Chapter IX: Part 9

The object in making the bonds run for no longer time than twenty-five years, when it is intended that the whole value of the road shall be perpetually held in the form of bonds, is that at proper intervals a revaluation may be made of the improvements to the road and the interest charges may be readjusted to correspond with the general change in the income from capital. When the bonds fall due, a new block would be issued and sold to the highest bidder. The interest rate should be set at such a point that the bonds could be sold at a premium. These premiums, with the ¼ of 1 per cent. on the bonds, paid by the operating company to the government, (which we may regard as a legitimate fee to the government for its guaranty) should form a government railway fund. This should be used, first, to defray the expenses of the government department of railways, and second, to pay the deficit when on any line the net receipts after operating expenses are paid are insufficient to pay the rental. The remainder should be expended in making improvements and additions to the railway system, such as building new bridges and stations, and improving the line, the cost of which, however, should be represented by additional bonds at the end of the twenty-five-year term. The amount of income should be so regulated, by varying the rate of interest on new bonds, that the sum remaining for the last purpose may be about sufficient for usual needs. The whole administration of the receipt and expenditure of this fund should be vested in the government department of railways. In this way the danger that the whole work of this government department might be blocked through the neglect of Congress to make necessary appropriations, would be avoided.

The readjustment of existing stocks and bonds presents difficulties which will be considered in very different ways by different classes of persons. The "granger" element, for instance, would cut off the holder of "watered stock" with a shilling. Fortunately, if we take time enough, we can arrange this matter with no shadow of injustice. To illustrate: The government can purchase the A. B. & C. road outright at its market value, which, owing to inflated prices and watered securities, is perhaps $3,000,000. It is desired to wipe out $1,000,000 of this to place the road upon its proper basis. The government issues 3 per cent. guaranteed ten-year bonds upon the road and leases it at an annual rental of 6 per cent. on what it has paid. At the time the bonds are due, the accumulation of rentals over interest is more than sufficient to pay off $1,000,000 of the bonds, while the remainder are renewed on the permanent basis.

The author is well aware that a very strong prejudice exists against the lending by the government of its credit to private corporations. This prejudice--which has perhaps already been sufficient to condemn the plan, as thus far presented, in the mind of the reader--he believes to be a very wise and well founded one. The assumption by the government of any risk in connection with corporate enterprise is highly undesirable. It is now to be noted that this objection is wholly overcome; for, notwithstanding the fact that the government guarantees the bonds of the railways, it is not proposed that it shall really assume any risk, as will be seen from the further description of the powers and obligations of the operating corporations.

These should be essentially private companies, but there should be two or three representatives of the government on the Board of Directors. They should be required to operate the roads in a safe, efficient, and economical manner, and to keep accurate and simple records, open to the inspection of the Government Commissioners, of the receipts and expenditures on every separate line of road. The rates of fare and freight should be, first of all, stable. When once fixed they should neither be raised nor lowered except by the direction of the Government Railway Commissioners. Next--and this is the cardinal feature of the whole plan--it should be the endeavor to fix the rates of fare and freight at such a point that the total receipts would be sufficient, first, to pay the whole expense of operating and maintaining the road; second, to pay the annual rental of 3¼ per cent. interest on the cost of the road; and, third, an annual dividend to the stockholders of the operating company of from 4 to 8 per cent. The capital stock of the operating company should be fixed by law at about 1¼ times the actual cost of rolling stock and machinery. The operating company should be allowed to issue only one class of securities, and these should represent at par the actual cash capital invested by the operating company.

Under this plan it is evident that every community would pay its equitable share of the cost of transportation, since the rates would be based on the cost of service.[6] Instead of roads running along, bankrupt for years, as now, we would have every community paying for its transportation facilities just what it cost to furnish them. But if, on any road, such a rule would raise the rates above a certain prescribed maximum point, then the rate could be lowered, if necessary, to a point where it was only great enough to pay the operating expenses; and part or all the bond interest would be paid out of the government railway fund.

[6] It should be explained that it is only proposed to base the
_rates as a whole_ upon the cost of service. As regards the relative
rates on different commodities, the author, in common with all who
have given careful study to the question, recognizes that the only
equitable principle for proportioning rates is the much maligned one
of "charging [in proportion to] what the traffic will bear." The
argument against this principle is so very plausible that, until he
had given the subject thorough study he held a diametrically
opposite opinion.

