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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. 
 
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