Published in Collier's Weekly, September 21, 1912.

Progressive party advocates of legalizing industrial monopolies urge as a reason the necessities of the export trade. "How can we," say they, "compete with small concerns against England and Germany for the commerce of the world?"

The answer is not difficult. There is no such alternative as "monopoly or the small concern." America has to-day, in all lines of competitive business, concerns large enough to be the most efficient instruments of commerce, be it foreign or domestic. With America's abundant capital and the ambition of its citizens, there will be no lack of "bigness" in industry. We need not legalize monopoly in order to equip ourselves for the foreign trade.

A survey of the relations of our leading trusts to the export trade should dispel the belief that we are particularly indebted to them either for the quantity or character of their foreign business.


First. Take the exports of steel—the crude products in which the Steel Trust deals. George W. Perkins, so prominent as promoter and director of that corporation, gravely told the Senate Committee: "We have been infinitely more successful in expanding our foreign trade than would have been possible under competitive conditions." But the facts show that the organization of the Steel Trust arrested the development of the American export trade in steel. Our cost of production rose, while that of European steel makers remained stationary and they gained the world's growing trade.

The Steel Trust was organized April 1, 1901. During the ten years, 1901 to 1910, our exports of crude steel and iron products increased from 1,154,000 to 1,533,000 tons, or 33 per cent; Great Britain's from 3,213,000 to 4,594,000, or 43 per cent; Germany's from 838,000 to 4,868,000, or 480 per cent. In other words, America had in 1901, as compared with England and Germany, nearly 22 per cent of the world's export tonnage. In 1910 America had less than 13 per cent. During these ten years coincident with the existence of the Steel Trust, America lost steadily in prestige in the world's steel market.

As stated by Mr. T. Good in his able discussion of the subject:

"From the moment that the Steel Trust got to work the American iron and steel industry was diverted from natural to unnatural developments. Costs and prices of raw material were inflated; progress toward economy was arrested; retrogression set in and America's rosy chances of annexing the world's export trade were shattered...It is, indeed, a demonstrable fact that the trust has done more harm than good from an American point of view; that it has burdened and handicapped the American steel trade, and incidentally given Britain, Germany and other countries better chances in the race. Last year, 1910, the British iron and steel exports were further in advance of those of America than they were in 1900, the year before the Steel Trust got down to business; while German exports, which were about thirty per cent below those of the United States in 1900, are now something like three hundred per cent above them."

And the Steel Trust's foreign sales were no more satisfactory in character than in quantity. Export prices were almost uniformly lower than domestic prices, and in some instances the advantage given foreign consumers was surprisingly large, the five-year average being, as the Stanley Committee shows, for steel rails about $4 a ton, for structural shapes over $5 a ton, and for tin plates over $14.50 a ton.

Steel Trust officials endeavor to meet this damaging evidence and to support their assertion that the trust has benefited our export trade by presenting the following facts: (1) The trust exports more steel than its constituent companies did before the trust was organized. (2) The trust's percentage of the total crude steel exports of the country, as compared with the independents, has risen greatly and now amounts to ninety-five per cent of the total exports of that character. (3) The trust's exports increased largely in 1911 over 1910.

The facts adduced by the trust's officials, rightly interpreted, tend rather to disprove than to prove their contention. The reason why America lost its prestige in the world's steel trade was the huge increase in the cost of producing steel in America. That increased cost was due particularly to the increased cost of producing pig iron. And for the increased cost of pig iron the organization of the Steel Trust is in large part responsible. That increase cost drove the independents out of the foreign market where prices are competitive; and they necessarily confined themselves to the domestic market where prices were maintained through Gary dinners. The Steel Trust could still sell abroad, because its ownership of transportation systems gave them an unfair advantage over the independents. The trust was perhaps driven to sell some of its product abroad, because the independents made such heavy in-roads upon the trust's percentage of the domestic business—reducing it from over sixty per cent in 1901 to less than fifty per cent in 1911.

The large increase of exports of the trust in 1911 was due, in part, to the sharp fall in the selling price of steel in the United States during that year. And the price fell, doubtless, not so much because of lessened demand as because the Stanley Committee investigation led to the discontinuance of the Gary dinners.

