Truths About the Trusts-William Randolph Hearst-1916

8/2/2019 Truths About the Trusts-William Randolph Hearst-1916

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TRUTHSABOUT THETRUSTS


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TRUTHSABOUT THE TRUSTS

BYWILLIAM RANDOLPH HEARST

PRIVATELY PRINTED1916


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COPYRIGHT, 1916, BTWILLIAM RANDOLPH HEARST


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CONTENTSPACUO

COMBINATION A PHASE OF PROGRESS . . 1INITIAL STEPS IN TRUST CONTROL ... 14WHEN COMBINATION BECOMES MONOPOLY,WHAT SHALL Fix PRICES ... 29PROGRESS . 44


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TRUTHSABOUT THETRUSTS


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COMBINATION A PHASE OF PROGRESSITS EVILS MUST BE ELIMINATED, ITS ADVANTAGES

MUST BE EETAINED

THE trust question is a question of which wemay truly say that it will never be settleduntil it is settled right, and it will never besettled right except by eliminating the evils ofcombination and retaining the benefits and ad-vantages of combination.All the exponents of high finance or low finance,of big business or little business who affect to de-sire to see business activity encouraged andbusiness conditions settled, must make up theirminds to see first the trust question settled.

If all those who profess to want to see busi-ness conditions settled will earnestly and honestlyendeavor to have the trust question settled, anintelligent solution of the trust problem will bespeedily secured.In any rightful and, consequently, in any

permanent settlement of the trust problem, wehave to consider the retention of the benefits ofcombination quite as much as the elimination ofthe evils attendant upon combination.

In the attempt to solve the trust problem,[1]


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TRUTHS ABOUT THE TRUSTStherefore, we should first have a clear under-standing of what a trust is, what the advantagesof combination are and what the evils of combi-nation are, and with that understanding we shallbe able without great difficulty to form a plan andconstruct a legal system which will eliminate theevils and retain the benefits.

I would define a trust as a combination in busi-ness sufficiently large and sufficiently comprehen-sive to be able practically to control productionand prices.Nearly all trusts are formed with the definite

object and intention of controlling productionand prices.The evils of the trust lie largely in the abuseof this power to control production and prices.

Limitation of production means limitation ofthe creation of wealth and also limitation of theemployment of labor, which is limitation of thedistribution of wealth.The power to fix prices means the power to fix

prices too low for a competitor or too high forthe consumer. It means, first, coercion, and thenextortion.The advantages of combination are the advan-tages of co-operation and superior organization.These advantages find expression in economy of

production and simplicity of operation, in com-pact and capable organization and in the elimina-

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TRUTHS ABOUT THE TRUSTStion of the enormous and unnecessary expenseand waste, and wear and tear of competition.A monopoly has not only the advantages ofcombination, which enable it to produce morecheaply, but the advantage of an exclusive mar-ket, which enables it to charge more dearly. Amonopoly unregulated by government will invari-ably make an exorbitant and unreasonable chargefor its product, and therefore an exorbitant andunreasonable profit.The economic advantages of combination there-fore make it possible for an article to be pro-duced of a better quality and at a cheaper cost,but they do not compel the sale of the productat a cheaper price.In other words, combination is a benefit in the

conduct of a business, but for it to become a dis-tinct benefit to the consuming public the publicmust be allowed to participate in its advantages.

Clearly, then, the objective of our efforts shouldbe not to destroy combination and all the essen-tial advantages of combination, but merely to im-pose conditions which will insure for the consum-ing public some share of the advantages whichcombination creates.Having defined a trust and having analyzed its

advantages and disadvantages, let us proceed to-a plan which will retain its advantages andeliminate its disadvantages.

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TRUTHS ABOUT THE TRUSTSThere are three methods of approaching the

trust problem, which have been developed byacute trust conditions within the last few years.One of these may be designated as the Roose-velt method. The Roosevelt method was to dividethe trusts into good trusts and into bad trustsand to go to extreme lengths in assailing thosethat were declared by him to be the bad trusts,and to equally extreme and sometimes illegallengths in aiding and protecting those that weredeclared by him to be the good trusts.But the good trusts and the bad trusts ofRoosevelt had no differentiation in economics, butonly in politics. The good trusts were the truststhat politically supported Roosevelt and the badtrusts were the trusts that politically opposedRoosevelt. Obviously no permanent solution ofthe trust problem nor any beneficial action forthe people lay along these lines.The second method of approaching the trustproblem may be designated as the SupremeCourt method, and this method attempts to re-move the outward form of trust organization andto retain the inner and essential evil of trust op-pression, extortion and coercion.The third method may be designated as theTaft method, and is simply a crude attempt todestroy combination and restore business to theprimitive principle of competition.

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TRUTHS ABOUT THE TRUSTSAll three of these methods are as foolish as

they are futile. There is no solution of the trustproblem in the Eoosevelt method. There are notgood trusts and bad trusts, but there are in everytrust some things which are good and some thingswhich are bad. I repeat, therefore, that the onlyintelligent method of procedure is to construct alegal system and impose governmental condi-tions which will retain what is good and eliminatewhat is bad.There is no solution of the trust problem in the

Supreme Court method, and there never will bea solution in any false or fraudulent treatmentof the trust problem.Trust extortion and oppression enter so in-

timately into every phase of the life of the peoplethat the people can never be deceived by any pre-tended solution of the trust problem whichpromises to give them relief and does not actuallygive them relief.The overwise judges and overshrewd businessmen who are trying to deceive the people by thisform of trust reorganization are deceiving no onebut themselves and are accomplishing nothingbut a continued disturbance of business condi-tions.

Finally, there is no solution of the trust prob-lem in the Taft method, because the advantagesof combination are real and are recognized and

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TRUTHS ABOUT THE TRUSTSbecause the return to competition is impracticaland therefore impossible.The fact that a proportion of automobiles haveinjured pedestrians in time past and are injur-ing pedestrians to-day, and will even in the fu-ture injure pedestrians, would not lead Mr. Taftto propose the destruction of all automobiles.The remedy lies not in a return to primitive formsof locomotion ; it lies in the encouragement of im-proved forms of locomotion and in the preven-tion and punishment of specific acts of injury.