To make plain to the reader that this is really the only equitable
principle, the following illustration may serve: A coal-mine
operator and a sewing-machine manufacturer build together a railroad
to carry their respective products to a market. They will fix the
total rates of freight at such a point as to just pay the cost of
service; but it is required to find what relative rates each should
be equitably charged on the shipments from his works. Evidently, to
have the rates perfectly equitable, they must be in exact proportion
to the _benefit_ which each party derives from the use of the road.
But this benefit which each derives is _measured_ by the profits
which each makes from his business; and this profit, in turn, is the
measure of the amount each can afford to pay for the use of the
road,--that is to say, "what the traffic will bear." _Q. E. D._

"But," the objector says, "is it not true that when you limit the profits of the companies and base rates on cost of service you take away all incentive to economy and careful operation? The public, and not the company, gain if the cost of service is reduced; so why should the manager exert himself to economize? This very same principle has been tried. Many States have chartered railway corporations, and provided that fares and freight rates should be reduced when dividends exceeded a certain per cent., or else that a percentage of the surplus earnings, above the amount necessary to earn, say 10 per cent. dividends, should be paid into the State treasury. Of course the railway corporations who have been able to earn surplus dividends which they were not permitted to pay, have been sharp enough to spend their surplus on their own property instead of turning it over to the State treasury. How is it possible, then, to base rates on cost of service and still leave the incentive to economy, frugality, and efficiency which exists, when the corporation is permitted to make all the profits it can?"

To discover a means of overcoming this difficulty, let us see how it is overcome under competition. A man invents a new machine, for instance, which effects a saving in the cost of some manufacturing process of 50 per cent. One manufacturer adopts it because it greatly increases his profits, and one by one his competitors follow suit. The competition between them cuts the prices lower and lower, till finally the consumers of the goods get all the benefit from the saving effected by the new machine, and the manufacturers' profits are no greater than they were originally. But the important point to be noted is this, that the benefit to the manufacturer continued long enough to repay him for introducing the machine. So in our attempts to base railway rates upon cost of service, we must permit the profit from the introduction of economies, the use of improved appliances, etc., to be gathered by the railway company long enough to induce it to work toward that end.

All we need to do to effect this end is to _somewhat delay_ the change in rates to correspond to change in cost of service. As already stated, it is most necessary that rates should be _stable_, and it is proposed to make any change, either advance or reduction, only through the action of a Government Commission. Now, suppose that some such clause as this forms a part of our railway law: "upon the petition of any railway corporation, or of not less than twenty-five patrons of any single 'railway district,' it shall be the duty of the Railway Commission to investigate regarding a readjustment of rates to correspond more closely to the cost of service. If it shall be found that in the given 'railway district' the net receipts over the operating expenses and fixed charges have been for one year not less than 9 per cent. on the capital of the operating company invested in the given railway district; and that for two successive years they have been not less than 8 per cent.; or, if they have been for one year 8 per cent., and for two years 7 per cent., and it shall be proven to the satisfaction of the Commission, that any due and proper measure of economy, to which the attention of the officers was called in writing has been wilfully neglected, or that any uncalled for and manifestly extravagant expenditures have been entered into during that time, then it shall be the duty of the Commission to lower the rates. If it shall be found that for one year the net earnings have been less than 3½ per cent., and for two years less than 4½ per cent., unless it shall be proven that this deficit has been fostered by neglect of due economy, or by extravagant expenditure as aforesaid, the rates shall be raised. In all cases where rates are readjusted, it shall be the endeavor of the Commission to set them at such a point that the net earnings will equal 6 per cent. on the capital stock."

The provision requiring two years of excess or deficiency before a change, would be necessary to avoid the fluctuations which occur in single seasons. Every piece of economy is so much gain to the stockholders, and its benefit is received for at least two years. It must be remembered that in any railway corporation, as at present conducted, none but the highest of the managing officials have any personal interest in the profit from operations. It may well be believed, therefore, that the measure of economy and efficiency effected would be at least as great as now. As this plan also contemplates government representation on the Board of Directors, any action by the higher officials to evade the law would be unlikely to occur.

The receipts of a company operating say 30,000 miles of railway and carrying its traffic at fixed rates would vary but little from year to year; and its stock would be so largely held by investors and would vary so little in price that there would be very little speculation in it. To bankrupt the company would be an impossibility, since its receipts would always be regulated to preserve its revenue, although not so strictly but that the company would still have every incentive to cultivate traffic by offering good facilities, and to economize at the same time by the introduction of improved methods.

No doubt it can be shown where every detail of the foregoing plan leaves loop-holes for abuses to creep in. It will be much the same with any plan whatever. The questions to be asked are, would abuses, waste and stealing be any more likely to occur than under any other plan? Could they be any more prevalent than they are now,--bearable only because we are calloused to them? Of course, the foregoing is a mere outline of the general principles of the plan. Details which readily suggest themselves would, of course, be necessary to carry out the principle successfully.

