The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword to the Revised Edition.
• Modern Economic Problems
• Part I: Money and Prices
• Chapter 1: Nature of Economic Problems
• Chapter 2: Origin and Nature of Money
• Chapter 3: Commodity Money and the Quantity Theory
• Chapter 4: Fiduciary Money, Metal and Paper
• Chapter 5: Price Levels and the Gold Standard
• Chapter 6: Rising Prices and the Standard
• Part II: Banking and Insurance
• Chapter 7: The Functions of Banks
• Chapter 8: Banking In the United States Before 1914
• Chapter 9: The Federal Reserve Act
• Chapter 10: Crises and Industrial Depressions
• Chapter 11: Institutions For Saving and Investment
• Chapter 12: Principles of Insurance
• Chapter 13: Scientific Life Insurance
• Part III: Tariff and Taxation
• Chapter 14: American Tariff History
• Chapter 15: International Trade
• Chapter 16: The Policy of a Protective Tariff
• Chapter 17: Objects and Principles of Taxation
• Chapter 18: Property and Corporation Taxes
• Chapter 19: Personal Taxes
• Part IV: Wages and Labor
• Chapter 20: Methods of Industrial Remuneration
• Chapter 21: Organized Labor
• Chapter 22: Public Regulation of Hours and Wages
• Chapter 23: Other Protective Labor and Social Legislation
• Chapter 24: Social Insurance
• Chapter 25: Population and Immigration
• Part V: Public Policy Toward Private Industry
• Chapter 26: Agricultural and Rural Population
• Chapter 27: Problems of Agricultural Economics
• Chapter 28: The Transportation Problem
• Chapter 29: Railroad Regulation
• Chapter 30: The Problem of Industrial Monopoly
• Chapter 31: Public Policy In Respect to Monopoly
• Part VI: Private Property Versus Socialism
• Chapter 32: The Present Economic System
• Chapter 33: Public Ownership
• Chapter 34: Methods of Distribution
• Chapter 35: Socialism, Present and Future

PART V

PUBLIC POLICY TOWARD PRIVATE INDUSTRY

CHAPTER 26

AGRICULTURAL AND RURAL POPULATION

§ 1. Sources of food and organic materials. The land area of the United States is about 1,900,000,000 acres, of which 879,000,000 acres were in farms in 1910, this being 46 per cent of the total area. A very small part of the remainder is used for residential and commercial purposes, the rest being barren mountains, deserts, swamps, and forests. Of the total in farms a little more than one half was improved, 478,000,000 acres altogether, a per capita average of 5.2 acres; and a little less than one half was unimproved, 400,000,000 acres altogether, a per capita average of 4.3 acres. The improved land produced not merely food but many kinds of materials, such as cotton, wool, hides, and lumber, while much of the unimproved land was either in farm wood-lots or in rough range pasture. Of course, the kinds and amounts of produce per acre vary with the climate, particularly with sunshine and rainfall; possibly the proportion of the area of the United States that is true desert and infertile mountain-land is greater than that of any other equal area in the temperate zones. The actual productive capacity per acre of the lands of America cannot be expressed in a very helpful way as a general average per acre, but each area must be carefully studied in respect to its climate, rainfall, and possibility of irrigation and drainage. It is apparent that a very large number of economic problems must arise in connection with the land supply for food: such as problems of land-ownership, taxation, irrigation, drainage, forestry, and encouragement or limitation of population. We are just beginning to awake to the needs in this direction. The farm-lands supply, besides food, a large part of the raw materials for many other goods, all such organic materials as cotton, flax, wool, hides, feathers, lumber, and firewood. The farm wood-lots compose about 200,000,000 acres, and the large forests, public and private, about 350,000,000 acres, a total of about one fourth the area of the country in forests, containing about one half of the lumber that the country once possessed. The economic problem of a sound forestry policy is one of the most important we have to solve.

The rivers, lakes, and ocean waters near our coasts are other great sources of food, but no statistics are available to show adequately their yield. Few of them are in private possession, and they do not appear at all in a total of “capitals,” yet they are more important to the nation than a large part of the land area. They are only beginning to be developed artificially by the propagation of oysters, clams, and fish. The development of a proper fishery policy is an economic problem closely connected with that of agriculture.

§ 2. Agriculture and farms in the United States. There were nearly 12,400,000 persons in the United States gainfully occupied in agriculture in 1910, this being 32.5 per cent of all in occupations. These, together with other family members not reported as engaged in gainful occupations, constitute the agricultural population, and comprise more than one third of the total population of the country. “Agriculture” is here used in a broad sense, including floriculture, animal husbandry (poultry, bee culture, stock-raising), forestry and lumbering, and is even extended to include regular fishing and oystering.

With the exception of areas devoted to forestry on a large scale and to fishing, the industry of agriculture is pursued on the 6,400,000 farms, covering 46 per cent of the total land area of the country. Of the land in farms, a little more than half is classified as improved. The estimated value of farm property, including buildings, implements, machinery, and live stock, was, in 1910, about $41,000,000,000, somewhere near one fourth of the estimated wealth of the country at that date.

§ 3. Rural and agricultural. The adjectives rural and agricultural are often used loosely as synonyms. But agricultural refers primarily to the occupation of cultivating the soil, and is properly contrasted with other occupations, as mechanical and professional; whereas rural refers to place of residence outside of incorporated places of a specified minimum population (of late, 2500), and is properly contrasted with urban, applied to those living in larger population groupings. In 1910 the rural population comprised 53.7 per cent of the total population, but had fallen to 48.1 per cent in 1920. It is true that the two groups of the agricultural and the rural populations are largely composed of the same persons, but partly they are not. Many farmhouses, together with part or all of the farm-lands, lie inside urban boundaries, and, besides, some persons engaged in agriculture reside in urban places. On the other hand, any one acquainted in the least with a rural district (in the statistical sense) can at once think of many persons living there that are not engaged in agriculture; they may be merchants, warehousemen, railway employees, physicians, handicraftsmen, teachers, artists, retired business men, and others. The percentages given in this and in the preceding section indicate that about three fifths of the rural families are engaged in agriculture and two fifths are not.

It is often important to make this distinction, though it is difficult to do; for some of the much-discussed rural questions are of a broad social nature, are matters of rural sociology, relating pretty generally to the rural population; while other questions of “rural economics” are more strictly matters of agricultural economics and relate to the farm as a unit of industry, or to agriculture as an occupation.

§ 4. Lack of a social agricultural policy in America. It is a common remark that the farmer lives an independent life. This develops in him a self-reliant spirit. He readily gives and takes simple neighborly help in informal ways, but he does not readily turn to government for aid. While every influential urban group, organized or unorganized,—manufacturers, merchants, wage-earners,—has sought and obtained special protective social legislation, the farmer, from choice or necessity, has usually had to work out his economic problems unaided. The exceptions are few and of small importance. For example, the prodigal land policy of the state and national governments encouraging the settlement of the frontiers was not a farmers’ policy. It was originally inspired by the larger political purpose of extending the bounds of the nation; later it was advocated and fostered by a land-speculating element, linked with bad politics, in the frontier states, and not by farmers as such. It in time greatly injured the farmers of the eastern states. The “Granger legislation” to regulate railroad rates was so called by the East in a spirit of derision because it began in the distinctively agricultural states of the Northwest; but it had neither the aim nor the result of obtaining especially for farmers any rates that were not open to every one on the same terms. The tariff rates on American agricultural products, placed in the acts as a matter of form, have, with minute exceptions, been ineffective to favor farmers, as the shipments were nearly all outward and few inward, while heavy and effective rates were placed on most things that the farmers had to buy.1

In part, the explanation of the lack of legislation favoring farmers is to be found in their small part and influence, as a class, in political affairs, outside of minor executive offices in township and county governments. In the state legislatures farmers are few relative to their numbers in the community, and still fewer in either House or Senate in Washington. Moreover, the farmers have rarely asked or received, as a class, any favoring legislation. Among the real exceptions to the otherwise fair record of the farming class in this respect is the tax on oleomargarine and the special favor accorded to farmers’ associations in the Clayton Act. It might be cynically said that the farmer has not been “sharp” enough to get his share of the “good things” that the business classes were passing around in protective legislation. But farmers have, as has every economic group, interests that may legitimately be the subject of social legislation; whereas they have limited their attention to their private affairs at home and have been prone to vote patiently and proudly the “straight ticket” to elect business men and lawyers to office. There are evidences, with increasing organization among farmers, of an intention to seek political power and favors, which promises to present a new problem of monopoly and bodes ill for the other elements of the community. The road of true progress is not toward more monopoly for farmers, but toward less monopoly for large business and favored commercial interests.

§ 5. Period of decaying agricultural prosperity. Despite the fact that frequently in economic legislation the farmer has been the victim, every compaign orator admits that there is no other occupational class that is of greater importance to the nation than are the farmers, or more deserving of prosperity. Every other part of the industrial organization of a nation is interrelated with its agriculture. Great changes, in respect to growth of population, immigration, exhaustion of natural resources, mechanical inventions, scientific discovery, and many things more, have been occurring, which have altered, and in some communities destroyed, the very foundations of agricultural enterprise in America since the close of the Civil War in 1865. But the farmers have been left to struggle individually with their individual difficulties, though the outcome was of the gravest portent to the whole social economy. Such was the case in the period of agricultural depression from 1873 to about 1896.2 Multitudes of ancestral homesteads were then left behind by the last farmer-descendant of the old line. No longer able to make a living on the soil, he took up an urban occupation.

§ 6. Sociological effects of agricultural decay. Such changes hastened, no doubt, the decline in the birth-rate of the old American stock. The places of many of these long-settled families remained unfilled, as thousands of abandoned farmhouses testified. The places of others were taken by a tenantry, white or black, lacking the thrift of ownership; the lands of others passed to new owners, of alien races. The populations of many rural neighborhoods thus became heterogeneous, with results calamitous to the social life. Once prosperous schools declined, once thronging country churches were deserted, and much of the old neighborhood democracy disappeared. When, about the year 1900, prosperity began slowly to return to the American countrysides in the form of rising prices of farm produce, it was in large part too late to remedy the evil, except as it may be done by generations of effort under more favoring conditions. There are merely suggested here some of the complex sociological effects of past economic changes in American agriculture. It is certain that in the future, also, the economic changes in this field will be related closely to social and political changes of a fundamental character.

§ 7. Fewer, relatively, occupied in agriculture; use of machinery. Probably ever since the first census in 1790, the relative number of agriculturists in this country has been decreasing. Beginning in 1880, the numbers of those occupied in agriculture for gain have been reported at the census in a form that makes them fairly comparable.3

The explanation of this decrease in the proportion of the population that is engaged in agriculture is twofold. The first is the real increase in the productive output per person in agricultural industry. In larger part this is due to the increasing use of machinery in place of simple hand tools, and the substitution of horse-, hydraulic-, windmill-, steam-, and gasoline-power for human labor. This change has been made readily in the regions of level fields, but of late has been made possible to a greater extent in hilly country by rearranging and combining the old irregular fields into regular, fairly level rectangular fields easily tillable, while turning the rougher lands and hillsides into wood-lots and pastures.4 One man, thus, driving three or four horses or a tractor, can do the work formerly done by two or more men and do it just as well. The farmers’ incomes in different parts of the country vary pretty nearly with the amount of horse-power used per man. Economies equally great are made in the work done in the barnyards and barns. In most parts of the country only a beginning has been made in these ways, and in future the census will continue to reflect the progress in these directions.

§ 8. Transfer of work from farm to factory. The other part of the explanation of the decrease in the proportion of the population that is engaged in agriculture is that many operations are, step by step, being transferred from the farm to the factory. “Agriculture,” we have observed, is a great complex of industries, in which many different products are taken from the first simplest extractive stage, and then put through successive processes to make them more nearly fitted for their final uses. Not so long ago grain cut in the field was threshed, winnowed, shelled, made into flour, and baked on the farm, as it still is in many places. Logs were cut into boards, planed, and made into houses or furniture by the farmer. The old-time farmer made by hand a large number of his farm implements—rakes, ax-handles, pumps, carts, and even wagons. Until a generation ago all butter, cheese, and other dairy products were made on the farm. Now these things are being done in steadily increasing proportion by workers classified as in the manufacturing industries, and agriculture contains fewer separate industries and processes. Of course, there is economy of labor in nearly all of these changes, but the number occupied in agriculture is greatly reduced. Many farmers and more farmers’ sons are moving from agriculture into occupations of manufacturing, trade, transportation, and the professions, and are becoming more narrow specialists.

§ 9. The rural exodus. The percentage of persons in the rural population changes at about the same rate as does that of persons occupied in agriculture. In 1890 it was 64, in 1900 it was 60, in 1910 it was 54, and in 1920 it was 48 per cent. The percentage of the population in cities of 8000 or more has steadily increased. This phenomenon has been marked in all of the countries that have been developing along industrial lines. It has been variously described as the “rural exodus,” the “abandonment-of-the-farm movement,” and the “cityward drift.” It is only in part explained by the change from agriculture to other occupations; perhaps even as much it is due to the decline and disappearance in many rural places of small manufacturing and mercantile businesses before the competition of large business in the cities. In much of the long-settled area of the country every hillside stream once turned a little mill to saw timber, grind corn, forge iron, or weave cloth. Most of these mills are now deserted. In countless villages the old blacksmith shop, once a center of business, is abandoned. Here and there a patriarchal smith still serves a dwindling group of customers, and speaks with mingled pride and pathos of his sons, now in the automobile business in the city. The movement away from the countryside has been but little counteracted as yet, but may be more in future, by the growing enjoyment of rural life, by the back-to-the-land movement, by interurban railways, by improved roads, by telephones, and by automobiles.

The great growth of education (in the sense of schooling) and rise of educational standards has put the country child at a disadvantage as compared with the child in the city. For this reason, great numbers of farmers’ families move to villages and cities, to enable the children to attend high school, even when the move involves a sacrifice. Better roads and the consolidated country school, with free transportation for the pupils, replacing the one-room, one-teacher schoolhouse, have done much to meet this need. Still, as competent observers have pointed out, the normal farming life of the country is an education in the manual arts and in other ways, so that even with briefer school terms the country child may be better educated for life than is the city child.

The public was startled to learn that the army tests showed that country youth, on the average, were not as healthy as city youth. Here, again, the progress of the cities in sanitation, medical inspection in schools, care of teeth and of the eyes of school children, gymnasia, organized and directed physical recreation, etc., has left the country homes and the country children at a relative disadvantage. The natural advantages of country life (sunshine, healthy exercise in the open, freedom from noise and strain) cannot always compensate for the poorer water supply, defective sanitation, and lack of medical and surgical care for the growing child. Here is a field for future reform.

§ 10. The farmer’s income in monetary terms. Census figures and some additional investigations led to the estimate of the average real income of the farmers of the United States in 1909, expressed in monetary terms, as $724. This was after some twelve years of slowly rising agricultural prices and improving conditions. The estimated value of all products, whether sold or used by the farmer, plus the value of his house rent and fuel consumed by family, was $1236, from which expenditures of $512 are deducted for outside labor and for materials used for operating and maintaining the farm. Of the $724 the sum of $402 is estimated to be the labor income of the family and $322 is estimated to be the wealth income (at 5 per cent of the capitalization of the farm). This was in a period of rising values in farmlands, averaging about $323 per farm annually, and this to most farmers was equivalent to so much monetary savings.

Of the total $402 is a labor income, and 645 is a funded income.5

It would be difficult, even if the available statistics were much more exact than they are, to compare exactly the farmer’s income with those of urban classes. Averages of such large numbers and over such a wide area have a limited significance in the specific case; and living conditions and the purchasing power of money are very different in country and city and in different parts of the country.6

§ 11. Compensations of the farmer’s life. In bare monetary terms the average farmer’s family gets a labor income less than that of the ordinary wage-earner in a factory, and it is only when the value of the wealth income is added that it is as great. Even the few largest incomes made in farming are small in comparison with many of those made in commerce, transportation, and manufacturing. The great mass of farmers of the nation are hard-laboring men, poor in the eyes of the city dwellers.7

But this much is certain: the farmer’s income in monetary terms has, on the average, much larger power to purchase the main goods of life (material and psychic goods) than it would have in town. Equally good house usance would cost more in nearly all towns, and much more in larger cities. Retail prices of the same food and fuel even in small towns would be much greater. The necessary outlay for clothes to maintain the class standard is much less for farmers than for city dwellers. Moreover, in the use of horses and carriages, and now of automobiles, and in the free control of his own time—in many elements of psychic income—the farmer is on a parity with men in other occupations of double or quadruple his income expressed in monetary terms.