Business will no more return to competitionafter it has learned the superior advantages ofcombination than a child will return to crawlingafter it has learned to walk.The proposition to return business to a com-

petitive basis is absurd and unreasonable, andwould be injurious in the long run to the pro-ducer, to the consumer, and to the wealth-creat-ing power of the country.

Competition compels large expense in unpro-ductive effort, and as every expense enters intothe cost of production, competition compelswasted effort and results in a higher cost of pro-duction for every article.

Competition means the division of business intosmaller units, and the smaller the business thelarger must be the percentage of profit to makeit successful.

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TRUTHS ABOUT THE TRUSTSA newsboy makes, and must make, 66 2/3 per

cent, on every paper he sells. A newspaperowner is more than satisfied to make 10 per cent,on his investment.That competition frequently imposes as unnec-

essary expenses upon the purchaser as upon theproducer is shown in the telephone situation inSt. Louis. There are three competing telephonesystems, and in order to obtain communicationwith any other telephone subscriber in any othersection of St. Louis, a subscriber must pay forthe rent and installation of all three telephonesystems.These are disadvantages more or less in-separable from competition. The correspondingadvantages of combination are equally obvious.A combination of newspapers publishing indifferent cities can obviously afford to secure bet-ter talent and to give its readers better productat the same price, or the same product at acheaper price, than individual newspapers notoperating in combination.A great department store, buying in quantityand selling in quantity and operating in the mosteconomical manner, can obviously afford to sellits customers a better article for the same priceor the same article for a cheaper price than thesmall institution operating without the depart-ment store's advantages of combination.

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TRUTHS ABOUT THE TRUSTSCombination is merely an expression of su-

perior business intelligence, of a faculty for betterand higher organization; it is a phase of prog-ress, a stage of development, a form of enlight-enment, a result of experience and knowledge andof capacity for large affairs.Combination and co-operation are as essentialto progress and cheap production as labor-saving

machinery is.Greater combination, greater co-operation and

better organization will never cease until businessceases to progress and develop, and an attempt tostop the progress of combination, co-operationand organization is truly an attempt to stop thenatural progress and development of business.The waste and expense of competition being,therefore, sufficiently clear, and the definite ad-vantages of combination being equally evident,the question to take up in conclusion is the actuallegislative enactments which are necessary, notto destroy combination but to eliminate the evilsconsequent upon the misuse of the power of com-bination.The Sherman Law is not a divine document. It

has no direct inspiration from on high. It wasnot handed down along with the Ten Command-ments on Mt. Sinai. The Sherman Law is a dis-tinctly human production, liable to human faultsand failings, and peculiarly liable to them be-

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TRUTHS ABOUT THE TRUSTScause constructed at a time when experience withtrusts and consequently knowledge of trusts wasmuch less than it is to-day. When the ShermanLaw was passed, combination was in its infancy.Now, combination is in the full swing of growthand development. We know more -of combinationthan we did. We know more of its evils andmore of its advantages and we are becoming bet-ter able to discriminate between its evils andadvantages.We have seen that the evils of the trusts aredue to the fact that their control of products andprices enables them to fix prices at an unnaturallylow level in order to drive a competitor out ofbusiness, and then at an unnaturally high level inorder to make more than a rightful and reason-able profit.In order to form a combination large enough

to control prices a considerable proportion of theinstitutions in a given industry are frequently ab-sorbed at an excessive valuation. This means anexcessive capitalization of the combination, andthis in turn compels high prices in order to payinterest on the excessive capitalization.The United States Steel Corporation is esti-mated by some authorities to have been capital-ized at nearly ten times the value of the indi-vidual concerns which compose it, and that meansthat in order to pay 6 per cent, dividends it must

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TRUTHS ABOUT THE TRUSTSrealize a profit which would have meant 60 percent, in dividends to the original enterprises.

Overcapitalization, then, is one of the causes oftrust high prices. Yet it is obvious that a trustlike the Standard Oil Trust, which has securedcontrol of the market without overcapitalization,is still able to increase prices and is disposed todo so.The evils of the trust clearly lying in over-

capitalization and excessive prices, the remedyclearly lies in governmental limitation of capitali-zation and regulation of either prices or profits.When a combination reaches a certain size andextent it becomes a virtual monopoly, and whenit becomes a virtual monopoly it has the powerto control prices, and when it has the power tocontrol prices it will inevitably advance prices,unless restrained by the government.

This regulation of charges by government isnot a revolutionary idea, nor even a radical idea,nor even a new idea. It is in operation in manycountries abroad and in many cases in our owncountry. It is generally limited to what areclassed as public utility corporations and appliedto those because they are supposed to be in thenature of monopolies and to intimately affect thelife and welfare of the public.The Interstate Commerce Commission fixesrailroad charges; the Public Service Commission

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TRUTHS ABOUT THE TRUSTSof New York fixes the rates of various publicutilities ; the legislature of New York has limitedthe profits of the Gas Trust of New York Cityand the courts have sustained them in theiraction.When any productive business vitally affectingthe life and welfare of the community becomessufficiently organized to fix the price of its prod-uct at any reasonable or unreasonable figure, itis undoubtedly the right and will undoubtedly be-come the duty of the government to interfere inbehalf of the consuming public and see that theprice of the product is fixed at a reasonable andnot at an unreasonable figure.Mr. Taft may call this state socialism or what-ever he pleases, but calling a thing a name doesnot discredit it if the thing itself is right and fur-nishes a solution and the only solution to an acuteproblem.The fact that combination has advantages andthat certain trust evils lie not so much in combina-tion as in the abuse of the power of combinationis being more generally recognized every day.The fact that the way to prevent those evils isnot to prevent combination, but to prevent andpunish the specific acts which create those evilsis becoming more generally recognized every day.The fact that those evils are inherent in over-capitalization and in the power to fix prices at an


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TRUTHS ABOUT THE TRUSTSexcessive figure is becoming more generally recog-nized every day.That the power of supervision over capitaliza-tion and over prices or profits must be concededto the government is being more generally rec-ognized every day, and is being freely admittedby the more intelligent and patriotic of trustorganizers.