That some attempt should be made in this connection to solve the perplexing problem of strikes on railway lines is proven by the memorable engineers' strike on the Chicago, Burlington, & Quincy system. Perhaps a provision requiring every employé and officer to hold at least a certain number of shares in the operating company in proportion to his salary would help to solve the labor problem; and it might give the higher officers a greater interest in their work than they always show.

The author has deemed it worth while to outline the foregoing plan for the equitable control of railway monopolies with considerable fulness, because, to a very great extent, the principles followed in the design of this plan are applicable to a great number of other monopolies. These important principles are: (1) Government protection to the owners of fixed capital so that the public may obtain the use of it at the lowest possible rate of interest. (2) The operation of monopolies by corporations rather than by the government, thus securing the increased efficiency of private over official management. (3) Securing to the people at large the benefit of the monopoly by basing the prices for its product on cost of service. (4) But leaving a suitable incentive for the company's managers to maintain economy and efficiency in its operations. (5) Government representation in the directorate controlling the ordinary affairs of the company.

It is evident that the plan just outlined for railways would be especially well adapted, with but slight changes, for the control of the telegraph lines of the country.

* * * * *

We will next consider the monopolies discussed in Chapter III. It seems too plain to need proof that our mines and quarries are certain to have a steady increase in value as we use up the easily worked surface deposits and have to dig deeper shafts and develop the poorer deposits to supply the demand. In the case of any metals or minerals of which the deposits are so abundant, easily worked, and widely scattered, that the number of evenly matched competitors is great enough to ensure steady competition, the public will get the benefit of the especial gift of Nature, and its owner can receive little more than an ordinary return for his labor and capital. But, as we have already amply shown, in the production of a great number of minerals and metals competition has been killed, or is heavily handicapped by the vast advantages of a few bonanza mines, and the public is being taxed millions of dollars for that which belongs to it by right.

How long is this condition to continue? Must all succeeding generations pay for coal, copper, zinc, lead, nickel, marble, oil, gas, and various other products of our mother-earth just what those who control the chief deposits choose to ask? Because a pioneer stumbles upon a valuable mine, shall the sole right to use the product of that mine be secured "to him, his heirs and assigns" forever?

Suppose, now, that each of the several States were to acquire the title to all the productive mines, quarries, and mineral wealth within its borders, and enact laws providing that future discoverers of minerals on land where they are not now known to exist should be liberally rewarded, if the discovery proved valuable, but the minerals should belong to the State and not to the owner of the land. The same principle which we found to apply in the case of the railways would serve here in readjusting values, viz.: the difference in the rates of interest on safe investments and on risky ones. When acquired, the mines should be leased to private parties for operation. In the case of coal-mines and perhaps of iron, it would be well to copy largely from the scheme proposed for railway operation, viz.: place all the business in the hands of a single company, which should thus be enabled to carry on its business on the largest possible scale; do away with wasteful competition, and aim to regulate prices to provide a certain reasonable steady income on its capital to the mining company.

For mines of copper, zinc, lead, and similar metals, it would be best to pursue a different plan, and simply provide by statute that such mines should be leased for short terms of years to the bidder who would offer to sell his product at the lowest price per ton at the mines, all lettings and relettings to be publicly advertised, and the successful bidder to give bonds for the faithful performance of his contract. It is difficult to see how, under these conditions, a combination to defeat competition could be formed. Relettings of expired leases would be frequent; and bidding by the _selling price_, a single competitor would be sufficient to break any combination. Of course the lease should specify a minimum product which the mine should furnish.

It would be advisable, too, that a manifest duty of the government, which should be undertaken even under present conditions, should be observed. It should be required to work the mine with due attention to saving the greatest possible amount of ore or mineral contained in the seam or vein.

The third class of monopolies, whose legal subjection to public control is acknowledged, are those connected with our municipal public works. There is already a widespread movement toward taking the control and operation of these out of the hands of private corporations, and placing it directly with the city government, and progress in this direction is very rapid. The author believes, however, that the general law already stated is applicable here. If the public works of States and of the nation are more economically and efficiently managed when in the hands of private parties, it is surely unwise, as a general rule, to entrust the operation of municipal works to the average city official. While it is in the highest degree desirable that water-works, gas, and electric-lighting plants, street railways, and the other municipal enterprises, discussed in Chapter V., should be _owned_ by the municipality, their operation, in cases where the employment of considerable labor and the carrying on of intricate business and mechanical operations is involved, should in general be entrusted to private companies. In every case where the financial condition of the municipality obliges it to rely at first upon private corporations for the construction and ownership of its public works, the franchise should expire at the end of a short term of years, and the city should then have the privilege of purchasing the works at their actual cost.