America may well take pride in her large exports of iron and steel products. In 1910 they amounted to $201,271,903; in 1911 to $249,656,411. But it is the highly manufactured iron and steel products, made largely under competitive conditions, like tools and machinery, to which these large totals are mainly due. The Steel Trust's exports in 1910 amounted (as the Stanley Committee finds) to only $41,586,950. Machinery and machines rose from $50,897,390 in 1902 to $111,135,833 in 1911. The growth of exports in highly manufactured iron and steel products is the more remarkable in view of the handicap to which our manufactures are subjected through the Steel Trust by the high prices for crude steel products.

Furthermore, the Steel Trust claims to supply ninety-five per cent of our crude steel exports. If the formation of trusts advances the export trade, why have we fallen behind Germany and England in steel exports? Surely they have no steel trusts comparable with the Steel Corporation in size or resources.

Progressive Party advocates of monopoly have the habit of attributing the commercial development of Germany largely to the size of their industrial units and to the legalization of monopolies; but they misread the facts.

One of the largest and most successful of the German cartels is that of the steel producers, controlling ninety-five per cent of the country's production—as our Steel Trust controls ninety-five per cent of this country's crude steel exports. The German Trust consists of thirty-six separate concerns. Their aggregate capital is a little over 1,250,000,000 marks, or $312,000,000—much less than one-fourth of the capitalization of the United States Steel Corporation, which, including underlying bonds and outstanding securities of subsidiary companies, is found by the Stanley Committee to be $1,465,555,819. The average capital of each of those thirty-six German concerns is less than $10,000,000; and probably not one of them has a capital as large as some of our so-called independents; for the Lackawanna Steel Company has a capitalization in bonds and stocks of $145,412,000; the Republic Iron & Steel Co., $70,630,000; the Cambria Steel Company, $59,468,000; the Jones & Laughlin Steel Company, $54,487,000; and the Bethlehem Steel Company, $66,336,000.

Furthermore, each one of those thirty-six German concerns, which are federated for certain purposes, are free and independent in other respects. They are restricted as to selling price and quantity of production (these being fixed by the syndicate), but they are absolutely independent as to internal management. The syndicate exercises no control whatever as to methods and processes of manufacture, or over the method of securing raw material by the individual members, or with their labor policy. Furthermore, the limited quota assigned to each member relates exclusively to products made for sale. Any member may use as much steel and iron as he pleases in his own factories; that is, may work up into more highly manufactured goods the crude steel products to which alone the cartel restrictions apply. The German Steel Trust preserved competition in large part among its constituent concerns. The United States Steel Trust destroyed competition among its constituent concerns. This greater freedom for individual action, coupled with the fact that the thirty-six concerns are separately owned, and that the combination agreement is for a limited term only, may account, in large part, for the fact that, in Germany, the cost of producing iron and steel is no higher than it was ten or twelve years ago, while the American cost of production has risen greatly.

How groundless, in the light of these facts, is the contention made by Mr. George W. Perkins, before the Senate Committee on Interstate Commerce, that the Steel Trust must be preserved to put us on a par with Germany:

"Suppose," asked Senator Newlands, "the steel company were divided to-day into ten corporations of $150,000,000 each, instead of being organized into one corporation having nearly a billion and a half of capital. Do you not think that each one of those units could be as efficient in business and in all the economies as the total aggregation in one corporation?"

"Not as efficient," answered Mr. Perkins. "If I were asked to put my finger on one disadvantage greater than the other, it would be its effect on the foreign trade. You take ten such companies and go out and compete with Germany. It is self-evident that we could not begin to do it as effectively as with one large company."

But the ultimate success even of the German competitive system of combinations is by no means assured. Although a very wide field of competitive endeavor is left open and the incentive of separate ownership is preserved, the evils of combination appear not to have been entirely avoided. The steel and iron cartel was not formed until 1904; but already (as the statement quoted by President Van Hise in his "Concentration and Control" shows) grave difficulties are manifesting themselves:

"It is feared that the organization of the steel industry in the form of the steel combine will result in a gradual deterioration in the quality of steel products and that the chief object of the combine will become quantity rather than quality.

