§ 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.

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

§ 8. Trusts and combinations. In the discussion of monopoly, misunderstanding has resulted from lack of definite-ness 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.

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

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.

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.

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.