I have maintained this position and advocatedthis policy for many years, and I am naturallygratified at its general acceptance.On June 6, 1899, I wrote over my signature asfollows :

Combination and organization are necessarysteps in industrial progress. We are advancingtoward a complete organization in which the gov-ernment will stand at the head and be the trustof trusts. It is ridiculous to attempt to stop thisdevelopment. It is necessary merely to restrainit within proper lines and prevent the power ofthe trusts from being used to raise prices orlower wages or otherwise oppress the people.In the beginning, when red-haired men firstclotted in some kind of social organization, it wasobserved that the strongest man secured some un-due benefits by the misuse of his strength. Atthat time there were some who arose in the herdand proposed that a law be framed abolishingstrong men and preventing their recurrence. Theconflict over this proposition doubtless raged forseveral hundred thousand years before it was

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TRUTHS ABOUT THE TRUSTSlearned that it was better to regulate and restrictstrong men through the organization of societythan to destroy them and abolish strength. Itwill not, I hope, take us as long to learn thattrusts should be regulated and restricted and em-ployed by society, but not abolished except whenengaged in criminal conspiracy. The trust is alabor-saving device that can lower the cost ofproduction. The trust is also a great powerwhich can raise the price of its commodities, robits weaker rivals, corrupt legislatures and op-press the public. These evil deeds of the trustsshould be made criminal and adequately pun-ished. The trusts should be regulated and re-stricted, but they should not be destroyed and,what is more, they cannot be.

I am not sure that my present article has addedmuch to my earlier utterance, except in the wayof elaboration. The essential idea of both arti-cles is that combinations should be made useful tosociety; that the advantages of combinationshould be shared by the producer and the con-sumer; that combination is necessary to the de-velopment of business, to the creation of wealthand to the benefit of the whole community; thatcombination should be regulated by the govern-ment, but that it should not be destroyed, and,what is more, it cannot be destroyed.

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INITIAL STEPS IN TRUST CONTROLCOMPEL FEDERAL INCORPORATION AND PREVENT

OVERCAPITALIZATION

THERE are two compelling reasons for care-ful thought and intelligent legislation inregard to combination.One reason is found in the fact that combina-tion is continually increasing in spite of theutmost efforts of its opponents to end it.The second reason is found in the fact that com-bination displays quite as definite advantages asdisadvantages, and the necessity for preservingthose advantages is as urgent as the necessityfor eliminating the disadvantages.The advantages of combination are the ad-vantages of better organization, more effectiveoperation, and cheaper production.The disadvantages of combination arise mainlyfrom the misuse of the power of combination,which has developed into monopoly.

If, then, combination is inevitable and in themain desirable, we must by careful thought dis-criminate between the advantages and disad-vantages of combination, and by intelligent legis-lation permit the legitimate development of the

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TRUTHS ABOUT THE TRUSTSadvantages of combination and prevent the mis-use of the power of monopoly.The growth of combination along harmful linesof coercion and oppression, or along even thelegitimate and beneficial lines of natural develop-ment, is likely eventually to result in monopoly.As a matter of fact, the ultimate aim of com-bination usually is virtual monopoly, and a Trustmay be described as a combination that hasreached the stage of virtual monopoly.The conspicuous evils of the Trusts areoppression of employees, coercion of agents andcompetitors, and extortion from the public.Another evil of Trust conditions is the capital-ization of the power to oppress, to coerce, and toextort.An essential and initial step in the movementto remedy Trust evils is the prevention of over-capitalization, which in a way stimulates andnecessitates Trust oppression, coercion and ex-tortion.A Trust that capitalizes its monopolistic powerto overwork and underpay its employees mustoverwork and underpay its employees in orderto pay interest on its capitalization.A Trust that capitalizes its monopolistic powerto coerce its agents and its rivals must coerce itsagents and its rivals.A Trust that capitalizes its monopolistic power

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TRUTHS ABOUT THE TRUSTSto extort high prices will and must practice itsmonopolistic power to extort high prices.

Capitalization of Trust abuses, then, is one ofthe abuses of the Trusts and one of the incentivesto trust abuses.But there is an evil even more threatening than

the capitalization of the trust power to coerce andextort, and that is the overcapitalization of thispower.A Trust that capitalizes its powers to coerceand extort is an evil; but a Trust which over-capitalizes these powers is a swindle.A Trust that is capitalized beyond the valueof its properties is capitalized for purposes ofcoercion and extortion, but a Trust which iscapitalized even beyond the value of its monop-olistic powers to coerce and extort is over-capitalized for the purpose of swindling the pub-lic, and will inevitably swindle the public.The only way to prevent the evil and inevitableresults of illegitimate capitalization of this kindis to prevent this kind of illegitimate capitaliza-tion.

Either the continued existence or the collapseof such a Trust is a calamity, and the punishmentof its promoters, desirable as that may be, is notso much a requirement as the prevention of theformation of such enterprises.Both the capitalization of the power to plunder

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TRUTHS ABOUT THE TRUSTSand excessive capitalization for purely specula-tive purposes can be prevented and must be pre-vented.To prevent illegitimate and injurious over-

capitalization, as many corporations as possibleand all corporations if possible should be inducedto submit their plan of corporation to govern-mental authority.

This governmental authority, in the interestsof the investing public and in the interests of theconsuming public and in the interests of soundbusiness methods and stable business conditions,should compel every corporation to capitalizewithin reason its actual property and valuablepossessions.