Though the farmer’s working-day in the busiest season of summer is very long compared with that of factory or office workers, his working day at other seasons is usually much shorter than the average urban worker’s day. The farmer’s life is nearly always free from the excessive pressure, haste, and competition of city life, and the value, to many a man, of the more natural and wholesome conditions of outdoor life and outdoor work are hardly to be measured in terms of even the most untainted dollars. The joy and pride of possession that goes with even a little plot of ground and a house that is one’s own, the satisfaction of “being one’s own boss,” the very real and deep sense of workmanship and of independence that comes from planning and carrying through even simple tasks, rather than in acting under the orders of others—these are motives, not easily measurable in money, which keep many men on farms despite the temptations of higher financial rewards in cities.

Many mistaken ideas are current among city folk in respect to country life, and much mistaken sympathy is wasted. The city man, living on external excitements, speaks with dread of the solitude of the country life, with no “movies” just around the corner and no Coney Island near. But he forgets that the people living in the country as real farmers were, with few exceptions, born and reared in the country. Families in the country average larger than in the cities, and the country has a rate of natural increase greater than the city. Persons raised in the country prefer to stay there, if they can make a living, a preference that tends to depress labor incomes in the country. The interests that fill the lives of country people are not the same as those of city people, but they are often far more real. I know a farmer-boy who when ten years old refused a ticket to the circus because he preferred to help on threshing day; and he and his brother probably have had more pleasure breaking and driving a yoke of calves to a homemade cart than any family of city boys ever got riding the elephant at the zoo. The non-pecuniary compensations in farm life help to outweigh larger pecuniary rewards in manufacturing, transportation, mining, and trade, and prevents the rural exodus from being as great as it would otherwise be. In consequence the price of food is kept at relatively low levels, giving to the farmer and his family lower average monetary labor incomes than those earned in city occupations (organized or unorganized).

§ 12. Ownership and tenancy. Since 1880, when the first figures on farm tenures were collected, the proportion of farms operated by owners has steadily decreased.

These statistics arouse fears that the class of independent farmers operating their own farms is gradually giving way to a tenantry in America. But in some respects the figures are misleading unless carefully interpreted. The increasing proportion of tenants is due not so much to owners falling into the class of tenants as to the hired laborers rising into the class of tenants. The proportion of male operating owners to all male workers on farms has remained almost constant at about 42 per cent; while hired workers have decreased from 43.3 (in 1880) to 41.4 (in 1890) and to 34.6 (in 1900). Most hired men on farms are farmers’ sons; the city boy does not adapt himself readily to farm work. Most hired men of native stock become tenants, and finally owners. Only 11 per cent of the hired workers in agriculture (in 1900) were over thirty-five years of age.

The landlord of a farm let to a tenant, especially to a share tenant, is still to a large extent the general manager, controlling in a large measure, through the renting contract and by his oversight, the operations of the farm. Older men find that letting the farm to a share tenant is easier for them and gives better results than continuing to operate the farm with hired labor. And it evidently gives a man a somewhat higher status to become a tenant than to continue to be a hired laborer. In the South this movement has taken on large proportions in the breaking up of large plantations once operated by the owner with hired labor, and now let in smaller lots to operating tenants. Yet such a change appears, statistically, as a decrease in the proportion of farms operated by owners. Despite these somewhat reassuring facts, the problem of maintaining and increasing operating ownership of farms in America is one deserving of the most earnest thought and effort. The best form of farm tenure is not necessarily that giving the best immediate economic results. Politically in a democratic nation, and sociologically in its effects upon the size of families and the raising of healthy children, the preservation of an independent American yeomanry is of fundamental importance to the nation.

The problem is as difficult as it is important, and becomes more difficult with the rise in the acreage value of lands and with the economical size of farms, both calling for a larger investment to become an owner. Changes in the system of taxation should be made with reference to this object; the system of agricultural credit should be developed and administered to assist; special efforts in agricultural education should be made and active administrative efforts should be directed toward this important end.

References.

• Benton, A. H., Farm tenancy and leases. Agricultural Experiment Station Bulletin, No. 178. 1919.
• Carver, T. N., Selected readings in rural economics. Bost. Ginn 1916.
• Mead, E., Helping men own farms. N. Y. Macmillan. 1920.
• Nourse, E. G., Agricultural economics. Chicago University Press. 1916. (A large volume of readings, well selected and edited.)
• Phelan, J., Readings in rural sociology. New York. Macmillan. 1920.
• Taylor, H. C., Agricultural economics. Pp. 439. N. Y. Macmillan. 1919.
• Vogt, P. L., Introduction to rural sociology. Pp. 443. N. Y. Appleton. 1917.

CHAPTER 27

PROBLEMS OF AGRICULTURAL ECONOMICS

§ 1. Size of farms, and total farming area. The average area of farms1 has varied from a maximum of 203 acres in 1850 (the first figures) to a minimum of 134 acres in 1880, being 138 acres in 1910. A better index, perhaps, is the average improved area per farm, which has been more nearly stationary, varying from a maximum of 80 acres in 1860 to a minimum of 71 acres in 1870 and 1880, being 75 acres in 1910. Here again the statistics require interpretation, for in the spread of the frontier the addition of large farms in the arid and semi-arid regions may raise the average, or the breaking up of large plantations in the South may decrease the average, without this indicating any essential change in the technical conditions of farming in the country generally. Since about 1900 the total area in farms has increased very slowly. Between 1900 and 1910 the increase was only 4.8 per cent; whereas a larger increase occurred in the area of improved land, 15.4 per cent, and the improved area in farms decreased 5.6. Future changes of farm areas may be expected to be of this same nature, mainly in the improvement of rough pastures, swamps, partly cleared woodlands, and desert lands awaiting irrigation. An increasing population will have to be provided with food and other products of agriculture on a farming area that henceforth will be increasing less rapidly than it has in the past and than the population increases.

§ 2. Influences acting upon the size of farms. In these averages for the whole country many conflicting influences unite and neutralize one another. Making for smaller farms is the breaking up of large grazing areas in the West into smaller general-purpose farms or irrigated fruit districts, and of larger general farms in the North and East into small poultry, flower, and fruit farms. Opposed to this is a movement toward the merging of farms of 50 to 100 acres into larger farms of 300 acres, more or less. The economic cause of this movement is interesting and important. The typical and economic size of farms when the Atlantic states were settled was determined by the use of hand tools, which permitted a man and his family to operate a farm of about 75 acres, of which about half was tilled and the rest was in permanent pasture and woodland. The fields were small and were laid out irregularly, which was no disadvantage for hand cultivation. But for the most economic use of land in field crops and under more modern conditions it is necessary to have pretty level fields, of regular rectangular shape. The farm unit should be of such extent as to permit of the proper use of the soil by rotation of crops, and to employ fully the best modern labor-saving machinery for each purpose. Numerous recent agricultural surveys point to the conclusion that for general farming this unit is a comparatively large area of about 300 acres.

These conditions offer a reward to those agricultural enterprisers who can purchase lands at a price based upon the high costs and lower yields of the older methods and cultivate them at the lower costs and with the larger yields of the newer methods. This movement, therefore, toward the consolidation of smaller into larger farms is likely to continue in many communities for several decades. This is likewise an advantage to the community in increasing the production with less labor. But the net effect upon the social life of the countryside is more doubtful, and calls for careful consideration.

§ 3. Self-sufficing versus commercial farming. The typical American farming family once produced nearly everything it used, and used nearly everything it produced. It was very nearly a self-sufficing economic unit, a “closed economy,” as it is sometimes called. Food, clothing, fuel, lumber, houses, furniture, tools, were on the farm carried through the various processes from the first gathering of the raw materials to the finished product. They were then consumed by the farm household. It is true that even in the first settlements there were some craftsmen—cobblers, millers, weavers, blacksmiths—whose services and wares were got by trading some of the surplus products from the farms—butter, cheese, eggs, wool, hides, furs, live stock, grain, lumber. A few rare commodities of foreign make found their way to the farm through peddlers and merchants; but altogether the goods produced outside the farm were a small fraction of the family’s consumption, and were exchanged for but little of the farm’s production. Most farmers tried to produce for themselves, as far as possible, everything their families needed, even when the soil and situation were poorly suited to the purposes. True, there were early some exceptional cases in which only one kind of product was taken from the land. Such were the forest products of masts, shingles, lumber, and turpentine, and the great southern staple, tobacco, and later cotton. The exceptions have been tending to become the rule in more and more communities. Farmers have been specializing more and more in the kinds of products to which their farms are adapted in respect to soil, relation to market, and otherwise. These products are taken to market and sold for money with which are bought the things needed for use on the farm.

§ 4. Farming viewed as a capitalistic enterprise. Thus the farm comes to be looked upon more and more, not merely as a home, but much as if it were a commercial enterprise or a factory, by which products are made for sale. This change, to be sure, is far from complete, as the figures for the average farmer’s income show that a large share of the family living still comes from the farm. It has gone on much further in some districts than in others, as is indicated in the types of farming discussed below. But, just to the extent that the farmer grows crops to sell, his outlook on his work undergoes a change. He is less exclusively a farmer, concerned with the technical processes of farming; he must be more largely a business man. Like a manufacturing enterpriser, he buys the factors of production, combines them into new products, and sells them again. He becomes interested in market conditions and prices. He grows more commercially minded. He views the farm no longer as a fixed area, but one that may be enlarged by purchase or by rental, and that may be reduced by selling or letting the less needed parts. One fifth of farm-owners now rent additional land. In commercial farming the land is not contrasted with capital as something apart, consisting of the value of the equipment and stock; but the whole complex of land and other goods is thought of as a capital investment. The greater ease of tranferring landed property in America and the greater mobility of our population have always made it more natural here than in Europe to look upon land as a capital investment. This view is now becoming more general as a result of the commercializing of farming enterprise.

This change has been favored by other influences. Particularly has the use of machinery and of other equipment, calling for a larger investment per man and per acre, been making agriculture, in its form of enterprise, more like manufacturing and commercial undertakings.

§ 5. Diversified versus specialized farming. To be largely self-sufficing a farming family must carry on general farming, that is, must produce a diversity of products. As farming becomes more commercialized it usually becomes more specialized, and a certain district produces a smaller variety of products. In some part of the country and on particular farms this specialization is extreme: In various parts of California, citrus fruits or prunes or beans may be the only crop raised; wheat in central Kansas and the Dakotas; fresh milk and vegetables on thousands of farms surrounding the great cities; cotton in many parts of the South. Many farmers in these districts have no gardens or orchards, keep no cow, and buy much or all of the grain for their horses, as well as milk, butter, vegetables, and fruit for their own use. Poultry and eggs are shipped in trainloads two thousand miles from the Middle West to California to be consumed by orange-growers. Many farmers in the East no longer keep sheep, pigs or beef cattle, and they buy out of the butcher’s wagon all the meat except fowls used by their families. This partly explains the decrease of live stock in the whole country in recent years and the relative increase in the price of meat.

§ 6. Conditions favoring diversified farming. There are however, limits to the net advantage of specialization in crops, and competent authorities on agriculture question whether in many cases that limit has not been reached and passed. Most farms have a variety of soils and conditions—hilltops, slopes, bottom-lands—which are suitable for different purposes. A rotation of crops is necessary to get good yields. Live stock must be kept to maintain the fertility of the land, which deteriorates fast if hay and grain are continually sold. Some live stock can be kept on every farm very cheaply with the food that would go to waste otherwise. The specialization in stock-raising in the prairie states ceased to be profitable when lands became more valuable. Specialization in wheat production in the states just west of the Mississippi is possible only as long as wheat will grow on the virgin soil without costly fertilizers. The cotton farmers of the South, especially the negro-farmers, have been forced by debt and thriftlessness into a one-crop policy that is now seen to be wasteful in the long run. A variety of production is necessary to employ labor somewhat regularly on a farm throughout the year. These and other conditions will make most farming always an industry of comparatively diversified products. Only 1 per cent of the farms get as much as 40 per cent of their receipts from fruit; 2 per cent get that much from tobacco; 3 per cent from vegetables; 6 per cent from dairy products; and 19 per cent from cotton. The remaining 60 per cent of receipts are in most cases from various sources, and these figures do not include the value of produce consumed by the farmer’s family.

§ 7. Intensive farming in Europe and America. No other farm problem interests the city man so much as that of increasing the production of the land. To most city men farming hardly seems to be an occupation giving livelihood and life to the farmer; it seems rather to exist for the sole purpose of feeding men living in cities. The city man, therefore, measures the success of farming, not by the farmer’s income or by the level of the countryside prosperity, but by the number of bushels per acre raised to ship to town. Every city newspaper and magazine contains articles pointing to the fact that larger crops per acre are raised in Europe than in America, and broadly suggesting that the American farmer could do as well, if only he would. Foreign travelers comment in like vein on the wasteful use of land in America as compared with farming methods in Europe.

Land is used most extensively, with respect to labor, when it is in forests; somewhat less so when in pasture, as care must be given to the live stock; and still less when used for hay, grain, and other crops. But cultivation with machinery in large fields is a far more extensive method of agriculture than that carried on by the patient work of peasants with their hand tools. The more labor or the more equipment (or both together) that is put upon an acre, the larger the product, but the larger the cost per unit. It is a familiar economic principle.2 It would bankrupt any farmer, excepting the millionaire amateur, to farm in America by European methods. American farmers, at least many of them, could raise as many bushels per acre and keep their farms as thoroughly cultivated as do the European peasants, if wages were as low here as are the peasants’ incomes.

§ 8. Prospect of more intensive cultivation of land in America. As the aggregate need for food increases in America there must come a steady pressure upon our stock of land uses, resulting in decreasing returns to labor in agriculture, unless this movement can be counteracted by the spread of better methods in agriculture—not European peasant methods, but new American methods consistent with high labor incomes. A good deal of our farm land is undoubtedly too intensively used now in view of present and prospective commodity prices and wages. Maladjustment of land uses has resulted from mistaken judgment, from changing conditions as to prices, transportation, and markets, and from loss of soil fertility. There are thus, on nearly every old farm, some fields that would better be in pasture and much hillside pasture that would better be woodland. It is often declared extravagantly that our country could support easily the total population of China, or as great a population per square mile as that of Italy. If it did so it would be only on the penalty of lowering wages toward, if not quite to, the level of the Chinese coolie or of the Italian peasant. Great metropolitan dailies gravely present, as an argument in favor of unrestricted immigration, the proposition that “if” the cheaper immigrants would but go upon our “waste” land (which they refuse to do), and raise food by European methods, the problem of the rising cost of food in the cities would be solved. This urban ideal of a frugal, low-paid agricultural peasantry can hardly be adopted in America as the national ideal. Rather, it would seem, any movement toward more intensive agriculture that necessitates a lowering of the standard of living of the masses of the American people will, when it is recognized, be condemned and opposed.

§ 9. The new agriculture. Agricultural method, the technic of farming, has been constantly progressing for two hundred years in Europe and in America. Were it not for this, the great growth of population on this combined area would have been quite impossible. But the betterments since about 1890 in America have been especially great. They are mostly the first large fruits of the scientific study made possible by the land-grant colleges and agricultural experiment stations fostered by state and national legislation. These many diverse improvements are grouped under the general title of the “new agriculture.” Its chief features are: new machinery and other labor-saving methods; better methods of cultivation of the soil; better selection of seed; introduction of new plants and trees from abroad to utilize low-grade lands; plant-breeding to develop new varieties of better quality, heavier bearing, or immune to disease; more efficient and economical ways of maintaining soil fertility; better methods of marketing; and better technical education of the individual farmer. Each of these topics, and a number of other minor ones, would require a chapter in a complete treatise on agricultural economics. Here this mere enumeration must be allowed to convey its own suggestion of far-reaching results for the whole political economy of the nation and of the world.

