and property in conflicts between classes ; and certainly far more than is used in any other two civilized countries taken together. Three presidents slain in forty years is a record no 319 320 THE NEW COMPETITION other country can show. True, two of these assassinations were by men of more than doubtful sanity, but the same can be said of European crimes of similar character. The point is that in the sane or insane use of dynamite and murderous weapons as part of social or political propa- ganda this country is nowise behind the most despotic of European governments. We think Russia is on the verge of a tremendous social upheaval; we may be quite as near one ourselves. We look with pitying eye upon the disorders in France and gloomily predict the Republic will not last long ; where- as the truth is, that all the disorders reported would add scarce a ripple to the rioting that takes place periodically in our one state of Pennsylvania, to say nothing of the highly inflammable conditions that prevail in Colorado and those western states where the Industrial Workers of the World are strong. In all probability our strength lies in our very indiffer- ence to what is going on about us. We do not take the use of dynamite and the killing of presidents very seriously; our attitude is one of regret that misguided men should do such things, but they mean to us nothing in particular, there is no wider significance, no warning; we think the country is too sound and sane to be carried off its feet. Let us hope that is so; at the same time things are go- ing on that are more significant than the explosion of a bomb or the killing of a president. Class legislation, laws drawn for the avowed purpose of conferring upon certain favored classes privileges denied others; That is the real menace to our institutions, for that more than anything else encourages the bomb thrower, the rioter, the assassin, lending a certain logical coherence to their dis- ordered ideas, for if the law deals with certain classes as enemies of society why may not they? CLASS LEGISLATION 321 II Equality of all men before the law has been the boast of American civilization from the foundation of the govern- ment. It has ever been an idle boast so far as negroes and In- dians are concerned, sinks to a whisper as regards Chinese and Japanese, rings a little hollow when women are consid- ered — but, then, they are not "all men." Still it is the fundamental theory of our civilization that all men are, certainly should he, equal before the law — that is the ideal toward which we are supposed to be working — are we? The answer to that question is found in the speeches of our public men, in laws proposed and laws passed, and it is that, At no period in the history of the world has there been a more servile catering to classes who have votes. III This IS a broad, a startling assertion, but it is borne out by facts; that the truth is not more clearly realized is due partly to our extraordinary composure and partly to our peculiar political divisions. In most countries one central legislative body speaks for the nation ; what it does the world notes and criticizes; the result is a strong counter-balance in the influence of public opinion within and without the nation, and that means greater deliberation. In this coun- try there are forty-eight almost sovereign states, each with complete legislative machinery, passing in the twilight of semi-publicity such laws as it sees fit. In addition there 32 2 THE NEW COMPETITION is the federal government with Congress turning out its quota of statutes. These forty-nine legislative bodies give the demagogue his golden opportunity; he experiments at his leisure and almost without observation. Even if the American people were not over-absorbed in making money, it would be im- possible for them to watch all their legislatures, as it is they pay so little attention that any class with ordinary persist- ence can get somewhere almost any law it desires. So true is this that the courts are kept busy weeding out the laws that are so rank, so unfair, so one-sided they are clearly unconstitutional. Only the courts stand between the people and the de- mand of special classes for favoring laws and now the courts are assailed for their independence and it is seriously pro- posed to subject their decisions to popular vote. IV One reason why the American people have paid com- paratively little attention to laws proposed and passed is because they rely for protection upon federal and state con- stitutions ; they assume that no law which is unfair to any- body can be enforced; they cast upon the courts the bur- den of doing the work they should do themselves through their representatives. It is notorious that our legislative bodies pass many laws they know are not constitutional; the expression is often heard, **0h, well, let it go through, the courts will knock it out." But distinguished as our courts are for their courage and independence, they are composed of men and only human. It is not surprising some of them yield and try to CLASS LEGISLATION 323 find ways to sustain laws that others have no hesitation in denouncing as unconstitutional. Steadily and systematically the independence of the ju- diciary is being assailed ; under threat of "recall" of either men or decisions, or both, judges are being terrorized into rendering supposedly popular decisions. We say "supposedly" for nothing is more certain than that the thinking masses of the people are not in sympathy with either class legislation or with the efforts that are be- ing made to. destroy the independence of the judiciary. The American Federation of Labor "is composed of 115 national and international unions, representing approxi- mately 27,000 local unions, 4 departments, 39 state branches, 632 city central unions." The paid membership is about 2,000,000. "The affiliated unions publish about 540 weekly or monthly papers devoted to the cause of labor." There are 1,574 organizers of local unions acting under the orders of the central body. There is hardly an employment that does not have its union. Besides the American Federation of Labor there are the Knights of Labor and the Industrial Workers of the World. In addition and not affiliated with the American Federa- tion are the following nation-wide unions : Bricklayers' and Masons' International; Brotherhoods of Locomotive Fire- men and Engineers; Brotherhood of Railroad Trainmen; Railroad Conductors' Order. While the voting strength of 2,000,000 is not great as compared with a total of over 15,000,000 voters in the country, it is a body the average politician fears and there- fore favors. 324 THE NEW COMPETITION VI In considering the laws about to be referred to it must be borne in mind that, The prime object of a labor union is to advance prices of labor. The prime object of a farmers' cooperative society is to advance prices of produce. The prime object of a manufacturers* combination is to advance prices of goods. The fundamental proposition underlying any discussion of these attempts of the several classes to benefit themselves is that whatever opportunities are open to one class should, in all fairness, be open to the others, without favor, without discrimination. But they are not. Nearly every state has drastic laws against combina- tions of manufacturers and dealers. Here are some of the exceptions made in favor of labor and farmers: VII The Illinois anti-trust law excepts all parties engaged in mining, manufacture or any industry the cost of the product of which is mainly made up of wages, and also contains a provision that it shall not be unlawful for per- sons or corporations to enter into joint arrangements of any sort, the principal object or effect of which is to maintain or increase wages. The law also provides that "the provisions of this act shall not apply to agricultural products or live-stock while in the hands of the producer or raiser."^ * Referring to this exception, a federal court said : "Can it be claimed that, under this clause, every person within the jurisdiction of CLASS LEGISLATION 325 VIII Montana in its law against combinations provides that it shall not apply "To any arrangement, agreement or combination be- tween laborers made with the object of lessening the hours of labor or increasing wages, nor to persons engaged in hor- ticulture or agriculture with a view to fixing the price of their products." Montana and Nebraska both provide that : "Nothing herein contained shall be construed to prevent any assemblies or associations of laboring men from pass- ing and adopting such regulations as they may think proper, in reference to wages and the compensation of labor, and such assemblies and associations shall retain, and there is hereby reserved to them, all the rights and privileges now accorded to them by law, anything herein contained to the contrary notwithstanding." South Dakota has a similar exemption. Montana goes farther than merely protecting labor unions, it expressly provides by law, that state printing shall have thereon the label of the branch of the International Typographical Union of the city in which the printing is done. Other states have laws protecting the use of union labels and trade marks. the state of Illinois has equal protection of the laws? Is not this class legislation? Is it in accordance with section I of the fourteenth amendment to the federal constitution, that those who raise agricultural products or livestock shall be excepted from the provisions of a statute which, by its terms, is binding on every other citizen or person within the state? I think clearly not. I am of the opinion that this statute contains both class and special legislation, and is in contravention of both the federal and state constitutions, and therefore void." 326 THE NEW COMPETITION IX Pennsylvania expressly permits the organization of labor unions and authorizes them "to refuse to work or labor for any person or persons, whenever in his, her or their opinion the wages paid are insufficient, or the treatment of such laborer or laborers, workingman or workingmen, journeyman or journeymen, by his, her or their employer, is brutal, or offensive, or the continued labor by such laborer or laborers, workingman or workingmen, journeyman or journeymen, would be con- trary to the rules, regulations or by-laws of any club, so- ciety or organization to which he, she or they might belong, without subjecting any person or persons so refusing to work or labor to prosecution or indictment for conspiracy under the criminal laws of this commonwealth." X Louisiana has this constitutional provision: "It shall be unlawful for persons or corporations, or their legal representatives, to combine or conspire together, or to unite or pool their interests, for the purpose of forc- ing up or down the price of any agricultural product or article of necessity for speculative purposes, and the legisla- ture shall pass laws to suppress it." But the laws of Louisiana expressly provide : "That the provisions of the act shall not apply to agri- cultural products or live-stock while in the hands of the producer or raiser ; nor be construed as to affect any com- bination or confederation of laborers for the purpose of increase of their wages or redress of grievances." CLASS LEGISLATION 3^7 XI The anti-trust act of Michigan contains this provision: "The provisions of this act shall not apply to agri- cultural products or live-stock while in the hands of the producer or raiser, nor to the services of laborers or artisans who are formed into societies or organizations for the benefit and protection of their members/' The Mississippi anti-trust law contains this exception : "But this shall not apply to the associations of those engaged in husbandry in their dealings with commodities in the hands of the producer, nor to the societies of artisans, employees and laborers formed for the benefit and proteC' tion of their members." North Carolina's anti-trust law says : "The act does not apply to agricultural products while in the hands of the producer, nor to the lumber interest of the state, neither shall it prevent cotton or woolen mills from regulating the amount of their output or sellixig the same through an agent." XII The following states have laws which expressly prohibit any employer from discharging or threatening to discharge any employee because of his connection with a labor union : Illinois, Indiana, Kansas, Minnesota, Montana, Tennessee, Missouri, Ohio, Wisconsin. The laws of Massachusetts provide for the organization and incorporation of labor associations, as do also the laws of Maryland. Michigan makes provision for the incorporation and management of workingmen's associations and also for the organization of builders' and traders' exchanges. Also for 328 THE NEW COMPETITION the incorporation of local assemblies of Knights of Labor and Sons of Industry. Stronger and stronger pressure is being brought to bear upon Congress to induce it to exempt labor unions from the operation of the Sherman Act. XIII It would be out of place in a book of this character to enter into an extended discussion of the constitutional ques- tions raised by these attempts to expressly permit certain classes to do things forbidden other classes. The question is not one of law simply, but rather of fair play, of what is right and just. It does not need a lawyer to convince the average citizen that these laws are not right, not fair, not just; and no community can persist long in the course indicated by such legislation and last — it is building, not upon a foundation of justice, but upon the shifting sands of popular prejudice.^ * Speaking of the Texas anti-trust law, which is sweeping in its terms and penalties as against certain classes, the federal court had occasion to say (in re Grice, 79 Fed. R. 627) : "The exemption of agricultural products in the hands of the origi- nal producer and raiser exempts, upon a rough estimate, four-fifths of the people of Texas from the operation of this act, because four-fifths of the people of Texas are engaged in the business of producing and raising agricultural products and livestock. The penalties are visited upon the remaining one-fifth of the people, without regard to any par- ticular class. This one-fifth comprises all classes not heretofore ex- empted. And this is in face of the constitutional guaranties, state and federal, of perfect equality of the citizen before the law. Even in the matter of labor, the iniquitous character of the enactment under dis- cussion is apparent. This statute makes no exemption of labor, or of the products of labor. Under its terms and provisions the laborer is subjected to punishment for doing the very act that the land-owner or farmer is authorized to do. The original producer, if a farmer, has authority to combine to fix prices, restrict trade, build up monopolies, while the original producers in other lines of labor are denounced for combining. The agricultural products of the farmer are the fruits of his labor, but no more so than the manufactured articles of the work- CLASS LEGISLATION 329 XIV We have mentioned some of the direct attempts to ex- empt certain favored classes from the operation of laws aimed at other classes, but there is the indirect and more vicious method of accompHshing the same result, which is to pass laws covering all classes, but not enforce them against the favored classes. ingman are the fruits of his labor. The blacksmith, the carpenter, and all other artisans purchase their raw material, and the manufactured products constitute the fruits of their labor, upon which they must rely for the sustenance of themselves and families, just as the agricul- tural products of the farmer constitute the fruits of his labor, upon which he relies for similar purposes ; yet the statute prescribes total inequality between these classes, and encourages the one to build up monopolies, while denouncing the others, if they make an attempt in the same direction; or, to apply the provisions of the statute to the matter of livestock, from which application this inequality becomes still more apparent, the cattle king may raise his thousands of head of live- stock each year, and, so long as his stock remains in his hands, he can combine, not only with his neighbors, but with all other similar original producers throughout the state of Texas, or even throughout the United States, for the purpose of fixing the prices and monopoliz- ing markets. Not so, however, with the hands which he employs, and which constitute the ordinary labor of the ranch. The fruits of the labor of the latter class are his day's work. This may be paid him either in money, which he invests in stock, or it may be paid him in stock, on shares, or otherwise; and yet, not being the original pro- ducer, he is forbidden to make any combination of any character whereby the price of the fruits of his labor can be promoted or regu- lated in any manner whatsoever. These common laborers on the ranch can form no agreement among themselves whereby they can maintain the prices of their labor, and yet the ranch owners can combine with other ranch owners with reference to the prices of their products which constitute the fruits of their labor. The demonstration can be carried to a further absurdity by simply calling attention to the fact that, under the terms of the statute, the farmer or stock-raiser may combine with any person, firm or corporation whatsoever, or any number of them, in respect to agricultural products he has produced, or livestock he has raised, without fear of punishment under the law, and yet the party or parties with whom he makes such a combination may be held liable to all the penalties denounced against such combinations. Two citizens may combine, therefore, for the purpose of fixing prices ; one, by doing so, committing a crime, and the other, by doing so, performing a laud- able act. If this is equality before the law, within the meaning of the constitution, we had better revise the constitution." 330 THE NEW COMPETITION The direct method has at least this merit, it is straight- forward and open; the indirect is a cowardly evasion of the issue. The administration of the Sherman law is an illustra- tion in point. There is no question that in its terms that act covers combinations of labor and combinations of farmers when they affect interstate commerce. In the few cases that have arisen the courts have been obliged to so hold, yet prac- tically every prosecution under the act and every hill Hied to dissolve a combination have been against combinations of manufacturers, dealers and railroads, notwithstanding violations by other classes have been open, notorious and flagrant. The threat of the Brotherhood of Locomotive Engineers to absolutely stop inter-state traffic on over fifty railroads unless their demands for increased wages are granted, is a case in point. XV The extent to which the cooperative movement is spread- ing among farmers is shown by the following, taken from a comprehensive summary by an authority on the subject '} "Anyone who does not follow the subject will be sur- prised at the extent of successful cooperation among farm- ers of the United States and the rapidity with which it spreads." "The producers are finding out in every section of the country that it is necessary ; and in every part of the coun- try they are profiting by it." "In Michigan the grape-growers have very efficient associations." *"The Cooperative Farmer," by John Lee Coulter, a Minnesota farmer, of Mallory, Minn.; member of the Faculty of the University of Minnesota, and Supervisor of Agricultural Statistics of the Census Bureau. See World's Work, November, 191 1, pp. 59-63- CLASS LEGISLATION 33 1 "In the grain-growing states the farmers own approxi- mately 1, 600 grain elevators. These range in value from $4,000 to $10,000, and everyone looks after the market- ing of approximately 150,000 bushels of grain." "There are in this region about 200,000 cooperating farmers," . . . "and they control the sale of nearly 250,000,000 bushels of grain.*' Many of these societies look after the selling of other farm products, act as live-stock shipping associations, and purchase such twine, fuel, fertilizers, and feed as the farm- ers need. In the same northern states where dairying is import- ant, there are now probably 2,000 cooperative creameries. In the same states the farmers own more than 150 co- operative stores, hundreds of cooperative telephone com- panies, and mutual fire insurance companies. In Colorado the Grand Junction Fruit Growers are well organized. In Idaho, Washington, and Oregon, there are a number of local marketing associations. In California "the fruit growers* exchange controls the marketing of probably three-fourths of the citrus fruits pro- duced. Other smaller organizations control most of the re- mainder." The California Fruit Growers' Exchange is looked upon as the most successful farmers' organization in the United States. "The 10,000 members have about 300 packing houses and produce 50,000 carloads of fruit every year." The California Fruit Exchange, which is very much like! the Fruit Growers' Exchange, looks after the marketing of the deciduous fruits. "The recently organized Almond Growers' Exchange, with a dozen local societies, controls the marketing of con- siderably more than half the almonds produced in the United States." "The Walnut Growers' Association, with eighteen local 332 THE NEW COMPETITION societies, controls the marketing of 15,000,000 pounds of walnuts, which is probably eighty per cent, of the walnuts grown m the United States." In Virginia the farmers of two counties have an ex- change that handled in 19 10 more than 1,000,000 barrels of Irish potatoes and 800,000 barrels of sweet potatoes in ad- dition to thousands of crates of berries and other products. The apple growers of Virginia are organized and the peach growers of Georgia are struggling with their prob- lem. "A successful fruit exchange would know almost ex- actly how much fruit could be shipped from day to day, how many cars would be needed, what the principal rates would be to the different markets, how many cars of peaches the people in the different cities would need from day to day, what outside competition would have to be met, and practically what prices should be received" That same organization could purchase crates and ma- terials for members and make a saving. The citrus fruit producers of Florida are trying to fol- low California methods. "It is to the interest of all the people of Florida, and indeed of all consumers of good fruit, to help in every pos- sible way to reduce the cost of fruit by better marketing methods, to carry better fruit to the consumers, and at the same time to make the growers more prosperous by giving them a larger share of what the consumer pays.'* There are several hundred organizations among the cot- ton growers. "There should be several thousand local cooperative unions tt> control local gins, warehouses, presses, and oil mills/' "The time has passed for petty jealousies and indi- vidual bartering. Business must be done in a business-like way." CLASS LEGISLATION 333 There are in the lower South and in Tennessee and Ken- tucky a number of srnall local societies interested in the marketing of vegetables and such products. "In Tennessee and Kentucky the tobacco growers have been struggling for some years to improve their conditions. They have made some mistakes. 