All corporations engaged in inter-state com-merce can be reached by a Federal incorporationact, and those corporations not engaged in inter-state commerce can and should be reached bystate corporation acts with provisions similar toor identical with the provisions of the nationalincorporation act.The first purpose of a Federal incorporationact is to secure uniformity of legislation through-out the entire country, instead of the differentand oftentimes conflicting codes of law on thesubject of incorporation which exist in the differ-ent states.The second purpose is to secure a thoroughly

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TRUTHS ABOUT THE TRUSTSpractical and practicable method of investigatingand controlling the issue of great volumes ofcapital stock and limiting that issue to corre-sponding property and possessions of actual andestimable value.To be effective, a Federal incorporation actmust contain a provision compelling corporations

engaged in inter-state business to obtain nationalcharters.On March 1st, 1907, when a member of Con-gress, I introduced in the House of Representa-tives a bill to meet the above requirements. Thebill was entitled "A bill to provide for nationalincorporation and control of corporations en-gaged in commerce among the several states/'The Hearst bill was introduced under the ad-ministration of President Roosevelt, but neitherthe Democratic party in the House or Senate, northe Republican party in the House or Senate, northe President was disposed to favorable consid-eration of the measure at that time.

President Taft, however, about three yearslater, advised in a message to Congress the con-sideration of legislation largely along the linesof the Hearst

bill,and on February 7th, 1910,President Taft's Federal incorporation bill was

introduced in Congress.The Taft bill is entitled "A bill to provide forthe formation of corporations engaged in inter-

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TRUTHS ABOUT THE TRUSTSstate and international trade and commerce/' Ithas for its object the same purposes aimed at inthe Hearst bill and its framework is in the mainthe same as that of the Hearst bill.There are, however, three phases of difference

which will be compared later.The Hearst bill provides that all new corpora-tions may be formed as national corporations,and all existing state corporations doing inter-

state business may become national corporationsupon accepting the provisions of the national cor-poration law.The bill does not apply to any corporation,however, organized for the purpose of carryingon the business of banking.The control of corporations organized under

the provisions of this act is placed in the Bureauof Corporations in the Department of Commerceand Labor, and a deputy commissioner of cor-porations for every one of the several states isadded to the Bureau of Corporations.The deputy commissioner of corporations iscompelled to maintain an office at the capital ofthe state from which he is appointed.The Commissioner of Corporations is given

general supervision over all the deputy commis-sioners, and is made responsible for the enforce-ment of the act. The Attorney-General is re-quired to proceed in all instances of neglect or

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TRUTHS ABOUT THE TRUSTSomission on the part of corporations to complywith the act, and the Circuit Court of the UnitedStates is given jurisdiction to enforce the pro-visions of the act.For re-incorporating existing corporations, all

that is required is that the corporation shall filewith the deputy commissioner of corporations inthe district in which the principal office of the cor-poration is located the proper form of certifi-cate.

This certificate must be duly executed by thecorporation's president and secretary, upon theauthority of a majority of the directors, sub-stantiated by the written consent of the holdersof a majority of the corporation's outstandingcapital stock, and must state that the corporationaccepts the provisions of the national act.For the incorporation of new companies underthe act, the bill provides that articles of agree-ment shall be filed in the office of the deputy com-missioner of corporations in the state where theproposed corporation intends to have its prin-cipal place of business.

Articles of organization signed and sworn toby a majority of the directors must accompanythe above agreement of association and must befiled with it.

These articles must set forth the amount ofcapital that is to be issued, the amount of capital

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TRUTHS ABOUT THE TRUSTSthat is to be paid for in full in cash, the amount tobe paid for on account by instalments, and theamount to be paid for in property.

If capital is to be issued for property, and notfor cash, the articles must specifically describethe property, state its value under oath and theamount of value to be issued against that prop-erty.An important provision of the bill is the follow-ing:The directors who sign the articles of organiza-tion are made liable to any stockholder of thecorporation for damages caused by any statementin the articles of organization which is false andwhich they know to be false. In addition themaking of such false statements is declared afelony.The deputy commissioner of corporations withwhom the articles of organization are filed isrequired to examine the articles with due careand is authorized to require any amendment orany additional information that he may considernecessary for a proper estimate of the proposedstock issue.To secure this every deputy commissioner isgiven the right to compel the attendance of wit-

nesses and the production of documentary evi-dence and to administer oaths.In every case where it is proposed to issue

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TRUTHS ABOUT TEE TRUSTScapital stock for property the deputy commis-sioner of corporations must examine orally atleast one of the directors who has signed thearticles of organization and so obtain all possibleinformation in reference to the value of suchproperty.

If the deputy commissioner finds that thearticles of organization conform to law and ifhe is satisfied with the good faith of the directorswhom he has interrogated, he shall approve andendorse in writing the articles of organizationand issue a certificate which shall have the forceand effect of a charter.

In this way a comparatively simple method isprovided for safeguarding the investing publicagainst fictitious and worthless stock issues. Butthe method, while simple, is drastic in so far as itcompels honesty and fair dealing.Under this method it becomes a very difficultmatter and a very dangerous matter for directorsto issue capital stock for imaginary values basedupon mere anticipation of future legitimate orillegitimate gain.Under this method the capitalization of theabuses of monopoly is prevented and the conver-sion into stocks and bonds of the power ofmonopoly to extort excessive prices is madeimpossible.

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TRUTHS ABOUT THE TRUSTSissues designed to be unloaded on the public forthe purpose of swindling the public are madeimpossible.Not only will all the necessary informationabout a corporation be made public for the guid-ance of the public, but no stock can be issued andconsequently no stock can be sold which has notsome corresponding value in the property of thecorporation.

If any misstatements of the value of the prop-erty of the corporation are made by the directorswho sign the articles of organization, those direc-tors are made liable for damages to any pur-chaser of the stock of the corporation and alsoliable to imprisonment for felony.Under those conditions it is hardly to be con-ceived that there will be either any advantage inmaking false statements or any inducement todo so.The purchasing public will be protected and

even the consuming public will be protected inso far as it is possible to protect the consumingpublic by preventing the capitalization of thepower to extort high prices.Under the Hearst bill all increased or newissues of capital stock must be subjected to thesame forms, processes, investigations and ex-

aminations as original issues of capital stock, andnot a share of additional stock may be legally

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TRUTHS ABOUT THE TRUSTSissued until the approval of the deputy commis-sioner of corporations has been obtained.The Hearst bill prohibits the loan of the cor-poration's money to any stockholders, directorsor officers, and in this way prevents such scandalsas were disclosed in the Harriman and otherinvestigations.As a penalty for loaning the corporation's

money to any stockholders, directors or officers,the Hearst bill makes all who assent to any suchloan liable for all the debts of the corporation upto the extent of the loan and the interest upon ituntil the repayment of the sum so loaned.The Hearst bill also stringently prohibits thepayment of any dividend except from surplusprofits.

