exorbitant prices; the latter by withholding purchases might well break the market. A tin can trust in such fashion might secure relief on its purchases of tin plate. However, it rarely happens that one trust is the principal market for another. The shoe machinery trust and the cash register trust buy large quantities of steel, yet their purchases constitute such a small percentage of the total that such action as they individually might take to reduce the price charged for steel by a steel trust would be of little consequence. So it would be with the purchase of cotton yarn by the thread trust, and of steel pipes and tubes by the oil trust. It is precisely because of their limited control over the affairs of other trusts that some of them make for themselves the articles which they would otherwise have to secure from their fellow trusts. This explains in large measure why the oil trust, the tobacco trust, and many others make their own tin cans instead of buying them from the American Can Company. We must conclude that the balance of power among trusts, though it protects the consumer in part, is not an effective bar against excessive prices of trust made goods.

(4) The disinclination to arouse public opinion also plays its part, and no doubt a considerable one. The people, if sufficiently antagonized, will repeal favoring legislation or pass restrictive laws. Many trusts have been protected against foreign competition by protective duties; but the trust that uses these duties as an excuse for unreasonable prices faces the danger of a removal of its protection. Other trusts are founded on patent monopolies permitted by the government; but the patent laws can be revised, if it seems desirable. But not only may favoring legislation be repealed, but regulative laws may be passed. At the present time (1919) bills to regulate the meat industry are receiving the serious consideration of Congress; and the suggestion at one time or another has been soberly made that the oil and the steel industries (and others) are essentially public service corporations, and should be regulated as such. Indeed, a considerable body of public opinion favors the regulation of the prices of all monopolized articles. Another considerable group advocates public ownership of natural resources, a step that would be of

particular concern to some ten important trusts. In view of these contingencies it is likely that the trust managers, with their fingers on the public pulse and with an eye to the continued enjoyment of their strategic position, will refrain from pressing their advantage to the fullest; and their prices will not in the future, as they have not in the past, conform rigidly to the principles of monopoly price as above laid down.

(5) A trust, it has been said, may be influenced by a sense of equity and reasonableness; it may desire to have the good will of the dealers and the public, and thus may not take advantage of their necessities. The steel trust, for example, fixed the price of steel rails at $28 per ton, and charged no more than this during periods of prosperity, when market conditions would have enabled it to get more. In this particular instance the price was fixed at a very high level to begin with, hence this is hardly an illustration of equitable dealing. Yet it is conceivable that a trust, even though created in an anti-social spirit, might come under the leadership of managers of a different sort,-managers desirous of charging only a fair price. Conceivable though it be, it is unlikely, since even under the competitive régime it is regarded as proper to charge what the public is willing to pay; and why should a monopoly take any less? The fact would appear to be that in so far as trusts (or their managers) adopt a spirit of reasonableness it is because such a course is the one best calculated to secure for them the good will of the trade and of the consuming public, and thus to prolong their enjoyment of moderate monopoly profits.

(6) The trust because of inert management may not try to secure the maximum net profit. Unwilling to meet the attacks of competitors and of politicians, it may hesitate to exploit the public, and may rest satisfied with a moderate profit, perhaps little, if any, above a competitive level. Under these circumstances, the control of the business might soon be sought by more aggressive and forceful interests, alive to their opportunities, and able to make handsome returns even after paying a good price for the property. Yet the owners of the business, notwithstanding the inertness of the management, might refuse to sell, hence

there can be no certainty that each trust will be managed along the lines offering the maximum profit.

(7) A trust may fail to charge the price that produces the greatest net revenue through sheer inability to ascertain what that price is. Among the unknown factors in the problem are the amount of the demand at various prices and the extent to which the cost of production will increase or decline as the output varies. The matter is complicated because the demand schedule, even if it could be worked out for any given date, changes from time to time. The demand for any particular article depends on the state of business, on the mood of the consuming public, and on the distribution of purchasing power among the community. If business is good, the demand will normally be great, and a high price may yield the maximum net profit; and conversely, when a period of depression sets in. If the public is extravagantly minded, as at present (1919), a proportionately large outlay will be made for consumer's goods, and their monopoly price could well be high; and conversely for those articles that are in demand when thrift is in vogue. Again, if there occurs a marked change in the distribution of the community's purchasing power, so that the bondholders and the salaried classes have less and the working people more, the trusts that produce articles desired by those of increased purchasing power could raise their prices, whereas those trusts that produced articles desired by individuals of reduced purchasing power might be compelled to reduce their prices. There may be other matters that complicate the problem; but enough has been said to show that at best all that a trust can hope to do is to approximate the most profitable price. Though the price that it charges will doubtless be somewhat, perhaps considerably, above the competitive price, it will not be fixed, we may premise, as the result of a mathematical formula at the exact point that would actually prove to be the most remunerative.

The foregoing considerations make it evident that the price policy of the trusts has been less grasping than might have been expected of an agency formed largely for the express purpose of suppressing competition. They also demonstrate that though

there are certain forces at work to safeguard the public interest, these forces are not adequate of themselves, since they do not prevent the trusts from charging prices higher than the public would pay under competitive conditions, assuming that industry is as economically conducted under the latter state as under the first. As to legalizing trusts in the hope of satisfactorily regulating them and their prices, it will be shown in chapter XX that price regulation is a problem of the first magnitude and one whose successful solution is problematical.

CHAPTER XII

PROMOTERS' PROFITS IN THE ESTABLISHMENT OF TRUSTS

In this chapter it is proposed to indicate by a study of individual trust promotions the importance of promoters' profits as a cause contributing to the formation of trusts.

The function and work of the promoter have been well described elsewhere,' and need not be dwelt upon here in any detail. Briefly, in a typical trust promotion the promoter secured options on the plants that were to be combined; arranged, usually through an underwriting syndicate, for the raising of the necessary funds; organized a corporation to acquire the plants; and provided for the transfer of the plants (or securities) to the trust.

In effecting a trust promotion the promoter had first to obtain options on the properties (or the securities), otherwise the owners would in all likelihood have advanced their purchase price as it became evident that the trust was to be formed. The promoter, to be sure, might have bought all the properties for cash, but this would have involved a great deal of risk, and would, moreover, have been difficult to finance. In fact, it was rarely done. Second, he had to secure financial backing, since the trust required working capital (it did not ordinarily acquire the working capital of the constituent companies), and since some owners would almost certainly demand cash for their plants, refusing to accept securities, the value of which was more or less problematical. Generally speaking, however, the amount 1 See Meade, Trust Finance, chs. 4-6; Haney, Business Organization and Combination, ch. 18; and Lough, Corporation Finance, chs. 12-14.

2 This cash the promoter usually secured through the sale of stock to an underwriting syndicate. Because of the risk that the stock could not be disposed of at a profit, the syndicate was wont to insist on a commission in the form of bonus stock.