"It is maintained that the wishes of customers are not given due consideration; that they are compelled to take the quality of steel which the combine sees fit to give them, regardless of the special needs of their business;...that it is difficult for the manufacturer to secure as uniform a grade of goods as he had been able to obtain when he bought all his steel from the same firm...

"The combine has...secured gradually increasing prices...

"It is also asserted that…it has been possible for the cartel to shift the burden more and more upon the less organized manufacturers who use steel products as raw materials. Consequently the last and unorganized stages of steel products manufacture—e.g., machine-making, etc.—have been forced to bear the greater proportion of the burden caused by a gradual increase in prices. These manufacturers will undoubtedly be able to shift a part of the burden upon the final consumer…"

It is notable that the combination sells steel abroad lower than at home; in some cases as much as twenty per cent cheaper, following the same policy as the United States Steel Corporation.

"The manufacturing interests claim, and apparently with good grounds, that the export policy of the steel combine will in the long run prove disastrous to the exports of the German machine industries. Whenever the home market is unable to absorb the amount of steel that the producers place at the syndicate's disposal, it is generally forced to reduce its price to foreign buyers in order to get rid of the out-put. In this way the foreign manufacturer of machines, by obtaining his raw material from the German combine, is placed in an unduly advantageous position in competing with the German producer. In 1904, for example, pig iron was sold abroad at from 69 to 70 marks, whereas the domestic buyer was forced to pay from 82 ½ to 92 ½...

"Generally the larger and more powerful members have benefited more than the weaker ones, through its activity; and in some cases the condition of the weaker members has deteriorated rather than improved. While some companies have undoubtedly been able to remain in existence as a result of the syndicate's activity that would under the competitive system have been forced to the wall, others that might have developed under the competitive system have been held back by the cartel's policy of combination."

Hasn't all that a very familiar sound? "Gradually increasing prices"; "shifting the burden upon the ultimate consumer"; "selling cheaper abroad than at home." Verily, if the tariff is not the "Mother of the Trusts," the attendant abuses are at least akin.


Second. Take next the export of mineral oil and oil products—a very important item in our exports. In 1911 it amounted in value to $105,922,848, or about one-twentieth of our total exports. The exports are, also, a very important part of America's oil trade, as we have customarily exported more than one-half of all the illuminating oil produced in the country. For more than a generation the Standard Oil Company dominated the American oil trade, having in recent years about eighty-six percent of the business of the country. That company stood preeminent among American trusts in age, in power, in resources, in perfection of organization, and in ability of management. Through the unfair use of that power, ability and organization it prevented the rise of any large American competitor. If great size and monopoly powers gave peculiar advantages to Americans for developing export trade, surely the Standard should have conquered for us the oil trade of the world; but Corporation Commissioner Herbert Knox Smith showed that, though our oil exports grew largely, we lost during the reign of the Standard Oil our relative position in the world's market, adding:

"More than half the illuminating oil produced in this country is exported. The exportation of naphtha, lubricating oils, paraffin, wax and candles made from wax is also considerable. This country is, however, to-day a comparatively less important factor in the petroleum markets of the world than it was twenty or thirty years ago."

And Commissioner Herbert Knox Smith also shows that the Standard Oil Company did not succeed in acquiring any larger part of the foreign trade than it did of the domestic, the percentage in each being about eighty-seven per cent of the whole, saying:

"The percentage of export trade in illuminating oil handled or controlled by the Standard Oil Company, therefore, is substantially the same as the proportion of its production."

And, like the Steel Trust, the Standard Oil was persistently selling its product much cheaper abroad than in America, imposing extra burdens upon the American consumer to compensate for any possible losses in the foreign trade, as Commissioner Herbert Knox Smith so clearly shows:

"The preceding analysis of the price policy of the Standard Oil Company in the export trade during recent years, as compared with its price policy in the domestic trade, shows two conspicuous facts. In the first place, while the prices of illuminating oil in the principal foreign markets have for years been relatively lower than the prices in the United States, this disparity became especially conspicuous during the years 1903, 1904 and 1905. During those years the domestic prices stood at a much higher level than for many years before, while prices in the principal foreign markets, like the United Kingdom, Germany and the Orient, stood at times from two to three cents below the average price in the United States, transportation costs, difference in quality of oil, etc., being taken into account.