It makes the directors under whose administra-tion any such payment is made liable to the cor-poration and to its creditors for .the full amountof any loss sustained by the corporation or itscreditors.The only way in which a director in the

minority may escape liability for such an act onthe part of a majority of directors is to cause hisdissenting vote to be entered on the minutes atthe time when such action is taken.The bill then grants the usual powers to pur-

chase, hold and dispose of property, to borrowmoney, to issue mortgages, and to merge with

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TRUTHS ABOUT THE TRUSTSother corporations subject to the provisions ofsuch laws as may exist against monopolies andrestraints of trade.

It then proposes to compel existing state cor-porations engaged in inter-state commerce toaccept the provisions of the national act by im-posing a differential franchise tax. In the caseof corporations taking advantage of the nationalact, this differential franchise tax is placed at anextremely low figure.In the case, however, of corporations engagedin inter-state business which fail to take out char-ters under the national act, an annual franchisetax is imposed, amounting to five per cent, uponthe gross receipts of such corporations from theirinter-state business.The great advantage thus enjoyed by corpora-

tions formed under the national act would in-evitably and speedily lead every existing statecorporation to take out a national charter.A tax of this kind has been held to be constitu-tional and the principle of using the powers oftaxation in order to induce corporations to takeout national charters was applied successfully inthe state bank cases when the national banks wereestablished.The Taft bill adopts in its entirety, with one

single exception, the provisions of the Hearst billaimed at overcapitalization. The one exception[25]


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TRUTHS ABOUT THE TRUSTSis that it does not authorize or require any oralexamination by the public authorities of the direc-tors of corporations as to the value of propertyagainst which stock can be issued.Dummy directors might, therefore, be usedunder the Taft bill, whereas under the provisionsof the Hearst bill a responsible director withknowledge of the facts would have to appear inperson and vouch for every value before anyissue of stock would be authorized and before anycharter would be issued.The Taft bill absolutely prohibits any corpora-

tion from holding stock in any other corporation.Such a provision would make impossible any planof legitimate combination, even under the sanc-tion of supervising authorities, and after thor-ough and complete investigation.The only way in which any corporation could,under the Taft bill, effect a legitimate combina-tion with any other corporation, would be byacquiring all of its property, and this step canordinarily easily be prevented by a handful ofdissenting stockholders such as frequently appearas plaintiffs in strike suits.The other distinctive feature of the Taft billis the provision which authorizes Congress torepeal the charter of any corporation that entersinto any contract or combination in restraint oftrade.

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TRUTHS ABOUT THE TRUSTSThis feature is merely an attempt to perpetuate

the existing ineffective Taft method of dealingwith the combination question as exemplified inthe Tobacco Trust and Oil Trust suits.But even if this method should prove effective,

the only result would be to punish innocent stock-holders instead of responsible directors.The Taft bill fails to provide any method forcompelling corporations to take out nationalcharters.A bill to be effective must do something morethan merely invite corporations to abandon theshelter of the laws of favorite states which bytheir laxity place a premium upon stock-wateringand other get-rich-quick methods.

It must provide a constitutional method ofcompelling corporations to take out nationalcharters, and that constitutional method is to befound in the differential franchise tax.The Taft bill, in my modest and unprejudiced

opinion, is not, where it differs from the Hearstbill, as good as the Hearst bill, although theHearst bill preceded it by three years. TheHearst bill, however, probably could be improvedupon and probably will be improved upon. Never-theless, it has fulfilled a purpose in indicating thelines which legislation may take in compellingcorporations to submit their incorporation to gov-ernmental supervision.

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TRUTHS ABOUT THE TRUSTSThe bill has also indicated the methods by

which governmental supervision can effectivelyand properly control and limit the capitalizationof corporations for the benefit of business and forthe protection of the public.

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WHEN COMBINATION BECOMES MONOPOLY WHATSHALL Fix PRICES?

MONOPOLY IN THE SOLE INTEREST OF MONOPOLY ORGOVERNMENT IN THE INTERESTS OF THEWHOLE COMMUNITY?

THE most difficult problem to approach indiscussing the question of combination isthe problem of the regulation of pricesunder monopoly.It is obvious that combination is growing andextending in the direction of monopoly in almostevery large line of business.

Monopolies are sometimes created by illegalcoercive measures.Monopolies are sometimes created for purposesof overcapitalization and speculation.But even where monopolies are not created by

coercive measures, or for speculative purposes,they gradually tend to form, because of the con-vincing and compelling economic advantages ofcombination and because of the necessity for com-plete co-operative organization to handle in themost systematic and effective manner the mar-velous production of modern business.There are stringent laws against trust coercion

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TRUTHS ABOUT THE TRUSTSand oppression, and these laws should be en-forced to the limit of their criminal penal-ties.

There should also be stringent Federal incor-poration laws to prevent trust overcapitalizationand wildcat speculation, and these laws shouldbe strictly applied and enforced.But after the enforcement of the criminalclauses of the Sherman act has prevented theformation of monopolies by coercion, and afteran effective Federal incorporation act has pre-vented the formation of trusts for speculativeand stock-jobbing purposes, what is going to bedone with the monopolies that form naturallythrough general and rightful recognition of theadvantages of combination?A monopoly that is formed naturally andlegitimately is just as much a monopoly as onethat is formed unnaturally and improperly.The one, if it is a monopoly, has just as muchpower to control the market and extort highprices from the consuming public as the other.The monopoly that is formed by genius, bypersistent effort, by energy and enterprise is justas much a monopoly as the one that is formed byforce and fraud.

It may not be as hateful, but it is just aspowerful.

It may not have been as destructive in its[30]


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TRUTHS ABOUT THE TRUSTSformation, but it is just as dangerous in its opera-tion.

It may not have been as oppressive to its oppo-nents and competitors, but it is likely to be justas extortionate in its dealings with the consum-ing public.