Indeed, so much has been written in a Barnumesque way of the wonders of the new agriculture that its actual results and further possibilities are in many minds absurdly exaggerated. It has not as yet been potent enough to prevent diminishing returns in respect to the great staple foods and raw materials obtained by agriculture. It apparently has barely kept pace with the needs of the growing population of Christendom. It has enabled a larger population to exist in about the same if not in a worse condition, on the same area, while progress in cheapness of goods has come almost entirely from the side of the chemical and the mechanical industries. It does not give the promise of an indefinite amelioration of the lot of an indefinitely multiplying population. But, to a population slowly increasing, a new and ever newer agriculture, utilizing constantly the achievements of the natural sciences and the mechanic arts, insures the possibility of a steady betterment of the popular welfare in city and in open country alike.

§ 10. Difficulty of coöperation among farmers. Rural communities are proverbially conservative; the American farmer is proverbially an individualist. No wonder, then, that the new ideas and plans of coöperation in business matters have made headway in agriculture slowly and with difficulty. The need of mutual aid among American farmers is especially great, for, as has often been said, isolation is the problem of the farm, as congestion is that of the city. On the frontier a coöperative spirit manifested itself frequently in mutual helpfulness, in house-raising bees, husking bees, threshing bees, and other similar gatherings. But this spirit seems to have almost disappeared in the older communities, the more rapidly doubtless in the period of decaying agricultural prosperity.3 To-day, for example, it is impossible on a certain Pennsylvania road for one more progressive farmer to get his neighbors to coöperate in so simple a matter as hauling their milk-cans to the creamery; and so every day in the year ten horses are hitched to ten delivery wagons, carrying two or three milk-cans apiece, and driven by ten drivers along the same road to and from the railroad station. One driver and two horses could easily carry as much or more, as is done now in many other dairy districts. Even of successful coöperation among farmers sympathetic critics are forced to say: “Many students of rural economics assert that coöperation as applied to the distribution and marketing of farm products is not very successful unless it is founded upon dire necessity. When the records of the organizations of the country are analyzed, it becomes almost necessary to accept that statement. As long as farmers do fairly well in their own way; they are not inclined to coöperate.”

§ 11. Rapid growth of farmers’ selling coöperation. Despite what has just been said, coöperation among farmers now is more developed and is growing faster than all other kinds of coöperation in America. In 1920 there were at least 14,000 farmers’ buying and selling associations, distributed throughout every state in the union. Their growth has been most marked in farming communities in the West, especially in California and in the middle western or northwestern states (e. g., Minnesota and Wisconsin). There the farmers average younger, and many have been educated in the state agricultural colleges. They all produce nearly the same kinds of crops of staple produce which must be shipped to distant markets. The need of uniting to get what they thought would be fair treatment from the railroads, and to protect themselves against the abuses of the competitive commission sales-agents, seems to have given the first impetus to farmers’ coöperation.

The most notable developments were those of the California Fruit Exchange and of coöperative societies of the Northwest for marketing grain. The membership of the former is made up entirely of the local citrus-growers’ associations in California. It has a complete organization of selling agents in the eastern cities, and a remarkably efficient, though simple, system of equalizing and expediting shipments. Agricultural coöperative associations of various kinds are multiplying all over the country, for shipping live stock, fruits, butter, cheese, and other farm products. Coöperation for these purposes called forth new activities; packing-houses were built, and grain-elevators and creameries and dairies, and now a goodly number of the simple manufacturing processes are undertaken by these societies.

§ 12. Some economic features of farmers’ selling coöperation. This type of producers’ selling cooperation is proving in America to be far more successful than producers’ cooperation among workingmen;4 and certain important economic features in it should be noted. The local producers’ selling coöperative society is composed of farmers who as enterprisers own and carry on their own separate businesses; they are not, as in the other case, wage-workers. Any productive processes undertaken by this kind of society are subordinate to the main business, being such as picking, packing, drying, preserving, and making boxes for packing. This form of coöperation, with the related form of consumers’ cooperation that is fostered by it, promises to have a wide extension.

Some of these societies, as those dealing in citrus fruits, regulate with some success the picking and the marketing so as to distribute them more evenly throughout the year. They watch the markets and direct their agents by telegraph to divert cars en route away from markets that are glutted with products and into markets where prices are higher. They take some of the products, as eggs in the spring at the period of low prices, and pack or refrigerate them, to be sold when prices are higher. For thus withholding the supply they are said by some to exercise a monopolistic power. But this is a more than doubtful view. As long as only the seasonal variations are equalized and the total supply of the year is not reduced, it is, on the marginal principle, an economic service to the consumers, comparable to insurance in its utility. Reducing the area planted or preventing the entrance of others into the industry would be monopolistic acts, but these as yet have not occurred.

§ 13. Coöperation in buying. Coöperative buying (called also consumers’ coöperation or distributive coöperation) has had a large growth in the British Isles since 1844, when the society called the Rochdale Pioneers was founded by a group of factory workingmen. The coöperative stores, both in Great Britain and on the Continent, have flourished mainly among the industrial workers in urban centers. However, this has not been exclusively the case, and, particularly in Denmark and Ireland, coöperative buying has increased in agriculture in connection with selling associations. Between 1890 and 1914 the growth of consumers’ coöperation among European industrial wage-earners was phenomenal, especially in Belgium, Germany, and Switzerland. American wage-workers however, have made few and feeble efforts in this direction.

In the period beginning 1867 many coöperative stores were founded in America by farmers in the Grange movement, who operated also grain-elevators, warehouses, and steamboat lines. But the movement failed, about 1877. This result is easily explained by lack of commercial knowledge and lack of harmony among the members, selling on credit, and inefficient management. A new era in consumers’ coöperation for farmers began about 1900, and in several widely separated parts of the country—Minnesota, Kansas, California, Washington and elsewhere—the movement has spread rapidly, supported in large part by the same persons who are members of the selling associations.

§ 14. Need of agricultural credit. Banking originated in cities and for the use of the merchant class. It still retains pretty faithfully its commercial character. The change of farming toward a more commercial form5 has been little aided by banking credit. National banks and many others were forbidden in their charters to lend on the security of real estate, the farmer’s one business asset.6 A great number of farms are always in course of being purchased, the balance of purchase money being borrowed by the purchaser. A group of private agencies, such as life insurance and mortgage loan companies and local money-lenders, has supplied long-term farm credits at rates of interest considerably higher than were paid for loans on urban real estate. The total of agricultural loans was estimated in 1916 to be $3,500,000,000. Though rates of interest had become more equalized throughout the whole country, they still ranged between 7 and 10 per cent in the southern and western states, averaging 7 per cent in the whole country for interest and commission. The need of better opportunties for credit in the agricultural districts was long recognized. The high rate of interest for borrowed money necessarily placed a limit on improvements in equipment and methods of farming.7

§ 15. Provisions for farm loans. The Federal Reserve Act made two important changes to improve agricultural credit.8 Long and vigorous discussion of the subject led at length to the enactment of the Federal Farm Loan Act, July 17, 1916. It authorized the establishment of twelve Federal Land Banks, each with a capital of not less than $750,000, to make loans through national farm associations organized somewhat after the model of the building and loan associations. The bonds issued by these banks may bear not to exceed 5 per cent interest and are tax exempt. The loan is repaid by the farmers under a regular plan of amortization.

This plan went into effect opportunely, when the withdrawal of loans from America by European investors and the financing of the war was already causing rising interest rates. But for this act, the financial difficulties to agriculture would have been serious just as the patriotic slogan declared, “Food will win the war.” As private investors were not ready to subscribe for stock in the banks, the Treasury of the United States did so. In the first year of its operation the Federal Farm Loan Banks issued nearly $100,000,000 of bonds; and at the end of about three years (by October, 1920) more than $350,000,000; at which time farm loan associations to the number of four thousand were operating. Besides, there were operating under the act twenty-five Joint Stock Land Banks with mortgage loans of nearly $80,000,000 outstanding.

All of the effects of this legislation are not yet fully apparent; but it is clear that it has brought down the rate of interest on long-time loans of farmers to nearly 5 per cent in the remotest parts of the country. This must stimulate agricultural improvement and make it possible for thrifty tenants to purchase land on long time. But, inasmuch as farmlands are brought within the circle of lower interest rates, their capitalization will be higher, based on the net annual rental. But ultimately the law should, with wise administration and careful changes made in the light of experience, broaden and strengthen the independent farm ownership of the nation, as well as increase agricultural production.

§ 16. Need of an agricultural policy. Men of the farthest vision in the field of agricultural and land economics—men such as Liberty Hyde Bailey, chairman of the Roosevelt Country Life Commission, Eugene Davenport, director of the Illinois College of Agriculture, Kenyon L. Butterfield, president of the Massachusetts College of Agriculture, and Richard T. Ely, founder of the Institute for Research in Land Economics—have since the beginning of this century been striving to gain for this great problem some due share of the national thought and effort. The events of the Great War gave force to their appeal for a national policy of agriculture. It is not too optimistic to believe that in some respects substantial progress toward this end has been made in the development of experiment stations and state colleges of agriculture, farmers’ institutes, and “farmers’ week” gatherings, that bring together the progressive farmers by thousands, not only to get some technical and practical hints on raising crops, but to gain a broader view of their economic task and of their civic responsibilities. These schools and meetings are helping, as are automobiles, good roads, telephones, rural free delivery, better schools, and an active rural press, to destroy the isolation of country life and to make farmers as a class more broadly educated, more cooperative and more public-spirited than the average urbanite. More insistently the call is heard for a national policy in agriculture, with the belief that, more than any other occupation, agriculture is bound up with the very existence and survival of the nation. This belief rests not merely on the crude physical fact that men must have food to live, but also, and even more, on the eugenic fact that whatever be the country population will ultimately be the nation, and on the historical fact that democracy, stable government, and liberty must have their roots in the soil and in the ownership of homes. This and the foregoing chapter have but sketchily suggested some of the topics that make up the agricultural problems. It is even more important to appreciate that the agricultural problem is connected with all the other industrial problems, and is but a part of the one greatest problem, transcending individual, class, and sectional interests, the problem of national welfare.

References.

• Adams, C. C., Commercial geography. N. Y. Appleton. 1906.
• Bruce, A. A., The Non-Partisan League Citizens Library Series. New York. Macmillan. 1920. (By a former Supreme Court Justice of N. D. Picture of the economic conditions leading to the formation of the League.)
• Carver, T. N., Selected readings in rural economics. N. Y. Ginn. 1916.
• Cumberland, W. W., Cooperative marketing; the advantages as exemplified in the California Fruit Growers Exchange. Princeton. University Press. 1917.
• Kemmerer, E. W., Agricultural credit in the United States. A. E. Rev., 2: 852-872.
• Marsh, G. P., Man and nature: or physical geography as modified by human action. N. Y. Scribner. 1864. (Later editions under the title, “The earth as modified by human action.”)
• Marshall, L. P. and others, Materials for the study of elementary economics, 58-61 (extract from Mason, O. T., Technogeography, or the relation of the earth to the industries of mankind. American Anthropologist, 7: 135-158. 1905); 61-66 (extract from Semple, E. C., Influence of geographic environment. 1911) Univ. of Chic. Press. 1913.
• Phillips, C. A., Readings in money and banking. Ch. XXVII. On agricultural credit. N. Y. Macmillan. 1916.
• Pope, J. E., The federal farm loan act. Washington. Bureau of applied economics: Department of banking and public finance. Pp. 58. 1917.
• Teele, R. P., Irrigation in the United States. N. Y. Appleton. 1915.
• Warren, G. F., Farm management. N. Y. Macmillan. 1913. (Treats primarily the problem of the individual farm, but also many of the broader economic questions.)
• Weld, L. D. H., The marketing of farm products. N. Y. Macmillan. 1916.

CHAPTER 28

THE TRANSPORTATION PROBLEM

§ 1. Natural waterways. In the simplest economic conditions the moving of men and their material goods from one place to another was a very important part of economic activity. Our elementary studies make clear that place change may be just as real and effective a way of increasing the value of goods as is form, stuff, or time change. Tens of thousands of years ago savage men began to supplement their comparatively weak powers as burden-carriers by using domestic animals, and to find other aids for carrying burdens in such instruments as yokes, litters, rafts, canoes, drags, and rude wheeled carts. Boats and ships on rivers, lakes, and seas early proved to be the least costly means of transportation for heavy weights and long distances; as the old saying goes, the oceans unite rather than divide the lands. Other means of transportation were naturally the shortest and most easily traversed caravan routes to navigable water, or portages between two waterways. A good system of natural waterways, while not reckoned among the private capital of a country, may be greater wealth to one nation than costly artificial means of transportation are to another.

In natural means of transportation, America was well endowed. The straight ocean coast-line measures 5700 miles, and the line following indentations of the coast is about 64,000 miles. The Great Lakes, with a straight shore-line of 2760 miles, are the most important inland waterways in the world. The 295 navigable rivers in the country have a length of 26,400 miles that might be navigable water.

The natural conditions of transportation and primarily the location of the navigable waters of oceans and rivers, determined entirely the location of industries and the spread of population in America until the eras of canals and railroads. The success of Fulton’s steamboat in 1807, indeed, so increased the importance of our natural inland waterways that they were the dominating feature of transportation in many parts of the country until after the Civil War. The successive rise in importance, however, of two artificial kinds of transportation is indicated by the terms “era of canals” and “era of railroads.”

§ 2. The era of canals. Canals were used in the ancient empires for irrigating, for the supplying of cities with water, and for navigation. In the late eighteenth and the early nineteenth centuries they were rapidly built in England and America. Six canals had been built in the United States before 1807, but the canal era in America dated from the beginning of work on the Erie Canal in 1817, and continued until about 1840; when nearly all new work ceased; more than 4000 miles of canals had been built at a cost of $200,000,000. The New York State barge canal, costing more than $150,000,000, the most notable of our inland waterways, was opened for navigation May 10, 1918. It is the old Erie Canal, reconstructed to permit the passage of thousand-ton barges. The great advantage of canals is cheapness of operation due to the simplicity of the machinery needed and to the great loads that can be moved with small power. A cent a ton-mile proved to be a paying rate on a small canal in the canal era. For heavy, slow-moving freight, a railroad can even now barely rival a parallel canal at its best. As canals, however, can be built only along fairly level routes and where the water supply is at high level, their construction is limited to a small portion of the country. The principle of diminishing returns applies strongly to the construction of canals: the first canals in favored locations are easily constructed and economically operated, but it is only with greater cost and difficulty that the system can be successively extended. In temperate climates the use of canals is limited by ice to a part of the year, and by the summer’s drought sometimes still further. At its best, therefore, the small land-locked canal is fitted only to be a supplementary agent in the system of transportation wherever another transportation agency of higher speed and greater regularity is possible. Far different is the case of the oceanic canal in a tropical climate.

Canals do not appear to have developed many serious problems calling for public regulation. A first simple legislative act fixing the rate of tolls for boats was sufficient. Charges were made by distance as on a toll road, and the boats were owned by different private shippers or by common carriers among whom competition prevailed.

§ 3. Temporary wreck of inland water transportation. After the sudden check to canal-building about 1840, most of the existing canals continued to operate, with slowly declining prosperity, until after the Civil War, when many of them were abandoned. The reasons for their failure can be understood only in connection with the history of the railroads in that period. There was not enough traffic for both water and rail carriers to thrive, and, at every point where canals or rivers and railroads touched or were parallel, railroad rates were cut below average rates, or temporarily even far below the cost of carriage. The shipping on the Great Lakes was the one form of inland water transportation to survive and flourish.

This wreck of the canal and the river carriers ruined the prosperity of great numbers of business enterprises and of whole regions, while artificially favoring other enterprises and locations. In the long run (that is, forty or fifty years after it had been done), especially when traffic had so increased that the railroads were inadequate to care for it, this was seen to have been unfortunate for the country as a whole. Water transportation has its rightful place along with railroads in a general system of transportation, each agency to be used in the places and for the kind of traffic for which each is best fitted. The restoration and development of our inland waterways is one of the large transportation problems awaiting solution in the second quarter of the twentieth century.