'Night riding' and lim- itation of output — both of these were written about but practiced very little — were serious errors. These farmers should follow the lead of the southern cotton growers. First of all, they must own their warehouses; and they should control the tobacco which they produce until they are able to get fair prices for it/' The rice growers in Louisiana and Texas have taken up the new movement. The Louisiana organizations, with headquarters at Crowley, have adopted the methods of the California fruit growers. Texas truck growers along the southern border are in- corporated, membership in 1906 covered 70 per cent, of the crop. Speaking of the advantages of the movement : "Educational and social advantages are everywhere noticeable, but the money gain 'sticks' out clearly or the companies would not last long/' "The Farmers' Cooperative Elevator Co. of Wheaton, Minn., handled about 100,000 bushels of grain last year and declared a dividend of 40 per cent. Two years ago the company at Clinton, Minn., declared a dividend of 40 per cent. There are many better records than this." We have italicised certain portions of the foregoing paragraphs to emphasize the argument to follow. XVI Cooperation of labor is here to stay. Cooperation of farmers is here to stay. 334 THE NEW COMPETITION Cooperation of manufacturers and dealers is here to stay. Those are three vital facts that cannot be disputed, and the man, or body of men, who fights against any one of those propositions is struggling against an irresistible cur- rent. If any one of the three classes denies the right, the moral, the economic, the legal right of either of the others to co- operate, that class cuts the ground from beneath its own feet. What are the plain truths about the cooperative associa- tions described? With few exceptions all are organized for the express purpose of controlling and restraining interstate commerce. With few exceptions each is a combination in violation of the Sherman law — if the many decisions of the courts against combinations of manufacturers and dealers are ap- plied without fear or favor. Between a combination of fruit growers that controls the price of fruit and a combination of fruit preservers that controls the price of the same fruit canned, the court does not exist that can draw any fair and logical distinction so far as the ultimate consumer and the Sherman law are con- cerned, yet no lawyer would dare advise the preservers they could organize to control the prices of preserves. XVII In the paragraphs quoted substitute the term "manufac- turers" for farmers and try the result on some court that is hearing a case against manufacturers. Take this : "There are in this region about 200 cooper- ating mills (instead of 200,000 farmers) and they control the sale of 2,500,000 barrels of flour" (instead of 250,000,- 000 bushels of grain). CLASS LEGISLATION 335 Does any man doubt the combination of mills would be held illegal and every member be liable to indictment and conviction? Yet where is the distinction? Again: "The recently organized Association of Almond Dealers (instead of almond growers) controls the market- ing of considerably more than half the almonds produced in the United States." The combination of dealers would be illegal, yet where is the distinction f Again: The association of Wholesale Grocers (instead of Walnut Growers) controls the marketing of 80 per cent, of the nuts grown in the United States. A grocers' association has been in trouble for doing less, yet where is the distinction? To paraphrase further — a successful combination of salt companies (instead of fruit exchanges) would know almost exactly how much salt could be shipped from day to day, how many cars would be needed, what the freight rates would be to the different markets, how many cars of salt (instead of peaches) the people in the different cities would need from day to day, what outside competition would have to he met, and practically what prices should he received. The salt makers have tried this and their combination was held illegal, where is the distinction? Lastly, while in the cooperative movement "educational and social advantages are everywhere noticeable, the money gain 'sticks out' clearly, or the companies would not last long." That is precisely the objection urged by the courts against combinations of manufacturers and dealers — the "money gain 'sticks out,' " yet where is the distinction? 33^ THE NEW COMPETITION XVIII The foregoing comparisons are made in no spirit of an- tagonism to the cooperative movement among farmers — it is here to stay, and every disinterested man should wish it God-speed. They are made for the purpose of enlisting the friendly interest of the farmers themselves in a broader and less selfish cooperative movement; to induce them to take a wider and fairer outlook and see that what is good for them must be equally good for labor on the one hand and manu- facturers, dealers, and railroads on the other; that if it is good for growers of wheat and cotton to cooperate it must he equally good for makers of flour and cotton-goods to co- operate, and all for substantially the same purposes. XIX It is curious how the abuse of words tends to bias our reasoning. The misuse of the term "capital" is responsible for no end of mischief. In economic literature and every day speech it is com- mon to use the phrase, ''labor" and "capital" as if the two were antagonistic, opposed one to another. As a natural result all sympathy veers to the side of labor and a false issue is created. Why? Because labor is human and capital is material, and when the impression is conveyed that labor is arrayed against capital, sympathy inevitably flows to the human side. Capital is simply wealth used to produce more wealth. It is at the service of anybody and everybody ; capital would exist just the same in a socialistic community. CLASS LEGISLATION 337 Labor may have a quarrel with employers, whoever they may be, but not with capital. Labor and capital are required to produce wealth, just as a man and a spade are required to dig, and there is no more antagonism between labor and capital than between a man and the spade which is his capital. Comparatively few laborers do not own some capital. In a sense the clothes on their backs and the dinner pail in their hands, to say nothing of the tools they own, are cap- ital. The farmer is a capitalist to the extent of over 28 bil- lions of dollars in land, over 6 billions of dollars in build- ings and over one and one-quarter billions in implements. The farmers of a single state, Iowa, have over $95,000,- 000 in implements alone. The farmers have about twice as much in lands, build- ings and implements — excluding all other items — as the manufacturers of the country have in their factories. All the trusts put together make a small total as com- pared with farm values. The use of the term "capital" to mark divisions between classes is productive of irreparable mischief. XX There are two great classes in every country — those who work for wages, and those who pay wages — employees and employers. In this connection the term labor may be used — though by no means accurately — for employees, but by no stretch of language is it permissible to use "capital" as the equivalent of employers. Much of the literature and three-fourths of the speeches on the wrongs of labor would lose their seeming force if for the term "capital" wherever used were substituted the 338 THE NEW COMPETITION human term actually meant — manufacturers, contractors, employers generally. There would remain the natural rivalry between those who receive and those who pay wages, but belief in an ir- repressible conflict would disappear, since we all know that in this country most men at some time in their lives work for wages, and most men at different times pay wages. The farmer is not only the greatest capitalist in the coun- try, but he is a great employer of labor. In 1909 he paid out $645,000,000 in wages. An article on farm life says } "In reply to the question, *What, in your opinion, is the greatest need of the farmer of to-day, or the greatest prob- lem with which he must contend?' one hundred and eleven out of 440 Missouri farmers answered, 'Hired help'." ^ *"The Farmers on Farm Life," World's Work, November, 191 1. "More than ten years ago, in a work on "The Law of Combina- tion," the writer said: "In the production of wheat, for instance, the farmer has his capi- tal invested in land and improvements thereon, tools and implements, horses, wagons, seed, etc.; it is still necessary for him to hire more or less labor in the course of the year, and especially about harvest time, in order to make his wheat ready for the market and dispose of same ; so far as the cost of production of the wheat is concerned, both the items of labor and consumption of capital are outlays which must be recouped in the price, otherwise the production of the wheat is a loss. So far as the farmer is concerned, it is immaterial whether a combination of labor advances the wages of his harvest hands, or a combination of manufacturers advances the cost of his reaping and threshing machinery: both advances must be recouped in the price of the wheat. Confining our view for the moment to the hypothetical farmer, it would be manifestly unjust to forbid him by law from com- bining with other farmers to get a better price for his wheat, if the law permits labor to combine to make him pay higher wages, and manu- facturers to combine to make him pay higher prices for his reaping and threshing machinery. What is true in this connection concerning the producer of wheat is true of the producer of every other com- modity." CLASS LEGISLATION 339 XXI In all these cooperative movements farmers are capital- ists just as much as makers of iron and steel are capitalists. In the article referred to it is said the farmers of certain grain-growing states own i,6oo grain elevators and "have invested about $15,000,000." Few steel companies have that investment. The Tamarack cooperative association of Michigan on February i8th, 191 1, declared to purchasers of goods its twentieth annual dividend, $104,821.60, equal to 162 per cent, on its capital stock. Since its organization this so- ciety has done a business of $8,113,917.85 and returned to its members rebates of $938,033.67. Few manufacturing or mercantile concerns of anything like the same size can make equal showing. In January, 1906, the Texas truck growers organized their association "with a capital of $10,000. Shares were to be sold at $1 each, but every member was required to buy at least five shares, he was required, however, to pay only thirty per cent, of his subscription at the beginning. Thus any farmer could easily join the organization. Growers of about seventy-five per cent, of the crop for 1906 became members, and that year the association marketed 900 car- loads. In 1909 it handled 2,500 carloads with an approxi- mate value of $1,500,000." In its capitalization, paying in of only thirty per cent., its control of the industry, and its rapid development, the history of this association reads like the story of a New Jersey trust in the deft hands of Wall street promoters — but it is nothing of the kind, it is simply the natural and logical banding together of a number of farmers to get better prices for what they raise. 340 THE NEW COMPETITION XXII In this cooperative movement the farmer — though he may not realize it — stands shoulder to shoulder with the manufacturer; the labor unionist shoulder to shoulder with his employer. The problem is a large one and demands the harmonious efforts of all to solve it. Just now the farmer clamors for a more drastic Sher- man law. The labor unionist has been hurt by that same law and clamors for some amendment or interpretation that will exempt his union, and yet smash the employers' combina- tion. The far-seeing labor-leader is already calling a halt upon indiscriminate assaults upon associations of employers, he sees that their cooperation is essential if his union is to sur- vive. A century ago the labor union was as obnoxious to the public and to legislatures as a trust is to-day. The union has outlived all that odium, and is condemned to-day only for what it does that is unfair or criminal. The time will come when unions of manufacturers and other classes will be treated as legal and natural and be con- demned only for what they do that is unfair or criminal. Union per se will not be a crime in any class. XXIII Not only have legislatures, as already shown, recognized the legal and economic status of labor unions, but the courts in almost countless cases have approved their existence, ap- proved them as combinations for the purpose of control- ling wages. CLASS LEGISLATION 34 1 The Court of Appeals of New York said : "In the general consideration of the subject, it must be premised that the organization or the cooperation of workingmen is not against any public policy. Indeed, it must be regarded as having the sanction of the law when it is for such legitimate purposes as that of obtaining an ad- vance in the rate of wages or compensation or of maintain- ing 'such rate. It is proper and praiseworthy, and perhaps falls within that general view of human society which perceives an underlying law that men should unite to achieve that which each by himself cannot achieve, or can achieve, less readily." ^ President Taft when on the bench said: "It may be conceded in the outset that the employees of the receiver had the right to organize into or to join a labor union which should take joint action as to their terms of employment. It is of benefit to them and to the public that laborers should unite in their common interest and for lawful purposes. They have labor to sell. If they stand together they are often able, all of them, to com- mand better prices for their labor than when dealing singly with, rich employers, because the necessities of the single employee may compel him to accept any terms offered. The accumulation of a fund for the support of those who feel that the wages offered are below market prices is one of the legitimate objects of such an organization. They have the right to appoint officers who shall advise them as to the course to be taken by them in their relations with their employer. They may unite with other unions. The officers they appoint, or any other person to whom they choose to listen, may advise them as to the proper course to be taken by them in regard to their employment, or, if they choose to repose such authority in any one, may order them, on pain of expulsion from their union, peaceably to leave the employ of their employer because any of the terms of their employment are unsatisfactory." ^ * Curran vs. Galen et al. (1897), 152 N. Y. 33, 46 N. E. R. 297. 'Thomas vs. Cm. N. O. & T. P. Ry., 62 Fed. Rep. 803. 342 THE NEW COMPETITION Labor has achieved its emancipation, it has won the right to combine to control wages. Farmers have practically, though not so explicitly, achieved their emancipation, they are tacitly conceded the right to combine to advance prices. It isjcertain that in the near future employers generally — manufacturers, merchants, producers of all classes, will achieve their emancipation, will win the right to combine to regulate the prices of what they have to sell. At present the country is in the anomalous and highly unstable condition of being half free, half slave. Labor- ers are entirely free to combine; farmers are half free, half slave; manufacturers, merchants and dealers are all slave. Even railroads are better off than manufacturers and dealers ; they combine to fix rates, though the law in terms forbids. Railroads must act in concert regarding rates and therefore they do. Because of this fact President Roose- velt twice urged Congress to amend the law so as to per- mit the roads to do legally what they are now forbidden to do, but compelled by conditions to accomplish indirectly. XXIV Manufacturers and dealers are punished for simply com- bining; courts even go so far as to point out that the par- ticular combination under investigation may have done no one any harm, may even have done good. The State of Missouri filed suit against the Interna- tional Harvester Company of America.^ When the case * The International Harvester Company of America is a Wisconsin corporation; it is the selling corporation for the products of the Inter- national Harvester Company of New Jersey, the manufacturing com- pany. The New Jersey company owns all the stock of the Wisconsin CLASS LEGISLATION 343 reached the Supreme Court the several judges in their opin- ion found : "In 1902, when the negotiations which led up to the organization of the International Harvester Company were begun, competition between the large harvester machine companies in the United States was such as to reduce the market to a condition that was deplorable from the stand- point of the competing companies and it is not certain that its tendency was toward the ultimate advantage of the consumer of those machines. Whilst the tendency of fair competition is to produce a wholesome condition of the market, yet competition may be of such a character and so designed as to destroy the weaker competitors, leaving only the giant in the field, who then would have a monopoly of the market." "The evidence also shows that the price of harvester machines was not materially higher after the New Jersey corporation entered the field than it was before, until 1908, when it was increased eight or ten per cent., whilst in the meantime there had been a greater increase in the price of the material and labor used in their construction. The evidence also shows that whilst harvesting machines were the chief products of the companies absorbed by the Inter- national Harvester Company, that company has greatly enlarged its business and extended it to many other farm implements and has thus put itself in competition with the many concerns that theretofore were and still are engaged in manufacturing such other farm implements, and the farmers generally have profited thereby. The evidence also shows that the machines manufactured by the International Company have been greatly improved in quality, and the item of repair material has been reduced in price and placed within closer reach of the farmer. On the whole, the evidence shows that the International Harvester Com- pany has not used its power to oppress or injure the farmers who are its customers.'* "In this case the court is required by the statute to pro- nounce a judgment of condemnation upon a combination corporation. The New Jersey company had no plant, and maintained no office in Missouri, consequently was not a party to the suit. 344 THE NEW COMPETITION which is proved by the facts as they appear in this record to have been so far beneficial to the community/* ^ *In Cote vs. Murphy et al. (1894), 159 Pa. St. 420, the court said: "The fixed theory of courts and legislators then was that the price of everything ought to be, and, in the absence of combination, neces- sarily would be, regulated by supply and demand. The first to deny the justice of this theory, and to break away from it was labor; and this was soon followed by the legislation already noticed, relieving workmen from the penalties of what for more than a century had been declared unlawful combinations or conspiracies. Wages, it was argued, should be fixed by the fair proportion labor had contributed to produc- tion; the market price, determined by supply and demand, might or might not be fair wages, often was not, and as long as workmen were not free, by combination, to insist on their right to fair wages, oppres- sion by capital, or, which is the same thing, by their employers, fol- lowed. It is not our business to pass on the soundness of the theories which prompt the enactment of statutes. One thing, however, is clear: the moment the legislature relieves one, and by far the larger number of the citizens of the commonwealth from the common-law prohibitions against combinations to raise the price of labor, and by a combina- tion the price was raised, down went the foundation on which the com- mon-law conspiracy was based, as to that particular subject. Before any legislation on the question, it was held that a combination of work- men to raise the price of labor, or of employers to depress it, was un- lawful, because such combinations interfered with the price, which would otherwise be regulated by supply and demand. This interfer- ence was in restraint of trade or business and prejudicial to the public at large. Such (a) combination made an artificial price. Workmen, by reason of the combination, were not willing to work for what, other- wise they would accept Employers would not pay what otherwise they would consider fair wages. Supply and demand consist in the amount of labor for sale, and the needs of the employer who buys. If more men offered to sell labor than are needed, the price goes down, and the employer buys cheap. If fewer than required offer, the price goes up, and he buys dear. As every seller and buyer is free to bargain for himself, the price is regulated solely by supply and demand. On this reasoning was founded common-law conspiracy in this class of cases. But, in this case, the workmen, without regard to the supply of labor, or the demand for it, agreed upon what, in their judgment, is a fair price, and then combined in a demand for payment of that price. When refused, in pursuance of the combination they quit work, and agree not to work until the demand is conceded. Further, they agree, by lawful means, to prevent all others, not members of the combination, from going to work until the employers agree to pay the price fixed by the combination. And this, as long as no force was used, or menaces to person or property, they had a lawful right to do; and so far as is known to us, the rise demanded by them may have been a fair one. But it is nonsense to say that this was a price fixed by supply and demand. It was fixed by a combination of workmen on their combined CLASS LEGISLATION 345 XXV Enough has been said to satisfy the impartial reader that the drift is toward larger and larger cooperation, and that, too, despite attempts to legislate to the contrary. Naturally manufacturers are timid about entering any form of association, for they cannot know at what moment they may be indicted as criminals. As a result more or less demoralization prevails in almost every industry, demora- lization of prices, demoralization of methods. All the evils, all the unfair, oppressive and vicious practices of the old competition prevail. The basic proposition of the Open-Price Association, namely, that men have the right to publish prices and make known all conditions surrounding business, is so far be- yond debate or question that it is practically axiomatic; if they have that right it goes without saying they have the right to cooperate in any manner necessary to gather and publish the information. Spreading of knowledge of facts and conditions is one of the enlightened efforts of the age. The theory is that if a man can be fully informed regarding all he has to con- tend with, he will be in a better position to get fair wages and fair prices. The prime object of the Department of Agriculture is to enable farmers to get better crops and better prices. The judgment as to its fairness; and, that the supply might not lessen it, they combined to prevent all other workmen in the market from accept- ing less. Then followed the combination of employers, not to lower the wages theretofore paid, but to resist the demand of a combination for an advance; not to resist an advance which would naturally follow a limited supply in the market, for the supply, so far as the workmen belonging to the combination were concerned, was, by combination, wholly withdrawn, and as to workmen other than members, to the ex- tent of their power, they kept them out of the market. By artificial means the market supply was wholly cut off." 346 THE NEW COMPETITION prime object of the Department of Commerce and Labor is to enable labor to get better terms and better wages. It ought to be the object of some department to help manufacturers and dealers to get better returns for better products. But so far the only solicitude betrayed by any depart- ment of the government regarding manufacturers and deal- ers is to force them to sell at the lowest prices under the most adverse conditions. Class legislation and discrimination must go. XXVI Since this chapter was written, Congress has passed section 6 of the Clayton Law, and the Supreme Court of the United States has held constitutional exemptions of labor, agricultural, and horticultural organizations from anti-trust statutes.^ 1 International Harvester Co. of America vs. State of Missouri. For a very complete review of the decisions pro and con on this, see the briefs filed in that case and the authorities cited from the briefs in the report of the opinion, 234 U. S. Sup, Ct., Lawyers' Ed., pp. 197-202. CHAPTER XX CONSTRUCTIVE LEGISLATION We are on the eve of great things. For more than ten years the country has been tuggfing at the leash of legislation that hinders progress.^ The Sherman law is destructive in purpose and applica- tion. State "anti-trust" acts are framed to tear down and destroy — what ? Cooperative movements that are the logical, the inevi- table results of economic conditions. II Law has so little meaning to most men they look upon it as a cure-all and give it in large doses for every ill, where- as of all remedies it is the most difficult to rightly adminis- ter. *"In my judgment, the present law against pools, trusts, and combinations is ineffective to protect the people against combinations of capital. The courts may dismember an organization, but they will hardly attempt to confiscate its property; so that, after dismemberment, the ownership and control will continue substantially as before. To permit combinations to exist, and at the same time secure to the people the natural and legitimate benefits of such combination, is a problem not yet solved. To forbid, as the law in question does, the existence of all combinations that lessen competition compels a halt in the natural march of industrial development, and deprives the people of the benefits which should result from improved business methods." — By Judge Ferriss, in State vs. International Harvester Co. of America, 237 Mis- souri 369. 