If it is a monopoly, no matter how formed, itpossesses the power of monopoly, and, possess-ing the power of monopoly, and having the ad-vantage of an exclusive market, it can put theprices of its products unreasonably low to dis-courage competition, or it can put them unreason-ably high to extort unjust profits from the public.

Obviously, it can do both of these things, andunregulated, unrestrained, uncontrolled, it obvi-ously will do both of these things.Both are unjust.Both are injurious.Both are against public policy.Both must be considered and dealt with.How are they going to be dealt with?Of course, no one would for a moment consider

government regulation of prices or profits ifthere were no necessity for considering such gov-ernmental action.Of course, no one would advocate that govern-ment should interfere in business except where

there is absolute necessity for government tointerfere to protect the public.

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TRUTHS ABOUT THE TRUSTSBut where there is absolute monopoly, there ISsuch absolute necessity.What else is possible? [What else can bedone ICompetition was wont formerly to regulate

prices, although in an irregular and haphazardway, in a way that satisfied us, although unsatis-factory because we then knew of no superiorsystem.Competition and the unrestricted law of supplyand demand regulated prices or rather controlled

prices.Prices, as a matter of fact, were not regulated.They fluctuated, and they fluctuated from verylow prices, ruinous to the producer when the

product was plentiful, to very high prices, bur-densome to the consumer when the product wasscarce.Natural competition regulates prices verymuch as natural rain supply waters crops.Sometimes, crops are drowned out because of

too much water, and sometimes, they are driedout because of too little water.But now competition no longer regulates at all.

The law of supply and demand does not controlmonopoly.On the contrary, monopoly controls the supply,modifies the demand, and regulates the price tosuit its own requirements.

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TRUTHS ABOUT THE TRUSTSCombination regulates prices as irrigationwaters crops.The quantity of water is limited to conditionsand requirements, and the only question is howand by whom the quantity of water shall be con-

trolled for the best interests of the whole com-munity.Prices are regular enough now. They do notfluctuate. But being regulated by monopoly, theyare regulated in the interest of monopoly.

Prices are regulated at the highest point thatthe " traffic will bear," and vary only when thetraffic will bear more.This regular or steady regulation of prices,even by monopoly, has some actual advantages,despite its obvious disadvantages.

It has advantages to the producer, although notto the consumer.

It has advantages in the creation of wealth,although not in the distribution of wealth.This system is at least systematic. Here is at

least organization and orderliness.Here the economic advantages of combinationare operative, even though not justly and equablyoperative.The consuming public, through the natural andinevitable selfishness of the promoters of com-bination, is debarred from sharing in the advan-tages of combination.

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TRUTHS ABOUT THE TRUSTS

We have cheaper production, but not cheaperprices, and there is nothing to compel cheaperprices ; not competition, for it no longer operates ;not the law of supply and demand, that law hasbeen repealed; not altruism, for in businessaltruism does not exist; not public opinion, forthe motto of monopoly is ' ' the public be damned. ' 'Then WHAT?

Let us have the courage to face the problemhonestly and to reach the legitimate conclusion.There are various methods of evading the sub-ject, one of which the Supreme Court has adopted.But all evasion is ineffective. Trickery is but atemporary subterfuge.When the problem is acute and actual, the solu-tion must be genuine and final.

If the evils of monopoly are to be eliminated,there are only two effective ways :One way is to destroy the evil and with it themonopoly which creates that evil.The other way is to separate the evil from the

monopoly and destroy only the evil.One way is to prevent combination, and theother way is to permit combination, but preventextortion.One way is to compel business to competeagainst its will and contrary to its advantage,and the other way is to allow business to combineand to obtain the full advantage of combination,

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TRUTHS ABOUT THE TRUSTSwhile compelling it to share that advantage withthe public.When considering the one alternative of de-stroying combination, we must weigh carefullythe two most vital reasons for not destroying it orattempting to destroy it.One of these is the convincing reason against

substituting an inferior method of production fora superior one, against compelling a wasteful andcumbersome method to be employed in place ofan efficient and economical one.The other reason is the impossibility of doing

anything so contrary to nature and to natural de-velopment, so opposed to universal advantageand advancement.How can we benefit by replacing organization,with disorganization, system with disorder, har-monious co-operation with conflicting individualeffort?A faculty for organization is a measure of men-tal development.A capacity for systematic effort is an evidenceof business ability.Combination is the expression of greater ex-

perience, better knowledge, and higher intelli-gence, the result of education, the effect ofgradual appreciation of certain fundamentalprinciples and the transmission of those prin-ciples into practical operation.

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TRUTHS ABOUT THE TRUSTSCombination means economy. Combinationmeans efficiency. Combination means system and

simplicity, the elimination of unnecessary cogs inthe business machinery.Combination means increased production anddecreased effort. Combination means stability,permanence, confidence, certainty, and every ablebusiness man knows it.As a consequence, the Big Business of the coun-try will positively be conducted in combination,either open or secret.

If government persecutes combination, it willmake combination secret.If government recognizes and allows combina-tion, it will make combination public.

If combination is secret, it cannot be regulatedor controlled.If combination is public, it can be regulated and

controlled in the interest of the public.The inevitable, unavoidable, inescapable con-clusion is that combination should be permitted,should be compelled to be public, and should beregulated in the interest of the public.Then how is it to be regulated, and what is toregulate it?Not combination itself, because combinationwill not regulate itself unselfishly ; not the public,as a body, for the public has not the knowledge ororganization to do it; but the government, the

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TRUTHS ABOUT THE TRUSTScommon representative of both the consumingpublic and the business interests.Whenever business demands of government theright to combine, then business must concede tothe government the power to impose conditionsthat will compel combination to operate for thepublic good.If the combination constitutes a merger ormonopoly extensive enough and powerful enoughto fix prices, then the government must requirethat the prices fixed shall not be unreasonable orto the detriment of the public.Thus the advantages of combination will besecured, not only for the producer, but for theconsumer.Thus cheaper production will mean cheaper

prices; thus the advantages of combination willbecome general, for the public will receive its fairshare of them; thus combination itself will be-come popular, for it will mean not a burden uponthe public, but a benefit to the public.