§ 4. Rapid building of American railroads. The canal was just reaching the peak of popular favor when the railroad in 1830, after a half-century of slowly accumulating technical improvements, burst into view as a demonstrated success as a means of transportation.1 The railroad excels in adaptability any other agent of transportation; it can go over mountains or tunnel through them. It is markedly superior in certainty; it may be blocked for a day or two by floods and snows, but it suffers no seasonal stoppage of traffic. In speed, even the early railroad so far excelled that the canal could survive only by dividing the traffic, taking the lower grades of freight, and leaving to the railroad the passenger traffic and fast freight. Although in respect to cheapness, it could not equal the waterways in favored localities the railroad made rapid gains, and improvements in road-bed, rails, cars, engines, and other equipment soon reduced greatly the cost of conducting traffic on the main lines of roads. Because of these qualities railroads soon surpassed in importance every other agency of internal transportation. The miles constructed and miles in operation in the United States, by decades since 1830, were as follows (route mileage, not counting double tracks and sidings):

The extension of railroads was so rapid that there was not time for a gradual adjustment of industrial conditions. In many places the resulting changes were revolutionary. The building of railroads in the Mississippi Valley in the seventies lowered the value of eastern farms, ruined many English farmers, and depressed the condition of the peasantry in all western Europe.3 With the lower prices that resulted when the fertile lands of the western prairies were opened to the world’s markets, the less fertile lands of the older districts could not compete. Many other changes, of no less moment in limited districts, resulted from the building of railroads. Local trading centers decreased in importance. Villages and towns, hoping to be enriched by the railroads, saw their trade going to the cities. Commerce became centralized. Enormous increases of value at a few points were offset by losses in other localities.

§ 5. Eras in the railroad problem. The history of railroads in the United States is closely interwoven with the general economic development, the political ideas, and the public opinion of the nation from 1830 to the present time. Despite the absence of clean-cut unified public convictions on the subject, the entire period divides into fairly well marked eras, as new ideas and policies dominate, not entirely displacing the old, and already foreshadowing still others. These eras may be designated as follows:

• (1) Unregulated private enterprise, beginning 1830.
• (2) Ineffective state regulation, beginning about 1870.
• (3) Ineffective federal regulation, beginning 1888.
• (4) Strong federal regulation, beginning 1906.

This latest era exhibits already two phases, the first being from 1906 to the war in 1917, and the second after that time. The history of these successive eras is instructive to the student of economic institutions in America, as showing how in a democratic society definite truths displace vague and mistaken opinions after long and bitter experiences.

§ 6. Governmental aid to railroads. The growth of railroads in America was more rapid than in any other part of the world, but it did not occur without much help to private capital from governmental agencies. The railroad enterprise was uncertain, the possibilities of its growth could not be foreseen, and private capital would not invest without great inducements. In European countries the railways were built through comparatively densely populated districts, to connect cities already of large size. Yet railroad extension was very slow there, even though the states in many ways aided the enterprises. America was comparatively sparsely populated, and most of the railroads were built in advance of and to attract population, business, and traffic. In many cases railroad-building in America was part of a gigantic real-estate speculation undertaken collectively by the taxpayers of the communities.

American states recklessly abandoned the policy of noninterference, and vied with one another in giving railroad enterprises lands, money, and privileges, in lending bonds, in subscribing for stock, and in releasing from taxation. These fostering measures were expected to increase wealth and to diffuse, a greater welfare throughout the community. Many states were forced to the point of bankruptcy by their reckless generosity, and some states repudiated the debts thus incurred.

The national government then took up the same policy and granted lands to the states to be used for this purpose. The first case of this kind was the grant to the Illinois Central road, in 1850, of a great strip of land through Illinois from north to south. Grants were made in fourteen states, covering tens of millions of acres of land. Then the national government, between 1863 and 1869, aided the building of the Pacific railroads by granting outright twenty square miles of land for every mile of track, and by lending the credit of the government to the extent of fifty million dollars—a debt that was settled by compromise only after thirty years.

Counties, townships, cities, and villages then entered into keen competition to secure the building of railroads, projected by private enterprise. Bonds, bonuses, tax-exemptions, and many special privileges were granted. To obtain this new Aladdin’s lamp, this great wealth-bringer, localities mortgaged their prosperity for years to come. The promoters bargained skilfully for these grants, playing off town against town, cultivating the speculative spirit, punishing the obdurate. Not the civil engineer but the railroad promoter determined the devious lines of many a railroad on the level prairies of America. The effects of these grants were in many cases disastrous, and after 1870 they were forbidden in a number of states by legislation and by constitutional amendments. But, before this era of generosity ended, the railroads in America had received probably more public aid than has ever been given to any other form of industry in private hands.

§ 7. Emergence of the railroad problem. In most charters and laws authorizing the building of railroads, either nothing was specified regarding rates, or maximum rates were fixed which proved to be so high that they were of little, if any, practical effect. But very soon began to appear some serious evils in the policy of railroads toward the shipping and traveling public in matters of rates and of service.

As the ownership of the wagons, ships, and canal-boats of a country is usually divided, ocean ports and points along the lines of trunpikes and canals enjoy competition between carriers. In the early days of the railroads it was believed that a company or the government would own the rails and charge toll to the different carriers, who would own cars and conduct the traffic, as was done on the canals. Experience soon showed the impracticability of this scheme and the need of unified management. An operating railroad company, therefore, has a monopoly at all points on its line not touched by other carriers. This, like any other monopoly, is limited; for the railroad, to secure traffic, is led to meet competition of whatever kind—that of wagons, canals, rivers, or of other railroads—wherever it occurs. The railroads in private hands early began to “charge what the traffic would bear,” high where they could and low where they must, to get the business. Thus developed the various forms of discrimination.

§ 8. Discrimination as to goods. Discrimination as to goods is charging more for transporting one kind of goods than for another, without a corresponding difference in the cost. When reasonably understood, this proposition does not apply to a higher charge for goods of greater bulk, as more per pound for feathers than for iron, the “dead weight” of car being much greater in one case than in the other. It does not apply where there is a difference in risk, as between bricks and powder, or coal and crockery; nor where there is a difference in trouble, as between live stock and wheat. Any difference that can reasonably be explained as due to a difference in cost is not discrimination; on the other hand, a difference in cost without a difference in rate is discrimination. Discrimination as to goods may be by value, as low rates for heavy, cheap goods, and high rates for lighter, valuable ones. Coal always goes at a low rate as compared with dry goods, and sometimes more is charged for coal to be used for gas than for coal to be used for heating purposes.

Railroad discrimination so frequently has resulted in injustice to the shipping public that the term has taken on an evil significance. But it is well to observe that the word discrimination is not derived from crimen (crime), but from discernere (to discern). There are both reasonable and unreasonable forms of discrimination. In general, discrimination as to goods more often appears, under certain conditions and made with due regard to the public interest, to be reasonable; less often to be justified is the form of local discrimination next to be described; and least often of all to be justified is the last-named form of personal discrimination.

§ 9. Local discrimination. Discrimination between places (called also local discrimination) is charging different rates to two localities for substantially the same service. This occurs when local rates are high and through rates are low; when rates at local points are high and at competing points are low; when less is charged for shipments consigned to foreign ports than for domestic shipments; when more is charged for goods going east than for goods going west. The causes of local discrimination are: first, water competition, second, differences in terminal facilities, making some places better shipping-points than others; third, competition by other railroads, which is concentrated at certain points, only one tenth of the stations of the United States being junctions; fourth, the influence of powerful individuals or large corporations and the personal favoritism shown by railroad officials.

The effects of local discrimination are to develop some districts and depress others; to stimulate cities and blight villages; to destroy established industries; to foster monopolies at favored points; and to sacrifice the future revenues of the road by forcing industry to move to the competing points to get the low rates. The power of railroad officials arbitrarily to cause rates to rise or fall is usually limited in practice by the need of earning as large and as regular an income as possible, but even as exercised it has been at times as great as that possessed by many political rulers.

§ 10. Personal discrimination. Discrimination between shippers (personal discrimination) is charging one person more than another for substantially the same service. This most odious of railroad vices, rarely practised openly, is done by false billing of weight, by wrong descriptions or false classification to reduce the charge below published rate-sheets, by carrying some goods free, by issuing passes to some and not to all patrons under the same conditions, or by donations or rebates after the regular rate has been paid. In some cases a subordinate agent shares his commission with the shipper, and the transaction does not appear on the books of the company. In other cases favored shippers are given secret information that the rate is to be changed, so that they are enabled to regulate their shipments to secure the lower rate.

One group of reasons for personal discrimination is connected with the interests of the road. It is to build up new business; it is to make competition with rival roads more effective by favoring certain agents, as was very commonly done in the western grain business; it is to exclude competition, as by refusing to make a rate from a connecting line or to receive materials for a new railroad which is to be a competitor; and it is to satisfy large shippers whose power, skill, and persistence make the concession necessary. Another group of reasons has to do with the interests of the corporate officials. It is to enable them to grant special favors to friends; or it is to build up a business in which they are interested; or it is to earn a bribe that has been given them.

The evils of personal discrimination are great. It introduces uncertainty, fear, and danger into all business; it causes business men to waste, socially viewed, an enormous fund of energy to get good rates and to guard against surprises; it grants unearned fortunes and destroys those honestly made; it gives enormous power and presents strong temptations to railroad officials to injure the interests of the stockholders on the one hand and of the public on the other.

§ 11. Economic power of railroad managers. Other evils of unregulated private management of railroads appeared. When the railroad was a young industry, it was thought to be simply an iron-track turnpike to which the old English law of common carriers would apply. This and similar notions soon, however, proved illusory. It was seen that the higher railroad officials had, in the granting of transportation service and the fixing of rates, a great economic power. They had complex and sometimes conflicting duties to the stockholders and to the shipping public. They wore their conscience burdens lightly before the days of effective regulation, and frequently made little attempt to meet the one and no attempt whatever to meet the other obligation. The opportunities for private speculation brought to many railroad managers great private fortunes. There were no precedents, no ripened public opinion, no established code of ethics, to govern. It was a betrayal of the interests of the stockholders when directors formed “construction companies” and granted contracts to themselves at outrageously high prices. It was an injury not only to shippers, but also to the stockholders, when special rates were granted to friends and to industries in which the directors were interested. In general, however, the interests and rights of the stockholders were more readily recognized than were those of the public. A railroad manager is engaged by the stockholders, is responsible to them, and looks to them for his promotion. Hence their interests are uppermost whenever the welfare of the public is not in harmony with the earning of liberal dividends. The managers long felt bound to defend the principle of “charging what the traffic will bear” in the case of each individual, locality, and kind of goods, even if this ruined some men and enriched others, and if it destroyed the prosperity of cities to increase the earnings of the road.

§ 12. Political power of railroad managers. Likewise in various ways railroad managers, unlimited by rate regulations, may exercise great political influence and power. Some writers maintain that the power to make rates on railroads is a power of taxation. They point out that, if rates are not subject to fixed rules imposed by the state, the private managers of railroads wield the power of the lawmaker. By changing the rates on foreign exports or imports, the railroads frequently have made or nullified tariff rates and have defeated the intention of the legislature. On the other hand, high rates on state-owned roads in Europe have been used in lieu of protective duties. These facts go to show that a change of railroad rates between two places within the country is similar in effect to the imposing or repeal of tariff duties between them.

The wealth and industrial importance of the railroads soon began to give them widespread political power in other ways. It was commonly charged in some states that the legislature and the courts were “owned” by the railroads. The railroads, in part because they were the victims at times of attempts at blackmail by dishonest public officials, declared that they were compelled in self-defense to maintain a lobby. The railroad lobby, defensive and offensive, was, in many states, the all-powerful “third house.” Railroads even had their agents in the primaries, entered political conventions, dictated nominations from the lowest office up to that of governor, and elected judges and legislators. The extent to which this was done differed according as the railroads had large or small interests within the state. These statements can with approximate truth now be made in the past tense, as was not possible a few years ago. A better code of business morality has developed, and the railroad management’s relationship of private trusteeship toward the shareholders and of public trusteeship toward the patrons of the road is now much more fully recognized. The change was not brought about, however, without long and strenuous agitation and effort, educational and legislative.

References.

• Gephart, W. F., The place of the canal in a national system of transportation. A. E. Assn. Bul., 4th ser., 1 (no. 2): 188-196. 1911. Round table discussion, 197-203.
• Hadley, A. T., Railroad transportation. N. Y. Putnam. 1884.
• Johnson, E. R., American railway transportation. 3d ed. N. Y. Appleton. 1908.
• Johnson, E. R., Inland waterway policy. A. E. Assn. Bul., 4th ser., 1: 166-174. 1911.
• Johnson, E. R., The Panama Canal and commerce. Pp. 295. New York. Appleton. 1916.
• Johnson, E. R., and Huebner, G. G., Principles of ocean transportation. N. Y. Appleton. 1918.

CHAPTER 29

RAILROAD REGULATION

§ 1. Peculiar privileges of railroads. The various grants of lands and money to the railroads make them other than mere private enterprises. Those in control of the railroads usually denied this and asserted the right to run “their own business” as they liked. They said that the bargain was a fair one, and was then closed. The public gave because it expected benefit; the corporation fulfilled its agreement by building the road. The terms of the charter, as granted, determined the rights of the public; but no new terms could later be read into it, even though the public came to see the question in a new light. Similar grants, though not so large, have been made to other industries. Sugar factories were given bounties; iron-forges and woolen mills were favored by tariffs; factories have been given, by competing cities, land and exemption from taxation; yet these enterprises have not on that account been treated, thereafter, in any exceptional way. So, it was said, the railroad was still merely a private business.

But the social answer is stronger than this. The privileges of railroads are greater in amount and more important in character than those granted to any ordinary private enterprise. The legislatures recognize constantly the peculiar public functions of the railroads. In other private enterprises investors take all the risk. Legislatures and courts recognize the duty of guarding, where possible, the investment of capital in railroads. Laws have been passed in several states to protect the railroads against ticket-scalping. Whenever the question comes before them, the courts maintain the right of the railroads to earn a fair dividend. Private enterprise has been invited to undertake a public work, yet public interests are paramount. The regulation of railroad rates is not a new condition read into railroad franchises, but is implied in the grant of a franchise to common carriers and is involved in the old English law of common carriers.

§ 2. Public nature of the railroad. As a result of a half-century of bitter experiences with the results of the private property conception of railroads, a growing part of the “public” began to have more definite opinions regarding the nature of the railroad business. That opinion by 1870 had begun to run about as follows. Railroads in our country are owned by private corporations and are managed by private citizens, not, as in some countries, by public officials. They have been built by private enterprise, in the interest of the investors, not as a charity or as a public benefaction. Railroad-building appears thus at first glance to be a case of free competition where public interests are served in the following of private interests. But, looked at more closely, it may be seen to be in many ways different from the ordinary competitive business. Competition would make the building of railroads a matter of bargain with proprietors along the line, and an obdurate farmer could compel a long detour or could block the whole undertaking. But the public says: a public enterprise is of more importance than the interests of a single farmer. By charter or by franchise the railroad is granted the power of eminent domain, whereby the property of private citizens may be taken from them at an appraised valuation. The manufacturer, enjoying no such privilege, can only by ordinary purchase obtain a site urgently needed for his business. Why may the railway exercise the sovereign power of government as against the private property rights of others? Because the railway is peculiarly “affected with a public interest.” The primary object is not to favor the railroads, but to benefit the community. These charters and franchises are granted sparingly in most European countries. In this country they have been granted recklessly, often in general laws, by states keen in their rivalry for railroad extension. When thus great public privileges had been granted without reserve to private corporations, it was realized, too late in many cases, that a mistake had been made and that an impossible situation had been created.

If an extremely abstract view is taken, there is danger of losing sight of the real problem, which is that of harmonizing these two interests in thought and in public policy. Yet the extreme advocates of the private control of railroads for a long time resented indignantly any public interference with railroad rates and with railroad management as an infringement of individual liberty. This position often was inconsistently taken by those in whose interests free competition had been violently set aside at the very outset of railroad construction, and for whom governmental interference had made possible great fortunes. It has become generally recognized that the railroads ought not to be allowed to change from a public to a private character, just as it suits their convenience. True, they are private enterprises as regards the character of the investment, but they are public enterprises as to their privileges, functions, and obligations.

If there were none of these special reasons for the public control of railways, there is an all-sufficient general reason in the fact that a railroad is always, in some respects and to some degree, a monopoly. Therefore, the railroad problem may be viewed as but one aspect of the general problem of monopoly.