347 348 THE NEW COMPETITION Men are so perversely constituted they seem to prefer compulsion to cooperation ; they call upon the state to com- pel them by law to do what they ought to do for them- selves, to frame rules of conduct they should voluntarily devise for their own protection. While it is true the rise of freedom is the development of law, it is also true that the history of the law is one long story of man's fight for liberty. Which is but another way of saying that the rules of conduct which define — and by defining, create — liberty, yield slowly and stubbornly to the irresistible forces of progress, thereby making law to appear a laggard in the march of events, but that is its value, for if it yielded to every passing impulse, every wave of opinion, it would not be law, but anarchy. Is it not strange how men in all ages appeal to this conservative force to accomplish the most radical things — appeal to law to overturn law, pass laws to do things repug- nant to the fundamental concepts of law? Except for mischief, a law is of no effect unless it ex- presses what the people really want and what they believe to be fair and right. Ill This is a big country and does things in a big way ; it is a rich country and it does things with the reckless prodigal- ity of suddenly acquired wealth. Whatever we do is done on the scale of ninety millions of people and one hundred and thirty billions of riches. We have grown so fast, made money so fast, that we are wasteful, extravagant, careless. We do things we ought not to do both in the making and in the spending. We have taken little thought of the morrow because the day is filled with such golden opportunifie^. CONSTRUCTIVE LEGISLATION 349 But our speed has become so headlong, developments have piled upon developments so fast, changes followed changes with such breathless rapidity, the people are fright- ened; the very size of things startles them. As fortunes got bigger and bigger, and corporations became more and more powerful, and trusts were formed, it was thought time to call a halt, and laws were passed to curb — progress! IV These laws are not well drawn because what they were aimed at was not well understood. The "trust" was looked upon as a thing apart, as a mon- ster to be annihilated. It was not clearly seen that the trust is just as legitimate, just as logical a development of eco- nomic conditions m this marvelous country as are the cor- poration and the partnership. The trust is simply one of our big ways of doing things, and in and of itself the billion dollar corporation doing business in the world at large is no more to be feared than the million dollar corporation doing business in a small town, or the ten thousand dollar part- nership doing business in the country village, each may dominate its particular sphere, and dominate it in the same way and by precisely the same methods, and each may abuse its powers. Of all peoples on the face of the globe the American people ought to be the least fearful of mere size. But we are — or rather have been, for fear of size is pass- ing. We have framed laws aimed not at methods but at magnitude. We passed the Sherman Act which is aimed at size, and for many years the courts applied that act to 350 THE NEW COMPETITION combinations irrespective whether the things they did were fair and reasonable or not, but of late a change has come over the country, our eyes are becoming accustomed to magnitude, no longer do we jump at the sight of a trust like a small boy at a shadow in the dusk; we are beginning to see that size has its advantages as well as its disadvan- tages; that it enables men to do things on a scale com- mensurable with the wealth, the resources, the power of the country — in short that the much feared, much hated trust may have its place in the economy of national and international trade. VI When the Sherman law was passed there were so few trusts in existence no one knew much about them; now — twenty odd years after — there are so many in every state, in every city, in almost every country town that the aver- age school boy knows all about them. They have been so denounced, debated, discussed that no one is ignorant of their number, their steady increase, and their uses. The common people have come to see clearly that there is very little difference between combinations — trusts — of labor, and combinations of farmers, merchants, manufactur- ers. They all have in view the one end — better returns for their efforts. As a natural result the old destructive laws have fallen into disrepute, and there is a wide demand for constructive legislation. VII Many so-called progressives, or radicals, loudly oppose the repeal of the Sherman law, but even they admit the absolute need of supplemental legislation, and it is quite CONSTRUCTIVE LEGISLATION 35 1 apparent from the bills they have introduced or advocated in Congress that while they oppose all direct attacks on the Sherman law, they concede it is obsolete and mischievous in its operations. The more the entire subject is debated, the clearer it is that public sentiment is crystallizing in favor of legislation that will regulate instead of destroy, that will get all there is of good in trusts and large combinations and suppress all there is of evil, and out of this sentiment will spring the much more vital conviction that before trusts and large corporations can be effectually dealt with all that is evil, oppressive and unfair in the practices of the individual must be suppressed. In other words, we are on the road that leads straight toward the adoption of higher standards of conduct in commerce and industry. VIII The agitation against trusts has led to a critical ex- amination of the conduct of the individual and men see to-day as they have never seen before that the trouble lies within and not without. A law aimed at a ten million dollar corporation or a billion dollar trust because of its size is no law at all, it is merely an expression of blind prejudice since the corpora- tion or trust half the size may do things far more oppressive and unfair. The large corporation may need more careful watching, greater publicity, because its power is so great, and without watchfulness on the part of the public and publicity in all its operations it may be tempted to abuse its advantages, but kept within the bounds of fair and straightforward dealing, its size may be of great value to the community. 352 THE NEW COMPETITION IX It is easy and instinctive to condemn what we do not understand. It is much easier to pass a law aimed at this, that or the other object, than it is to frame a law that will reach and correct abuses. It is far easier to frame a law that will hit the Standard Oil Company than it is to frame one that will search out and condemn oppressive and unfair methods whether used by a corporation or an individuaL Anti-Trust legislation has been drawn along the lines of least resistance ; it is safe to say that no law has been passed against trusts and monopolies that has not been framed with some conspicuous trust in mind, and in probably every in- stance, the Standard Oil Company. That legislation so im- portant and far-reaching in its general consequences should turn on popular hatred for one large company is a confes- sion of weakness. XI But the tide has turned, there is a loud and louder de- mand for laws that will remedy abuses — no matter by whom practiced. There is a demand for better standards of busi- ness morality, for a better business code. There is an op- portunity for statesmanship of the highest order. Our Rep- resentatives and Senators may not realize the extent and the character of this golden opportunity; most of them may cling close to the ground to catch the murmurings of shift- ing public opinion ; most of them may try to talk and vote as they think the people would like to have them talk and vote; few may understand that in the long run the people CONSTRUCTIVE LEGISLATION 353 love and respect the men who talk and vote as their con- sciences dictate. But there are men who are looking far ahead, who are anxious to have a part in doing things that will help make the history of their country, who wish to have a part in the adoption of an enlightened constructive policy and the future depends upon their conscientious efforts. The much vaunted Sherman law will pass into economic history along with such English laws as those against "re- grating," ** forestalling," and "engrossing," and laws against labor unions — as one of man's many futile attempts to check evolution. Its chief value lies in the fact it has aroused the country, made men see the necessity of doing something of affirmative value. XII More than once in the preceding chapters we have indi- cated some of the things the new laws will provide for and against; a brief summary, however, will not be out of place in these concluding pages. Any law that is formed should be comprehensive in its scope and with two prime objects in view. A. Publicity — the frank and free disclosure of all com- petitive practices. B. Reform — ^the suppression of all dishonest, fraudu- lent, oppressive and unfair business methods. Publicity will accomplish three-fourths of the reforms. The law should provide for: I. A Federal Commission to hear and adjust all con- troversies arising under the law. Inasmuch as the principles governing the deliberations of the proposed commission would be essentially the same as the principles controlling the decisions of the Interstate Commerce Commission, the two should be branches of the one tribunal; this would be 354 THE NEW COMPETITION all the more appropriate in view of the additional fact that many important trade and industrial questions could not be determined without taking into consideration rates and questions of transportation. This Commission would need to have branch courts or divisions in different sections, with, possibly, agents or dep- uty commissioners in every city of importance; say every federal judicial district — these are matters of detail. 2. Every corporation engaged in interstate commerce should be required to take out a license and file certain gen- eral information regarding capitalization, capacity, output, etc., etc., and such other details as the development of the new plan shows to be important. Federal incorporation may be desirable but is not essential. Whether individuals and partnerships engaged in inter- state commerce should come under all the provisions of the law is a matter of serious consideration, the law may, and very properly should, recognize the distinction that ex- ists between the individual or the partnership and the cor- poration. The latter being a legal entity and wholly de- pendent upon the law for permission to do business at all, may be subjected to more rigid requirements. In fact, if it should be so desired, the law at first might be made to in- clude only corporations, leaving individuals to come under its provisions later as they become convinced of the value of publicity and frankness. But if individuals are to be allowed to complain of the acts of corporations, they, in turn, should be subject to the same rules of fair conduct, for an individual, having less at stake, may hurt a corporation by unfair competition more than the corporation can hurt him. 3. Require the use of a uniform system of accounting, especially of cost accounting, and make any intentional fail- ure to keep absolutely truthful and accurate records of all purchase! and all sales a punishable offense. CONSTRUCTIVE LEGISLATION 355 4. Make the following acts punishable : (a) Billing at other than actual terms. (b) Secret rebates, terms, commissions. (c) Shipping of quantities or qualities of goods other than those described in invoices. (d) False or misleading statements regarding (a) costs, (b) sales, and (c) prices charged others. (e) Refusal to tell one buyer when lower prices have been charged others for similar goods. This provision would do more than anything else to bring about fair and frank trading. 5. Make the following acts subject to rigid investigation on complaint of any party claiming to be injured, and make them pu'nishable if it should appear they were done with intent to injure anyone. (a) Selling at, or below, cost. (b) Selling to one man on better terms than are charged his competitor. (c) Selling in one locality at different prices from those charged in another — all other conditions being equal. The foregoing general provisions constitute a business code appropriate to all, whether individuals, partnerships, corporations or trusts — it would tend toward fair trade and higher business standards} The following have to do with the formation of associa- *ions to help trade conditions, and which would be useful in applying the principles of the new code. In fact, without associations it would be impossible for a federal commis- sion to enforce the proposed provisions which are general in character. Only the parties engaged in a trade or industry are in a position to work out the details, and formulate the rules necessary to compel obedience. The public does not realize how eager the best business men are to do some of these very things, how gladly they would '"blacklist" the * Sec German code, appendix, pp. 358, 359. 356 THE NEW COMPETITION manufacturer or dealer who resorts to tricky or unfair prac- tices, but the law as it stands does not permit them to get to- gether and act as a unit ; the following suggestions are mad-e to meet this condition : 6. Remove all restrictions upon the organization of as- sociations and combinations to control occupations, trades and industries; on the contrary directly encourage such organizations, encourage men to do for themselves the things that should be done, but under the following condi- tions : (a) Each association shall file its articles of agreement and the details of its organization with the proper federal department. (b) Its meetings shall be open to any representative of the government who, in the performance of his duties, wishes to attend, and he shall have power to examine all records, files and papers, and to question officers and mem- bers regarding not only the transactions of the association, but their own acts in furtherance of the objects of the asso- ciation. (c) Power in the federal commission, upon complaint of any party, to review the acts of the association, if neces- sary revise and fix prices and conditions of purchases and sales, award damages, enforce penalties, dissolve the asso- ciation. (d) Power, also, to require publicity and to name con- ditions under which representatives of (a) employees, (b) parties who sell to members of association, and (c) cus- tomers, may attend the meetings of the association. With these broad general provisions the country would have nothing to fear from combinations however large. Their influence would be beneficial, and each would work out for its own occupation, trade or industry such rules as would be necessary for compliance with the letter and spirit of the new code. CONSTRUCTIVE LEGISLATION '357 Every objection that can be urged against these sugges- tions was urged with no greater force against the interstate commerce law, yet sharply as that law has been criticized by railroad men here and there, the railroad world as a whole would not go back to the old demoralized conditions that prevailed in the days of unfettered competition, the days of secret rebates, of arbitrary and unfair discrimina- tion in rates. Ten years from now manufacturers will look back upon existing conditions in the industrial world as equally bar- baric. XIII It is gratifying to note that in the Clayton and Trade Commission Laws some of the things urged in this chapter are on the way to accomplishment. The danger ahead is tliat the country has taken so advanced a forward step the reaction may be great. Reaction ever follows action, and already the signs are unmistakable that the country is not only disposed to call a halt on further economic experiments, but even inclined to retrace its steps. For six or eight years a radical spirit prevailed; at the moment ^ a conservative tendency is obvious. The future of the two new laws depends almost entirely upon the wisdom of the new Trade Commission. It will be only too easy for that Commission to so admin- ister the law as to court the fate of the unlucky Commerce Court, for, like the Commerce Court, the Commission faces a feeling of distrust due to the underlying feeling of uncer- tainty regarding what it will do and what the laws mean. Its powers are so great people are afraid. This feeling of apprehension may be easily and quickly allayed, and it is safe to assume that the Commission, com- posed as it is of lawyers, experts, and business men, will ^ Spring of 1915. 358 THE NEW COMPETITION lose no time in demonstrating its power for good — and the power is there. The personnel of the Commission is excellent and its Chairman is not only a lawyer, but his experience as head of the Bureau of Corporations has given him wide and intimate knowledge of business and competitive conditions. APPENDIX I CONDITIONS IN CANADA The Canadian Criminal Code makes it an indictable offense, punishable by fine and imprisonment, for any one to conspire, combine or agree with any person or any transpor- tation company to unduly limit the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any article or commodity which may be the subject of trade or commerce; or, to restrain or injure trade or commerce in relation to any such article or commodity; or, to unduly pre- vent, limit, or lessen the manufacture or production of any such article or commodity, or to unreasonably enhance the price thereof; or, to unduly prevent or lessen competition in the production, manufacture, purchase, barter, sale, transpor- tation, or supply of any such article or commodity, or in the price of insurance upon person or property. In 1910 an Act was passed providing for the investigation of combinations, monopolies, trusts, and mergers. This Act is a step in advance of anything attempted in this country. It provides, first of all, for the appointment of a Registrar of Boards of Investigation. It then goes on : "Where six or more persons, British subjects resident in Canada and of full age, are of opinion that a combine exists, and that prices have been enhanced, or competition restricted by reason of such combine, to the detriment of consumers or producers, such persons may make an application to a judge for an order directing an investigation into such alleged combine. "2. Such application shall be in writing, addressed to the judge, and shall ask for an order directing an investigation into the alleged combine, and shall also ask the judge to fix a time and place for the hearing of the applicants or their representative. 359 36o THE NEW COMPETITION "3. The application shall be accompanied by a statement setting forth : *'(a) The nature of the alleged combine and the persons be- lieved to be concerned therein. "(b) The manner in which the alleged combine affects prices or restricts competition, and the extent to which the alleged combine is believed to operate to the detriment of con- sumers or producers. "(c) The names and addresses of the parties making the application and the name and address of one of their number, or of some other person whom they authorize to act as their representative for the purposes of this Act and to receive com- munications and conduct negotiations on their behalf. "4. The application shall also be accompanied by a statu- tory declaration from each applicant, declaring that the alleged combine operates to the detriment of the declarant as a con- sumer or producer, and that to the best of his knowledge and belief the combine alleged in the statement exists, and that such combine is injurious to trade, or has operated to the detri- ment of consumers or producers in the manner and to the extent described, and that it is in the public interest that an investigation should be had into such combine." Within thirty days after receiving the application, the judge is to fix a time and place for hearing applicants. At such hearing applicants may appear in person or by counsel. "If, upon such hearing, the judge is satisfied that there is reasonable ground for believing that a combine exists which is injurious to trade, or which has operated to the detriment of consumers or producers, and that it is in the public interest that an investigation should be held, the judge shall direct an investigation under the provisions of this Act; or, if not so satisfied, and the judge is of opinion that in the circumstances an adjournment should be ordered, the judge may adjourn such hearing until further evidence in support of the applica- tion is given, or he may refuse to make an order for an investigation." The order of the judge directing investigation is transmit- ted to the Registrar by registered letter, "and shall be accompanied by the application, the statement, a certified copy of any evidence taken before the judge, and the statutory declarations. The order shall state the matters to be investigated, the names of the persons alleged to be con- CONDITIONS IN CANADA 361 cerned in the combine, and the names and addresses of one or more of their number, with whom, in the opinion of the judge, the Minister should communicate, in order to obtain the recom- mendation for the appointment of a person as a member of the Board, as hereinafter provided." Thereupon, a Board of Investigation is appointed, consist- ing of three members, one of whom is appointed on the recom- mendation of the persons who made the complaint, the second on the recommendation of the persons against whom the com- plaint is made, and the third on the recommendation of the two members so chosen. Provision is made for failure of parties to agree on mem- bers. The third member of the Board acts as its chairman. Before entering upon their duties, each member is required to take an oath, the form of which is prescribed in the Act. "Upon the appointment of the Board, the Registrar shall forward to the chairman copies of the application, statement, evidence, if any, taken before the judge, and order for investi- gation, and the Board shall forthwith proceed to deal with the matters referred to therein. "The Board shall expeditiously, fully and carefully inquire into the matters referred to it, and all matters affecting the merits thereof, including the question of whether or not the price or rental of any article concerned has been unreasonably enhanced, or competition in the supply thereof unduly re- stricted, in consequence of a combine, and shall make a full and detailed report thereon to the Minister, which report shall set forth the various proceedings and steps taken by the Board for the purpose of fully and carefully ascertaining all the facts and circumstances connected with the alleged combine, includ- ing such findings and recommendations as, in the opinion of the Board, are in accordance with the merits and requirements of the case. "2. In deciding any question that may affect the scope or extent of the investigation, the Board shall consider what is required to make the investigation as thorough and complete as the public interest demands. "The Board's report shall be in writing, and shall be signed by at least two of the members of the Board. The report shall be transmitted by the chairman to the Registrar, together with the evidence, taken at such investigation certified by the chair- man, and any documents and papers remaining in the custody 362 THE NEW COMPETITION of the Board. A minority report may be made and transmit- ted to the Registrar by any dissenting member of the Board." In the event the persons charged are found guilty of any of the acts complained of the statute provides (i) that the Governor in Council may direct that competing goods be ad- mitted into Canada free of duty. (2) That if the exclusive rights and privileges granted under a patent have been abused, information may be filed in the Exchequer Court praying for judgment revoking such patent. (3) A penalty not exceeding $1,000.00 and costs, for each day after the expiration of ten days, or such further extension of time as in the opinion of the Board may be necessary, from the date of the publication of the report of the Board in The Canada Gazette, during which such person so continues to offend. "The object of this legislation, as expressed in the last an- nual report of the Department of Labour, is to 'place at the disposal of the people a readier and, it is believed, a more effective means than is now available in Canada of disclosing and of remedying the abuses of combines which may be formed, whether as corporations, monopolies, trusts, or mer- gers, or in the looser forms of agreements, understandings, or arrangements, for the purpose of unduly enhancing prices or of restricting competition to the detriment of consumers or producers.