I have discussed in this article the regulationof prices rather than the limitation of profits, be-cause the two are but different forms of the sameproposition.The limitation of profits is as advanced a stepas the regulation of prices, but not as practicala process.The regulation of prices in no way interferes

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TRUTHS ABOUT THE TRUSTSwith or discourages economy or efficiency ofoperation, compactness of organization, or any ofthose business advantages to promote which com-bination exists and is to be allowed to exist.On the other hand, limitation of profits removesone of the main incentives to economy and effi-ciency in the perfected system possible undercombination and necessary for cheap produc-tion.

If business (no matter how economically andefficiently it may be conducted) is limited in itsprofits, then, inevitably, less attention will be paidto the economy and efficiency that make forcheaper production and cheaper prices.But if business be merely restrained fromcharging an exorbitant price for its products andallowed to appropriate as profits all that can becreated within that price by economy and effi-ciency, then economy and efficiency will be main-tained at the highest degree of perfection and thefull advantage of combination will be developedand secured.The regulation of prices, then, secures for busi-

ness a larger opportunity and for the public agreater and more definite benefit.Inasmuch as the regulation of prices is merelyan enlargement of powers already possessed bythe government, it would be well in providing forthe regulation of prices to adhere as closely as

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TRUTHS ABOUT THE TRUSTSpossible to the means and machinery already em-ployed by the government.The regulation of prices is merely an extensionof the idea involved in the regulation of rates.The regulation of the charges of monopoliescreated by governmental grants and franchises ismerely extended to include the regulation of thecharges of other monopolies equally powerful andequally important to the public welfare.The Inter-state Commerce Commission is em-powered to fix railroad rates.A sufficient enlargement of the number and asufficient extension of the powers of that commis-sion would form a body able and fitted to deal withthe problem of more general rate or price regu-lation.When a member of Congress, I introduced billsgiving the Inter-state Commerce Commission thepower to fix railroad rates, creating the Inter-state Commerce Court, and proposing a FederalIncorporation act.An elaboration of the machinery necessary toperform these recognized functions of govern-ment would be sufficient to enable the governmentto perform without derangement or difficulty theenlarged functions involved in the control of com-bination and the regulation of prices.The Department of Commerce and Labor, withits agents appointed from every state and repre-

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TRUTHS ABOUT THE TRUSTSsenting it in every state, as provided for in theHearst Federal Incorporation bill, would possessin its records all the facts relating to the size,character and condition of every Federal Corpo-ration.The Inter-state Commerce Commission, in-

creased in numbers and divided into various de-partments, would deal with extortionate chargesand monopolistic abuses in various lines of busi-ness.The Inter-state Commerce Court, increased, if

necessary, in numbers and divided into divisions,would review and enforce the findings of theInter-state Commerce Commission.

I would add to my original Commerce Courtbill, however, a clause providing that the justicesof this court be appointed for twelve-year terms,and that one-third of these justices end theirterms during every presidential term of fouryears.The object of this provision is to allow thePresident of the United States, the chief electedrepresentative of the people of the whole UnitedStates, largely to alter the character and com-plexion of the Commerce Court during his termof office, in conformity with the principles andpurposes entertained by the citizens at the timeof his election.In two presidential terms, the character and

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TRUTHS ABOUT THE TRUSTScomplexion of the Commerce Court could be com-pletely altered fully to harmonize with the prin-ciples and purposes of the people as expressedby the successive elected representatives of thepeople.In these days of insolent assumption of legis-lative functions by the courts, some such pro-vision is necessary to restrain their arbitrary ap-propriation of power, and such a provision mightindeed be applied by a constitutional amendmentto the Supreme Court of the United States, if un-constitutional assumption of legislative functionsby the Supreme Court should make further con-stitutional restraint necessary.

In any event, such a provision applied to theCommerce Court would tend to obviate the pres-ent unsatisfactory situation where an Inter-stateCommerce Court is mainly engaged in upsettingand reversing the necessary acts of the Inter-state Commerce Commission, performed in ac-cordance with the needs and demands of thecountry.With the justices of the Commerce Court ap-pointed for limited terms, as above described, andwith the members of the Inter-state CommerceCommission, the Secretary of Commerce andLabor, and all his representatives removable atthe pleasure of the President, the people need onlyelect an honest and able President to secure an

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TRUTHS ABOUT THE TRUSTSable and honest conduct of all the important af-fairs with which these courts and commissionswould have to deal.Matters under the control of these courts and

commissions and subject to serious difference anddispute would be submitted as issues in presiden-tial elections and so decided.Business would be conducted, as it should be,under a generally wise and judicious control andin the best interests of the whole people, who,after all, make business possible and make pos-sible the success of every business.Any systematization and organization and rea-sonable regulation of business along these lineswould be a boon to business.It would replace disorder and disorganization

with order and organization.It would replace uncertainty with certainty.It would replace perplexity and confusion with

definite knowledge, and, finally, it would replaceignorant, irregular attack with intelligent, sys-tematic regulation.

Business should prosper, not only because ofsuch assured conditions, but also because of thefullest freedom to adopt combination and modernmethods conducive to cheaper production.The public should be equally benefited, for theywould participate in the prosperity and get thebenefit of cheaper products in cheaper prices.

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TRUTHS ABOUT THE TRUSTSUnder such a scientific system of combination,

brought to a pitch of highest efficiency, the great-est amount of wealth would be created ; and underreasonable regulation by government, the divisionof wealth would be just and equable and impar-tially advantageous to all.