As regards works for water supply, there can be little doubt that almost invariably the municipality should operate as well as own the works, for the administration of the works requires but a small amount of labor, and that of such a class that the city can safely carry it on. But gas or electric-light plants, both for street and resident lighting, should be operated by private companies.

These industries are making such rapid progress in the way of new processes, effecting both economy and improvement, that it is somewhat difficult to say what steps should be taken. Many are of the opinion that gas is destined to be entirely replaced by the electric light; but while this may eventually prove true, it will probably be a very long time before the existing gas-works cease to supply consumers. Thus the true solution of the problem seems to be that when a growing town nowadays wishes to establish a new lighting plant of its own, it should adopt electricity. But in the case of a town having gas-works already established, the municipality is safe in assuming their ownership.

As regards the operation of lighting plants in small towns, it would doubtless be best to lease the plant for short terms of years to the highest bidder, making sure that the call for proposals is widely circulated. Great cities, however, would find this policy unsatisfactory. If a ten-year lease of the Philadelphia gas-works, for instance, were advertised for sale to the highest bidder, there would be but few really close bidders upon it, and the danger of "a combination to defeat competition" would be great. It is at least worth considering whether such a plan as we proposed for railways could not be made feasible here. Let a corporation be chartered to operate the lighting plant of the city, and let the charter of the corporation provide that its rates shall be such as to pay an annual dividend upon its capital stock (fixed by law and not changeable) equal to the legal rate of interest in the State. Provided, that in no case should the rates be lowered unless the net profits in one year were more than 2 per cent. in excess of this rate, and that the excess for two consecutive years was more than 1½ per cent. in excess of this rate. Provided also, that in no case should the rates be raised unless the deficit exceeded 1½ per cent. in any year, and 1 per cent. for two consecutive years, and that it should be proven by the company that it had exercised all reasonable diligence, care, and economy in the management and operation of its business.

A certain proportion of the stock--less than a majority--should be held by the city; and the mayor should appoint directors to represent the city, at least one of whom should be personally conversant with the industry carried on by the company.

Although not often so considered, the matter of passenger transportation is a much more important matter in our greatest cities than either lighting or water supply. The laboring man, who has to pay perhaps twelve cents for the necessary ride back and forth to his work every day, feels this tax most severely. Suppose that under such an arrangement for street railways as we have outlined for gas and electric lighting companies the fare would be reduced to three cents. His savings from this source would amount to at least $18 per year. Counting the extra rides and those which his wife and children have to take, the annual saving would probably reach $25, a sum which to the average laboring man with a family dependent upon him means a great deal.

Our municipal monopolies are now taxing us that they may pay swollen dividends on millions of dollars of fictitious capital. It is quite time that the public recovered possession of the valuable franchises which are its rightful property, and managed them for its own benefit. The legal difficulties in regaining the title to these franchises are certainly not insuperable, and the readjustment of capitalization can be made on the principle outlined in the case of steam railways. To illustrate: The city of "Polis" purchases the works which supply it with water from the private company owning them, paying the average market value of the stock and bonds during five years past, which amounts, perhaps, to one and one half times the cost of the works. The revenue from the works has been sufficient, probably, to pay 8 per cent. on these securities. The city issues 3 per cent. ten-year bonds to raise funds for the purchase, and it then operates the works so as to gain a yearly revenue of 6 per cent., or 2 per cent. less than that gained by the private company. At the end of ten years the surplus income from the works is enough to pay more than one third the bonded indebtedness; and, if desired, the rest may be reissued as new bonds to run for a long period.

The three classes of monopolies just discussed--railways, mineral wealth, and municipal works--include practically all the monopolies which are generally acknowledged to be subject to the public control by virtue of their use of natural agents or the exercise of franchises granted by the public.

We will next consider the monopolies in trade, in manufacturing, and in the purchase and sale of labor, to see what steps should be taken to protect them from encroaching on the rights of the people. In exercising the right of the people at large to take control of these purely private industries from the hands of their owners, we are assuming a power which, like a strong medicine, may be as potent for evil as for good. Only extreme necessity should sanction its use, and its abuse must be carefully guarded against. It is not saying too much to assert that the abuse of this power has already become an evil. We have become so used to legislation for the benefit of special industries, that legislation for their injury does not seem to be regarded as the exercise of a dangerous prerogative. Thus we are threatened with a flood of laws to fix the prices in various industries now subject to monopoly, or to crush them out altogether by enacting some restrictive measure,--legislation which, by its directness, is apt to strike the average lawmaker very favorably, but which, it needs little wisdom to see, is the sure forerunner of abuses. The author trusts that nothing in this book may be construed as advocating or defending some of the crude and ill-considered attempts at anti-monopoly legislation already made, or that may be made in the future.