§ 3. State railroad commissions. When it became apparent that public and private interests in the railroads were so divergent, it still was not easy to determine how the public was to be safeguarded. At first some general conditions, such as maximum rates, were inserted in the laws and charters; but these were not adaptable to changing conditions and, for lack of administrative agents, could not be enforced. Some early efforts at state ownership were disastrous. The old law of common carriers gave to individual shippers an uncertain redress in the courts for unreasonable rates; but the remedy was costly because the aggrieved shipper had to employ counsel, to gather evidence, and to risk the penalty of failure; it was slow, for, while delay was death to the shipper’s business, cases hung for months or years in the courts; it was ineffectual, for, even when the case was won, the shipper was not repaid for all his losses, and the same discrimination could be immediately repeated against him and other shippers.

In the older eastern states, attempts to remedy these and other evils by creating some kind of a state railroad commission date back to the fifties of the last century. Massachusetts developed on the eve of the seventies (1869) a commission of the advisory or “weak type,” which investigated and made public the conditions, leaving to public opinion the correction of the evils. A number of the western states, notably Illinois and Iowa, developed in the seventies commissions of the “strong type,” with power to fix rates and to enforce their rulings. The commission principle, strongly opposed at first by the railroads, was upheld by the courts and became established public policy. By 1915 every state and the District of Columbia had a state commission.

As a remedy for railroad evils, however, the state commissions, strong as well as weak, were disappointing. It is true that from the first they did much to make the accounts of the railroads intelligible, something to make the local rates reasonable and subject to rule, and much to educate public sentiment. But it was difficult to get commissioners at once strong, able, and honest; the public did not know its own mind well enough to support the commissions properly; and the courts decided that state commissions could regulate only the traffic originating and ending within the state. After 1888 the state commissions more and more directed their activities toward the regulation of local utilities. In Wisconsin and in New York in 1907, in New Jersey in 1911, and in many other states since, the “railroad” commissions were replaced by “public utilities” or “public service” commissions, having control not only over the railroads but over street-railway, gas, electric-light, telephone, and some other corporations.

§ 4. Consolidation and need of national regulation. Before passing to the discussion of the next era of railway policy, reference should be made to the steady movement toward the consolidation of small railroad units into larger systems, for this was affecting greatly the character of the railroad problem. The early railroads, many of which were built in sections of a few miles in length, began to be united with many branches. The New York Central between Albany and Buffalo was a consolidation, by Commodore Vanderbilt, of sixteen short lines. The Pennsylvania system was formed, link by link, from scores of small roads.

Toward this result strong economic forces were working. Consolidation has many technical advantages: it saves time, reduces the unit cost of administration and of handling goods, gives better use of the rolling stock and of the terminal facilities of the railroads, and insures continuous train service. It has the advantages of other large production and the possible economies of the trusts. Most important, however, from the point of view of the railroads, is the prevention of competition and the making possible of higher rates and larger dividends. The statement that competition is not an effective regulator of railroads often is misunderstood to mean that it in no way acts on rates. It is true that competition between roads does not prevent discrimination and excessive charges between stations on one line only; but competition usually has acted powerfully at well-recognized “competing points.” The larger the area controlled by one management, the fewer are the competing points; the larger, therefore, is the power over the rate and the more completely the monopoly principle applies. It is a grim jest to say that consolidation does not change the railroad situation as regards the question of rates.

§ 5. The Interstate Commerce Act. We now come to the third era of railroad policy, that of a weak and ineffective control by a federal agency. Public hostility to private railroad management was greatest in the regions where the most rapid building of roads occurred from 1866 to 1873. One center of grievances was in the “Granger states” of Illinois, Wisconsin, Kansas, Nebraska, Iowa, and Minnesota; another center was in the oil regions of Ohio and Pennsylvania. The eastern states were not without their troubles, for the report of the Hepburn Committee of the New York legislature in 1879 showed that discrimination between shippers prevailed to an almost incredible degree in every portion of New York state. When the courts, in 1886, decided that the greater portion of the railroad rates could not be treated by state commissions, national control was loudly demanded. Scores of bills were presented to Congress between 1870 and 1886, and, despite much opposition, the act creating the Interstate Commerce Commission was passed in 1887.

The act laid down some general rules: that rates should be just and reasonable; that railroads should not pool, or agree to divide, their earnings to avoid competition; that they should under similar conditions, and unless expressly excused, fix rates in accordance with the long- and short-haul principle (to charge no more for a shorter distance than for a longer one on the same line and in the same direction, the shorter being included within the longer). The act provided for a commission of five men, to be appointed by the President, which might require uniform accounts from the railroads and which should enforce the provisions of the act. The commission in its earlier years gave promise of effectiveness, but its powers, as narrowly interpreted by the courts, proved inadequate to its assigned task. Court decisions paralyzed its activity, and the railroads in many cases refused to obey its orders. Competent authorities declared in 1901, after fourteen years of the Commission’s operation, that discrimination never had been worse, and a series of exposures of abuses strengthened the popular demand for stricter legislation. Weak federal regulation had been valuable as a means of educating public opinion, but had failed as a means of remedying railroad evils.

§ 6. The commission’s powers strengthened. The latest era, that of strong federal regulation, preluded by the passage of the Elkins Act in 1903, aimed at discrimination and rebates, began definitely with the Hepburn Act of 1906. The Commission was increased to seven members, its authority was extended to include express, sleeping-car, and other agencies of transportation, and it was given the power to fix maximum rates, not to be suspended by the courts without a hearing. It became thus unquestionably a commission of the “strong type.” It began to exercise its new powers with vigor, and the carriers reluctantly accepted its authority, as an evil less than that of “forty-nine masters.” Responsive to a calmer but insistent popular demand, further amendments were made by the Mann-Elkins Act of 1910, which strength-ended the long- and short-haul clause, and gave to the Commission, among other new powers, that of suspending new rates proposed by carriers. A special Commerce Court of five judges was created with exclusive jurisdiction in certain classes of railroad cases, but this was abolished after a short trial.

Now began by the Commission an exercise of effective power. Complaints and prosecutions constantly brought to light many graver violations and many hidden abuses and minor violations of the act. Though an ideal condition might never be attained, the evils of favoritism by public carriers seemed in the way to be ended. The Commission, having absolute control over rates, kept them down. According to public opinion, this was the Commission’s chief duty.

§ 7. Fixed rates and declining net earnings. At this point a new feature appeared in the situation. The curve of general prices continued, with slight irregularities, to rise after 1897, and railroad wages had been about keeping pace, moving now a little behind and then ahead, as a result of concessions, of strikes, of threatened strikes, and of decisions in arbitration. Thus almost everything that railroads had to buy—repairs, equipment, materials, labor of all kinds, had been increasing, while the average of freight rates was somewhat decreasing.1 The result was decreasing railway net earnings, falling railway credit, rapid slackening of railway-building, and inadequate maintenance of existing equipment. Railroad facilities and capacity, despite substantial technical progress in some respects (size of engines, train loads, etc.), was not keeping pace with the growth of the population and of the business of the nation.

By 1914 the danger of this course began to be apparent to the public mind. The application of the roads for permission to raise various rates (in what was called, somewhat inaccurately, the “5 per cent case”) was still opposed by the irreconcilable opponents of the roads. Many state railroad commissions united to oppose the granting of the application, and Mr. Louis D. Brandeis, as special counsel for the Commission, urged in a brilliant brief, half sophistical, half sound, that all of the additional revenues needed could and should be obtained by further economies in railroad management. In July, 1914, the Commission granted a part of the railroads’ plea, the dissent of two members being on the ground that all was needed and should be granted. The Commission then by successive orders came over by the following December to the view of the minority, and granted further increases. Even this relief proved to be quite inadequate, as prices rose in 1915, making railway rates, relative to the monetary values of the goods transported, less than ever before. But in principle and as a precedent, this action of the Commission was important, for it reflected a change of public opinion. A good part of the public had begun to glimpse the truth that it is the duty of a public authority with absolute rate-fixing power to fix rates high enough as well as to keep them low enough; and they are not high enough if they do not give a return sufficient to maintain the existing plant and to attract new investments.

§ 8. Federal control of railroads. Railway net earnings moved up2 and down in 1916, helped by the great growth of tonnage and hurt by further rise of prices and wages. Then came our entry into the war in April, 1917. At once the railroads united voluntarily in creating a Railroad War Board, seeking to put every facility of the railroads at the disposal of the government. The rolling stock and trackage, however, were quite inadequate to carry the war traffic, and, with a view to their more efficient use in the war, they were federalized by presidential proclamation in December, 1917 (under powers granted by an anticipatory law of August, 1916). The conditions and details were fixed by the Railroad Control Act of March, 1918. By this the roads were guaranteed while under government control net revenues based on the earnings of the three-year test period ending the preceding June. The roads were to be returned, not less than twenty-one months after the conclusion of peace, in as good condition as they were when taken. In every way possible, priority of shipment was given to materials for army and navy and to goods that had a more or less visible relation to the winning of the war. At the head of the federal “Railroad Administration” was the Secretary of the Treasury, who was clothed with well-nigh unlimited war-time powers, and in fact became the president of the consolidated railroads of America. Whenever he and his advisors felt it to be to the public interest, the division lines of private ownership were obliterated in a manner that was revolutionary in railroad practice. Palatial passenger terminals built by the enterprise of single companies were thrown open to the use of competing lines, equipment was interchanged, superfluous competing trains between large cities were discontinued, to the astonishment of those who cherished the old competitive conception of railroad operation. Despite heroic efforts, railroad operation at times nearly broke down, freight terminals were blocked for miles, and side-tracks were filled with loaded cars that could not be moved. In these conditions and with general prices and railroad wages rising, the net earnings fell short of the guaranties. In May, 1918, rates both for passengers and for freight were sharply advanced, freights by a flat 25 per cent, besides many other advances and reclassifications. This gave immediate relief, which helped to carry the railroads through to the end of federal control; but rising prices and wages again overtook the railroad receipts.

§ 9. Transportation Act of 1920. After the armistice, the return of the railroads to private control became the subject of much discussion in financial and in political circles. Though railroad finances fared better after the increase of rates in May, 1918, net earnings fell again in the temporary business recession early in 1919, to rise again in the business boom of mid-1919; then, as a result of the continued rise of costs and wages, fell again nearly to zero by mid-1920. The Interstate Commerce Commission then granted a large increase of rates, both passenger and freight, effective in September, 1920. Meantime in February the “Transportation Act of 1920,” otherwise known as the Esch-Cummins Act, became law, returning the railroads to their owners March 1, 1920. This law necessarily postponed the task of “unscrambling” the railroad omelet and settling the government’s indebtedness to the several roads. But, more important for the future, amendment of the Interstate Commerce Act increased its membership to eleven, and in various ways implied a new, or advanced, view of the railroad problem. The chief new features are:3

1. Rates must be adequate to yield a fair return on the aggregate value of the property of the carriers, either in the entire country or in rate groups. This is assumed to be the first two years 5½ per cent (but may be ½ per cent more to make provision for improvements) on the valuation to be fixed by the Commission.

2. Net earnings of any carrier are to be limited to 6 per cent and one half of the excess, the other half to be paid to the Commission for a contingent fund to be lent to weaker roads or used in other ways helpful to the railway conditions.

3. All the railroads are to be consolidated into a limited number of systems by a plan to be prepared by the Commission, but this plan as yet is only to be recommended, not enforced upon the carriers. Within each system, consolidation, mergers, division of traffic, and pooling may be authorized by the Commission.

4. Joint use of terminals may be required by the Commission.

5. Stricter control is to be exercised over railroad policies, including security issues, routing of traffic, car service, discrimination, and other features.

§ 10. Significance of the Transportation Act. This act was almost unanimously conceded, by those of divergent views, to contain many commendable features, and is generally characterized as the last trial of private ownership as well by those who favor as by those who would deplore such an outcome. It brings to an end the régime of private railway ownership and management in the United States, in which private interests were uppermost for good and for evil. In that period constructive minds have built great railroad systems and have developed marvelously the technic of railroad management; but great financial interests have made the railroads the pawns with which they played a game for private riches and personal power. The most important question to be answered is this: how is it going to be possible to preserve the vitalizing force of competition in railroad transportation when competition between carriers has been ended?

The question is paradoxical, but it admits of a valid answer, if the American public has wisdom and political virtue enough to apply it. That answer is: keep politics out of railroad management; preserve and intensify the motives of personal ambition everywhere among the officers and employees of railroads; let merit, not favoritism, determine appointments; let railroad service in all its branches be a technical career in which one who succeeds in any position, on any road, in any part of the country, may hope for recognition and worthy reward anywhere else where there is a bigger job to fill. Railroads as such can no longer compete in rates; it is a question whether they may even continue to compete in service, for that too must tend to become standardized, as well in quality as in price. But only in a figurative sense did railroads ever compete. Railroads are impersonal things; only men compete, only men can have motives that are an essential part of the idea of competition. Under a wise public policy, men ought to continue to compete in railroad work and management; indeed, they might do it more effectively than under the régime of personal and corporation favoritism and of frenzied finance that made such monumental failures of many of the railroads under unregulated private management in the past.

References.

• Adams, H. C., American railway accounting. A commentary. Pp. 465. New York State. 1918. By the director of the accounting and statistical work of the I. C. C. from 1887 to 1911.
• Brown, H. G., Transportation rates and their regulation. N. Y. Macmillan. 1916.
• Johnson, E. R., and Van Metre, T. W., Principles of railroad transportation. Pp. 619. N. Y. Appleton 1916.
• McFall, R. J., Railway monopoly and rate regulation. N. Y. Longmans. 1916.
• Materials for the study of elementary economics by L. P. Marshall and others. Pp. 627, 628. Univ. of Chic. Press. 1913.
• Ripley, W. Z., (Ed.), Railway problems. Bost. Ginn. 1907.
• Ripley, W. Z., Railroads: rates and regulations. N. Y. Longmans. 1912.

CHAPTER 30

THE PROBLEM OF INDUSTRIAL MONOPOLY

§ 1. Kinds of monopoly. The problem of monopoly is probably as old as markets. From the first coming together of groups of men to trade, there were doubtless efforts made by some individuals and groups of traders to manipulate conditions so as to get higher prices than they could get in a free and open market.1 There are traces of the practices in ancient times, and the history of the Middle Ages is full of evidences both of monopolistic practices and of the efforts to prevent or control them. Monopoly may be defined as such a degree of control over the supply of goods in a given market that a net gain will result if a portion is withheld.

Monopolies may, for special purposes, be classified as selling or buying, producing or trading, lasting or temporary, general or local, monopolies.2 The term monopoly applied by its etymology3 only to selling, but by usage also to buying. Under conditions of barter the selling and the buying monopolies would be the same things in two aspects. A selling monopoly is by far the more common, but a buying monopoly may be connected with it. A large oil-refining corporation that sells most of the product may by various methods succeed in driving out the competitors who would buy the crude oil. It thus becomes practically the only outlet for the oil product, and the owners of the land thus must share their ownership with the buying monopoly by accepting, within certain limits, the price it fixes. The Hudson’s Bay Company, dealing in furs, had virtually this sort of power in North America. Many instances can be found; yet, relatively to the selling monopolies, those of the buying kind are rare.

A producing monopoly is one controlling the manufacture or the source of supply of an article; a trading monopoly is one controlling the avenues of commerce between the source and the consumers.

Monopolies are lasting or temporary, according to the duration of control. By far the larger number are of the temporary sort, because high prices strongly stimulate efforts to develop other sources of supply. Yet the average profits of a monopoly may be large throughout a succession of periods of high and low prices.

Monopolies are general or local, according to the extent of territory where their power is felt. At its maximum, where transportation and other costs most effectually shut out competition, monopoly power shades off to zero on the borderline of competitive territory. The frequent use of the adjectives partial, limited, and virtual are implied but usually superfluous recognitions of the relative character of monopoly.

§ 2. Political sources of monopoly. Monopoly gets its power from various sources. A political monopoly derives its power of control from a special grant from the government, forbidding others to engage in that business. The typical political monopoly is that conferred by a crown patent bestowing the exclusive right to carry on a certain business. A second kind is that conferred by a patent for invention, or a copyright on books, the object of which is to stimulate invention, research, and writing by giving the full control and protection of the government to the inventor and the writer or their assignees. In this case the privilege is socially earned by the monopolist; it is not obtained for nothing. Moreover, the patent, being limited in time, expires and becomes a social possession. A third kind is a governmental monopoly for purposes of revenue. In France and Japan the governments control the tobacco trade, and the high price charged for tobacco makes this monopoly yield large revenues. A fourth kind is that derived from franchises for public service corporations, such as those supplying electricity, gas, and water. These franchises are granted to private capitalists to induce them to invest capital in enterprises that are helpful to the community.