* In the last annual report of the Department of Labour, a chapter was devoted to this measure, and the text of the same was also published in the form of an appendix." ^ Up to the present time (July i, 191 2) only one applica- tion has been made and one Board established, and that in the case of the United Shoe Machinery Company, a Canadian corporation. Application was made on November 10, 19 10, but proceedings were stayed by various judicial orders until November, 191 1, when the investigation proceeded at Mon- treal, Toronto, and Quebec, and subsequently completed, but the report of the Board is not yet filed. * Report of Proceedings under The Combines Investigation Act for the year ended March 31, 191 1, being an Appendix to Annual Report of the Department of Labor, 1910-11. APPENDIX II CONDITIONS IN ENGLAND The law in England regarding combinations to maintain prices is in a peculiar condition. It neither approves nor con- demns. It simply declines to enforce such agreements. In so far as they restrain trade, they are "unlawful," because monopolies are repugnant to English law, but there is no provision by law for their suppression. The English courts are committed to this general propo- sition : "Parties engaged in trade have the right to push their trade by all lawful means, and to endeavor by all lawful means to keep their trade in their own hands and exclude others from participating therein. It is lawful to make profitable offers to attract customers from competitors, and they may induce cus- tomers to deal with them exclusively, by giving notice that to such exclusive customers only will they give the benefit of their more favorable terms." In a celebrated case, Mogul Steamship Company vs. Mc- Gregor, et al., it was decided that certain ship owners might combine and threaten shippers, that if they patronized the ships of a competing company the combination would refuse to handle their freight. This was held to be the meeting of competition by competition. In the course of his opinion, Lord Watson said : 'T have never seen any reason to suppose that the parties to the agreement had any other object in view than that of defending their carrying trade during the tea season against the encroachments of the appellants and other competitors and of attracting to themselves custom which might otherwise have been carried off by these competitors. This is an object which is strenuously pursued by merchants, great and small, in every branch of commerce, and it is in the eye of the law 363 364 THE NEW COMPETITION perfectly legitimate. If the respondents' combination had been formed, not with a single view to the extension of their busi- ness and the increase of its profits, but with the main and ulte- rior design of effecting an unlawful object, a very different question would have arisen for the consideration of your lord- ships. But no such case is presented by the facts disclosed in this appeal. I cannot for a moment suppose that it is the proper function of English courts of law to fix the lowest prices at which traders can sell or hire for the purpose of pro- tecting or extending their business without committing legal wrong which may subject them in damages. Until that be- comes the law of the land, it is, in my opinion, idle to suggest that the legality of mercantile competition ought to be gauged by the amount of the consideration for which a competing trader thinks fit to part with his goods or to accept employ- ment. The withdrawal of agency first appeared to me to be a matter attended with difficulty, but, on consideration, I am satisfied that it cannot be regarded as an illegal act. In the first place, it was impossible that any honest man could im- partially discharge his duty in finding freights to parties who occupied the hostile position of the appellants and respondents ; and, in the second place, the respondents gave the agents the option of continuing to act for one or other of them, in cir- cumstances which placed the appellants at no disadvantage." Another judge said: "I cannot see why judges should be considered specially gifted with the prescience of what may hamper or what may increase trade, or of what is to be the test of adequate remu- neration. In these days of instant communication with almost all parts of the world, competition is the life of trade, and I am not aware of any stage of competition called 'fair' interme- diate between lawful and unlawful. The question of 'fairness' would be relegated to the idiosyncrasies of individual judges. I can see no limit to competition, except that you shall not in- vade the rights of another." The Lord Chancellor said : "There are two senses in which the word 'unlawful* is not uncommonly, though, I think, somewhat inaccurately used. There are some contracts to which the law will not give effect ; and, therefore, although the parties may enter into what, but for the element which the law condemns, would be perfect contracts, the law would not allow them to operate as con- tracts, notwithstanding that, in point of form, the parties have CONDITIONS IN ENGLAND 3^s agreed. Some such contracts may be void on the ground of immorality; some on the ground that they are contrary to public policy; as, for example, in restraint of trade, and con- tracts so tainted the law will not lend its aid to enforce. It treats them as if they had not been made at all. But the more accurate use of the word 'unlawful,' which would bring the contract within the qualification which I have quoted from the judgment of the Exchequer Chamber, namely, as contrary to law, is not applicable to such contracts. It has never been held that a contract in restraint of trade is contrary to law in the sense I have indicated.^ The legal status of combinations to competition is summed up as follows: "The non-recognition of associations by the law has im- pressed on them a character of great fragility. Whatever may have been the period for which an association was origi- nally formed, no member need belong to it or observe its rules a day longer than he likes. Nothing can keep him to his con- tract except a sense of honourable obligation, and that does not always resist the temptation of an advantageous order. This fragility is increased by the almost invariable incomplete- ness of an association which very rarely includes all the com- petitors in a district. Some are always left outside to profit by cutting prices a shade below the association rates, or it becomes profitable for another district to invade the territory of the combined traders. Disintegrating forces are always at work, and when trade is bad, and there is a mad rush for orders at any price, so as to reduce costs by a large output, they work with double violence until at length a point comes when, by common consent, the association is allowed to lapse until the frenzy has ended in exhaustion. The history of price associations, pools, and similar bodies will show how they 'rose, and stoop'd, and rose again, wild and disorderly/ "^ "Repressive legislation could only affect the outward form of combination. Amalgamation cannot be prohibited without forbidding the union of even two firms, while to make mo- nopoly illegal would be fruitless where no formal monopoly exists, and there is no way of determining the greater eflFective- ness for evil of a merger including eighty per cent, of the trade over one containing only fifty. No law can suppress 'See "The Trust Movement in British Industry," by H. W. Ma- crosty, p. 19. "The Trust Movement in British Industry," by H. W. Macrosty, pp. 22-2Z. 366 THE NEW COMPETITION the Gentlemen's Agreement, where there are no rules, no con- stitution, no contract, but common action is effected verbally and informally, and yet some of the most oppressive combina- tions have been of that form. Neither combination nor agita- tion should be driven underground, and it is significant that to-day complaints are generally raised in the United King- dom, not against the legally recognized amalgamations, but against associations which have no existence in the eyes of the law, and work in secret. To strike at the methods adopted by combinations is not easy without at the same time repress- ing measures blamelessly adopted by the individual trader. Boycotting, dumping, selling at a loss to crush competition, maintaining prices at the highest level which the market per- mits — these are no monopoly of combinations, but are weapons in everyday use by manufacturers, merchants, and shop- keepers. It would be, indeed, an extraordinary thing to strike at competition in the name of competition." ^ "The effects of trusts and cartels in England have not been so marked as to provoke popular opposition, and, in conse- quence, they have aroused little political discussion. In 1908 Sir G. Parker asked in Parliament whether a committee of inquiry was not desirable, and was informed by the Prime Minister that he was aware of the existence of such combina- tions, and that in some cases their effect might be prejudicial to the public, but that he was not at present prepared to grant an inquiry." * "It is safe to assume that British ^trusts' keep prices on the whole somewhat above what they would be under free competition, but, before attributing this to them as blame, we must be sure that competition prices are healthy prices, an assumption which cannot be made. Close investigation be- tween prices and costs before and after amalgamation would be necessary to determine this question, and, needless to say, the information is not at our disposal. Speaking broadly, there have been very few complaints of price extortion on the part of our great amalgamations, and where made they have generally been supported only by the scantiest of evidence. When the Bradford merchants were at odds with the Brad- ford Dyers' Association they nevertheless admitted that the price policy of the great combine had been moderate." ^ *"The Trust Movement in British Industry/* by H. W. Macrosty, pp. 344-345. ""Monopoly and Competition," by Hermann Levy, p. 315. ""The Trust Movement in British Industry," by H. W. Mscrottj, p. 335- CONDITIONS IN ENGLAND 367 "In 1833 ^ parliamentary committee inquired into the state of manufacturers, commerce and shipping, and the extensive evidence taken showed that in the manufacturing- of finished goods — which alone were, in fact, considered — a vigorous com- petitive struggle was going on. This had produced in the bad years which preceded 1820 such a lowering of prices that the profits of most undertakings were exceptionally small, and in some cases no longer covered the cost of production. The opinions of the experts heard by the committee were charac- teristically expressed by a textile worker: 'We have long considered that part of our grievances was caused by the steam looms and by the competition of foreign manufacturers ; but we consider that a very trifling matter in comparison with the home competition that exists among our masters, and till there is some remedy for that we shall never be better.' Em- ployers and workers seemed equally convinced of the oppres- sive results of competition; but there is no trace throughout the evidence of any united action to restrict or abolish it. Rather, in all branches of industry, competition was regarded as an evil, as inevitable as it was harmful, and the survivors regarded it as little more than a natural consequence of the struggle for existence that the weaker gradually became en- tirely submerged. Adam Smith had taken the ruin of such men as a completely natural fact, unimportant compared with all the advantages of the competition he championed. He had in mind the condition of affairs which an expert stated in 1833 to be prevalent in England, when he said: *I should ascribe to increased competition the misfortunes of many people in England. If too many people run into one line of busi- ness, of course the weaker portion must give way.' " ^ * "Monopoly and Competition," by Hermann Levy, pp. 103-104. APPENDIX III CONDITIONS IN GERMANY Trade combinations in Germany are not organized under special, but are formed and operated under general laws. It is the policy of the Government to encourage syndicates and what are known as "cartels," which are neither more nor less than hard and fast agreements to restrict outputs and main- tain prices. The Prussian State is a member of the potash syndicate, because it is a large miner of potash, and the draft of the potash law originally provided that all the German potash mines should be compelled to join the syndicate, but that com- pulsory feature was not embodied in the imperial act as finally passed.^ The several trade syndicates may be defined as follows : ''The Selling Agreement" cartel, or combination under which producers agree not to sell their products below a speci- fied minimum price, which price is changed from time to time in accordance with the varying cost of production and general requirements of market. "These rather loosely organized combinations were the original type of German trade syndicates, and served their purpose very well in prosperous times, but 'in periods of de- pression and diminished demand it was found difficult to hold certain members to the agreement, and it was decided to adopt a more binding form of organization, and put the business of selling under direct control of a central authority." *See "Legal Status of Trusts in Germany," Consular Trade Re- ports, January 25, 191 1, pp. 305-312. A German authority says : "Kartell and Trust are very different, not in degree, but in their nature. I know of no case in the thirty years of active kartell movement in Europe in which the one form has passed over into the other." 368 CONDITIONS IN GERMANY 369 Sales Syndicates, in which all members to the "carter' pool their products, to be sold through a central committee which fixes the selling price and apportions among the mem- bers orders as they are received in proportion to the capacity of each. "In a syndicate of this class the individual firms and com- panies which it includes retain their corporate autonomy, pay dividends on their own stock according to earnings, and unless otherwise agreed in the cartel, purchase independently the raw materials of manufacture." A third class includes the trusts, or closely organized syn- dicates, which purchase original corporations and issue new stock, consolidating the management under the control of the central organization.^ "The majority of German business men and economists are not opposed to such syndicates and the creation of monop- olies, in which the State itself sometimes participates in com- bination with private producers, is lawful if the creators com- mit no injurious act, a limitation so difficult to define and comprehend that practically the only difficulties with which the ordinary cartels come into contact are difficulties arising between the members themselves. The courts have frequently recognized the perfect right of producers to control their product in a monopolistic organization as a right somewhat akin to the right to make use of a highway, and only subject to correction of abuses of power. "The profound difference between the German and the American conception of sound business conditions is best ex- plained, perhaps, by the racial difference between the two peoples — the German, with strong collectivist tendencies which manifest themselves in society, in government, and in trade, and the American, with a deeply rooted individualism, which remains even when he engages in a collectivist enter- prise. Thus it happens that the capitalistic classes of Ger- many, although opposing socialism in their public life, never- theless drift in the direction indicated by their natural ten- dencies in their business life, and, in so doing, they have the tacit approval of the avowed socialistic classes, who perceive in the steady accumulation of the producing powers in a few hands a movement tending logically and inevitably toward the *Sec Daily Consular and Trade Reports, Januar>' 25, 191 1, p. jod 370 THE NEW COMPETITION eventual realization of their dogma — that is, the State in supreme control." ^ "The German courts have repeatedly ruled, according to Richard Calwer, the socialistic writer, in his 'Kartelle und Trusts,' that the syndicates do not violate the principles of trade liberty, as they tend to protect the interests of the whole nation against the selfishness of individuals, and to protect the products of industry from the many disadvantages which arise from price cutting. "Under these rulings, absolute or partial monopolization by many cartels has been brought about, the national output be- ing reduced, with a consequent lifting of prices to a remunera- tive level. The danger point would be reached, from the point of view of the law, should a cartel of this character, on the possible refusal of one outside producer to accept its terms, undertake by unfair means to drive him into its fold or crush' him if he refused its terms, and the difficulty of the prosecu- tion would be to prove that any such result had been contem- plated, even though its effect had been attained. "The very forms of commercial organization most common in Germany and America correspond to the temperamental qualities of the two peoples. In Germany the commercial trust, or cartel, is usually a federation in which each member retains its commercial identity while abandoning its freedom of action to the federation for a contractual period of three or five or ten years, or perhaps longer, but expecting eventually to get it back, and then, perhaps, make another contract, if the results of the first have been satisfactory. A German cartel is, as a rule, open to all those who submit to its provisions, and the control of the members is confined to the limits traced in the federal pact. In the typical American trust, instead of this association of units with influence usually rated according to productive capacity, we observe generally the permanent own- ership of a large part of the enterprise by a small group of persons, in which there is ordinarily some dominating personal element. "The basic notion of the German organizer has been to control production definitel}-, leaving it to the resourcefulness of the individual producers in the cartel to make more or less profit out of the proportion of the production allotted to them ; the basic notion of the American organizer has been, usually, to create a perfected and consolidated instrument, success fol- lowing naturally as a result of its well-balanced and skill- * "Legal Operation of Trusts in Germany," Daily Consular and Trade Reports^ September 15, 191 1, pp. 1217-1218. CONDITIONS IN GERMANY 371 fully organized proportions. German cartel organization has contemplated that all its constituent firms should remain in business; American commercial centralization usually has meant that the weaker, or for any reason undesirable, elements should go out of business, suggesting that the strong native individualism of our people rises to the surface, even when an effort tending toward pure collectivism is attempted." ^ A high German Court, after reviewing authorities in France, Russia, and the United States, made the following comments : "If, in any branch of the business, the prices so decline that a profitable trade is made impossible thereby, or that the trade is seriously endangered, the crisis at the start is not only injurious to the individual person, but also from a national economic point of view, and it lies, therefore, in the interest of the whole that the inadequately low prices in a certain branch of business should not permanently exist. Therefore, formerly, and at the present time, legislators have aimed to increase prices of certain products by inaugurating protective tariffs. "It cannot, therefore, be looked upon as generally contrary to the interests of the whole, if manufacturers of a certain article form a cartel in order to prevent or to modify the mu- tual underbidding and the decline of prices for their products caused thereby; on the contrary, if the prices are continually so low that the manufacturers are threatened with financial ruin, their forming a cartel is not only to be looked upon as a justified manifestation of self-preservation, but also as an act which lies in the interest of the whole. "The formation of the syndicates and cartels in question, therefore, has been designated in various quarters as a means which, if reasonably applied to national economics, is especially adapted to prevent uneconomic overproduction, yielding no profit and resulting in catastrophes." ^ "The Imperial German Government issued statistics in 1905, showing that there were 385 cartels existing at that time in Germany, but these figures are said not to contain the Konditionskartelle (those, e. g., fixing terms of sale other than prices) and numerous other confederations, the existence of which was not then within the knowledge of the authorities. ""Legal Operation of Trusts in Germany," Daily Consular and Trade Reports, September 15, 191 1, pp. 1218-1219. ^ Daily Consular and Trade Reports, September 15, 191 1, p. 1219. 372 THE NEW COMPETITION When these statistics were made up, it was understood that about 12,000 establishments were members of syndicates. The following recapitulation shows the variety of industries cov- ered by commercial combinations in 1905 : Coal mining 19 Textiles 31 Stones and earth 27 Paper industry 6 Brick industry 132 Leather trade 6 Earthenware industry . 4 Wood industry 15 Glass industry 10 Food products 7 Iron industry 62 Miscellaneous 7 Metal trade 11 Machinery, electricity. . 2 Total 385" ^ Chemical industries ... 46 Germany has a statute ^ prohibiting unfair competition. It provides that whoever is guilty in industrial deals of trans- actions which offend against good morals, may be held liable in damages. The courts have so interpreted the law that it not only covers unfair actions, but if a party refrains from doing something he ought to do, he is liable. The German Courts go much further than the courts of this country in carefully weighing transactions to determine whether or not they are contrary to good morals and fair play, and in enforcing the laws against practices and actions which are not looked upon as decent and reputable. Individuals are protected against oppression by parties who are greedy for gain. Damages are awarded where things are done to influ- ence a man's business prospects or his connections with his customers. If a man, in the exercise of a technical legal right, damages a third person, he may find himself liable under the very broad statute. Prevailing standards of good morals and commercial ethics are taken into consideration. In mercantile affairs the views of customers and of honorable merchants in their commercial intercourse are used to measure the guilt or innocence of specific acts. A member of a combination wrote a certain customer that unless such customer refrained from making purchases from ^ Daily Consular and Trade Reports September 15, 191 1, p. 1222. 'A translation of this statute is on file at Wa^ington in the Bu- reau of Manufactures. CONDITIONS IN GERMANY 373 firms outside of the combination, the combination would refuse to sell him goods. An outsider caused the arrest of the mem- ber, and he was convicted. The court held the combination legal, but it also held that in threatening a customer unless he ceased dealing with parties outside the combination, the threat amounted to oppression. The spirit of this decision is directly opposed to that of the Mogul Steamship case, referred to on page 349. "The German Civil Code, paragraph 138, says that a trans- action which offends against good morals is void. The form- ing of a cartel, or syndicate, is not held to come under this paragraph, but, when formed, it may bring itself under the operation of this provision by the means which it may choose to attain its purposes, such as, for instance, boycotting, the cutting of prices with competitors to such an extent as to bring about the financial ruin of the latter, misuse of their monopoly and franchises, and the like. Concerning boycot- ting, there are decisions of the Imperial Supreme Court in the years 1903 and 1906 on this point. "The German Civil Code contains certain paragraphs touching 'treu und glauben,' or truth and good faith, and perhaps these paragraphs may be designated as containing equitable principles in contradistinction to the more fixed legal rules, there being in Germany no system of equity law and jio equity courts. The Supreme Court at Leipzig decided in the year 1904 that a stricter moral standard must be applied to cartels and syndicates ; that is, that they must be held to a stricter accounting for the moral quality of their acts, because of the preponderance of economic interest which they repre- sent." 1 { The German law to remedy the abuses of unfair com- petition came into force October ist, 1909. The law con- tains both a general principle which supplies a weapon against unfair practices generally and an enumeration of a number of unfair practices specifically .^ ^ Daily Consular and Trade Reports. January 25, 1911, p. 310. 2 The summary of this law is taken from an admirable report made by Sir Francis Oppenheimer, England's Commercial Attache for Germany; the report was presented in January, 1913, and is printed in Diplomatic and Consular Reports, No. 683, Miscellaneous Series. 374 THE NEW COMPETITION This is in line with advanced thought, and in accord with the principles of the New Competition. The law is a step in advance of older laws in that it ex- tends to the employer, under certain circumstances, the liabil- ity for unfair practices by his employee. Furthermore, the law has increased the maximum fines; it has added the possible punishment of imprisonment andl payment of compensations to a maximum of 10,000 marks. Remedies are by way of civil as well as criminal procedure. The civil remedies are actions for damages and for injunction. Criminal actions may be instituted either officially or privately. Foreigners doing business within the German Empire are. entitled to the benefits of this law only in so far as the laws off' their own country give German merchants similar protection against unfair competition. One of the most notorious cases of foreigners using the law of unfair competition for the protection of their business inter- ests is connected with the famous Pilsen brewery. The origi- nal Pilsen brewery is an Austro-Hungarian firm. It has, under paragraph 16, succeeded before the German courts in a claim to the exclusive right to use the word 'Tilsen for the beer brewed at its own brewery. Where the name "Pilsen" is to be used as a trade designation of a beer lightly brewed and in taste like the original "Pilsen," but brewed outside the original Pilsen brewery, the word "Pilsen" must be accompanied by some visible word or words clearly indicating the "non- Pilsen" origin of the beer. In some cases the law treats acts committed abroad as offences committed within the German jurisdiction, e. g., let- ters containing offences against the law posted abroad, buti received in Germany, or advertisements inserted in the foreign Press circulating in Germany. The following is a schedule of paragraphs against unfair] competition. I. General clause; acts in course of business committed contra bonos mores. CONDITIONS IN GERMANY 375 2. What applies to "goods" applies also to agricultural produce, etc. 3. Action for injunction against unfair advertisements. 