We have proven in the preceding chapters that, from the character of modern concentrated industry, a very large number of our manufactures must either exist as monopolies or else must engage in intense and wasteful competition. If the monopoly can be so managed that it shall carry on the industry economically, adopt improvements, keep up the character of its product, and keep the prices therefor so low as to make no more than ordinary profits, it would be for the public advantage that monopolies rather than competition should exist. Can we regulate monopolies to secure such results? If so, our problem will be solved.

The author has proposed for the first class of monopolies--those obtaining the benefit of natural agents and public franchises--government ownership of fixed capital and regulation of prices, with private operation and general management. But he is far from believing that such a plan would now be wise for regulating trusts. It may indeed be that, at some time in the future, many of the great staple manufactures will be formally established by the government as monopolies, and controlled in a similar way to that which we have outlined for the railway system; but it is so far in the future that we need not consider it in detail now. Under our present political organization it would be practically impossible for the government to undertake to regulate justly and equitably such an industry, for instance, as the steel-rail manufacture. We have set our State, national, and municipal governments a hard enough task in the preceding pages of this chapter, in bringing under public control our monopolies of transportation and communication and our productive mines; and although it is a work possible of accomplishment, it will need good statesmanship to carry it out. By the time that task is accomplished, a similar plan, improved as experience will then suggest, may perhaps be found available for the regulation of the important manufacturing industries.

We decide, then, that it is for the public advantage at present that both the ownership and operation of manufacturing industries and of trade must remain in private hands. The next question is, will the greatest advantage to the public be secured by starting a crusade to re-establish competition and break up all existing monopolies in manufacturing and trade; or by taking the opposite course, legalizing monopolies and so regulating them by law that they shall be prevented from making undue profits by laying an exorbitant tax upon the public?

Practically all the efforts made or proposed thus far for remedying the evils of monopolies in manufacturing and trade have had for their purpose the re-establishment of competition. The investigation to which the first part of this book was devoted shows the wide extent of the movement to restrict competition. Is it possible to wholly counteract this? All our study of the laws of competition seems to show that the tendency of modern competition is to destroy itself by its own intensity. Certainly all the strenuous efforts to keep it alive by the force of legal enactment and public opinion have thus far proved unavailing. There are now, probably, at least a million persons in the United States who are directly or indirectly interested in unlawful contracts in restraint of competition; and among them are included many of the best financiers and most enterprising business men of the country. Certainly those who propose to drive these men into a renewal of competitive strife contrary to their will have set themselves a very difficult task.

Let us consider the opposite alternative. It cannot be a good thing to have such a great proportion of the active business men of the country, who bear the highest personal character, engaged in illegal contracts. Let us therefore take them within the pale of the law. They seem to be determined to make contracts with each other in restraint of competition; and believe, indeed, that they are forced to do it by modern conditions of trade. Suppose we were to legalize these contracts and permit the establishment of monopolies. What can we then do to protect the public from extortion in prices and adulteration in its products on the part of the monopoly?

In the first place, now that we have legalized monopolies there is no more excuse for secrecy. To work in darkness and privacy befits law-breakers, but is needless for legitimate enterprises. Let the law provide that every contract for the restriction of competition shall be in writing, and that a copy shall be filed, as a deed for real estate is filed now, with the proper city or town officer where the property affected is situate, and also with the Secretary of State where the contract is made. Certainly no honest man will object to this provision. The contention has been made that contracts to restrict competition were necessarily kept secret because they were "without the pale of the law." Very well; we have legalized them. There can be no further defense of secrecy. If any now refuse to make public their contracts to restrict competition, the refusal is evidence that the contract is for the injury of the public or some competitor and therefore properly punishable. We shall now know just what monopolies exist; just what is their strength, and for just how long a time their members are bound. Let us next see what measures we can adopt to prevent these legalized monopolies from practising extortion upon the public and abusing the power they have gained by the combination.

The first important means to secure this which the author would suggest is simply an extension of the common-law principle of non-discrimination. A man in conducting certain sorts of business is permitted to do as he chooses. He may sell to one person and refuse to sell to another; he may give to one and withhold from another. But if he enters business as the keeper of an inn or as a common carrier of passengers or freight, he can no longer exercise partiality. He has _elected to become a necessary servant of the public_, and as such he is bound to serve impartially all who apply. In the same way a manufacturer while he engages in business under the usual laws of competition, may sell to whom he pleases and exercise such preference as he chooses. But when he combines with all other manufacturers of the same sort in a combination to restrict competition, he and his allies voluntarily change their relation to the public. Is it not true that they do actually _elect to become necessary servants of the public_--far more necessary, indeed, than the inn-keeper or the stage-coach driver,--and ought they not therefore to be placed under similar legal restrictions?