§ 3. Natural and capitalistic monopolies. Monopoly has been called economic or natural when it rests on the ownership of scarce natural agents, as mines, land, water-power, under the control of one man or one group of men who agree on a price. Economic monopoly is a result of private property that is undesigned by the government or by society. It is exceptional, considering the whole range of private property, but it is important. The oil-wells embracing the main sources of the world’s supply have largely come under one control. One corporation may control so many of the richest iron-mines of the country as to be able to fix a price different from that which would result under competition. Coal-mines, especially those of some peculiar and limited kind, such as anthracite, appear to become easily an object of monopolization. Economic monopoly merges into political monopolies, such as patents and franchises. Private property is a political institution designed to increase social welfare, and only rarely is property in any particular business a monopoly. Private control of any great natural resources might have been prevented in many cases had it been foreseen.

Monopoly is called capitalistic, or contractual, or organized, or commercial, or industrial, when it arises from the power under one control to dominate the market, to intimidate opposition, and to keep out or limit competition by the mere magnitude of wealth. These various kinds so merge into one another that they cannot always be distinguished in practice. A patent may help a capitalistic monopoly in getting control of a market; great wealth may enable a company to get control of rare natural resources.

§ 4. Monopoly and corporate organization. It is necessary to distinguish from monopoly three other features appearing in some enterprises, that are readily and constantly confused with monopoly, viz.: large individual capital, large production, and corporate organization.4 Evidently any one of these four features may appear without the other; e. g., a person of large aggregate capital may have his investments distributed among a large number of small enterprises, such as farms, without a trace of corporate organization or monopoly, and numerous examples could be given of large production, or of corporate organization, or of monopoly, without one or more of the other features.

But the presence of any one of these features is a favoring condition for the development of the others. Hence they are frequently found together, and of late this occurs increasingly. It is difficult to say in every, indeed in any, case which feature has been cause and which effect in this development; but, on the whole, large production seems to have been primary. Itself made possible by inventions, by better transportation, and by the widening of markets, it in turn helped to build up large individual fortunes, and then to create a need for the corporate form of organization. And monopoly power no doubt is more easily gained by large aggregations of capital in a corporation having the advantages of large production.

In the frequent concurrence of these four features in a modern industry, probably the dominant rôle is taken by corporate organization. It has been, often in a special sense, causal in that it has made possible and advantageous great aggregations of capital and large units of production, and thus has bestowed monopolistic power.

§ 5. Rise of the corporation concept. In the legal systems of primitive people and long afterwards, only natural persons had legal rights, could make contracts, have property, and carry on a business. But in a number of cases, very early, groups of men came to have certain interests in common and certain possessions. Gradually some such groups gained more or less of legal recognition, with certain political and economic rights as a body and not as individuals. Thus evolved the conception of a “corporation” (body) having men as “members,” an artificial person, yet not the same as any one or as all the individuals together, and legally distinct from the individuals. A group of burghers obtaining a charter from the lord of the realm became a municipal corporation; a group of teachers, a collegium, became the corporation of a college or a university (a number of persons united into one association); a group of craftsmen became a gild corporation. Each corporation had certain rights, privileges, and immunities, and used a corporate seal as a signature. All of the early corporations had some economic features that were incidental to the main purposes, which were political, ecclesiastical, educational and fraternal. Toward the end of the Middle Ages groups of traders obtained charters to act as corporations permanently for business purposes, such as foreign trade, colonization, and banking. These increased in the sixteenth and seventeenth centuries, and in the eighteenth century this form of organization was adopted also, and parliamentary charters obtained, by groups of men for building turnpikes and canals and for carrying on other kinds of business. The great era of the corporations did not begin, however, until well on in the second quarter of the nineteenth century. Then, both in Europe and in America, the corporate form of organization was extended to a greater number and to other kinds of enterprises.

§ 6. Advantages of corporate organization. The corporate form proved itself to be well adapted to enterprises for the construction and operation of canals and railroads, requiring a larger amount of capital than usually could or would be risked by one person. The investor in a corporation bought shares, and his liability for debts and losses was limited by charter to his share capital. It is an advantage that permanent enterprises of that kind are owned by corporations with charters perpetual or for long periods. It is possible for corporations to make investments running for longer periods than would be safe for individuals. The corporation with an unlimited charter has legally an immortal life. Sale and change of management are not necessary on the death or failure in health of any one owner. As the factory system, and large production developed, the corporate form of organization was found to have these same advantages in manufacturing. It appeared in textile, iron, mercantile, and other industries. After 1865 the corporate form of organization increased at a cumulative rate, until now it is applied to many enterprises of small extent and local in operation. Of the 300,000 corporations making returns to the United States Commissioner of Internal Revenue in 1915, 70,000 were manufacturing corporations, which were 26 per cent of the whole number of manufacturing establishments, but which employed 76 per cent of all wage-earners and turned out 79 per cent of the whole product.

With the corporations came the “corporation problem,” a single name for a complex of problems—legal, political, moral, and economic—which arise out of the relations of corporations to their individual stockholders, to their employees, to the state, to the general public, and to their competitors in business. The problems differ also in corporations of different sizes and in different businesses. Of the various forms of corporations, banks first presented problems calling for economic legislation and regulation. This is explained by the fact that it was the first kind of business corporation to become important, and further by the fact that its work was in various ways closely connected with coinage and regulation of money, which had already become a governmental function. The railroad was the form of corporation next, in point of time, to become a great problem—this because of the peculiarly vital and far-reaching effects that such railroad transportation has upon all other kinds of business in the community. Finally, industrial monopoly loomed before the American people threatening the very existence of our democratic society.

§ 7. Growth of large industry in the nineteenth century. The great recent growth of the monopoly problem is in part to be explained as the result of the growth of large industry as a favoring condition. Before the middle of the last century a tool-using household industry, on farms and in homes where the greater part of the things used were produced in the family, was still the typical organization in the United States.5 A family produced somewhat more than it needed of food and cloth, and exchanged with its neighbors; so with shoes, candles, soap, and cured meats. The early factories growing out of the household industry were small. Since that time two counter-forces have been at work to affect the ratio of manufacturing establishments to population. The number of small establishments has been increased by the many industries producing the things once made on farms, and by increasing demands for comforts and luxuries. Many establishments producing the staple products that can be transported have been consolidated or have been enlarged, so that the unit of production now averages much larger. The number of cotton-weaving factories was about the same in 1900 as it had been seventy years earlier, while population had grown sixfold. Iron- and steel-mills were fewer in 1900 than in 1880. In industries having local markets or local sources of materials, such as grist-mills and saw-mills, the change in numbers was less, for many small establishments were started in outlying districts at the same time that the mills became larger in the great population centers. But the average number of employees and the average capital per establishment increased in every period between census enumerations.

§ 8. Trusts and combinations. In the discussion of monopoly, misunderstanding has resulted from lack of definiteness in the use of words, which have rapidly shifted in meaning. The word trust was originally applied, and still in legal usage applies, to a particular form of organization, that of a board of trustees holding the stock, and thus unifying the control, of two or more formerly separate enterprises. The Standard Oil Company at one time had this form of organization, which was declared by the courts to be illegal (ultra vires) for corporations. Now trust often is used in the sense of a corporation having monopoly power in some degree: either broadly, of any monopolistic corporation (including railways and local public utilities), or, oftener, limited to manufacturing and commercial monopolies, otherwise called “industrial trusts,” in contrast with franchise trusts and railroads.6 The word combination referred originally to a more or less thorough “merger,” with a view to attaining monopolistic power, of a number of formerly separate organizations, as in the case of the United States Steel Corporation. But the word is often used as if it were a synonym for trust (in a narrower or wider sense) even as applied to a single enterprise that has grown to be monopolistic. A “trust” in the legal sense of a form of organization, and “combinations” as above defined, might have no monopoly power whatever; whereas a monopoly may be possessed by an individual owner (e. g., of a patent right, railroad, or water-works plant) or by a single corporation that has simply grown monopolistic without the trust form of organization or without combination.

The chief problem is monopoly, however attained. In accord with growing and now dominant usage, it is well to observe the following meanings in our discussion. Combination is a term referring particularly to one method by which monopolies are formed. Trust, in the now popular sense, is best limited to an industrial, primarily manufacturing, enterprise or group of enterprises, with some degree of monopoly power due to a group of favoring technical, financial, and economic conditions. The trust may consist of a single establishment; or of a group of establishments separately operated, but united in a “pool” to divide output, territory, or earnings; or of such a group held together by a holding company or combined into one corporation. Public utility is the name of an enterprise having a “special franchise” giving the use of streets and highways and the right of eminent domain, and includes, in the broad sense, railroads and local utilities, such as street railways, gas, water, and electric-light plants.

§ 9. Methods of forming combinations. Combinations of previously independent enterprises may be more or less complete and are made by different methods. Four major methods are:

(1) The pool, by which the enterprises continue to be separately operated, but divide the traffic (or output), or the earnings, or the territory, in prearranged proportions.

(2) The trust, in a legal sense (as defined in § 8).

(3) The holding company, a corporation with the sole purpose of holding the shares of stock, or a controlling number of them, in various corporations otherwise nominally independent.

(4) Consolidation into one company.

At least five minor methods may be distinguished; these are here numbered continuously with the preceding four:

(5) Lease by one company of the plants of one or more other companies.

(6) Ownership of stock by one corporation in another corporation, sufficient to give substantial influence over its policy, if not absolute control.

(7) Ownership of stock, by the same individual or group of individuals, in two or more competing companies, to such an extent as appreciably to unify the policies of the competing companies.

(8) Interlocking directorates, that is, boards of competing companies containing one or more of the same persons as directors.

(9) Gentlemen’s agreements, mere friendly informal conferences and understandings as to common policies.

§ 10. Growth of combinations after 1880. Undoubtedly, industry before 1860 had some elements of monopoly. Monopoly constituted part of the banking problem; it began to be evident in the railroads almost at once, and it rapidly increased as street railways and other public utilities were constructed. But after 1880 occurred the formation in larger numbers of industrial enterprises which appeared to exercise some monopoly power. In the years between 1890 and 1900 this movement was still more rapid. Consolidation took place on a great scale in railroads and in manufactures. Much of this has been of such a kind that it does not appear at all in the figures showing the number of establishments and of employees. In the data regarding this movement given by different authorities many discrepancies appear, as there is no generally accepted rule by which to determine the selection of the companies to be included in the lists. One financial authority gave the following figures7 regarding the industrial companies reorganized into larger units in the United States between 1860 and 1899, not including combinations in such businesses as banking, shipping, and railroad transportation. Some of the enterprises here included have much and others probably have little or no monopolistic power.

§ 11. The great period of trust formation. The number of trusts organized and the capital represented by this movement in the last of these decades were seven times as great as in the thirty years preceding. The figures by years for the decade 1890-1899 are as follows:

The influence of great prosperity shows in the large number of combinations; but in 1893 the number was less, although the total nominal capital (stocks and bonds) was still the greatest it had ever been in any year. Then came the period of depression, 1894-97, when both the numbers and the capital were comparatively small. Then from 1898 to 1901 followed the period of the greatest formation of trusts the world has ever seen.

The list of these four years contains the names of the most widely known American combinations, a few of which are here given with the years of their formation: 1898, American Thread, National Biscuit; 1899, Amalgamated Copper, American Woolen, Royal Baking Powder, Standard Oil of New Jersey, American Hide and Leather, United Shoe Machinery, American Window Glass; 1900, Crucible Steel, American Bridge; 1901, United States Steel Corporation, Consolidated Tobacco, Eastman Kodak, American Locomotive.

§ 12. Height of the movement toward combinations. In a list by another authority8 it appears that the data for all industrial trusts are in round numbers as follows:

These figures, compared with those given above, would indicate that the industrial trusts had about doubled in the years 1900-1903 inclusive. Probably most of this growth was in the years 1900 and 1901; then the movement became very slow because, as is generally believed, of the aroused public opinion, of more vigorous prosecution by the government, and of additional legislation against trusts. The authority last cited gives in a more comprehensive list, in six groups, all the monopolistic combinations in the United States, at the date of January 1, 1904, as follows (the figures just given above being the totals of the first three groups):

§ 13. Motive to avoid competition. This remarkable movement toward the formation of united corporations from formerly independent enterprises called forth a variety of explanations. The organizers of trusts gave as the first explanation of their action that it was the necessary result of excessive competition. It is not to be denied that a hard fight and lower prices often preceded the formation of the trusts. But, as this excessive competition usually is begun for the very purpose of forcing others into a combination, this explanation is a begging of the question. It is fallacious also in that it ignores the marginal principle in the problem of profits. Profits are never the same in all factories, and to those manufacturers that are on the margin competition may appear excessive. It generally has been the largest and strongest factories, in the more favored situations, that, in order to get rid of troublesome competitors, have forced the smaller, weaker industries to come into a trust. In other cases the smaller enterprises have been eager to be taken in at a good price, although they might have continued to operate independently with moderate profits. When, therefore, it is said that competition is destructive, it may be a partial truth, but more likely it is a pleasantry reflecting the happy humor of the prosperous promoters of the combination.

§ 14. Motive to effect economies. Another advantage of the combination of competing plants that was strongly emphasized was the economy of large production.9 The economies that are possible within a single factory may be still greater in a number of combined or federated industries. The cost of management, amount of stock carried, advertising, cost of selling the product, may all be smaller per unit of product. Each independent factory must send its drummers into every part of the country to seek business. In combination they can divide the territory, visit every merchant, and get larger orders at smaller cost. A large aggregation can control credit better and escape losses from bad debts. By regulating and equalizing the output in the different localities, it can run more nearly full time. Being acquainted with the entire situation, it can reduce the friction. A combination has advantages in shipment. It can have a clearing-house for orders, and ship from the nearest source of supply. The least efficient factories can be first closed when demand falls off. Factories can be specialized to produce that for which each is best fitted. The magnitude of the industry and its presence in different localities often, in the period of trust formation, served to strengthen its influence with the railroads, and to increase its political as well as its economic power.

Another phase of corporate growth is the “integration of industry,” that is, the grouping under one control of a whole series of industries. One company may carry the iron ore through all the processes from the mine to the finished product. A railroad line across the continent owns its own steamers for shipping goods to Asia or Europe. Large wholesale houses own or control the output of entire factories.

§ 15. Profits from monopoly and gains of promoters. There are, however, well-recognized limitations to the economy of large production in the single establishment,10 and of late there has been ever-increasing skepticism as to the net economy actually attributable to combinations. Undoubtedly the merging of a number of old plants has sometimes effected an immediate improvement in the weaker ones. A new broom sweeps clean. This movement chanced to be contemporaneous with the developing of “efficiency engineering” and of “scientific cost-accounting,” and these better methods, already developed and applied in comparatively small plants, could be more quickly extended to the other plants brought into the combination. Moreover, the personal organizations in the separate enterprises had been brought to a high state of efficiency by the stimulus of competition, and there is reason to fear that, after some years of centralized bureaucratic organization, much of this efficiency may be lost.

There seems no doubt that the strong motive for forming combinations is the profit to the organizers.11 Whatever was the more generous motive or more fundamental economic reason assigned by the promoters, the investing public confidently expected that higher prices would be the chief result. There are indirect as well as direct gains to the promoters of a combination. There is the gain from the production and sale of goods to consumers, and there is the gain from the financial management, from the rise and fall in the value of stock. The promoters of a combination often expect to make from sales to the investing public far more than from sales to the consumer of the product. A season of prosperity and confidence, when trusts and their enormous profits are constantly discussed, has an effect on the public mind like that of the gold discoveries in California and in the Klondike. Then is the time for the promoter to offer shares without limit to investors.

§ 16. Monopoly’s power to raise prices. There is no doubt that the formation of a combination from competing plants can and does give a control over prices, a monopoly power, not possessed by the separate competing establishments. The same kind of power might be attained by the growth of one establishment outstripping all its competitors, or by a new enterprise coming into the field backed by powerful capitalists. But this would work slower and less extensive results than does the formation of a combination.