4. Penalty and (or) imprisonment for intentionally decep- tive advertising. 5. Exception in case of "traditional" designations. 6. Sale of bankrupt's assets, if no longer part of bank- rupt's estate, must contain no reference to the fact of bank- ruptcy. 7. (a) Advertisements of sale must announce reason of sale. (b) Regulations concerning sales to be issued by supe- rior administrative bodies. 8. Penalty and (or) imprisonment in case of restocking for the purpose of a sale. 9. (a) Selling off is to be regarded as a sale for the pur- poses of this law. (b) Except in case of customary season sales, to be fixed by the superior administrative authorities. 10. Penalties or imprisonment for infringement of para- graphs 7 and 9. 11. Regulations for the retail sale of certain commodi- ties to be fixed by the Federal Council. 12. (a) Penalty and (or) imprisonment in the case of wrongfully bribing employees for the purposes of competition. (b) The same penalty and (or) imprisonment to be inflicted upan employee accepting bribes. 13. (a) Persons entitled to bring action for injunction (under paragraphs i and 3; also under paragraphs 6, 8, 10 and 12). (b) Liability to pay damages (sub-paragraph 3; also sub-paragraphs 6, 8, 11 and 12). (c) Liability of employer for acts of employee com- mitted (under paragraphs 6, 8, 10, 11 and 12). 14. (a) Statements capable of injuring business of a competitor, if not substantiated, give rise to actions for dam- ages and injunctions. 376 THE NEW COMPETITION (b) Confidential information supplied for reasons of a justifiable interest gives rise to an action for injunction only if untrue, and to an action for damages if the information is known to be incorrect by the person supplying it. 15. (a) Penalty and (or) imprisonment in case of false information concerning another's business given mala fide. (b) Employer liable for such information given on the part of employee if made with employer's knowledge. 16. (a) Action for injunction against a person using another's name, etc., whereby a wrong impression might arise. (b) Action for damages if person using such name ought to have known that a wrong impression might arise. (c) These remedies are granted also if certain other business contrivances are used. 17. (a) Penalty and (or) imprisonment for employe betraying business secret. (b) Same consequences fall upon persons having (sub-paragraph 17 [a] ) acquired knowledge of a secret to use it for purposes of competition. 18. Liability to penalty and (or) imprisonment if the per- son who is confidentially entrusted in course of business with a person's models utilizes them for purposes of competition, or communicates them to others. The general principle of the law is stated in the first para- graph which is as follows : "Whosoever commits in commercial intercourse for the purposes of competition acts which are contrary to 'good faith' can be brought before the courts, for the purposes of an injunction and the payment of damages." It has been held that "acts" are deemed to be contrary to "good faith" if they are contrary to the sense of decency of the fair and just-minded among the class concerned; an act to fall within the operation of this general paragraph must have been committed in commercial intercourse, which is intended to embrace all acts which are undertaken for the purposes of "business"; the act must have been undertaken CONDITIONS IN GERMANY 377 with a view to competition. The value of this general clause is often questioned, chiefly because the judges are said to be inexperienced in commercial practices and have shown, as a rule, little ability in putting such general principles to practical use. The very fact that a later part of the law enumerates specific abuses increased at first the hesitation of the bench; it concentrates its attention upon these specific provisions, which, it argues, would be superfluous if the gen- eral clause were really intended for general application. But for the purpose of litigation the general clause is the most important provision of the law. Probably 99 per cent, of all actions against unfair competition are based upon it, solely, or jointly with other paragraphs. Its wording applying to all "acts contrary to good faith" is exceptionally elastic ; it has in practice received a very wide interpretation by the higher courts, more especially the Reichsgericht, which is the Court of final instance. In consequence, this paragraph is now introduced into all pleadings, even if the action relies upon one of the other and more definite paragraphs. As a result of the decisions given by the Reichsgericht the lower courts are becoming more thoroughly imbued with the spirit of paragraph i. The criminal features of the law are not frequently resorted to, and cases of imprisonment are exceedingly rare. The penalties imposed are generally lov/. Regarding the practical benefits of the law there is, natur- ally, a diversity of opinion, but that the law has a very pro- nounced eflFect in deterring unfair competitive practice there can be no doubt. APPENDIX IV CLAYTON LAW An Act To supplement existing laws against unlawful restraints and monopolies, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress Assembled, That "antitrust laws," as used herein, includes the Act entitled "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety; sections seventy-three to seventy-seven, inclusive, of an Act entitled "An Act to reduce taxation, to provide revenue for the Government, and for other purposes," of August twenty-seventh, eighteen hundred and ninety-four; an Act entitled "An Act to amend sections seventy-three and seventy- six of the Act of August twenty-seventh, eighteen hundred and ninety-four, entitled 'An Act to reduce taxation, to provide revenue for the Government, and for other purposes,' " approved February twelfth, nineteen hundred and thirteen; and also this Act. "Commerce," as used herein, means trade or commerce among- the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States: Provided, That nothing in this Act contained shall apply to the Philip- pine Islands. The word "person" or "persons" wherever used in this Act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country. 378 CLAYTON LAW 379 Sec. 2. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly to discriminate in price between different pur- chasers of commodities, which commodities are sold for use, consumption, or resale within the United States or any Terri- tory thereof or the District of Columbia or any insular posses- sion or other place under the jurisdiction of the United States, where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in any line of commerce : Provided, That nothing herein contained shall pre- vent discrimination in price between purchasers of commodi- ties on account of differences in the grade, quality, or quan- tity of the commodity sold, or that makes only due allowance for difference in the cost of selling or transportation, or dis- crimination in price in the same or different communities made in good faith to meet competition: And provided further, That nothing herein contained shall prevent persons engaged in sell- ing goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade. This section, to the word, Provided, is in line with laws more or less similar in nineteen states, and standing by itself would be quite drastic in application. The section contains, however, the following important pro- visions : (a) Nothing contained therein shall prevent discrimina- tion in price between purchasers on account of differences in grade, quality or quantity. (b) Or that maker^ only due allowance for difference in the cost of selling, or transportation. (c) Or discriminations in price in the same or different communities made in good faith to meet competition, (d) Provided further that nothing therein contained shall prevent persons, partnerships or corporations from selecting their own ctistomers in bona fide transactions and not in restraint of trade. These provisions practically nullify the attempt to make discriminations in price illegal, inasmuch as it will be very easy for any party who wishes to discriminate in price to do so on the ground of grade, quality or quantity, or for some other 38o THE NEW COMPETITION reason contained in those express provisions, and it is to be feared that the law will not reach the unfair practices it seeks to condemn. The state laws call for fines and imprisonment and do not contain all of these exceptions; they are, therefore, more drastic. While these exceptions may provide a door of escape for any party charged with illegal discrimination in prices, it is the firm opinion of the writer that it is to the interest of both sellers and buyers, and to the interest of the public, that this section be lived up to in letter and in spirit. Unfair discrimination is not made a criminal offense. The enforcement of this section is left to the Trade Commission (see section ii), but in section 4 remedy is given any person who may be damaged in his business by anything forbidden in the anti-trust laws. Sec. 3. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies or other commodities, whether patented or unpatented, for use, consumption or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged there- for, or discount from, or rebate upon, such price, on the con- dition, agreement or understanding that the lessee or pur- chaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condi- tion, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce. The enforcement of this section is also committed to the Trade Commission (see section 11), but section 4 which fol- lows gives a remedy to any person who may be damaged. The acts described in this section 3 are not made criminal offenses. This section does not forbid the exclusive contracts therein described where the effect does not substantially lessen compe- CLAYTON LAW 381 tition, or does not tend to create a monopoly, but whether such acts do lessen competition or tend to create a monopoly would be a question of fact, hence the business world will be exceed- ingly cautious in making such contracts. Sec. 4. That any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attor- ney's fee. This is an extension of section 7 of the Sherman law. Sec. 5. That a final judgment or decree hereafter ren- dered in any criminal prosecution or in any suit or proceeding in equity brought by or on behalf of the United States under the antitrust laws to the effect that a defendant has violated said laws shall be prima facie evidence against such defendant in any suit or proceeding brought by any other party against such defendant under said laws as to all matters respecting which said judgment or decree would be an estoppel as between the parties thereto: Provided, This section shall not apply to consent judgments or decrees entered before any tes- timony has been taken: Provided further, This section shall not apply to consent judgments or decrees rendered in crim- inal proceedings or suits in equity, now pending, in which the taking of testimony has been commenced but has not been concluded, provided such judgments or decrees are rendered before any further testimony is taken. Whenever any suit or proceeding in equity or criminal prosecution is instituted by the United States to prevent, restrain or punish violations of any of the antitrust laws, the running of the statute of limitations in respect of each and every private right of action arising under said laws and based in whole or in part on any matter complained of in said suit or proceeding shall be suspended during the pendency thereof. Sec. 6. That the labor of a human being is not a com- modity or article of commerce. Nothing contained in the anti- trust laws shall be construed to forbid the existence and opera- tion of labor, agricultural, or horticultural organizations, insti* tuted for the purposes of mutual help, and not having capital 382 THE NEW COMPETITION stock or conducted for profit, or to forbid or restrain indi- vidual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organiza- tions, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws. The adoption of this exemption is significant, in that it is a step in the direction of relieving labor and agricultural organ- izations from the operation of laws which restrain commercial and industrial organizations. Strictly c6nstrued the exemp- tion means nothing. As a matter of fact there was nothing in the anti-trust laws that ever has been construed "to forbid the existence and operation of labor, agricultural, or horticul- tural organizations, instituted for the purposes of mutual help," etc., or "to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof." No labor or agricultural union has been held contrary to the Sherman law simply because it was a combi- nation. The courts, however, have dealt with the illegal acts and criminal conspiracies of such organizations. There is nothing in this section 6 of the Clayton law to prevent the pros- ecution of any union or member of a union for criminal con- duct. It is a matter of common knowledge that labor unions are organized for the express purpose of advancing wag^s, and agricultural organizations are frequently organized for the express purpose of advancing prices, but no such organizations have ever been prosecuted on that ground, therefore the prac- tical situation is not altered by this section. The ultimate effect may be to awaken the country to the economic truth that all classes should not only be permitted, but encouraged to organize, in an open and public way, to better their conditions. The broad economic proposition contained in the first clause of the section, namely, ''The labor of a human being is not a commodity or article of commerce/' meets with the hearty approval of the writer. Nothing but confusion of thought can result from attempts to deal with labor as if it were identical with the products of labor.* 1 Sec also Chapter XIX, especially page 346. CLAYTON LAW 383 Sec. 7. That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce. No corporation shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of two or more corporations engaged in commerce where the effect of such acquisition, or the use of such stock by the voting or granting -of proxies or otherwise, may be to substantially lessen competition between such corporations, or any of them,^ whose stock or other share capital is so acquired, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of corhmerce. This section shall not apply to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall any- thing contained in this section prevent a corporation engaged in commerce from causing the formation of subsidiary cor- porations for the actual carrying on of their immediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary corporations, when the effect of such for- mation is not to substantially lessen competition. Nor shall anything herein contained be construed to pro- hibit any common carrier subject to the laws to regulate com- merce from aiding in the construction of branches or short lines so located as to become feeders to the main line of the company so aiding in such construction or from acquiring or owning all or any part of the stock of such branch lines, nor to prevent any such common carrier from acquiring and own- ing all or any part of the stock of a branch or short line constructed by an independent company where there is no substantial competition between the company owning the branch line so constructed and the company owning the main line acquiring the property or an interest therein, nor to pre- vent such common carrier from extending any of its lines through the medium of the acquisition of stock or otherwise of any other such common carrier where there is no substan- tial competition between the company extending its lines and 384 THE NEW COMPETITION the company whose stock, property, or an interest therein is so acquired. Nothing contained in this section shall be held to affect or impair any right heretofore legally acquired: Provided, That nothing in this section shall be held or construed to authorize or make lawful anything heretofore prohibited or made illegal by the antitrust laws, nor to exempt any person from the penal provisions thereof or the civil remedies therein provided. The several qualifications and exemptions contained in the above section very materially lessen its force, but inasmuch as it would be a question of fact whether the acquisition of cer- tain stock substantially lessened competition, or restrained interstate commerce, or tended to create a monopoly, corpora- tions will be exceedingly cautious in acquiring and holding the stocks of other corporations. Sec. 8. That from and after two years from the date of the approval of this Act no person shall at the same time be a director or other officer or employee of more than one bank, banking association or trust company, organized or operating under the laws of the United States, either of which has depos- its, capital, surplus, and undivided profits aggregating more than $5,000,000; and no private banker or person who is a director in any bank or trust company, organized and operat- ing under the laws of a State, having deposits, capital, surplus, and undivided profits aggregating more than $5,000,000, shall be eligible to be a director in any bank or banking association organized or operating under the laws of the United States. The eligibility of a director, officer, or employee under the foregoing provisions shall be determined by the average amount of deposits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association, or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a director, officer, or employee has been elected or selected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter under said election or employment. No bank, banking association or trust company, organized or operating under the laws of the United States, in any city or incorporated town or village of more than two hundred thousand inhabitants, as shown by the last preceding decennial census of the United States, shall have as a director or other CLAYTON LAW 385 officer or employee any private banker or any director or other officer or employee of any other bank, banking associa- tion or trust company located in the same place: Provided, That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares: Pro- vided further, That a director or other officer or employee of such bank, banking association or trust company may be a director or other officer or employee of not more than one other bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by stockholders in the other: And provided fur- ther, That nothing contained in this section shall forbid a director of class A of a Federal reserve bank, as defined in the Federal Reserve Act from being an officer or director or both an officer and director in one member bank. That from and after two years from the date of the approval of this Act no person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $i,ocxD,ooo, engaged in whole or in part in commerce, other than banks, banking associations, trust companies and common carriers subject to the Act to regulate commerce, approved February fourth, eighteen hundred and eighty- seven, if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competi- tors, so that the elimination of competition by agreement between them would constitute a violation of any of the provi- sions of any of the antitrust laws. The eligibility of a director under the foregoing provision shall be determined by the aggre- gate amount of the capital, surplus, and undivided profits, exclusive of dividends declared but not paid to stockholders, at the end of the fiscal year of said corporation next preceding the election of directors, and when a director has been elected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter. When any person elected or chosen as a director or officer or selected as an employee of any bank or other corporation subject to the provisions of this Act is eligible at the time of his election or selection to act for such bank or other corpora- tion in such capacity his eligibility to act in such capacity shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change in the affairs of such bank or other corporation from whatsoever cause, whether specifically excepted by any of the provisions hereof or not, until the expiration of one year from the date of his election or employment. 386 THE NEW COMPETITION Sec. 9. Every president, director, officer or manager of any firm, association or corporation engaged in commerce as a common carrier, who embezzles, steals, abstracts or willfully misapplies, or willfully permits to be misapplied, any of the moneys, funds, credits, securities, property or assets of such firm, association or corporation, arising or accruing from, or used in, such commerce, in whole or in part, or willfully or knowingly converts the same to his own use or to the use of another, shall be deemed guilty of a felony and upon con- viction shall be fined not less than $500 or confined in the penitentiary not less than one year nor more than ten years, or both, in the discretion of the court. Prosecutions hereunder may be in the district court of the United States for the district wherein the oflfense may have been committed. That nothing in this section shall be held to take away or impair the jurisdiction of the courts of the several States under the laws thereof; and a judgment of conviction or acquittal on the merits under the laws of any State shall be a bar to any prosecution hereunder for the same act or acts. This section may cover political and similar contributions of the funds of corporations and, therefore, requires careful consideration when such contributions are solicited. Sec. 10. That after two years from the approval of this Act no common carrier engaged in commerce shall have any dealings in securities, supplies or other articles of commerce, or shall make or have any contracts for construction or main- tenance of any kind, to the amount of more than $50,000, in the aggregate, in any one year, with another corporation, firm, partnership or association when the said common carrier shall have upon its board of directors or as its president, manager or as its purchasing or selling officer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, firm, partnership or association, unless and except such purchases shall be made from, or such dealings shall be with, the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission. No bid shall be received unless the name and address of the bidder or the names and addresses of the officers, directors and general managers thereof, if the bidder be a corporation, or of CLAYTON LAW 387 the members, if it be a partnership or firm, be given with the bid. Any person who shall, directly or indirectly, do or attempt to do anything to prevent anyone from bidding or shall do any act to prevent free and fair competition among the bidders or those desiring to bid shall be punished as prescribed in this section in the case of an officer or director. Every such common carrier having any such transactions or making any such purchases shall within thirty days after making the same file with the Interstate Commerce Commis- sion a full and detailed statement of the transaction showing the manner of the competitive bidding, who were the bidders, and the names and addresses of the directors and officers of the corporations and the members of the firm or partnership bidding ; and whenever the said commission shall, after investi- gation or hearing, have reason to believe that the law has been violated in and about the said purchases or transactions it shall transmit all papers and documents and its own views or findings regarding the transaction to the Attorney General. If any common carrier shall violate this section it shall be fined not exceeding $25,000; and every such director, agent, manager or officer thereof who shall have knowingly voted for or directed the act constituting such violation or who shall have aided or abetted in such violation shall be deemed guilty of a misdemeanor and shall be fined not exceeding $5,000, or confined in jail not exceeding one year, or both, in the discre- tion of the court. This section does not go into effect until after October 15, 1916. After that date railroad buying will be on an entirely different footing. No doubt prior to that date the Interstate Commerce Commission will issue the regulations contemplated by this particular section. Sec. II. That authority to enforce compliance with sec- tions two, three, seven and eight of this Act by the persons respectively subject thereto is hereby vested: in the Interstate Commerce Commission where applicable to common carriers, in the Federal Reserve Board where applicable to banks, bank- ing associations and trust companies, and in the Federal Trade Commission where applicable to all other character of com- merce, to be exercised as follows : Whenever the commission or board vested with jurisdic- tion thereof shall have reason to believe that any person is 388 THE NEW COMPETITION violating or has violated any of the provisions of sections two, three, seven and eight of this Act, it shall issue and serve upon such person a complaint stating its charges in that respect, and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said com- plaint. The person so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the commission or board requir- ing such person to cease