In every case where combination or consolidation restricts competition in an industry, one effect produced is an increase in the power over the public which the industry possesses. But this increased power over the public, thus voluntarily assumed, must inevitably carry with it increased responsibility to the public. It is the duty of the government to see that this responsibility is legally enforced.

This first principle, then, should be embodied in a law providing, in substance, that every person or firm entering into a contract to restrict competition should, so long as that contract was in force, be debarred from showing any preference in his or its purchases and sales, by giving more or less favorable prices to any person or firm than those quoted to any other person or firm. To enforce this requirement and prevent its evasion it is necessary to provide also that prices shall be public and that they shall not be altered without due notice. The requirement of publicity might be best effected by providing that the contract restricting competition should contain a schedule of prices, which would usually be the case in any event.

While this may seem like quite an assumption of authority on the part of the State, it is exactly what trusts and trade associations are striving to effect, though with the important qualification that when occasion, in the shape of an obnoxious competitor, requires, they wish to be at liberty to put prices up or down at short notice and exercise their preferences as they choose.

Let us now see what we would effect by the enforcement of this principle of non-discrimination. We have explained in the chapter on combinations in trade how one monopoly gains strength by alliance with another; as when the firms belonging to the car-spring combination made a contract with the steel combination by which that monopoly agreed to sell to them at a reduced price and to make an extra rate to their competitors. Under this law it would be impossible to found one monopoly upon the favors of another in this manner.

The obnoxious trade boycott, too, which is now becoming so common, would be effectually checked. And the scheme for crushing out a rival by giving all his customers specially favorable rates would no longer be practicable. The fact is that if we can stop the discriminations which the monopolies have practised, we shall cure a large share of the evils they have caused. It may be said that the courts will already punish many conspiracies of this sort; but a monopoly which is already breaking the law by its contracts of combination, finds in its methods of doing business plenty of chances to evade the laws against conspiracy. Certainly with a properly drawn law with reference to the publicity and stability of prices, it should be possible to practically wipe out the evil of discrimination by monopolies. It is also to be noted that the requirement of non-discrimination and of public and stable prices would bring profit in doing away with the waste of competition.

We have now to inquire what means it is possible to take to ensure that the prices charged by the monopoly shall not only be the same to all, but that they shall not in themselves be so exorbitant that the monopoly will reap large profits at the public expense. How can we keep the prices charged by the monopoly from rising far above the point where they would stand if free competition were in force? Two methods are open to us. We may keep down the monopoly's rates by what we will call _potential_ competition, or we may reduce them directly by legislative enactment.

The right of the public to take this latter course may be defended on the ground that the monopoly has voluntarily made itself a necessary public servant, and in that capacity offers to the public its goods. While it is true that the people permit the monopoly to become a necessary public servant and protect it in the contracts by which it restricts competition, it is also true that the monopoly cannot justly make merchandise of the necessities of the people. The public may allow a combination to obtain control of all the sugar refineries, for instance, and protect the combination in its formation. But suppose the owners of the combination then say: "The people are obliged to have sugar and we control the supply. We will set a high price on sugar, therefore, because we know that they will pay it rather than go without." They are then making the necessity of the public a source of gain, and it cannot be believed that this will be permanently suffered.

The serious difficulty in fixing by direct government action the prices which a monopoly of this sort shall charge, is that we cannot stop at that point. When once the government steps in to do so radical a thing as to fix the price which a monopoly shall charge, it becomes in equity responsible to the owners of that monopoly for the maintenance of their incomes from their capital invested. If their profits have been so reduced by this action as to seriously injure the value of their property, they have a legal right to claim compensation from the state for the injury it has done them. And in almost every case they would set up the claim that their property had been thus injured. To determine the point at which reasonable prices and reasonable profits become extortionate prices and unjust profits is a task requiring expert knowledge and the most comprehensive judgment, aided by the most accurate statistics. To impose this task on our already overburdened courts would permanently block the wheels of justice, and would give to the judicial department of government a work which its machinery is wholly unsuited to carry on.

It seems evident, therefore, that when it becomes necessary for the state to directly fix prices to be charged by monopolies, a more radical step should be taken. The monopoly should be established on a permanent basis, and the state should have some part in its direct control.