"In the second place, the investigation shows that the decrease in prices in the foreign trade, during the years 1903-1905, was not due to an oversupply of American oil or the oil from all sources combined, but was due particularly to an attack by the Standard Oil Company upon certain new and threatening competitors. Aside from other proofs, conclusive evidence that there was no oversupply of American oil, as well as evidence that the Standard's policy has been to promote its own interests rather than those of the United States, is found in the Standard's extensive purchases of Russian oil during these years and its acquisition of crude-oil land and refineries in foreign countries."

President Van Hise, in his "Concentration and Control," mentions that in 1905 the United States was taken into the International Steel Rail Syndicate, and also says:

"Oil is one of the businesses in which the international combination and co-operation have gone far, in some cases there being union, in others division, of territory."

Possibly these facts may furnish a partial explanation of America's falling prestige in the foreign steel and oil trades. Was the foreign market sacrificed to avoid competition by the foreigners in the domestic market?


Third. Tobacco presents a field where an important foreign market was deliberately sacrificed by the dominating trust in order to protect itself from foreign competition in the home market. Tobacco products are among our leading manufactures, but our exports of manufactured tobacco products are, as Commissioner Herbert Knox Smith reports, "comparatively insignificant."

"The exports in 1908 amounted to $5,550,695, or less than two per cent of the value of our manufactures of tobacco...[In 1911 they amounted to only $4,677,859.]

"The existence of governmental monopolies of tobacco manufactures in a number of leading countries and of prohibitive tariffs on the importation of manufactured tobacco in other countries prevents any considerable development in international trade in such products."

The Tobacco Trust, which acquired control of the greater part of what little of the export trade America had, deliberately closed the door to any exports by it to Great Britain or Ireland. In consideration of the powerful British trust (the Imperial) agreeing not to carry on business in manufactured tobaccos in the United States, the Tobacco Trust, and its active directors individually, agreed that they would not thereafter, directly or indirectly, carry on business in Great Britain or Ireland.


Trusts have, of course, contributed to our export trade, as have many independent manufacturers. Some of these trust contributions have been large; but the great increase in our exports of manufactures is not due to the existence of trusts. Increased exports have been quite as marked in other lines as in trust-made goods. We hear particularly of the Harvester Trust's export business; and it is true that this country's exports in agricultural implements doubled in ten years—1902 to 1911. But in many long-established and highly competitive lines of manufacture, like special lines of machinery and of tools, the 1911 exports were not only double but threefold those of 1902; and in other new and highly competitive businesses the increases were much greater. For instance, the 1911 exports of automobiles were twenty times as large as those of 1902; the 1912 exports nearly thirty times as large. The fact is we have become a great manufacturing people. In the year ending June 30, 1912, our exports of manufactured products exceeded $1,000,000,000. American manufactures have been developed through initiative, enterprise, energy and ambition—all common characteristics of competitive business. The trusts had, of course, a part in securing these foreign markets; and have enjoyed, perhaps, a still larger share of their fruits by exploiting foreign markets in which independent manufacturers had been the pioneers.

But the trusts have not been the cause of our heavy export business; nor are they essential to its continuance or future development. And it should be borne in mind that the great trusts carry, in their huge resources and the volume of their business, also an element of danger to our export trade. Many of them have already established factories in foreign countries from which they supply a part, at least, of their foreign trade. This is true of the Standard Oil Company, of the Harvester Company, of the Shoe Machinery Company and of many others. The establishment of these foreign factories has been due, in large measure, to the existence of foreign tariffs or to the requirements of foreign patent laws. But it has been due, in part, also to a lower cost of production abroad, resulting from the lower wages paid there. We have been able, in many lines, to produce goods at lower cost in America than foreigners do abroad, in spite of paying higher wages; because of greater superiority in management or the introduction of advanced machinery and labor-saving devices. But is it not possible that our able business managers, transferring to foreign countries American business organization, machinery and methods, may be able to produce with low-priced foreign labor goods for the foreign trade more cheaply abroad than at home? And, in such event, would they not be led to develop their foreign factories instead of those at home, and the export trade suffer accordingly? Such a course might bring great gains to the American capitalists, who are the stockholders of the trusts; but the American workingmen would lose.

Has not our export trade more to lose than to gain through the legalization of monopolies?

Go to next chapter.

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