and desist from the violation of the law so charged in said complaint. Any person may make application, and upon good cause shown may be allowed by the commission or board, to intervene and appear in said pro- ceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the commission or board. If upon such hearing the com- mission or board, as the case may be, shall be of the opinion that any of the provisions of said sections have been or are being violated, it shall make a report in writing in which it shall state its findings as to the facts, and shall issue and cause to be served on such person an order requiring such person to cease and desist from such violations, and divest itself of the stock held or rid itself of the directors chosen contrary to the provisions of sections seven and eight of this Act, if any there be, in the manner and within the time fixed by said order. Until a transcript of the record in such hearing shall have been filed in a circuit court of appeals of the United States, as here- inafter provided, the commission or board may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. If such person fails or neglects to obey such order of the commission or board while the same is in efiFect, the commis- sion or board may apply to the circuit court of appeals of the United States, within any circuit where the violation com- plained of was or is being committed or where such person resides or carries on business, for the enforcement of its order, and shall certify and file with its application a transcript of the entire record in the proceeding, including all the testimony taken and the report and order of the commission or board. Upon such filing of the application and transcript the court shall cause notice thereof to be served upon such person and thereupon shall have jurisdiction of the proceeding and of the question determined therein, and shall have power to make and enter upon the pleadings, testimony, and proceedings set forth in such transcript a decree affirming, modifying, or setting CLAYTON LAW 389 aside the order of the commission or board. The findings of the commission or board as to the facts, if supported by the testimony, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evi- dence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the commission or board, the court may order such additional evidence to be taken before the commission or board and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The commis- sion or board may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if sup- ported by testimony, shall be conclusive, and its recommenda- tion, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judg- ment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari as provided in section two hundred and forty of the Judicial Code. Any party required by such order of the commission or board to cease and desist from a violation charged may obtain a review of such order in said circuit court of appeals by filing in the court a written petition praying that the order of the commission or board be set aside. A copy of such petition shall be forthwith served upon the commission or board, and thereupon the commission or board forthwith shall certify and file in the court a transcript of the record as hereinbefore pro- vided. Upon the filing of the transcript the court shall have the same jurisdiction to affirm, set aside, or modify the order of the commission or board as in the case of an application by the commission or board for the enforcement of its order, and the findings of the commission or board as to the facts, if supported by testimony, shall in like manner be conclusive. The jurisdiction of the circuit court of appeals of the United States to enforce, set aside, or modify orders of the commis- sion or board shall be exclusive. Such proceedings in the circuit court of appeals shall be given precedence over other cases pending therein, and shall be in every way expedited. No order of the commission or board or the judgment of the court to enforce the same shall in any wise relieve or absolve any person from any liability under the antitrust Acts. Complaints, orders, and other processes of the commission 390 THE NEW COMPETITION or board under this section may be served by anyone duly authorized by the commission or board, either (a) by deliver- ing a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the corporation to be served; or (b) by leaving a copy thereof at the principal office or place of business of such person; or (c) by register- ing and mailing a copy thereof addressed to such person at his principal office or place of business. The verified return by the person so serving said complaint, order or other process setting forth the manner of said service shall be proof of the same, and the return post-office receipt for said complaint, order, or other process registered and mailed as aforesaid shall be proof of the service of the same. This section is important in that it confers authority upon the Federal Trade Commission to enforce compliance with sections 2, 3, 7 and 8 of the Qayton law, insofar as those sections apply to every character of commerce except common carriers; authority over common carriers being vested in the Interstate Commerce Commission. It is also important in that it indicates in simple terms the procedure. Sec. 12. That any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found. Sec. 13. That in any suit, action, or proceeding brought by or on behalf of the United States subpoenas for witnesses who are required to attend a court of the tjnited States in any judicial district in any case, civil or criminal, arising under the antitrust laws may run into any other district : Provided, That in civil cases no writ of subpoena shall issue for witnesses living out of the district in which the court is held at a greater distance than one hundred miles from the place of holding the same without the permission of the trial court being first had upon proper application and cause shown. Sec. 14. That whenever a corporation shall violate any of the penal provisions of the antitrust laws, such violation shall be deemed to be also that of the individual directors, officers, or agents of such corporation who shall have author- CLAYTON LAW 391 ized, ordered, or done any of the acts constituting in whole or in part such violation, and such violation shall be deemed a misdemeanor, and upon conviction therefor of any such direc- tor, officer, or agent he shall be punished by a fine of not exceeding $5,000 or by imprisonment for not exceeding one year, or by both, in the discretion of the court. This section makes personal the guilt of officers and agents of a corporation who may authorize, or order, or do any acts in violation of the anti- trust laws ; really does not substantially change existing laws. Sec. 15. That the several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this Act^ and it shall be the duty of the several district attorneys of the United States, in their respect- ive districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition set- ting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties com- plained of shall have been duly notified of such petition, the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition, and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. Whenever it shall appear to the court before which any such proceeding may be pending that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned whether they reside in the district in which the court is held or not, and subpoenas to that end may be served in any district by the marshal thereof. Sec. 16. That any person, firm, corporation, or associa- tion shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, including sections two, three, seven and eight of this Act, when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings, and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, a preliminary injunction may issue: Provided, 392 THE NEW COMPETITION That nothing herein contained shall be construed to entitle any person, firm, corporation, or association, except the United States, to bring suit in equity for injunctive relief against any common carrier subject to the provisions of the Act to regu- late commerce, approved February fourth, eighteen hundred and eighty-seven, in respect of any matter subject to the regu- lation, supervision, or other jurisdiction of the Interstate Commerce Commission. Sec. 17. That no preHminary injunction shall be issued without notice to the opposite party. No temporary restraining order shall be granted without notice to the opposite party unless it shall clearly appear from specific facts shown by affidavit or by the verified bill that immediate and irreparable injury, loss, or damage will result to the applicant before notice can be served and a hearing had thereon. Every such temporary restraining order shall be indorsed with the date and hour of issuance, shall be forth- with filed in the clerk's office and entered of record, shall define the injury and state why it is irreparable and why the order was granted without notice, and shall by its terms expire within such time after entry, not to exceed ten days, as the court or judge may fix, unless within the time so fixed the order is extended for a like period for good cause shown, and the reasons for such extension shall be entered of record. In case a temporary restraining order shall be granted without notice in the contingency specified, the matter of the issuance of a preliminary injunction shall be set down for a hearing at the earliest possible time and shall take precedence of all matters except older matters of the same character; and when the same comes up for hearing the party obtaining the temporary restraining order shall proceed with the application for a pre- liminary injunction, and if he does not do so the court shall dissolve the temporary restraining order. Upon two days' notice to the party obtaining such temporary restraining order the opposite party may appear and move the dissolution or modification of the order, and in that event the court or judge shall proceed to hear and determine the motion as expeditiously as the ends of justice may require. Section two hundred and sixty-three of an Act entitled "An Act to codify, revise, and amend the laws relating to the judiciary," approved March third, nineteen hundred and eleven, is hereby repealed. Nothing in this section contained shall be deemed to alter, repeal, or amend section two hundred and sixty-six of an Act entitled "An Act to codify, revise, and amend the laws relating CLAYTON LAW 393 to the judiciary," approved March third, nineteen hundred and eleven. Sec. 1 8. That, except as otherwise provided in section i6 of this Act, no restraining order or interlocutory order of injunction shall issue, except upon the giving of security by the applicant in such sum as the court or judge may deem proper, conditioned upon the payment of such costs and dam- ages as may be incurred or suffered by any party who may be found to have been wrongfully enjoined or restrained thereby. Sec. 19. That every order of injunction or restraining order shall set forth the reasons for the issuance of the same, shall be specific in terms, and shall describe in reasonable detail, and not by reference to the bill of complaint or other document, the act or acts sought to be restrained, and shall be binding only upon the parties to the suit, their officers, agents, servants, employees, and attorneys, or those in active concert or participating with them, and who shall, by personal service or otherwise, have received actual notice of the same. Sec. 20. That no restraining order or injunction shall be granted by any court of the United States, or a judge or the judges thereof, in any case between an employer and employees, or between employers and employees, or between employees, or between persons employed and persons seeking employment, involving, or growing out of, a dispute concern- ing terms or conditions of employment, unless necessary to prevent irreparable injury to property, or to a property right, of the party making the application, for which injury there is no adequate remedy at law, and such property or property right must be described with particularity in the application, which must be in writing and sworn to by the applicant or by his agent or attorney. And no such restraining order or injunction shall prohibit any person or persons, whether singly or in concert, from terminating any relation of employment, or from ceasing to perform any work or labor, or from recommending, advising, or persuading others by peaceful means so to do; or from attending at any place where any such person or persons may lawfully be, for the purpose of peacefully obtaining or com- municating information, or from peacefully persuading any person to work or to abstain from working; or from ceasing to patronize or to employ any party to such dispute, or from recommending, advising, or persuading others by peaceful and lawful means so to do ; or from paying or giving to, or with- holding from, any person engaged in such dispute, any strike benefits or other moneys or things of value ; or from peaceably 394 THE NEW COMPETITION assembling in a lawful manner, and for lawful purposes; or from doing any act or thing which might lawfully be done in the absence of such dispute by any party thereto; nor shall any of the acts specified in this paragraph be considered or held to be violations of any law of the United States. Sec. 21. That any person who shall willfully disobey any lawful writ, process, order, rule, decree, or command of any district court of the United States or any court of the District of Columbia by doing any act or thing therein, or thereby for- bidden to be done by him, if the act or thing so done by him be of such character as to constitute also a criminal offense under any statute of the United States, or under the laws of any State in which the act was committed, shall be proceeded against for his said contempt as hereinafter provided. Sec. 22. That whenever it shall be made to appear to any district court or judge thereof, or to any judge therein sitting, by the return of a proper officer on lawful process, or upon the affidavit of some credible person, or by information filed by any district attorney, that there is reasonable ground to believe that any person has been guilty of such contempt, the court or judge thereof, or any judge therein sitting, may issue a rule requiring the said person so charged to show cause upon a day certain why he should not be punished therefor, which rule, together with a copy of the affidavit or information, shall be served upon the person charged, with sufficient promptness to enable him to prepare for and make return to the order at the time fixed therein. If upon or by such return, in the judg- ment of the court, the alleged contempt be not sufficiently purged, a trial shall be directed at a time and place fixed by the court: Provided, hoivever, That if the accused, being a natural person, fail or refuse to make return to the rule to show cause, an attachment may issue against his person to compel an answer, and in case of his continued failure or refusal, or if for any reason it be impracticable to dispose of the matter on the return day, he may be required to give rea- sonable bail for his attendance at the trial and his submission to the final judgment of the court. Where the accused is a body corporate, an attachment for the sequestration of its prop- erty may be issued upon like refusal or failure to answer. In all cases within the purview of this Act such trial may be by the court, or, upon demand of the accused, by a jury; in which latter event the court may impanel a jury from the jurors then in attendance, or the court or the judge thereof in chambers may cause a sufficient number of jurors to be selected and summoned, as provided by law, to attend at the CLAYTON LAW 395 time and place of trial, at which time a jury shall be selected and impaneled as upon a trial for a misdemeanor; and such trial shall conform, as near as may be, to the practice in criminal cases prosecuted by indictment or upon infor- mation. If the accused be found guilty, judgment shall be entered accordingly, prescribing the punishment, either by fine or imprisonment, or both, in the discretion of the court. Such fine shall be paid to the United States or to the complainant or other party injured by the act constituting the contempt, or may, where more than one is so damaged, be divided or appor- tioned among them as the court may direct, but in no case shall the fine to be paid to the United States exceed, in case the accused is a natural person, the sum of $1,000, nor shall such imprisonment exceed the term of six months : Provided, That in any case the court or a judge thereof may, for good cause shown, by affidavit or proof taken in open court or before such judge and filed with the papers in the case, dispense with the rule to show cause, and may issue an attachment for the arrest of the person charged with contempt; in which event such person, when arrested, shall be brought before such court or a judge thereof without unnecessary delay and shall be admitted to bail in a reasonable penalty for his appearance to answer to the charge or for trial for the contempt ; and there- after the proceedings shall be the same as provided herein in case the rule had issued in the first instance. Sec. 23. That the evidence taken upon the trial of any per- sons so accused may be preserved by bill of exceptions, and any judgment of conviction may be reviewed upon writ of error in all respects as now provided by law in criminal cases, and may be affirmed, reversed, or modified as justice may require. Upon the granting of such writ of error, execution of judgment shall be stayed, and the accused, if thereby sentenced to imprison- ment, shall be admitted to bail in such reasonable sum as may be required by the court, or by any justice, or any judge of any district court of the United States or any court of the Dis- trict of Columbia. Sec. 24. That nothing herein contained shall be construed to relate to contempts committed in the presence of the court, or so near thereto as to obstruct the administration of justice, nor to contempts committed in disobedience of any lawful writ, process, order, rule, decree, or command entered in any suit or action brought or prosecuted in the name of, or on be- half of, the United States, but the same, and all other cases of contempt not specifically embraced within section twenty-one 396 THE NEW COMPETITION of this Act, may be punished in conformity to the usages at law and in equity now prevailing. Sec. 25. That no proceeding for contempt shall be in- stituted against any person unless begun within one year from the date of the act complained of ; nor shall any such proceed- ing be a bar to any criminal prosecution for the same act or acts ; but nothing herein contained shall affect any proceedings in contempt pending at the time of the passage of this Act. Sec. 26. If any clause, sentence, paragraph, or part of this Act shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder thereof, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered. Approved, October 15, 1914. APPENDIX V FEDERAL TRADE COMMISSION LAWi An Act To create a Federal Trade Commission, to define its powers and duties, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That a commission is hereby created and established, to be known as the Federal Trade Commission (hereinafter referred to as the commission), which shall be composed of five commis- sioners, who shall be appointed by the President, by and with the advice and consent of the Senate. Not more than three of the commissioners shall be members of the same political party. The first commissioners appointed shall continue in office for terms of three, four, five, six, and seven years, respectively, from the date of the taking effect of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of seven years, except that any per- son chosen to fill a vacancy shall be appointed only for the unexpired term of the commissioner whom he shall succeed. The commission shall choose a chairman from its own mem- bership. No commissioner shall engage in any other business, vocation, or employment. Any commissioner may be removed by the President for inefficiency, neglect of duty, or malfeas- ance in office. A vacancy in the commission shall not impair the right of the remaining commissioners to exercise all the powers of the commission. The commission shall have an official seal, which shall be judicially noticed. Sec. 2. That each commissioner shall receive a salary of $10,000 a year, payable in the same manner as the salaries of the judges of the courts of' the United States. The commis- 1 First members of Federal Trade Commission : Joseph E. Davies, Chairman, Edward N. Hurley of Illinois, William J. Harris of Wash- ington, D. C, William H. Parry of Washington, George Rublee of New Hampshire. 397 398 THE NEW COMPETITION sion shall appoint a secretary, who shall receive a salary of $5,000 a year, payable in like manner, and it shall have author- ity to employ and fix the compensation of such attorneys, spe- cial experts, examiners, clerks, and other employees as it may from time to time find necessary for the proper performance of its duties and as may be from time to time appropriated for by Congress. With the exception of the secretary, a clerk to each com- missioner, the attorneys, and such special experts and exam- iners as the commission may from time to time find necessary for the conduct of its work, all employees of the commission shall be a part of the classified civil service, and shall enter the service under such rules and regulations as may be pre- scribed by the commission and by the Civil Service Com- mission. All of the expenses of the commission, including all neces- sary expenses for transportation incurred by the commis- sioner^ or by their employees under their orders, in making any investigation, or upon official business in any other places than in the city of Washington, shall be allowed and paid on the presentation of itemized vouchers therefor approved by the commission. Until otherwise provided by law, the commission may rent suitable offices for its use. The Auditor for the State and Other Departments shall receive and examine all accounts of expenditures of the com- mission. Sec. 3. That upon the organization of the commission and election of its chairman, the Bureau of Corporations and the offices of Commissioner and Deputy Commissioner of Cor- porations shall cease to exist; and all pending investigations and proceedings of the Bureau of Corporations shall be con- tinued by the commission. All clerks and employees of the said bureau shall be trans- ferred to and become clerks and employees of the commis- sion at their present grades and salaries. All records, papers, and property of the said bureau shall become records, papers, and property of the commission, and all unexpended funds and appropriations for the use and maintenance of the said bureau, including any allotment already made to it by the Secretary of Commerce from the contingent appropriation for the Department of Commerce for the fiscal year nineteen hundred and fifteen, or from the departmental printing fund for the fiscal year nineteen hundred and fifteen, shall become funds and appropriations available to be expended by the com • TRADE COMMISSION LAW 399 mission in the exercise of the powers, authority, and duties conferred on it by this Act. The principal office of the commission shall be in the city of Washington, but it may meet and exercise all its powers at any other place. The commission may, by one or more of its members, or by such examiners as it may designate, prosecute any inquiry necessary to its duties in any part of the United States. Sec. 4. That the words defined in this section shall have the following meaning when found in this Act, to wit : "Commerce" means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation. "Corporation" means any company or association incor- porated or unincorporated, which is organized to carry on business for profit and has shares of capital or capital stock, and any company or association, incorporated or unincorpo- rated, without shares of capital or capital stock, except part- nerships, which is organized to carry on business for its own profit or that of its members. "Documentary evidence" means all documents, papers and correspondence in existence at and after the passage of this Act. "Acts to regulate commerce'* means the Act entitled "An Act to regulate commerce," approved February fourteenth, eighteen hundred and eighty-seven, and all Acts amendatory thereof and supplementary thereto. "Antitrust acts" means the Act entitled "An Act to pro- tect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety ; also the sections seventy-three to seventy-seven, inclu- sive, of an Act entitled "An Act to reduce taxation, to provide revenue for the Government, and for other purposes," ap- proved August twenty-seventh, eighteen hundred and ninety- four ; and also the Act entitled "An Act to amend sections sev- enty-three and seventy-six of the Act of August twenty- seventh, eighteen hundred and ninety- four, entitled *An Act to reduce taxation, to provide revenue for the Government, and for other purposes,' " approved February twelfth, nine- teen hundred and thirteen. Sec. 5. That unfair methods of competition in commerce are hereby declared unlawful. 