Discarding, therefore, direct action by the state to fix prices as inexpedient, for the present, at least, let us see what we can effect by means of "potential" competition, which term we will use to signify that competition which may be established in any monopolized industry if the inducements offered are sufficiently great. It must be remembered that nowadays men of capital and enterprise are always on the look-out for every opportunity to invest money and expend their industry where it will bring the greatest returns. If any monopoly seems to be making large returns, people are generally ready to believe that it is making twice as great profits as it really is; and some one is quite likely to start in as a competitor, if there is a prospect of large profits. Now we wish to do two things. We wish to make it so easy for new competitors to enter the field against a monopoly that its managers will keep their profits down in order not to call in any new competitors. We also wish to so modify the intensity of competition between the monopoly and the new competitor that the latter may have a chance at least of being repaid for its expenditure in entering the field. The simplest and best of the legal provisions which we may enforce to this end is the one already stated of non-discrimination. The monopoly can no longer reduce its price to apply to only the limited field in which the new competitor works, but must reduce its prices everywhere to meet those made by the rival. In the case of monopolies in trade and all monopolies in manufacturing in which the fixed capital required is but small, this is all that would be needed to encourage the establishment of new competitors and discourage the monopoly from grasping after undue profits from the public.

In the case of those manufacturing monopolies in which a large fixed capital must be invested at the start by any new competitor, we have a much more difficult problem. It is true that in this case the monopoly itself has more at stake; and this may induce the starting up of new competitors simply to be bought out by the trust,--a sort of blackmailing operation which is certainly repugnant in its character. It might be possible to provide that rates charged by the monopoly must be so stable that a competitor would have a chance to establish itself before the monopoly could bring its own rates down. It might be possible to force the monopoly to keep all its factories in operation, and thus oblige it to keep down its price in order to dispose of its products; but there are evident practical difficulties in the way of enforcing such laws. It seems a great pity that just now, when to find some employment of prison convicts in some manner that will not "compete with free labor," and thus displease the labor interests, seems an impossibility, we cannot set the convicts at work to compete with the trusts and bring down their profits to a reasonable point. Surely the labor party would find no fault with this use of convict competition.

There is one step, however, which we can take, and whose effect would certainly be very great; in its desirability, apart from questions of monopoly, all honest men are practically united. We can reform our laws regarding corporate management. It is a mild arraignment compared to what is deserved, to say that our present laws regarding the formation and management of corporations, taking the country as a whole, are a shame to the people and a disgrace to the men who made them. They seem designed to place a premium on fraud and knavery, and to assist the professional projector and stock manipulator in reaping gains from innocent--generally very innocent--stockholders. Now a real reform in our corporation laws would greatly simplify our work in controlling monopolies. Let us have no more stock-watering of any sort at any time in a corporation's life. Let us have no more "income bonds" which yield no income, and "preferred stock" in which another is preferred after all. Two classes of securities are enough for an honest corporation, and the public interest requires the charter of no other class of companies. Let us have done, too, with the iniquitous custom of one corporation holding another's stock or bonds. With a few such simple reforms as these effected, the holders of stock in our corporations would have some idea where they stand and what their securities represent, and would take some interest in the control of their property.

With these reforms, in the case of every corporation making a contract to restrict competition, it would be required that the company make public annually a full statement of its receipts, expenditures, and profits. Every monopoly would stand before the public then in its true position, and every one would know if it were making 50 per cent. per annum on the actual capital invested, or only 5 per cent. With these facts made public, if any monopoly ventured to raise its price till it reaped unusual profits, some of the heaviest consumers of the monopolized product would be very apt to start a factory of their own in opposition. It is to be remembered that under the law of _non-discrimination_ the monopolies would be prevented from currying favor with the large consumers by giving them specially favorable prices. It is now common to do this, as it removes the danger of combination among these important customers to compete with the monopoly.

To sum up, the chief features of the plan proposed for the control of monopolies in manufacture and trade are as follows: Make contracts to restrict competition, legal and binding, instead of illegal and void as now. _But_; provide that every such contract shall be filed for public inspection; that prices charged by the combination shall be public, stable, and absolutely unvarying to all; that the affairs of the combination shall be managed according to a consistent and stringent corporation law; and that an annual report of the operations of the combination be made to a public commission.

Contrast this with the existing law upon this important subject. In Judge Barrett's decision in the Sugar Trust case he said:

"The development of judicial thought, in regard to contracts in
restraint of trade, has been especially marked. The ancient
doctrine upon that head has been weakened and modified to such a
degree that but little if any of it is left. Indeed, excessive
competition may sometimes result in actual injury to the public;
and anti-competitive contracts, to avert personal ruin, may be
perfectly reasonable. It is only when such contracts are publicly
oppressive that they become unreasonable, and are condemned as
against public policy."

