to smelt ore and make pig iron. ... In 1874 a number of men connected with the Union Iron Mills and some others who were interested in railroads organized the Edgar Thomson Steel Co., and a very efficient big plant was erected for the manufacture of steel rails.

Another step toward integration and the further harmonizing Further of interests was taken in 1881 when the Thomson steel works, the growth and

combinaLucy furnaces, the Union Iron Mills, and some coke properties, tion, in

which Mr. together with $1,000,000 new capital, were all combined into one

Carnegie firm with a capital of $5,000,000. Mr. Carnegie, who had on various figures prom

inently. previous occasions acquired the interests of some of his partners in these concerns, owned a little more than half of the stock of this company and it was known as Carnegie Bros. & Co. (Ltd.). A further important move toward integration was made the following

ear when the Carnegie interests purchased a large amount of stock in the Frick Coke Co., which was the dominant owner of coal lands and coke ovens in the Connellsville district, whence came the best coking coal used in smelting iron ore.

In 1881 some competitors of the Carnegie Co. opened a big plant The elimiat Homestead for the manufacture of steel ingots, billets, and rails,

nation of

competitors. but they met with financial difficulties and two years later sold out to the Carnegie interests. . . . In 1890 another threatening rival was eliminated when the newly erected Duquesne steel works were purchased. In 1892 the various Carnegie interests were again consolidated in the Carnegie Steel Co. (Ltd.), with a capital of $25,000,000..

There were also organized during these years, ... the Federal The developSteel Co. ... and the National Steel Co.... Both of these steel ment of new

competitors companies were combinations of other companies and both were competitors of the Carnegie Steel Co. Seeing dangers of competition ahead, the Carnegie companies threatened low prices and the loss of big profits which prosperity seemed to promise. Moreover, the bankers and promoters who still held a large amount of stock in the new combinations were anxious to sell their stocks to the public, and they knew that if a competitive war broke out in the steel business the value of these stocks would fall and the public would hesitate to buy. This furnished an added reason for trying to harmonize the conflicting interests.

leads to the
organization
of the
U.S. Steel
Corporation.

It was under these circumstances that a meeting of the leading men in the steel industry was called, and in 1901 under the leadership of Mr. J. P. Morgan the plan to consolidate all of these concerns and small combinations in one gigantic company to be called the United States Steel Corporation, with a capitalization of about $1,400,000,000, was carried through. The Steel Corporation as then organized owned 149 steel works of various kinds, vast ore, coal, gas, and limestone properties, over 1,000 miles of railroad, and over 100 vessels on the Great Lakes. It at that time controlled about two-thirds of the country's total output of steel ingots, billets, rails, castings, nails, plates, structural shapes, and sheet steel, and about three-quarters of the output of wire rods and tin plate. . .

1

power due

a

158. A typical trust agreement 1 The concen- From the standpoint of the public welfare, a significant element tration of

in the development of great business concerns has been the conto indus- centration of power. An early method of securing this concentratrial inte

tion of power was for a number of concerns to enter a specific agreegration.

ment which allowed all of their combined resources to be directed as a unit. The most famous of agreements of this kind was the “trust” device, first used by the Standard Oil Company, in 1882. Some of the significant elements in this original trust agreement

are given below: In 1882 a This agreement [is] made and entered upon this second day of number

January, A.D. 1882, by and between [more than a dozen oil companies, of oil companies as well as numerous designated individuals.] ...

II. The parties hereto do covenant and agree to and with each agreement

other, each in consideration of the mutual covenants and agree

ments of the others, as follows: to form a (1) As soon as practicable a corporation shall be formed in each limited

of the following states, under the laws thereof, to-wit: Ohio, New number of corporations York, Pennsylvania and New Jersey; . .. to carry

(2) The purposes and powers of said corporations shall be to mine on the oil

for, produce, manufacture, refine, and deal in petroleum and all business.

a

enter an

their prop

nesses to

.

its products, and all the materials used in such business, and transact other business collateral thereto.... (7) All of the property, real and personal, assets, and business They are to

transfer of each and all of the [combining] corporations and limited partnerships ... shall be transferred to and vested in the said several erty to

the corporaStandard Oil Companies. All of the property, assets, and business

tion in their in or of each particular state shall be transferred to and vested in state the Standard Oil Co. of that particular state.