Of course, the fundamental principles of price cannot be changed by a trust; a selling monopoly can affect price only as it affects supply or demand.12 The strongest trust yet seen has not been omnipotent. Many careless expressions on the subject are heard even from ordinarily careful writers and speakers: “The trust can fix its own prices,” “has unlimited control,” “can determine what it will pay and for what it will sell.” This implies that trusts are benevolent, seeing that the prices they charge are usually not far in excess of competitive prices in the past. Such a view overlooks the forces that limit the price a monopoly can charge. If the supply remains the same, no trust can make the price go higher.. The monopoly usually directs its efforts toward affecting the supply, leaving the price to adjust itself. It can affect the supply either by lessening its own output or by intimidating and forcing out its competitors. It is true that this logical order is not always the order of events. The trust may not first limit the supply and then wait for prices to adjust themselves; it may first raise its prices, but, unless it is prepared to limit the supply in accordance with the new resulting conditions of demand, such action would be vain. The control of the sources of supply is the logical explanation of the higher price, even though the limitation of supply is effected later by successive acts found necessary to maintain the higher price.

The report of the Federal Industrial Commission, which from 1898 to 1901 investigated the trusts, showed13 that immediately upon their formation the industrial combinations had raised their prices. Prices might be lowered again, but only when and where competition became troublesome, thus causing either “price-wars” or discrimination.

References.

• Bolen, G. L., Plain facts as to the trusts and the tariff. 1902. N. Y.
• Collier, W. M., The trusts. N. Y. Twentieth Century Press. 1900.
• Cotter, A., The authentic history of the United States Steel Corporation. N. Y. Moody magazine book Co. 1916.
• Hobson, J. A., The evolution of modern capitalism. N. Y. Scribner. 1912. Ch. V.
• Jones, Eliot, The anthracite coal combination in the United States. Harvard Univ. Press. 1914.
• King, W. I., The wealth and income of the people of the United States. N. Y. Macmillan. 1915.
• Meade, E. S., Trust finance. N. Y. Appleton. 1903.
• Montague, G. H., Trusts of to-day. N. Y. Doubleday. 1904. (Favorable.)
• Ripley, W. Z., (Ed.), Trusts, pools and corporations. Ed., 1916.
• Stevens, W. S., (Ed.), Industrial combinations and trusts. N. Y. Macmillan. 1913.
• Stevens, W. S., Unfair competition. Univ. of Chicago Press. 1916.

CHAPTER 31

PUBLIC POLICY IN RESPECT TO MONOPOLY

§ 1. Moral judgments of competition and monopoly. What should be the attitude of society toward monopoly? Is it good or bad as compared with competition? Some very strong ethical judgments bearing on practical problems are found in the popular mind connected with the ideas of competition and monopoly. Competition usually is pronounced bad when viewed from the standpoint of the competitors who are losing by it, and good when viewed from the standpoint of the traders on the other side of the market who gain by that competition. Competition among buyers thus appears to sellers to be a good thing; that among sellers appears to themselves to be a bad thing (and vice versa). Many persons are moved by sympathy to pronounce competition among low-paid and underfed workers to be bad, and each worker is convinced that it is so in his own trade. Yet nearly all men are of one mind that competition is a good thing in most industries, those that are thought of as supplying the “general public.” Monopoly is believed by the public to be wrong in such cases, and competition to be the normal and right condition of trade. Yet there are some men interested in “large business” who look upon competition as bad, and upon monopoly as having essentially the nature of friendly co-operation. The roots of these opinions, or prejudices, are easily discoverable in the theoretical study of the nature of monopoly.1 Yet often different men or groups of men feel so strongly on this matter, viewing it from their own standpoints, that they are quite unable to understand how any one else can feel otherwise. There is thus a great deal of controversy to no purpose.

§ 2. Public character of private trade. Any such general judgment as that of the public, though it may be mistaken in some details, is likely to be a resultant of broad experience. There is in competitive trade a public, a social character, which monopoly destroys. Even in a simple auction, when the bidding is really competitive, price depends far less on shrewd bargaining, on bluff, or on stubbornness, than is the case in isolated trade. Each bidder is compelled by self-interest to outbid his less eager competitors, and thus the limits within which the price must fall are narrowly fixed. The auction-sale is less a purely personal matter, takes on a more public aspect, has a more socialized character, than isolated trade, depends more on forces outside the control of any one man, and results in a price fixed with greater definiteness. The price in a more developed market results from the play of impersonal forces, or at least from the play of personal forces which have come under the rules of the market.2 This price, men are ready to accept as fair. It has a democratic character, whereas the gains of monopoly price arouse resentment as being the work of personal power and felt to be despotic. Monopoly price is a bad price to the one who pays it, not only because it is a high price but because it bears the character of personal extortion.

The medieval notion of justum pretium, the just price, may have been often misapplied, and it was often criticized and ridiculed by economists in the period of idealized competition (from Adam Smith to John Stuart Mill). But at the heart of the notion was the judgment that general uniform prices fixed in the open market are the proper norms for prices when one of the traders is caught at an exceptional disadvantage. The modern world has been compelled to reëxamine the conception of the just price.

§ 3. Evil economic effects of monopolistic price. Theoretical analysis confirms this view. Any exercise of monopolistic power over price keeps some, the weaker bidders, from getting any of the desired goods, or limits them to their most urgently desired units. What may be called the “theoretically correct price”3 with two-sided competition is the one that permits the maximum number of trades with a margin of gain to each trader. In narrowing the possibility of substitution of goods by trade, the sum of values of goods for most men is diminished. Thus all citizens who are the victims of an artificially created scarcity look upon monopoly as “bad,” just as they do upon the evils of nature—drought, locusts, fires, and pestilence. A monopoly has an indirect and more distant bad effect upon the spirit of all those trading with it. If they are producers selling at prices depressed by monopoly, their money incomes are reduced; if they are consumers buying at monopoly prices, their real incomes are reduced; in either case, their psychic incomes, the motives of all industry, are diminished and their industrial energies are relaxed.

§ 4. Common law on restraint of trade. The first recorded case in English law wherein the courts sought to prevent the limiting of competition by agreement runs back to the year 1415, in the reign of Henry V. This was a very simple case of a contract in restraint of trade, whereby a dyer agreed not to practise his craft within the town for half a year. The court declared the contract illegal (and hence unenforceable in a court), and administered a severe reproof to the craftsman who made it. Thus was set forth the doctrine of the moral and legal obligation of each economic agent to compete fully, freely, and without restraint, even restraint imposed by a contract voluntarily entered into for his own advantage.

Not until the eighteenth century was this rigid doctrine somewhat relaxed so as to permit the sale of the “good-will” of a business under limited conditions, and some “reasonable” contracts in restraint of trade. Later the emphasis was somewhat further shifted, by judicial interpretations, from the notion of free competition to that of “fair” competition, so as to permit contracts involving moderate restraint of trade, if the essential element of competition was retained. Thus it was said that a piano manufacturer might by contract grant an exclusive agency to a dealer in a certain territory, there being many other competing makes of pianos, and such a contract “does not operate to suppress competition nor to regulate the production or sale of any commodity.”4 But with such moderate limitations the courts in cases under the common law have steadily disapproved contracts in restraint of trade that would appear to be to the disadvantage of third parties, whether producers or consumers.

§ 5. Growing disapproval of combination. The attitude of the courts became in one respect stricter. Some earlier cases involved the doctrine that what is lawful for an individual to do alone is lawful if done in combination with others. Indeed, a comparatively recent case5 declared, regarding a group of dealers agreeing not to deal with another, that “desire to free themselves from competition was a sufficient excuse” for such action. But the general trend has been to the doctrine that a combination of men “has hurtful powers and influences not possessed by the individual.” Hence threats of associations of traders (retailers or wholesalers) not to deal with another if he continued to deal with some third party have been declared acts in restraint of trade.6 Yet in the case cited the court seemed to have been more concerned with protecting “the individual against encroachment upon his rights by a greater power,” “one of the most sacred duties of the courts,” than with rights and interests of the general public endangered by such restraint of trade.

§ 6. Competition sometimes favored regardless of results. In another respect the courts have wavered in their attitude toward competition, the general doctrine being that competition, particularly the cutting of prices, is absolutely justifiable, regardless of circumstances. In the leading English case7 the facts were that the larger steamship companies sent to Hankow additional ships, now called, figuratively, “fighting-ships,” to “smash” freights in order to ruin tramp steamship owners and drive them out of the field. The court held that this constituted no legal wrong to the tramp steamship owners, and scouted the idea of the court’s looking at the motives in price-cutting, or taking into consideration in any way what the court called “some imaginary normal standard of freights and prices.” And of this case the lawyer is forced to say: “Undoubtedly the excellent opinion just quoted represents the law everywhere,” even though there are other cases difficult to harmonize with it.8

To the economist, not bound in like manner by legal precedent, such a verdict seems short-sighted and mistaken. The court appears to have considered only the rights of the private litigants, the tramp steamship owners, not the rights and interests of the shipping public; it considered the immediate and not the ultimate effects of the “smashing” of rates; it allowed itself to be deceived by the appearance of acts that in outer form were competition, but that had as their purpose the strengthening and maintenance of monopoly. These acts are forms of the “unfair” practices that will be mentioned later.9

§ 7. Increasing regard for results of competition. Despite the binding precedents, the courts in some later decisions have refused to look upon competition as good regardless of its motives and of its consequences. In a federal case10 the judge, in a brief and acute dictum, recognized the evil of a rate war that would result from threats of definite cuts. They impair “the usefulness of the railroads themselves, and cause great public and private loss.” The court’s opinion was no doubt largely influenced by the fact that railroad rates were already subject to regulation: “Every precaution has been taken by state legislatures and by the Congress to keep them just and reasonable,—just and reasonable for the public and for the carriers.”

In a state case11 the facts were that a man of wealth started a barber-shop and employed a barber to injure the plaintiff and drive him out of business. The court recognized that while, as a general proposition, “competition in trade and business is desirable,” it may in certain cases result in “grievous and manifold wrongs to individuals”; and in this case the “malevolent” man of wealth was declared to be “guilty of a wanton wrong and an actionable tort.” The economist can but pronounce this judgment admirable as far as it goes, but it is remarkably confined to a consideration of the private legal rights of the injured competitor, and gives hardly a hint of a higher criterion for judging competitive acts, that of the general welfare.

The further enlightenment of judicial opinion upon the subject of cutthroat competition used as a tool to create monopoly was shown in the granting of an injunction by a federal court, in 1914,12 restraining the use of “fighting-ships” by a combination, and by the indication in 191513 of the willingness to grant a similar injunction if necessary. Similarly “fighting brands” of goods have been recently prohibited.

§ 8. Common-law remedy for monopoly ineffective. The common law contained prohibitions enough, both broad and specific, against contracts and acts in restraint of trade. The common law contained likewise a closely related body of doctrine by which the railroads, as common carriers, ought to have given equitable and undiscriminating rates to all shippers. There was a strong body of influential opinion that long maintained that the common law was sufficient to prevent monopoly, that the only thing needed was to enforce it. Even now, after all that has elapsed, there are some in railroad and business circles who still appear to hold that opinion. But the evils of railroad discrimination and of other monopolistic practices continued, and for some cause the common law was not enforced, excepting occasionally, disconnectedly, and without important results.

Why? The answer may be ventured that in the common law the whole question of restraint of trade was treated primarily as one of private rights and only incidentally as one involving general public policy. Cases came before the courts only on complaint of some individual who felt injured. Now the injury of higher prices due to contracts in restraint of trade is usually diffused among many customers, and the loss of any one is less than the expense of bringing suit. Consequently, it rarely happened that cases were brought before the courts except by one of the two equally guilty parties to a contract in restraint of trade, when the other party had failed in some way to do his part. When such an illegal contract in restraint of trade was proved before a court by a defendant in a civil suit, the contract was declared unenforceable, and the only penalty in practice was that the plaintiff could not collect his debt or secure performance from the defendant.14 A very similar situation existed in the case of the individual’s grievances against railroad charges and services.

§ 9. Federal legislation against monopoly. The passage of the Interstate Commerce Act in 188715 prohibiting discrimination and railway pooling, and that of the Act of 1890 “to protect trade and commerce against unlawful restraints and monopolies,” popularly known as the “Sherman Antitrust Law,” were part of one public movement to remedy monopoly. From one point of view it seems true, as has often been said, that in essence these statutes were simply enactments of long-established principles of the common law. Section 1 of the Sherman law declared illegal “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations.” Section 2 made it a misdemeanor “to monopolize, or attempt to monopolize.”

But, from another point of view, these new laws showed a marked change both in the conception of the interests involved and in the means of preventing the evils. The evil was at last conceived of as a general public evil; the laws are not merely to protect individuals,16 but “to regulate commerce,” “to protect trade and commerce.” More important still, it was made the duty of public officers (district attorneys of the United States) to institute proceedings in equity “to prevent and restrain” violation of the Sherman Act, and a special Commission was instituted to deal with railroad cases. It was this undertaking of the initiative by the government, the treatment of the problem as one of the general welfare, that marked a new epoch in this field. The methods and agencies provided might be at first inadequate and ineffective, but time and experience could remedy those defects.

In important ways opinion and policies were not yet clear and consistent. They wavered from one to another conception of the method for dealing with the problem. It was clear only that laissez-faire had been laid aside. There are three other possible policies, reflecting as many different conceptions of the problem of monopoly: (1) monopoly prosecuted, (2) monopoly accepted and regulated, (3) competition maintained and regulated.

§ 10. Policy of the Sherman Anti-Trust Law. The policy of monopoly prosecuted embodied in the Sherman law is merely negative. It opposed no positive action to the making of monopolistic contracts and to the formation of combinations, but declared them to be illegal and provided for their prosecution and punishment after the mischief had been done. The great epoch of the formation of combinations17 followed the enactment of this law. True, lack of experience by the department of justice, and lack of vigorous effort to enforce the law, and the slow action of the courts were largely to blame for this result. The law has proved to be more effective to prevent new combinations, since it has been successfully enforced in a few notable cases. But once large combinations have been formed and complex individual financial interests have become involved, the courts have proved to be incapable of undoing the deeds. In practice the most sweeping remedy attempted under the law has been the dissolution of enormous combinations formed years after the law went into effect. This has been called the job of unscrambling the eggs. The most notable cases were those of the Standard Oil Company and of the Tobacco Company, decided in 1911, the results being absurdly futile.

§ 11. Policy of monopoly accepted and regulated. A second policy may be called that of monopoly accepted and regulated. This is represented by the Interstate Commerce Act (at first weakly, and more vigorously after its amendment), and by the great mass of state legislation putting the local and interurban public utilities under the control of regulative commissions. For some decades after these industries developed, the public faith was in competition as the effective regulator. If monopolistic prices were too high, another company was chartered to build a parallel railroad or another horse-car line on the next street, or to lay down another set of gas-pipes in the same block. Almost from the first, some students of the subject saw the wastefulness and futility of this kind of competition, and nearly a half-century later the public reluctantly came to this view. Still, sad to relate, the same history had to be repeated in regard to the telegraph and telephone industry, and in some quarters the ultimate outcome is not yet recognized. The Interstate Commerce Act itself, with odd inconsistency, contains an anti-pooling provision (Section 5), the purpose of which seems to have been to compel competition as to rates, which is now practically impossible under the other provisions of the law. The policy of “monopoly accepted” was seen to involve as a necessary feature public regulation of rates to the point, if necessary, of absolutely fixing them. The principle has come to be accepted that wherever competition ends there public regulation of prices and service begins. Monopolistic enterprises are ipso facto quasi-public institutions.

§ 12. Field of its application. This policy, gradually extending in practice, came to be applied to the class of industries which, for lack of a better name, are called local utilities. The one characteristic that they all have in common is that the service, or product, which is sold requires for its delivery some special use of public highways and an expensive, permanent, physical plant, such as gas-pipes, water-pipes, poles and wires. The telegraph, the telephone, electric lighting, street railways, regular steam railroads, and some other minor industries all answer to this test.18

Beginning about the year 1900, one state after another enlarged the powers of its state railroad commission or created a new corporation commission to regulate these “local” or “public utilities.”19 They have accomplished much, but the development of this kind of regulation has not proceeded in many cases beyond the adjustment of relative rates and the abolition of discrimination among the different individuals and classes of customers. Experience has shown the great difficulty of determining what is a fair absolute level of charges. A new science of accounting has been developing to assist in the solution of a problem the complexity of which transcends the agencies at hand to deal with it. With this policy applied to the local utility (and railroad) phase of monopoly, there remains still the problem of the industrial trusts in the manufacturing enterprises.