This is probably the best statement of the present status of the common law upon this subject now extant. But what a path to endless litigation does it open! Who shall draw the line where a contract to restrain competition ceases to be beneficial and lawful, and becomes an injury to the public welfare? Must this be left to judge and jury? If so, the responsibilities of our already overburdened Courts are vastly increased.

In contrast with such a policy as this, the plan before presented certainly promises definiteness in the place of uncertainty; and treats all contracts in restraint of competition with impartiality. It is believed that the effect of its enforcement would be a great reduction in the tax now levied on us by monopolies.

There is yet one way, however, in which all these monopolies that we have found it so difficult to devise a plan to deal with--the manufacturers' trusts--may be quickly and certainly reduced. Our heavy tariff on imported goods, by protecting manufacturers from foreign competition, and thus reducing the number of possible competitors, has undeniably been a chief reason why trusts have appeared and grown wealthy in this country before any other. The author has purposely refrained, as far as possible, from reference to the relation of the tariff to monopolies; for the question has been so hotly fought over, and the real facts concerning it have been so garbled and distorted, that people are not yet ready to consider it in an unprejudiced way. This much, however, no one can gainsay. We hold in our hands the means to at any time reduce the prices and profits of practically all our monopolies in manufacturing to a reasonable basis, by simply cutting down the duty on the products of foreign manufactories. Now, if after our plan just described is in force, the managers of any monopoly choose to be so reckless as to raise its prices to a point where its published reports will show it to be making enormous profits, thus tempting new competitors to enter the field and breeding public hostility, all honest protectionists and free-traders will be quite apt to unite in a demand that the "protection" under which this monopoly is permitted to tax the public be taken away.

If only we could find in any possible plan so excellent a solution of the problem of labor monopolies as a reduction of the tariff offers us in the case of trusts! The question is so complex a one that it is hardly possible to consider it here, except very briefly. Certainly, if we legalize combinations to restrict competition among capitalists, we should among laborers as well. Indeed, the decay of the old common-law principle, that such contracts were against public policy, and that such combinations were punishable, has been more marked in the case of trade unions than anywhere else. Besides this, as long as employers have the right to kill competition in the purchase of labor, workmen should certainly have the right to avoid competition in its sale. But to prevent by force other competitors from taking the field, if they choose, against any labor combination, is an infringement of the personal liberty guaranteed to every man by the Constitution, and can by no means be lawfully permitted.

If workingmen only understood how much the apparent gain when they win in a strike is overbalanced by their loss in the higher prices which they have to pay for the necessaries of life, and in the reduced demand for labor, they would be as anxious to protect capital as they now are--some of them--to injure it. The strikes make timid the men who have capital to invest. They will not loan their money to business men, builders, manufacturers, or any one who wishes to use it to employ workmen, except at a higher rate of interest, to pay for the increased risk. _Hence_, the cost of the capital used in production is greater, and the price the public has to pay for the product must be greater.

Again, when men have to pay higher rates of interest for the money they borrow they are slower to engage in new enterprises. Mr. A. a builder, intended to put up a block of a dozen houses this season, which would have tended to reduce rents; but the fear of strikes, with their attendant damage and loss, has prevented him from borrowing money at less than 8 per cent. interest. He concludes that, on the whole, this will eat up so much of his profits that he will not build. Is it not too plain to need proof that the _moral influence_ alone of the strikes has robbed the workmen at every point? And this is one of a thousand cases in a hundred different industries.

The plans we have discussed for the treatment of monopolies have for their object a benefit to the people at large, by enabling them to purchase the products of industry and of natural wealth free from the tax now levied upon them by monopolies. If we can effect this, we shall not have a millennium; there will still be injustice and suffering enough in the world; but we shall have reduced the pressure upon the men who work with their hands for their daily bread, enough so that we shall no longer see the strange spectacle of over-production and hunger and nakedness existing side by side. Men's desires were made by an All-wise Creator to be always in advance of their ability to gratify them. And the commercial supply of that ability--the supply of men willing to work--ought always to be behind the demand for men.

It seems beyond dispute, then, that whatever will remove these obstructions to the wheels of production will increase the demand for labor, as well as increase the wages of labor by lowering the prices of the necessaries of life. This the plan we have discussed promises to do, and it also promises to benefit the whole people by lowering the cost of monopolized articles.

The men and women who work with their hands, and those dependent on them, form 97 per cent. of the population of the country. Instead of combining to stop production in this shop or that factory, why not join hands to work for reforms in the interest of the whole people? Be sure that in so doing, organized labor will have the hearty co-operation, and leadership if need be, of the best men in every class of society.