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PROGRESS

THE world advances constantly. At the endof every cycle a full cycle of progress hasbeen made. The only question is whetherthat progress shall be made in a systematic andorderly manner, or whether it shall be made in aspasmodic and disorderly and perhaps destruc-tive manner.There is always progress, political progress,

economic progress, mental, moral, materialprogress.The one point for organized society to consideris whether that progress shall be allowed to flownaturally and regularly and beneficially, like amighty river, or whether impeded and obstructedit shall at length burst tumultuously from con-straint and sweep forward irresistibly like a flood.In the one case it reaches its level properlyand peacefully. In the second case it reachesultimately the same inevitable level, but onlyafter great damage and devastation have beenwrought.The measure of progress is the improved con-dition of the mass of the people, and this is theonly measure of true progress, be the improve-ment political or economic, mental or moral or

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TRUTHS ABOUT THE TRUSTSmaterial. There is an inexorable law compellingprogress and development and improvement.Whatever does not progress is eliminated.Whatever continues to exist must continue toprogress.While all human society progresses, develops,improves, there remain still different levels ofsociety, different measures of merit, different de-grees of reward, different grades of intelligenceand enlightenment.The more favored elements of society are proneto imagine that the progress of the mass of hu-manity will interfere with their special advan-tages, and these more favored elements aretherefore often induced to oppose progressivemovements and progressive measures in a man-ner that is no more selfish than it is stupid.

It has often been said that the average citizenof to-day is far better off than the king of a thou-sand years ago. He certainly is better off ineducation, in moral character, in comfort and ma-terial advantage, and particularly in opportunityfor achievement and advancement.

Still, there are others in the social scale abovethe average citizen with greater responsibilitiesand greater opportunities than he, even if notwith greater actual advantages.The progress of the mass in the past has notinterfered with the peculiar advantages and op-

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TRUTHS ABOUT THE TRUSTSportunities of the upper ranks of human society.On the contrary, these upper ranks have advancedas well and as much. They, too, have advancedpolitically and economically, mentally, morallyand materially. They are no longer subject onthe one hand to the whims of a despot, nor on theother hand to the unstable conditions of ill-organized society.They can accumulate wealth in peace and pos-

sess property in security. They exercise moregenuine power than ever before and enjoy morelegitimate rewards.

Yet, because of their mental, moral and politicaladvancement, they are more disposed than everbefore in history to limit their personal pleasuresand employ their time and their opportunitiesin the service of humanity and solely to securethe approval of humanity.We are making progress to-day and will becompelled by inexorable law to make our fullshare of progress.That progress will make the average citizenof a thousand years from now incalculably, in-conceivably ahead of the most favored individualof to-day in every human quality and materialbenefit.And still the favored individual of that laterday must and will surpass the average individualof that day in ability, in wealth, in responsibility

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TRUTHS ABOUT THE TRUSTSand opportunity, and in some form of recognitionand reward.Wealth we may no longer strive for, but we

will still strive for some coveted prize, and thepossession of that prize will be the reward of oureffort and our higher merit.

If moral, material and political progress bene-fits all grades of society, then all classes and con-ditions of men should labor in behalf of humanprogress and progress should not be urged merelyby the less favored elements of society and op-posed by the more favored elements.

Progress must be made and will be made, nomatter who approves or who opposes. It will bemade judiciously and considerately, with the aidof the more favored members of society, or it willbe made sternly and relentlessly, and perhapseven violently, by the less favored elements ofsociety.It will be made carefully and cautiously by theconservative elements, or it will be made moreruthlessly and recklessly by the radical elements.

In speaking to his associates in business theother day, Judge Elbert H. Gary said that thepeople demanded certain political and economicreforms, that they were entitled to these reformsand that the favored classes would find it desir-able and advantageous to co-operate in bringingabout these reforms in the most orderly and

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TRUTHS ABOUT THE TRUSTSequable manner lest these reforms be broughtabout in a somewhat less orderly and less equablemanner.Judge Gary stated this particular phase of the

situation with great wisdom and justice. Hedoubtless exaggerated the situation when he spokeabout the possibility of another French revolu-tion, but he did not exaggerate the necessityfor reforms and the desirability of the conser-vative classes co-operating in securing these re-forms.

There will be no French revolution where thereis free expression of popular opinion and free ex-ercise of popular will, where popular rights arerespected and popular liberties are preserved.The French revolution was the result of at-tempts unnaturally to repress progress, to denythe benefits of the advancement and improvementof the world to the mass of the people.The French revolution was the destructive floodwhich broke all bounds and carried human prog-ress forward to its natural level.

Progress has been made since the French revo-lution. Progress has been made since our ownrevolution. Material, economic, political progresshas been made in our own time.

Still there are many progressive measureswhich are crying for recognition and which must,in justice and in wisdom, receive consideration

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TRUTHS ABOUT THE TRUSTSand recognition by all unprejudiced elements ofthe community.Within the past few generations mechanical im-provements and inventions have enormously in-creased production and added immensely to thewealth of the world.The advantages of this greatly increased pro-duction have been largely appropriated by themore favored classes, by the employer of labor,

the owner of established institutions, the pro-moter of enterprises.

Increased production, increased earnings, havemainly meant increased profits or increased capi-talization, and the less favored classes have not atonce received a just proportion of the advantageof increased production and in created wealth.Unrest is but recognition of injustice. And

the way to allay unrest is to remedy injus-tice.The demand of the less favored classes for a

proper proportion of the advantages of the prog-ress and development which is created by all andbelongs to all must be met and satisfied.The demands of the people throughout theworld for more equal political rights must alsobe met and satisfied.

In the United States these problems are lessacute than elsewhere. Still there are phases ofthe problem here which must be solved, and they

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TRUTHS ABOUT THE TRUSTSshould be considered and solved calmly and ju-diciously, without passion or prejudice.The masses of the people to-day are more en-lightened, more capable than ever before, moreconfident of their own knowledge and ability, moreable to govern wisely and impartially, more dis-posed to take the power of government into theirown hands and better fitted to exercise it for thegeneral good.The progressive political program in the UnitedStates is both moderate and sound. Its purposedoes not go beyond the ideas of the founders ofthis republic, or beyond the obvious right andrecognized ability of the citizens who constitutethis republic.

This magazine declares its devotion to the causeof progress and will employ its best efforts topromote that cause.

It will discuss in its columns every phase ofprogress, and will endeavor to promote all legiti-mate advance and development without dissen-sion and without disturbance.

It will strive to allay all unnecessary antago-nisms and to unite all classes in harmonious sup-port of such progressive measures as will secureexact justice for all and the fullest advantage forall.

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Truths About the Trusts-William Randolph Hearst-1916

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