(10) The consideration for the transfer and conveyance of the and receive money, property, and business aforesaid to each or any of the in exchange

stock in the Standard Oil Companies shall be stock of the respective Standard said corpo

ration. Oil Company to which said transfer or conveyance is made, equal at par value to the appraised value of the money, property, and business so transferred. III. The trusts upon which said stocks shall be held, and the The com

bining businumber, powers, and duties of said trustees, shall be as follows: (1) The number of trustees shall be nine. [Here follow their be con

trolled by names, the first mentioned being J. D. Rockefeller.]...

nine (11) The trustees shall prepare certificates, which shall show the interest of each beneficiary in said trust, and deliver them to the who shall

hold the persons properly entitled thereto. They shall be divided into shares stock of the of the par value of $100 each, and shall be known as “Standard combined

businesses, Oil Trust Certificates, ” and shall be issued subject to all the terms and issue to and conditions of this agreement. The trustees shall have power the stock

holders to agree upon and direct the form and contents of said certificates, and the mode in which they shall be signed, attested, and tificates transferred. (14) It shall be the duty of said trustees to receive and safely to on which

the stockkeep all interest and dividends declared and paid upon any of the

holders are said bonds, stocks, and moneys held by them in trust, and to dis- to receive

dividends. tribute all moneys received from such sources or from sales of trust property or otherwise by declaring and paying dividends upon the Standard Trust Certificates as funds accumulate, which in their judgment are not needed for the uses and expenses of said trust.

(15) It shall be the duty of said trustees to exercise general supervision over the affairs of said several Standard Oil Companies, and as far as practicable over the other companies or partnerships,

trustees

trust cer

The trustees any portion of whose stock is held in said trust. It shall be their to manage

duty as stockholders of said companies to elect as directors and and direct the com

officers thereof faithful and competent men. They may elect thembined busi

selves to such positions as they see fit so to do, and shall endeavor to have the affairs of said companies managed and directed in the manner they may deem most conducive to the best interests to the holders of said trust certificates.

nesses.

A chief objection to the trust is that it tends to abuse its power.

159. Abuse of power by the trust 1 Economists are accustomed to say that up to a certain point integration in industry may result in numerous economies. When businesses combine, some of the wastes of competition are avoided. Often combination means more effective management. Up to a certain point, too, it is often true that the product can be manufactured more cheaply. The trouble, however, has been that very

often these advantages have been outweighed, from the point of view of the public at least, by certain evils of trust development. Of these evils, the chief is the tendency of the trust to abuse its power. For example, the trust may attempt to further its own interests at the expense of competing businesses, and at the expense of the public. Illustrative of the evil practices of the trust are the following extracts from the indictment of the Nationaľ Cash Register Company in the case of United States v. Patterson et al.:

[The program of the National Cash Register Company included the following items]:

1. The inducing, hiring, and bribing of employees and ex-employees of [competitors] ... deceitfully and wrongfully to disclose to said the National Cash Register Company the secrets of the business of the concerns by which they were respectively employed, or had been employed. . .

2. The inducing, hiring, and bribing of employees of carters, truckmen, express companies, railroad common carriers, telegraph companies, and telephone companies, wrongfully and unlawfully to disclose to said the National Cash Register Company the se

The charge against the National Cash Register Company: Attempts to learn the secrets of competitors

crets ... pertaining to the carriage and transportation of cash registers for such competitors. ...

3. The instructing and requiring all sales agents of said the National Cash Register Company to ascertain and report . . . all facts and details pertaining to the business and activities of said competitors...

4. The using of the influence of said the National Cash Register and to inCompany and of its agents with, and the making of unwarranted jure the

credit of and false statements to, banking and other institutions, to injure those comthe credit of said competitors and prevent their securing accommoda- petitors. tions of money, credit, and supplies convenient and necessary to the carrying on of their business;

5. The instructing and requiring of all sales agents of said the Interference National Cash Register Company to interfere with, obstruct, and with the

sales of prevent in every way possible sales of such competitive cash reg- competitors. isters by said competitors. .

6. The making, in some cases, by said the National Cash Regis-' Use of ter Company, to such competitors, and to purchasers and

threats,

prospectfve purchasers of such competitive cash registers, of threats to begin suits in the courts againts them for infringing and for having infringed its patent rights pertaining to 'ts genuine cash registers, when as said defendants each well knew, no such patent rights existed, and no such suits were contemplated or would really be begun, and such threats were made merely to harass such competitors, purchasers, and prospective purchasers.

8. The organizing of cash-register manufacturing concerns and and bogus cash-register sales concerns, and the maintaining of them, ostensibly as competitors of said the National Cash Register Company, but in fact as convenient instruments for use in gaining the confidence and obtaining the secrets of said real competitors of said the National Cash Register Company. ...

9. The inducing, by offers of much greater compensation than Winning they were receiving from said competitors, respectively, agents and away the

employees servants of said competitors ... to leave the employment of said of competicompetitors .

... to enter the employment of ... said National Cash Register Company; and this principally for the purpose of embarrassing said competitors. ...

concerns.

tors.