§ 13. The industrial trust—a natural evolution? The policy that one is inclined to favor regarding industrial trusts depends very much on one’s answer to the question: Are or are not industrial trusts natural growths? In this bare form the question is somewhat vague, but the thought of those who answer it in the affirmative is positive if not always entirely clear. They (at least, the extreme representatives of this view) declare that trusts have been, are, and will continue to be the results of a “natural evolution” of business conditions, as inevitable as the great changes in the physical world. If this is so, man and society must recognize the facts, must waste no efforts vainly in fighting against fate, but must accept the trusts and realize their possibilities for good. And these are declared to be great, for it is assumed that without the trusts all of the economies of large production must be sacrificed. Irresistible economic forces, it is said, are creating larger and larger units of business; friendly coöperation and unified action must take the place of competition in business.

The outcome must be monopoly in every important line of manufacturing industry and perhaps of commerce. In view of public opinion toward monopoly, its acceptance necessitates its regulation. This argument is supported by appeal to the experience in the field of railroads and other local utilities, where public opinion has, after long hesitation, recognized competition to be impracticable and the acceptance of monopoly as inevitable. As extremes often meet, the view of the industrial trust as a natural evolution is most favored, on the one hand, by men of “big business,” already interested financially in trusts, and, on the other hand, by the most radical communists (or socialists) whose ideal is the complete monopolization of industry under the government.

§ 14. Artificial versus natural growth. Opposed to this view is a deep and widespread popular opinion, or prejudice, against the trust and in favor of competition. General opinion in this case (as not always) finds much support in special economic studies of the methods by which the existing industrial trusts came into being. First the question properly is raised: Just what is meant by “natural”? In a sense, everything has been the natural outcome of evolution—the steam engine, the submarine, the boycott, militarism. In an equally good if not better sense, every mechanical invention and every method of industrial organization is artificial, has been the result of man’s choice and effort. In any case, men may choose as good, or reject as unsuitable or bad, any particular mechanical device, and society may decide to adopt any particular policy toward a certain form of business organization and certain business practices (unless, indeed, our philosophy be that of automatism, crude determination or fatalism, regarding all human affairs).

Now, when one examines the methods that the notable trusts actually did employ, and apparently had to employ, even when they were already powerful single enterprises, in order to destroy their competitors and to attain their monopolistic power, the word “natural” seems hardly to describe the process. The evidence is not a matter of hearsay, but is embodied in a long line of judicial decisions, and in numerous special inquiries by governmental commissions and officials.

§ 15. Kinds of unfair practices. This evidence is a startling array of “unfair practices” and “unfair” forms of competition, which, however novel in appearance, are essentially of the kind that have been illegal under the common law for the past five hundred years. Many of these practices were baldly dishonest, many of them were contemptibly mean. The manifold varieties of unfair competition may be roughly grouped under three headings, according as they are connected with (1) illegal favors received from public or quasi-public officials; (2) discrimination against, or control of, customers; (3) foul tactics against competitors.

(1) Among the practices in the first group are discriminatory rates and rebates from railroads, favoritism in matters of taxation, undue influence in legislatures, special manipulation of tariff rates through powerful lobbies or paid agents, undue influence in the courts through the employment of lawyers of the highest talent, who often later became judges.

(2) Among the unfair practices toward customers are discriminations among them by the various forms of price-cutting, grants of credit, and kinds of service. The liberty of retail dealers is limited in a variety of ways, such as fixing resale prices, requirement of exclusive dealing, and full-line forcing.

(3) All the methods just mentioned as employed in dealings with customers are likewise unfair toward competitors. Many other methods are used to the same end, such as: enticing away their employees, or corrupting and bribing them to act as spies, paying secret commissions, false advertising, misrepresenting competitors, imitating their patterns in goods of defective workmanship, shutting off their credit or their supplies of materials, acquiring stock in competing companies, malicious suits, infringement of patents, intimidation by threats of business injury or of scandalous exposures, operation of bogus independent companies.

§ 16. Growing conception of fair competition. Any industrial trust that was able to gain domination and monopoly power only by the use of such practices, or any part of them, can hardly be deemed the result of a “natural evolution.” If “artificial” means the use of artifices, surely this development deserves the adjective. Yet, even if not natural, this development may be thought to be “inevitable,” human nature being as it is. But the bald fact is that while the great trust movement was in progress no effort worthy of the name was being made to enforce even the then existing laws and to oppose this artificial development. The same allegation of inevitableness was once commonly made of discriminatory railroad rates and rebates, evils that have been in large part remedied only since the period 1903-1906, when at last intelligent action was taken.

To those who came to see the problem in this light, acceptance of industrial monopoly, with its complex task of fixing by public commission the prices on innumerable kinds and qualities of goods, seemed at least premature. Rather, the first step toward a solution seemed to be the vigorous prevention of unfair practices, and the next step a positive regularizing of “fair competition.” The fundamental idea in this is the enforcement of a common market price (plus freights) at any one time to all the customers of an enterprise. By this plan, potential competition would become actual, and small enterprises that were efficient might compete successfully within their own fields with large enterprises that maintained prices above a true competitive level. Even general lowering of prices by a large enterprise with evident purpose of killing off smaller competitors is unfair competition under this conception. It was for years recognized that the realization of this policy required legislation regarding uniform prices and the creation of a commission for the administration of the law.

§ 17. The trust issues in 1912. The campaign of 1912 presented in an interesting manner the three policies above outlined. The Republican party, led by President Taft, stood for the policy of monopoly prosecuted; its program was the vigorous enforcement of the Sherman law. The Progressive party, led by Mr. Roosevelt, stood in the main for the policy of “monopoly accepted and regulated”; its program called for minimizing prosecution and for retaining trusts under a system of regulation. The Democratic party, led by Mr. Wilson, stood for the policy of competition maintained and regulated, and the problem was to find means to strengthen and regularize the forces of competition.

In practice these programs doubtless are less divergent than they appear. All alike proposed the retention of the Sherman law. The two proposals to go further were presented as mutually exclusive alternatives, whereas they necessarily must supplement each other in some degree. The Progressives did not expect all industries to become monopolies, and the Democrats tacitly conceded to monopoly accepted the large field of transportation and local utilities it already had occupied. But there was a real difference in the angle of approach and a real difference in emphasis. The Democratic program (though somewhat unclearly) showed greater distrust of monopoly and greater faith in the possibilities of creating fair conditions of competition (which never had fully prevailed) in which efficiency would be able to prove its merits and monopoly would work its own undoing. It is more logical for the country to give this policy an adequate trial before adopting irrevocably the policy of general industrial monopoly. In either case, competition actual or potential is the fundamental principle by which prices have to be regulated. Where competition is enforced it is by applying some general rules that create a general market price instead of discriminatory prices, but the fixing of the price is left to the competitors. Where monopoly is accepted prices must be fixed with reference to an estimated competitive standard, that which under hypothetically free conditions would just suffice to attract and retain private enterprise and capital.

§ 18. Anti-trust legislation of 1914. The anti-trust legislation of 1914, passed by the Democratic party to carry out its program, is embodied in two acts: the Clayton Act and the Federal Trade Commission Act. The Clayton Act forbids discrimination where the effect may be to lessen competition or tend to create a monopoly, and lays down new rules for determining fair prices. It permits due allowance to be made for differences in the cost of selling or transportation, but a difference is not required in such cases. It forbids contracts to prevent dealers from handling other brands. It forbids corporate ownership of stock in a competing corporation, forbids interlocking directorates in large banks and in other competing corporations, with capital, surplus, and undivided profits aggregating more than $1,000,000. The Federal Trade Commission Act provided an agency with administrative and quasi-judicial functions to deal with unfair practices, displacing the Bureau of Corporations, established in 1903. In addition to its administrative provisions for investigation, reports, and readjustment of the business of companies upon request of the courts, the act declares that “unfair methods of competition in commerce” are unlawful, and both empowers and directs the Commission to prevent their use (banks and common carriers subject to other acts being excepted).

§ 19. Guiding principles of the new policy. The Commission in March, 1915, began its work. Only two years later, and for the next three years, it was called upon to give a large part of its efforts to aiding other governmental agencies in their war-time and post-bellum work, especially in cost-fixing investigations, and could not adequately perform its original task. At the end of six years, many of the evils which the Commission was designed to correct still prevailed. The price advances within that period had been so swift and bewildering that they obscured all distinctions of normal demand, normal supply, fair price, war profiteering, and monopoly. For example, investigations in 1921 in New York and other cities revealed incredible monopolistic practices in the building industries, by labor and capital alike.

But for all this it cannot be doubted that a new and potent agency for creating higher business standards has been brought into existence. The new legislation drew the attention of the country to the development of a better commercial morality. Many business men wrote to the Commission commending the purposes of the law, and offering their coöperation to eradicate long standing practices which they deplored. The Commission admirably declared that it was seeking “to understand and make allowance for the difficulty of the problem, to see both sides of every case, to protect men in the furtherance of legitimate self-interest by all reasonable and normal methods, and at the same time to keep the channels of competition free and open to all, so that a man with small capital may engage in competition with powerful rivals, assured that he may operate his business free from harassment and intimidation and be given a fair opportunity to work out his business problems with such industry, efficiency, and intelligence as he may possess.”

§ 20. Some early fruits. Through the investigations of its economic division the Commission has collected a stupendous mass of detailed information on the conditions and the trade practices in many of the leading industries of the country, throwing the light of publicity into many a dark corner of commercial abuses.

The legal division of the Commission at the end of its first five years had received almost exactly two thousand applications for complaints (for unfair practices and violation of the Clayton Act), upon which it had made inquiries and dismissed about one half without publicity. The number of these had increased each year, more than one third having been in the last year. The Commission had in more than six hundred of these cases issued formal complaints, of which more were in the last year than in the previous four years.

In taking up these complaints the names of the complaining parties are not disclosed. The Commission’s work is primarily to protect the public interest and not merely to intervene in “contests between individuals in relation to their private rights.” On this theory, the Commission may and does institute proceedings “on its own motion without charges being made to it or upon application of parties not directly affected by the practices complained of.” This present policy in respect to monopoly stands out in striking contrast to the theory of the private litigant and the injured party as embodied in the preceding law and practice. It still remains to be seen whether, in the near future, it will be possible to scotch the snake of monopoly and give to the “common man” the chance to live and work according to fair rules of the game in business enterprise.

References.

• Bolen, G. L., Plain facts as to the trusts and the tariff. 1902. N. Y.
• Brown, W. J., The prevention and control of monopolies. N. Y. Dutton. 1915.
• Clark, J. B., The problem of monopoly. N. Y. Lemcke. 1904.
• Clark, J. B., and J. M., The trust problem. Doubleday. 4th ed. 1917.
• Davies, J. E., Trust laws and unfair competition. U. S. Bur. of Corporations. 1916.
• Ely, R. T., Monopolies and trusts. N. Y. Macmillan. 1900.
• Grunsky, C. E., Public utility rate fixing. Journal of electricity technical book shop. 1918.
• Jenks, J. W., The trust problem. Rev. ed. N. Y. Doubleday. 1917.
• Kinley, David, The renewed extension of government control of economic life. A. E. Rev., 4 (no. 1, supp.): 3-17. 1914.
• LeRossignol, J. E., Monopolies past and present. N. Y. Crowell. 1900.
• Orth, S. P., (Ed.), Readings on the relation of government to property and industry. Bost. Ginn. 1915.
• Ripley, W. Z., (Ed.), Trusts, pools and corporations. Ed. Bost. Ginn. 1916.
• Turberville and Howe, Great Britain in the latest age—from laissez faire to state control. New York. Dutton. 1921.
• United States Industrial Commission, Report. 1898-1901. 19 vols.
• Wyman, Bruce, Control of the market. N. Y. Moffat. 1911.

[1 ]See ch. 16, § 5.

[2 ]See Vol. I, p. 347.

[3 ]It must be observed, in studying these figures, that farmers’ wives and children, working at home, are not reported as gainfully occupied. But a widow or a spinster owner, if herself acting as the enterpriser, is reported as “occupied” in agriculture. The increasing number of such cases in the past generation in part explains the growing number and percentage of females in agriculture.

[4 ]See further, ch. 27, § 1 and § 2, on the size of farms as an economic factor.

[5 ]See Vol. I, p. 225, and note 11.

[6 ]See Vol. I, p. 206.

[7 ]See Vol. I, p. 227, note, for figures on owners and farm laborers.

[1 ]A farm is defined for census purposes as “all the land which is directly farmed by one person, either by his own labor alone or with the assistance of members of his household, or hired employees. When a landowner has one or more tenants, renters, croppers, or managers, the land operated by each is considered a farm.”

[2 ]See Vol. I, chs. 12 and 13, on proportionality and usance.

[3 ]See ch. 26, § 5 and § 6.

[4 ]See ch. 20, §§ 13, 14, 15.

[5 ]See above, § 3.

[6 ]See ch. 8, § 8.

[7 ]See Vol. I, pp. 495-497, on the relation between lower interest rates and productive processes.

[8 ]See ch. 9, § 7 on time deposits, and § 9 on farm loans.

[1 ]See A. T. Hadley, “Railroad Transportation,” pp. 10, 32.

[3 ]See Vol. i, pp. 437, 438, 443.

[1 ]See Figure 2.

[2 ]See Figure 3.

[3 ]The labor adjustment features of the law have already been indicated in ch. 22.

[1 ]See Vol. I, ch. 8, on competition and monopoly, and ch. 31 on monopoly prices and large production. An understanding of the definitions and of the general principles distinguishing competition and monopoly is necessary to a profitable discussion of the practical problem of monopoly.

[2 ]For definitions and discussions of monopoly as economic power and as an enterprise in which power is exercised, the reader should carefully consult the various references in the index of Vol. I.

[3 ]See Vol. I, p. 76.

[4 ]See Vol. I, p. 267, on capital; pp. 388-393, on large production. See also references in preceding note 1 on monopoly.

[5 ]See ch. 27, § 3; and ch. 26, § 7 and § 8.

[6 ]As in the list in § 10 and § 11, below.

[7 ]Compiled from data given by the “Journal of Commerce and Commercial Bulletin,” reprinted in the “Commercial Year Book,” Vol. V, 1900, pp. 564-569.

[8 ]John Moody, “The Truth About the Trusts,” 1904.

[9 ]See Vol. I, pp. 388-393.

[10 ]See Vol. I, pp. 391-392.

[11 ]See Vol. I, p. 334, on the function of the promoter.

[12 ]See Vol. I, pp. 80-85, 382-387, 394-396.

[13 ]A summary of this evidence is given in the author’s “Principles of Economics” (1904), pp. 327-330. A fuller outline of the results of the Commission’s conclusions may be found in “The Trust Problem,” by J. W. Jenks, who acted as expert in the investigation.

[1 ]See Vol. I, especially pp. 74 and 75.

[2 ]See Vol. I, pp. 59, 68, 70, 71.

[3 ]See Vol. I, pp. 66, 67.

[4 ]77 Miss., 476. Cited by Bruce Wyman, “Control of the Market,” p. 137.

[5 ]19 R. I., 255.

[6 ]115 Ga., 429.

[7 ]Mogul Steamship Company v. McGregor (L. R. 23 Q. B. D. 598).

[8 ]Bruce Wyman, “Control of the Market,” p. 22. But see next §.

[9 ]See below, § 15.

[10 ]Averrill v. Southern Railway (75 Fed. Rep. 736).

[11 ]107 Minn. 145.

[12 ]216 Fed. 971.

[13 ]220 Fed. 235.

[14 ]Arnott v. Pittston and Elmira Coal Co., 68 N. Y. 558 (1877).

[15 ]See ch. 29. § 15.

[16 ]At the same time the rights of injured individuals are better safeguarded by section 7 of the Sherman law. permitting the recovery of three-fold damages and attorney’s fees.

[17 ]See ch. 30. § 8.

[18 ]See further, ch. 32, §§ 5-9.

[19 ]See ch. 29, § 3, on state commissions.