400 THE NEW COMPETITION The commission is hereby empowered and directed to pre- vent persons, partnerships, or corporations, except banks, and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in commerce. These two paragraphs are the most important provisions of the law. The use of the word prevent in the second paragraph is significant, in that it would seem to give the Commission authority to consider plans of cooperation and proposed com- petitive practices prior to any overt act, and either approve or condemn. It might not have been the intent of Congress to vest in the Commission this power, but it is needless to say that if unfair methods of competition are to be prevented they must be considered in advance of their use, otherwise they are simply condemned. Prior to the enactment of this law Unfair Competition had a more or less technical and limited meaning; it has been defined as follows : **Unfair competition consists essentially in the conduct of a trade or business in such a manner that there is an express or implied representation that the goods or business of one man are the goods or business of another. This is a legal wrong for which the courts will afford a remedy. The remedy proceeds upon the theory that the reputation and good will which a man acquires in business are property, and as such entitled to protection against invasion, and also in part upon the theory of protection to the public against fraud. It may be likened to the case of a wrong against the public resulting in special damage to an individual." ^ The new law is much broader in its application, and com- petitive methods which the courts have heretofore been power- less to reach will now be investigated and exposed by the Commission. The business world is naturally in great doubt as to the scope and meaning of this new law. Considerable light may be gained by reading chapter V. Happily Chairman Davies of the Commission, while Chair- lAra. & Eng. Ency. of Law (2nd Ed), Vol 28, p. 34^ TRADE COMMISSION LAW 401 man of the Bureau of Corporations, realizing the necessity of some source of information, compiled a volume which will shortly appear. In his letter to the President, speaking of the scope of the volume he said: "Among the chief subjects dis- cussed are federal anti-trust legislation, the judicial decisions thereunder, and the influence of such legislation on forms of business organization, the anti-trust laws of the several states, the legislation of foreign countries with regard to combina- tions, and the laws and judicial decisions in the United States and various foreign countries with regard to unfair or unlaw- ful competition." And regarding the meaning of unfair methods of compe- tition he says : "This report shows what practices have gen- erally been regarded as unfair methods of competition by busi- ness men, economic writers, and public men in the United States, and also what practices have been characterized as such by the Department of Justice or by the courts in the administration of the anti-trust laws. Furthermore, it shows various competitive practices which at common law the courts have termed unfair competition, or which they have held could not be justified. These decisions give a much wider scope to the term than has been generally recognized. In presenting this information, however, it is not intended, in this report, to limit or define the term unfair methods of competition. "A broad survey is also made of legislation on the sub- ject of unfair competition in the chief European countries with some illustrations of the applications of these laws in the juris- prudence of the respective countries. In some countries reli- ance is chiefly placed on general provisions of the civil codes, while other countries have elaborate special laws prohibiting particular practices. The present tendency is to combine both of these systems. In most foreign countries the basic idea of unfair competition is an act which unjustly injures a com- petitor and comparatively little consideration is given to the question of the effects on the general public.*' It is to be hoped that when the work in its complete state is issued. Chairman Davies will cause to be printed in pamphlet form a condensed statement of the competitive methods which 402 THE NEW COMPETITION have been held or charged to be unfair. Such a compilation would prove a most useful manual of business ethics. Whenever the commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition in commerce, and if it shall appear to the commission that a proceeding by it in respect thereof would be to the interest of the pubHc, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect, and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. Any person, partnership, or corporation may make application, and upon good cause shown may be allowed by the commission, to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the com- mission. If upon such hearing the commission shall be of the opinion that the method of competition in question is prohibited by this Act, it shall make a report in writing in which it shall state its findings as to the facts, and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition. Until a tran- script of the record in such hearing shall have been filed in a circuit court of appeals of the United States, as hereinafter provided, the commission may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. If such person, partnership, or corporation fails or neglects to obey such order of the commission while the same is in effect, the commission may apply to the circuit court of appeals of the United States, within any circuit where the method of competition in question was used or where such person, part- nership, or corporation resides or carries on business, for the enforcement of its order, and shall certify and file with its application a transcript of the entire record in the proceed- ing, including all the testimony taken and the report and order of the commission. Upon such filing of the application and TRADE COMMISSION LAW 403 transcript the court shall cause notice thereof to be served upon such person, partnership, or corporation and thereupon shall have jurisdiction of the proceeding and of the question deter- mined therein, and shall have power to make and enter upon the pleadings, testimony, and proceedings set forth in such transcript a decree affirming, modifying, or setting aside the order of the commission. The findings of the commission as to the facts, if supported by testimony, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evi- dence in the proceeding before the commission, the court may order such additional evidence to be taken before the commis- sion and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The commission may modify its findings as to the facts, or make new findings, by reason of the additional evi- dence so taken, and it shall file such modified or new findings, which, if supported by testimony, shall be conclusive, and its recommendation, if any, for the modification or setting aside of its original order, with the return of such additional evi- dence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari as provided in section two hundred and forty of the Judicial Code. Any party required by such order of the commission to cease and desist from using such method of competition may obtain a review of such order in said circuit court of appeals by filing in the court a written petition praying that the order of the commission be set aside. A copy of such petition shall be forthwith served upon the commission, and thereupon the commission forthwith shall certify and file in the court a transcript of the record as hereinbefore provided. Upon the filing of the transcript the court shall have the same jurisdic- tion to affirm, set aside, or modify the order of the commis- sion as in the case of an application by the commission for the enforcement of its order, and the findings of the commission as to the facts, if supported by testimony, shall in like manner be conclusive. The jurisdiction of the circuit court of appeals of the United States to enforce, set aside, or modify orders of the commission shall be exclusive. Such proceedings in the circuit court of appeals shall be given precedence over other cases pending therein, and shall 404 THE NEW COMPETITION be in every way expedited. No order of the commission or judgment of the court to enforce the same shall in any wise relieve or absolve any person, partnership, or corporation from any liability under the antitrust acts. Complaints, orders, and other processes of the commission under this section may be served by anyone duly authorized by the commission, either (a) by delivering a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the corporation to be served ; or (b) by leaving a copy thereof at the principal office or place of busi- ness of such person, partnership, or corporation; or (c) by registering and mailing a copy thereof addressed to such per- son, partnership, or corporation at his or its principal office or place of business. The verified return by the person so serving said complaint, order, or other process setting forth the manner of said service shall be proof of the same, and the return post-office receipt for said complaint, order, or other process registered and mailed as aforesaid shall be proof of the service of the same. Sec. 6. That the commission shall also have power — (a) To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any corporation en- gaged in commerce, excepting banks and common carriers sub- ject to the Act to regulate commerce, and its relation to other corporations and to individuals, associations, and partnerships. (b) To require, by general or special orders, corporations engaged in commerce, excepting banks, and common carriers subject to the Act to regulate commerce, or any class of them, or any of them, respectively, to file with the commission in such form as the commission may prescribe annual or special, or both annual and special, reports or answers in writing to specific questions, furnishing to the commission such information as it may require as to the organization, business, conduct, practice, management, and relation to other corporations, partnerships, and individuals of the respective corpora- tions filing such reports or answers in writing. Such reports and answers shall be made under oath, or otherwise, as the commission may prescribe, and shall be filed with the com- mission within such reasonable period as the commission may prescribe, unless additional time be granted in any case by the commission. (c) Whenever a final decree has been entered against any defendant corporation in any suit brought by the United States TRADE COMMISSION LAW 405 to prevent and restrain any violation of the antitrust Acts, to make investigation, upon its own initiative, of the manner in which the decree has been or is being carried out, and upon the appHcation of the Attorney General it shall be its duty to make such investigation. It shall transmit to the Attorney General a report embodying its findings and recommendations as a result of any such investigation, and the report shall be made public in the discretion of the commission. (d) Upon the direction of the President or either House of Congress to investigate and report the facts relating to any alleged violations of the antitrust Acts by any corporation. (e) Upon the application of the Attorney General to in- vestigate and make recommendations for the readjustment of the business of any corporation alleged to be violating the antitrust Acts in order that the corporation may thereafter maintain its organization, management, and conduct of busi- ness in accordance with law. (f ) To make public from time to time such portions of the information obtained by it hereunder, except trade secrets and names of customers, as it shall deem expedient in the public interest; and to make annual and special reports to the Con- gress and to submit therewith recommendations for additional legislation ; and to provide for the publication of its reoprts and decisions in such form and manner as may be best adapted for public information and use. (g) From time to time to classify corporations and to make rules and regulations for the purpose of carrying out the pro- visions of this Act. (h) To investigate, from time to time, trade conditions in and with foreign countries where associations, combinations, or practices of manufacturers, merchants, or traders, or other conditions, may affect the foreign trade of the United States, and to report to Congress thereon, with such recommendations as it deems advisable. Sec. 7. That in any suit in equity brought by or under the direction of the Attorney General as provided in the antitrust Acts, the court may, upon the conclusion of the testimony therein, if it shall be then of opinion that the complainant is entitled to relief, refer said suit to the commission, as a master in chancery to ascertain and report an appropriate form of decree therein. The commission shall proceed upon such notice to the parties and under such rules of procedure as the court may prescribe, and upon the coming in of such report such exceptions may be filed and such proceedings had in relation thereto as upon the report of a master in other 4o6 THE NEW COMPETITION equity causes, but the court may adopt or reject such report, in whole or in part, and enter such decree as the nature of the case may in its judgment require. Sec. 8. That the several departments and bureaus of the Government when directed by the President shall furnish the commission, upon its request, all records, papers, and informa- tion in their possession relating to any corporation subject to any of the provisions of this Act, and shall detail from time to time such officials and employees to the commission as he may direct. Sec. 9. That for the purposes of this Act the commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any corporation being investigated or proceeded against; and the commission shall have power to require by subpoena the attendance and testimony of witnesses and the production of all such docu- mentary evidence relating to any matter under investigation. Any member of the commission may sign subpoenas, and mem- bers and examiners of the commission may administer oaths and affirmations, examine witnesses, and receive evidence. Such attendance of witnesses, and the production of such documentary evidence, may be required from any place in the United States, at any designated place of hearing. And in case of disobedience to a subpoena the commission may invoke the aid of any court of the United States in requiring the at- tendance and testimony of witnesses and the production of documentary evidence. Any of the district courts of the United States within the jurisdiction of which such inquiry is carried or may, in case of contumacy or refusal to obey a subpoena issued to any cor- poration or other person, issue an order requiring such cor- poration or other person to appear before the commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. Upon the application of the Attorney General of the United States, at the request of the commission, the district courts of the United States shall have jurisdiction to issue writs of mandamus commanding any person or corporation to comply with the provisions of this Act or any order of the commis- sion made in pursuance thereof. The commission may order testimony to be taken by depo- sition in any proceeding or investigation pending under this TRADE COMMISSION LAW 407 Act at any stage of such proceeding or investigation. Such depositions may be taken before any person designated by the commission and having power to administer oaths. Such tes* timony shall be reduced to writing by the person taking the deposition, or under his direction, and shall then be subscribed by the deponent. Any person may be compelled to appear and depose and to produce documentary evidence in the same man- ner as witnesses may be compelled to appear and testify and produce documentary evidence before the commission as here- inbefore provided. Witnesses summoned before the commission shall be paid the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depositions are taken and the persons taking the same shall severally be entitled to the same fees as are paid for like services in the courts of the United States. No person shall be excused from attending and testifying or from producing documentary evidence before the commis- sion or in obedience to the subpoena of the commission on the ground or for the reason that the testimony or evidence, docu- mentary or otherwise, required of him may tend to criminate him or subject him to a penalty or forfeiture. But no natural person shall be prosecuted or subjected to any penalty or for- feiture for or on account of any transaction, matter, or thing concerning which he may testify, or produce evidence, docu- mentary or otherwise, before the commission in obedience to a subpoena issued by it: Provided, That no natural person so testifying shall be exempt from prosecution and punishment for perjury committed in so testifying. Sec. 10. That any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry, or to pro- duce documentary evidence, if in his power to do so, in obedi- ence to the subpoena or lawful requirement of the commission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdiction shall be punished by a fine of not less than $1,000 nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and impris- onment. Any person who shall willfully make, or cause to be made, any false entry or statement of fact in any report required to be made under this Act, or who shall willfully make, or cause to be made, any false entry in any account, record, or memo- randum kept by any corporation subject to this Act, or who shall willfully neglect or fail to make, or to cause to be made, full, true, and correct entries in such accounts, records, or 4o8 THE NEW COMPETITION memoranda of all facts and transactions appertaining to the business of such corporation, or who shall willfully remove out of the jurisdiction of the United States, or willfully muti- late, alter, or by any other means falsify any documentary evidence of such corporation, or who shall willfully refuse to submit to the commission or to any of its authorized agents, for the purpose of inspection and taking copies, any documen- tary evidence of such corporation in his possession or within his control, shall be deemed guilty of an offense against the United States, and shall be subject, upon conviction in any court of the United States of competent jurisdiction, to a fine of not less than $i,ooo nor more than $5,000, or to imprison- ment for a term of not more than three years, or to both such fine and imprisonment. If any corporation required by this Act to file any annual or special report shall fail so to do within the time fixed by the commission for filing the same, and such failure shall con- tinue for thirty days after notice of such default, the corpora- tion shall forfeit to the United States the sum of $100 for each and every day of the continuance of such failure, which for- feiture shall be payable into the Treasury of the United States, and shall be recoverable in a civil suit in the name of the United States brought in the district where the corporation has its principal office or in any district in which it shall do business. It shall be the duty of the various district attor- neys, under the direction of the Attorney General of the United States, to prosecute for the recovery of forfeitures. The costs and expenses of such prosecution shall be paid out of the appropriation for the expenses of the courts of the United States. Any officer or employee of the commission who shall make public any information obtained by the commission without its authority, unless directed by a court, shall be deemed guilty of a misdemeanor, and, upon conviction thereof, shall be pun- ished by a fine not exceeding $5,000, or by imprisonment not exceeding one year, or by fine and imprisonment, in the discre- tion of the court. Sec. II. Nothing contained in this Act shall be construed to prevent or interfere with the enforcement of the provisions of the antitrust Acts or the Acts to regulate commerce, nor shall anything contained in the Act be construed to alter, modify, or repeal the said antitrust Acts or the Acts to regulate commerce or any part or parts thereof. Approved, September 26, 1914. INDEX Accounting, uniform system of, recommended, 354. Esthetic efforts, 43. Aggregation of labor discussed, 298. Alexander, 42. Almond Growers' Exchange, SSI- Altruism and generosity found- ed on cooperation, 29. Amalgamated Association of I. & S. workers opposed to shorter hours, 169 note. American Society of Equity, 36 note. American Sugar Refining Co., 46. American Federation of Labor, 323- Anarchism and certain trade maxims, 212. Anarchist in trade, 121. Annihilation, competition and struggle for, 20. Anti-trust laws, see Trusts; amendments to, proposed, 36; contrary to spirit of age, 47; drawn along the lines of least resistance, 352; not en- forced against certain classes, 329, 346; theory of, 205. Association, see Open-price association. Associations, certain meetings of, not illegal, 124; indirect agreements of, 124; meetings of, for luncheon, 123; of rail- road employes and shippers suggested, 316; under pro- posed Federal Law, 356. Balance of trade, 42. Baldwin, Prof. James Mark, 20. Bargain days, 57. Beauty not a wholesale propo- sition, 43. Beyer, David S., 165 note. Bids, calling for, with no in- tention to let to lowest, 196; false representations concern- ing, 199; method of govern- ment purchases and contracts on, criticized, 228. Biological competition, 11, 21. Black list, use of, 56, 355. Bricklayers and Masons' In- ternational, 323. Broom-corn combination, 37 note. Brutal buying, see Buying; government purchases and, 228. Brutal competition, see Com- petitiokt^ brutal. 409 4IO INDEX Burley Tobacco Society, 37 note. Burton, Senator Theodore E., 63 note. Business, a lottery, 192; re- ducing the speculative ele- ments of, 224. Buyers, all men both buyers and sellers, 52; secret price policy and, 112; sellers and, most men both, 33; two classes of, 215; who have fixed incomes, 37; open-price association of, 153. Buying, brutal, 190. Buyers* open-price associations, 153-155. Caesar, 42. California and oriental labor, 5. Calwer, Richard, 370. Canada, conditions in, 359. Capital and labor, conflict be- tween, 4; misuse of term capital, 336. Capitalists, combinations of, and politicians and judges, 9. Carnegie, Andrew, 168. Carnegie Company, 104 Carpenters, association of, 105. Cartels in Germany, 368. Census statistics inadequate, 168. City of London case, 7. Clark, Prof. John B., The Con- trol of Trusts, 14. Class discrimination by indirect methods, 329. Class legislation and fair play, 328; no distinction be- tween combination of farm- ers and labor and combina- tions of manufacturers and employers, 334; unconstitu- tional, 328 note I. Clayton law, 80; beneficial, 82; in full, 378-396; opposed to Sherman law, 82. Community your partner, 156. Coal strikes, results of, 305 note. Collier, Wm. M., 50 note. Collusion, effect of, 98. Collusive competition, see Competition, collusive. Colorado Fruit Growers' Asso- ciation, 331. Combination, line of normal, in industries, 279. Combinations, see also Trusts; and pools in Eng- land and Germany, 127; and unfair competition, 63; con- flict between, 54; forms of, 45; fruit growers', 54; great era of, 34; here to stay, 10; inevitable, 35; large and friendless, 63; marketing or- ganizations, 54; of employ- ers, 53; of labor and farm- ers, 53; of railways, 53; of sellers, 53 ; old line and open- price associations, 147; on a selfish basis, 54; question of mere size, 349; to advance prices, effect of, 157; which include customers, 57. Commerce, international dump- ing of goods, 261 note i. Commonwealth vs. Strauss, yj note. Community, all losses unpro- ductive enterprises borne by, INDEX 411 252; and wasteful competi- tion, I ; attitude of, toward industries and men who are waiting for a normal de- mand, 262; economic organ- ization of, wasteful, 256; in- difference of, towards fail- ures, 265; must prevent strikes, 204; should control certain so-called economic laws, 249. Competition, a fetish, 2, 22; a relentless force, 1 1 ; and bar- baric conditions, 10; and its professed friends, 80; and labor unions, 8; and politi- cians, 5; and secret prices and rebates, loi ; and struggle for annihilation, 20; as af- fected by trusts, 51; attitude of labor unions towards, 2; attitude of the public towards, 16; attitude of socialists to- wards, 3; benefits of, 27; be- tween retail merchants, 91 ; between towns, 38; biolog- ical, II; blind, vicious, un- reasoning, 2; blind worship of, 26; cause of distress, 7; collusive, 97; competitive or cooperative basis of, 35; contracts to prevent un- healthy, 6; cut rate drug stores and, 31 ; cutthroat, 31 ; death of trade, i ; definitions of, 19; destructive, 29; disap- pearance of small competitor in, 64; disintegrating force, 26; essence of the old, 73; excessive, 6; extensive, 40; in products of the soil, sup- pressed, 9; in the labor world, 89; in Tin Plate in- dustry, 208 ; independent, against an integrated indus- try, 282; intensive, 40; is in- human, 1 1 ; is war and war is hell, 23; leads to combina- tions, 44; life of trade, i; line of normal, in industries, 279; lumber companies and, 65; mail order houses and, 31 ; moral and economic rights of, 65; mother of trusts, 50, 104; nature's, 15; new, court decree bearing upon, 69; new, interest of third party and, 73; new, versus old, 62; not the life of trade, 7; of isolation, 5; old fashioned, 285; piratic, merciless, cutthroat, 5; pro- duction of quantity and, 44; real and beneficial, 86; reck- less and ignorant, 94; rivals in a race, 85; suppressed, 95, 109; suppressed, and fixed prices, 116; suppressed, gen- tlemen's agreements and, loi ; survival of the fittest and, 13 ; synonymous with struggle, contest, rivalry, 21; wasteful, and the community, i ; what is, 12; when buyers would prefer to have prices fixed, 99; will the fittest survive? 32. Competition, brutal, 59; and Congress, 61 ; and size of a trust, 80; and vicious, 60; and the courts, 80; between blacksmiths, 61 ; instances of. 412 INDEX 64 ; is natural and instinc- tive, 61 ; progress toward higher ideals, 62; time hon- ored practice, 59; to small competitor, 60. C0MPETITI0N,^,£ALSE, 85, 86, 95, 97; and secrBt prices, ii6; basis of, secrecy, 105; be- tween blacksmiths, 90; be- tween carpenters, 87; be- tween crane builders, 92; bidding in the dark and, 93; in the contracting and manu- facturing world, 89; oriental method of, 11 1; shoddy and adulteration logical results of, 216; wide differences in, bids in, 93. Competition, trtt^, see Open- PRICE ASSOCIATIONS ; and open prices, 116; as com- pared with old, in theory, 227 ; conditions of, 87; eliminates secrecy, 91 ; factors of, dy, 94; helps the small producer, 114; knowledge, 94; prices more nearly alike in, 89; re- sults of, 109. Competition, unfair, 32, 59; and monopolies, 79; between country dealers, 60; between jobbers and manufacturers, 60; between peddlers, 60; by integrated industries, 283; business methods in, must be suppressed, (^y, 353; decree against, 68; false statements and disburse- ments and, 56; favored cus- tomers in, 102; goods "just as ^uod" in, 67; law in Ger- many against, 372; mail or- der and department stores and, 60; Massachusetts law against, 76; misrepresenta- tions in, 102; practices of the individual in, must be sup- pressed, 351 ; secret prices and, 102; under-selling rivals and, 74. Conflicts worldwide, 41. Congress and brutal competi- tion, 61 ; and corporations, 80. Consolidations, 52. Constitutional law, Massachu- setts, against unfair competi- tion, yd. Constitutionality of all class legislation, 324 note. Consumer interested in coop- eration, 54. Consumer, the ultimate, 218. Constructive legislation, 347, 350. Contest and competition, 21. Contractors generally, unfair practices by, 195. Contracts, constitutional right to make, yy\ illustrating brutal buying, 192; in re- straint of trade, 33 ; standard forms a provision, 201. Cooperation and buyers and sellers, 53; and integration of labor, 297; and over ca- pacity, 261; and state super- vision, 80; basis of altruism, 29; basis of our national ex- istence, 24; cannot be pro- hibited, 125; constructive, 29; danger is towards larger and INDEX 413 larger, 345; era of, 5; forms of, 45; foundation of prog- ress, 18; foundation of so- ciety, 24; growth of, 38; is progress, 11, 24; is trade, 10; means a broader outlook, 157; midway between selfish individualism and socialism, 164; more of, needed, 103; of labor, farmers and manufac- turers here to stay, 333; pro- duction and prices and, 49; promoted by true competi- tion, 30; railway associations and, 53; rise and fall of, in history, 25 ; sellers' organiza- tions and, 53; societies for, urged by President Taft, Colonel Roosevelt, 37 note; suppressed by anti-trust laws, 28; to reduce prices, 52; to reduce speculative elements of business, 214; to take in consumer, 54. Corporations, see also Trusts; and brutal competi- tion, 61 ; laws limiting size of, 48. Cost, a scientific system, 153; selling below, 82, 267-270; false statements regarding, 356; no man should sell goods below, 203 ; of living, 6y\ price should never fall below, 265; relation of, to a fair price, 243; rise and fall of price with relation to, 256; rules should be established for sci- entific ascertainment of, 267; selling at or below, punish- able, 355 ; selling goods below, 57; the element of labor and, 163; Texas law against sell- ing below, 75 ; uniform system of, recommended, 354. Cote vs. Murphy, 344. Cotton growers' organizations, 332. Cotton growers restrain com- petition, 9. Coulter, J. L., 330. Courts, and brutal competition, 80; attitude of English, to- wards combinations, 363 ; attitude of German, towards unfair competition, 372; at- titude of German, towards trusts, 370; being terrorized, 323; class legislation uncon- stitutional, 324 note, 328 note ; have already approved combi- nations of labor, fixed wages, 340; opinions of, referring to competition, 6; Sugar Refin- ing Co. case and, 6. Crane builders, competition be- tween, 92. Curran vs. Galen, 341. Customers, relations with, 158. Declaration of independence, 211. Demagogues, 47. Demand and supply analyzed, 258; shifting from object to object, or from all objects to money, 259. Department stores, 60, 66. Disintegration and integration, 30. 274. Distances, annihilation of, 39. 414 INDEX Dollar diplomacy, 42. Drug stores, cut rate, 31. Dumping of goods, 261 note i. Economic laws, control of, 205; under control of com- munity, 249. Economic progress, this coun- try backward in, 184. Economic rights discussed, 290. Economists of old school and competition, 22. Electric lamps, decree concern- ing, 68. Ely, Prof. R. T., 39 note, 48 note. Employers and employes, competition between, 30; the two great classes, 337. Employers, combinations of, here to stay, 10; debt of, to employes, 172; deny interest of labor in industry, 296; fight against labor, 163; or- ganizations, 53; relations of, with employes, 158, 162; right of, to combine as against labor unions, 344 note; welded together by at- titude of labor, 128. Employers' liability, 173; a question for actuaries, 179; changes in law of, 178; the economic view, 178; the law in New York, 175. Employes and provision for in- jury and pension, 164; as members of employers* as- sociations, 57; economy to provide for welfare of, 165; sex, age, and nationalities of, 164; wages and hours of la- bor of, 164. Encyclopaedia Britannica, defin- ition of competition in, 19. Engineers' attitude toward re- duction of hours of labor, 172. Engineers' threatened strike, 302. England, conditions in, 364; Parliamentary inquiry of 1833 in, 367. Ethical significance, open-price policy, 122. Ethical standards, 17. Ethics, competition contrary to, 13; fair trade and higher business standards and, 355; sacrificed at the basis of progress, 14; tendency of, towards higher standards m trade, 351. Evolution and social relations, 14; of competition, 11 ; rights of the strong against the weak and, 15; struggle for existence and, 61 ; survival of the rich and powerful and, 16; the human law survival of all, 16; will the fittest sur- vive? 32. Exchange builders, 107. Exchange, industrial, loi. Exemption of labor and agricul- tural associations from anti- trust laws, 346, 382. See Chap. XIX. Factory system, 43. Failures, liabilities, 266. Family a cooperative unit, 24. INDEX 415 Farmers are partly free to combine, 342; as capitalists, 337; as employers of labor, 338; associations of, in grain growing states, 331 ; cooper- ative creamery, 331 ; cooper- ative societies of, 33, 36, 51, 330; organization of, in Illi- nois^ 37 note. Federal trade commission, see Trade commission. Firemen and engineers, brother- hoods of, 323. Fires, losses by, 268. Fitch, John A., 165 note, 169 note, 168 note. Fixing re-sale prices, 6y. Florida Fruit Producers' Asso- ciation, 332. Foreign trade illusion, 42. Fraud, false representations concerning bids and prices, 199, Freedom, rise of, the develop- ment of law, 348. Fruit and grocery associations, 54. Fruit Growers' Associations in various Western states, 331. Fruit Exchange in California, 331- General contractors, unfair practices by, 195. General Electric Company, U. S. vs., 68. Gentlemen's agreements, loi. Georgia Peach Growers' Asso- ciation, 332. Germany, combination of steel manufacturers in, 127 note; conditions in, 368; law pro- hibiting unfair competition in, 372; number of syndicates in, 372; socialistic conditions in, 181 note. Gilds, Medieval, 40, 109. Government and competition, 27, 219 note; duty of, to see that prices are maintained, 218; it should be the object of some department of, to help manufacturers and dealers, 346; maintains railroad rates, 218; method of purchasing supplies and letting contracts by, criticized, 228; work for, bidding on, 198. Governors and cotton grow- ers, 9. Hadley, President, 18-20, 27, 246 note. History, the story of the rise and fall of cooperation, 25. Hoffman, F. L., 179 note. Holmes, Justice, opinion by, 6. Hospitals, 165. Huxley on evolution and social progress, 13. Ideals, progress towards, 62. Ignorant competition, see Competition. Illinois, class legislation in, 324. Incorporation, federal, 291. Individual power to run his business will be curtailed, 221. Industrial Commission and Federal, 215. 4i6 INDEX Industrial Commission sug- gested, 353. Industrial Workers of the World, 323. Industries, different, which pay different wages and prof- its according to earnings, 314; integrated, in competi- tion with independents, 282; liability of, to all employed, 173; over-capacity of, is normal, 258. Industries, vanishing, 232. Industrial peace versus indus- trial war, 109. Integration, 30, 293; in steel industry, 277; of labor would not do away with national organizations, 315. Intensive and extensive compe- tition, 40. International Harvester Com- pany case, 342, 347 note. Interstate commerce law, 27, 215; forces railroads into traffic associations, 172. Interstate industries, parties and corporations engaged in, 354. Inventions not due to competi- tion, 28. Iowa, law against unfair com- petition in, 'j'j. Jay, John C, Jr., article by, 153-155- Kansas class legislation, 327. Kellogg vs. Larkin, 7. Kentucky, farmers of, organ- izing, 2^^ note; tobacco asso- ciations in, 333; vegetable associations in, 333. Knights of Labor, 323. Knowledge, and stability of prices, 126; the basis of true competition, 94. Labor, aggregation of, 297; and capital, conflict between, 4; and the farmer, 338; and the industry it works for, 162; conditions of, and asso- ciations of employers and employes, 171 ; conditions of, twelve hour shifts, 168; di- vision of, is cooperation, 25; in connection with peak loads, 255; is free, 342; in- tegration of, a natural devel- opment, 300; interest of, in an industry, 293; opposition of employers to advancement of, 163; problem of, integra- tion versus aggregation, 293; provisions for injury, disa- bility or death, 172; scheme of integration of, 297; short- er hours opposed by certain associations of, 169; the eight hour day and, 170; troubles in, underlying propositions, 317. Labor unions, 51, 53; and competition, 8, 89; and me- dieval gilds, 40; and social- ism, 3; approved by courts, 340; as aggregates, 299; at- titude of, regarding interest of employes in industries, 296; attitude of, towards competition, 2; compel em- INDEX 417 ployers to combine, 128; dic- tate wages, 33 ; exemption of, from anti-trust law, 346, 382; shrewd programme of, in presenting demands, 304 ; strength of, 323; wages and, 295- La Follette, Senator, 59-60-61- 63, 80. Law, a conservative force, 348; a federal, industrial, like Interstate Commerce Law, 215; as a rule of conduct, 168; has little meaning to most men, 347; passed to curb progress, 349; splitting hairs with, 124; to regulate instead of destroy, 341. Laws, anti-trust, and social- ism, 4; confusion of, y6; de- mand for constructive, 274, 350; destructive, fallen into disrepute, 350 ; encourage brutal competition, 15; favor- ing labor and farmers' combi- nations, but denouncing manufacturers, 314; new, sug- gested, 353 ; of Canada regarding trusts and combina- tions, 359 ; of England regard- ing trusts, 354; theory of anti- trust, 28. Legislation, constructive, 347. Levy, Hermann, 366-367. Lockout must go, 317. Lottery, business as a game of chance, 203. Louisiana, rice growers' associ- ations in, 333; class legisla- tion in, 326, Lumber company, convicted of unfair competition, 78; un- fair practices of, 65. Lumber industry integrated, 287. Lying, ancient practice of, 57. Macrosty, H. W., 276 note, 365. Mail order houses, 39, 60, 66; and competition, 31. Manufacturers and dealers are not free to combine, 342; caught between farmers' or- ganizations and labor unions, 34; timid, 345. Marketing organizations, 54. Market price, no tangible exist- ence, 250. Massachusetts law against un- fair competition, 76. Master and servant notion, 57. McVey, F. L., 207 note. Men no longer wish to fight, 10. Methods of business changing, 10. Michigan, class legislation in, 327; Grape Growers' Associa- tion in, 330; Tamarack Asso- ciation in, 339. Middleman, 55, 64. Miles Medical Co. case, 6. Mill, John Stuart, 20. Minnesota, class legislation in, 327; Farmers' Elevator Com- pany in, 333 ; law against un- fair competition in, yy. Missouri law limiting size of corporations, 48. Mogul Steamship Company case, 364. 4i8 INDEX Monopolies, artificial, 28; and unfair competition, 79; a few real exist, 29 note; when trusts are, 48. Montana, class legislation in, 325. Napoleon, 42. Nature is merciless, 15. Nebraska, class legislation in, 325; law against unfair com- petition in, yy. New competition, see Compe- tition, NEW. North Carolina, class legisla- tion in, 327. Ohio, class legislation in, 327. One-price policy, 57, 113. Open-price association, 105, 122, 151-156; advances the in- terests of the public, 227; by buyers, 153; and labor, no, 166, 172; better prices not cer- tain under, 152; blanks used, 144; brutal buying, 190; Com- mittee on Relations with Em- ployes and, 164; complaints, 140; control of manner of bidding and, 198; control of prices and, 227 ; danger ahead of, 109; deals with actual transactions, 126; definite economic method, 122; de- mands concerted action, 120; discussion of business, 139; distribution of information, 134; effect of, on competition, 103; ethical significance of, 122 ; experiment worth trying, 107; failures of, 155; filing of contracts is the final step, 139 ; formed for not less than one year, 146; form of organiza- tion of, 132; frankness and truthfulness, 161 ; industrial exchanges, 106; legal, 125, 345; means a higher individ- ualism, 151-156; means stable prices, 115; means that sellers and buyers cooperate to con- trol fluctuation, 228; method of operation, 132; notification of revision of bids, 136; not like old line pools, 127; open bidding, 135; order of busi- ness, 147; parties interested, 108; pension and workmen's compensation, 188; promotes fair, uniform, and stable prices, 218; promotes har- mony between employer and employe, 163; publicity, 148; record of proceedings of, 149; relations among mem- bers of, 158; relations of, with competing plants, 160; relations of, with employers and employes, 162; relations of, with customers, 190; re- lations of, with sellers, 203; relations of, to the public, 158, 225; results of, 114, 150; retail trade and, no; revision of bids not fair to customer, 137; secret advan- tages and, 141 ; small manu- facturer and, 113; some of the difficulties in organizing, 142; steps to establish, 128; suppression of unfair prac- tices by, 218; the big fellow INDEX 419 and the little fellow, 161 ; un- fair competition and, 161 ; vanishing industries, 241. Open-price policy, advantages of, 146; in America and Europe, iii ; false statements regarding bids and, 200. Oriental customs prevail with manufacturers and contract- ors, III, 112. Over-capacity normal, 255. Panics and cooperation, 265; cost of, 259; money proposi- tions, 260. Partnerships, 45. Patents, utilization of, to con- trol trade, 70. Peak load and its demand upon merchants and manufac- turers, 254; and the question of idle labor, 255; in rela- tion to price and capacity, 256. Pennsylvania, class legislation in, 326. Pennsylvania railroad, 187. Pensions, 164, 172, 183; paid by certain corporations, 185; government protection of funds, 188; paid by state in industries a socialistic propo- sition, 187; to soldiers and sailors, 185. People vs. Sugar Refining Co., 6. Perfection, rivalry incentive towards, 18. Philosophy of trade, 203. Playgrounds, 165. Political economy, approval of brutal maxims of, 287; dis- mal science, 204. Politicians and combinations of capitalists, 10; and com- binations of labor, 9; and competition, 5 ; suppression of competition in products of soil favored by, 9. Pools, see Combinations. Post, parcel, 39. Price, see Open-price policy; arbitrary adjustment of, to cost, 263; and cooperation, 49; and cost discussed by Adam Smith, 243; as af- fected by integrated indus- tries, 282; as affected by open-price associations, 106, 141, 151; buying below cost, 230; consumer and a stable, 216; development of large establishments, 121 ; discrimi- nation in, between parties and localities condemned, 355; distinction between fair and right, 263 ; fair, uniform, and stable, essential, 6y, 213 ; false statements regarding, 355 ; federal regulation of, chimerical, 291; fixed, 119; fixed by farmers* societies, 51; fixed, may be very desir- able, 213; ignoring the man who pays, 57; implied agree- ments to control, 125; impos- sible to keep men to a fixed, 138; inspection of, by gov- ernment agents, 230; knowl- edge regarding, keeps prices stable, 126; marking in cipher, H2, 117; matter of 420 INDEX social concern, 217; meetings to compare, 124; on stock ex- change, 120; open, as a labor saving device, 117; oriental method, 11 1; peak load and, 252; rise and fall of, with relation to cost, 256; scien- tific proposition, 264; secret, is cumbersome, 117; secret, is wasteful, 121 ; should never fall below cost, 265 ; should vary with cost, 257; stable, as compared with stable wages, 228; storms like wind storms, 119; suppressed, 119; and trusts, 51; unions to advance, 52; what is a fair, 243; what is a fixed, 116; what is an open, 115; where stable, 120. Price discrimination, 81 ; see also Clayton Law and Trade Commission ; also Unfair Methods of Competition. Production and cooperation, 49. Profit an individual matter, price of social concern, 216. Progress and large producers, 62; and morality, 17; is co- operation, II, 18; in last fifteen years, 62] signs of change, 68. Protection as opposed to cer- tain trade maxims, 209. Public and strikes, 305; atti- tude of, towards competition, 16; bears all costs of operat- ing railroads, 305; distrusts secrecy, 225 ; interested in de- mands for increased wages by railroad employes, 311; profits to, from disaster to in- dividuals, y2) relations of, to open-price associations, 225 ; suffers from secret methods, lOI. Publicity, a remedy, 353; cardinal principle of the new competition, 148. Pure food law of commerce, 81. Railroad Conductors' Order, 323. Railroads, employes of, de- mands by, parties interested, 306; employes of, scheme of integration, 297; employes of, suggested programme on presentation of demands, 307; firemen of, demands by, 305 note ; questions of, in rate controversies, 219; Sherman Law and, 172; strike pend- ing, 302; under Interstate Commerce Law, 215; vicious conditions in, under old com- petition, 221 ; workings of traffic associations, 221 note. Railway associations, 53. Rebates and secret prices eliminated by open price policy, 150. Remedies proposed, 291. Re-sale prices, 6y, 69, 83. Restraint of competition rea- sonable, 6. Retail stores, 48 note. Retail trade, associations and customers, 57; association in- cluding employes, 57; mail order and department stores. INDEX 421 66; one-price policy, 91, no; unfair competition and, 55. Rights, dependent upon rela- tions, 211; discussed in con- nection with so-called right to strike, 317; of a man to do as he pleases with his own, 288; supposed, to sell below cost, 289; what sellers should not do, 217. Ripley, W. Z., 207 note. Rivalry and competition, 21 ; in brute competition, 18; true, 18. Roosevelt urges formation co- operative societies, 37 note. Safety appliances, 164, 168. Sahlin, Axel, 2y6 note. Sales, false statements regard- ing, 555- Sanitary conditions, 164. Saw mills, combination of, 280. Scheme of steel industry, 275. Science of trade not yet writ- ten, 203. Seager,.H. R., 179 note. Secrecy, basis of false compe- tition, 105 ; eliminated in true competition, 87; yielding to publicity, 10. Segregation, what it means, 274. Sellers and buyers, see Buyers and sellers. Sherman act, 34, 74, -^6; aimed at size, 349; a cooper- ation of farmers and labor- ers, 334; destructive in pur- pose, 36, 274, 347; does it ap- ply to existing conditions, 340; exemption labor unions and, 328 ; repeal of, opposed, 350; not enforced against certain classes, 34, 330; obsolete and mischievous, 351; railroads and, 172, 215; railroad associations and, 224 note; results of enforc- ing, against large corpora- tions, 269; standard forms of contracts and, 201 ; strikes by railroad unions and, 303. Signs of change, 69. Smith, Adam, discussion of price and cost, 243. Smuggling, 46. Social progress and evolution, 13- Social relations in advance of biological evolution, 14. Socialism and anti-trust laws, 4 ; and competition, 3 ; growth of, 3 ; labor unionism and, 3. Society, foundation of, is co- operation, 24. South Dakota, class legislation i"» 325; law against unfair competition in, 78. Spencer, Herbert, 46 note. Squier, L. W., 179 note. Standard Oil Company, 28, 59, 60, 63, 104, 124, 187, 272. State vs. Brayton, 78. State vs. Central Lumber Com- pany, 78. Statistics, mortality, in U. S., 179 note. Steel industry, interdepend- ence of several units of, 276; line of normal competition, 279; scheme of, 275, 422 INDEX Steel manufacturers, combina- tion of, in Germany, 127 note. Strikes, attitude of govern- ment toward, 302; contrary to social progress, 304; must go» 307; strike breakers and, 31- Struggle and competition, 21. Supply and demand as de- scribed by Adam Smith, 244; theory of, criticised, 248; wide fluctuations in, under old competition, 251. Suppressed competition illegal, 95. Syndicates, number of, in Ger- many, 372. Taft, President, on right of labor to strike, 341 ; urges formation cooperative so- cieties, 37 note. Tamarack Association of Michi- gan, 339. Tariff and Tin Plate Industry, 207; as opposed to certain trade maxims, 209. Tennessee, class legislation in, 327; tobacco associations of, 333 ; vegetable associations oi, 333. Texas, law against selling be- low cost or giving away in, 75; Rice Growers' Associa- tion in, 333; Truck Growers* Association in, 333, 339. Thomas vs. C N. O. & T. P. Ry., 341. Times are changing, 10. Tin plate Industry, attitude of government toward, 209; and the tariff, 207. Tobacco company, 130, 272. Tobacco growers' associations, 333- Tobacco Society, 37 note. Trade anarchist, 121. Trade, maxims of, 204; max- ims of, certain anarchistic, 212; philosophy of, 204; science of, not yet written, 203 ; tricks of, 58, 67 ; vicious . conditions in, under old com- petition, 221. Trade Commission, 69, 80, 84, 357 ; law in full, 397-408 ; per- sonnel of, 358, 397; and re- sale prices, 69, 83 ; preventive rather than punitive, 84, 400; trade commissioners, 397. Traffic associations, workings of, 221 note. True competition, see Compe- tition, TRUE. Trusts, see also Corporations, combinations and, in Ger- many, 368; condemned, even though they have benefited the community, 342; disin- tegration and, 272; have their birth in competition, 105; hypocrisy of those who assail, 47; laws against, 34; logical development, 45 ; prices and, 51; problem of, 271; the result of competi- tion, 45, 50 note; rights of, as against small competitors, 14; segregation versus disin- tegration, 271 ; shortcomings of, 46; socialism and anti- INDEX 423 trust laws, 4; what to do with, 271. Turmoil and upheaval, 62. Truth as a labor saving device, 117. Unfair buying, see Brutal BUYING. Unfair competition, see Com- petition, unfair; laws of Iowa, Minnesota, Nebraska, and South Dakota against, 78; practices of, enumerated and condemned, 355. Unfair competitive methods, 67, 69, 80-84, 400, 401 ; selling be- low cost, 267-270; state laws against, 83; see also Clayton Law, and Trade Commission. United Shoe Machinery Com- pany, Canadian investigation of, 362. United States and economic progress, 184. U. S. Steel Corporation, 29, 63, 104; integrated industry, 278; safety appliances and, 268 note; Tin Plate Industry and, 208. U. S. vs. General Electric Com- pany, 68. U. S. vs. Joint Traffic Associa- tion, 224 note. U. S. vs. Trans - Missouri Freight Association, 227 note. Vanishing industries, 232; attitude of biologist towards, 240; illustrations of, 234; neglect of, by government, 239 ; open-price associations and, 241 ; suggestions how to help, 236. Virginia Apple Growers' Asso- ciation, 332. Virginia Farmers' Association, 332. Wages, fixing, 51 ; fixed by unions, 295. Walnut Growers' Association, 331- Walsh, C. M., 247 note. War is competition, 23. War, the present, 42. Wealth, our reckless prodigal- ity, 348. Whitwell vs. Continental To- bax:co Co., yy note. Wisconsin class legislation 327- Woman and child labor, 32. Workmen's compensation, a new principle, 180; and pen- sions, laws of diflFerent coun- tries, 179. Young men progressive, old men reactionary, 156. xTNTVPi ^ 14 DAY TT^p arejuDjea to immediate recalL (N5382sl0)476^A-32 . General Library University of CaJifornia Berkeley YB fcZZ9 1 '/ -■■-H.P41 -■ UNIVERSITY OF CALIFORNIA UBRARY