Knowledge that Transforms

The question of industrial combinations can be approached from many standpoints. The trust may be considered from the standpoint of its possible limitation of business opportunity. It can be considered in its relation to labor, to the railroads, to the tariff, to the banks, and to the investor. This institution can also be considered from the standpoint of its effect upon the prices of its products and from the standpoint of its efficiency as a form of business organization. It is from the last two standpoints that I propose to discuss the question. When the trusts were organized, most of them coming into existence during the five years beginning I898, two advantages were claimed for this form of business organization: first, that the trusts would maintain more stable prices than were possible under conditions of competition, and second, that they would result in raising the standard of business efficiency. The advantages of price-maintenance were urged from two standpoints: first, the benefit to the companies directly affected, and second, the benefit to the public. It has been urged, and I believe that there is general agreement on this proposition, that irregular prices, because of the element of uncertainty which they introduce into business calculations, are highly objectionable; and that any institution or agency which results in maintaining prices unchanged for long periods of time, raising or lowering the level as fundamental conditions change, must, so far as it accomplishes these results, be approved. From the standpoint of the public, it has been urged that the prices which such companies charge, because they are collected from every buyer and because the manufacturer's profits are not sacrificed in long-term contracts in every season of dull trade, will be fixed at a lower level than is possible under competitive conditions. In other words, the claim was made in defense of the trusts, that the prices of the necessaries of life, as well as of the materials and machinery of industry, would be lower as a

With a gathering such as this it is unnecessary to take much time in the preliminary presentation of a currency argument because most of us understand pretty well the failings of our present system. But because of the different ways of phrasing the trouble and because I want to establish a premise upon which to work I must take a little time to place before you my understanding of the economic cause of the failure of our present banking machinery. This is more necessary because I believe that any speaker for the negative does only half his work when he tears down the ideas of the supporter of any question, leaving only a mass of antagonistic argument without any suggested reconstruction. Under our present system by far the greatest part of our circulating medium is no longer a government promise to pay-a hand-to-hand, hard money. About.go per cent of our business is transacted by a comparatively new money, check transfer of bank credit. The volume of this new money is very elastic and the clearing-house reports show how closely it fluctuates in accord with business activity, or the money demand. Therefore we may justly claim that about go per cent of our circulating money is already almost ideally elastic. If we analyze the combined statement of our whole banking system we see at once that two items bear a distinct relation to each other: the loans, on the asset side, and the deposits, on the liability side. This is the endless chain of our banking machinery. Loans made, in the whole scheme, create deposits; and the expansion or contraction of one is followed by an expansion or contraction of the other. Now the important thing to remember in this connection is that when a bank, a group of banks, or a whole banking system comes before us for its last analysis, we find that a demand liability has been created in exchange for a comparatively

For something over two decades we have had on the statute books of this country a law which forbade all combinations in restraint of interstate commerce. During the greater portion of this period, too, most of the states have had laws which distinctly forbade the formation of trusts and monopolies. Taken together, this legislation, not to mention the common law, would appear to cover fairly well the possible field of trust activity. What has been the result ? Occasionally one of these combinations has been driven from a state or obliged to dissolve, but sooner or later there was usually discovered an organization which, however different in outward appearance, still behaved in a manner most suspiciously like the old banished trust. In fact, not only were the old trusts not effectually broken up after the passage of this legislation, but new trusts were formed more rapidly than ever before. Thus we may fairly say that, up to last year, the trusts, after twenty years of laws which were supposed to annihilate them, had become more numerous, stronger, and more firmly intrenched than ever before. Last year, among others, two of the most prominent of these trusts were declared illegal and they are now being broken up into parts. Yet there are many who, in view both of past experience, and of the apparent opinion of the business world so far as reflected in the stock market quotations for securities of these trusts, are pessimistic enough to assert that this time too we shall obtain only another change of form. Moreover, there are still others who declare that even if the purpose of the law be at last attained, nevertheless the whole policy of annihilation which underlies our laws is wrong and should be reversed. In view of these circumstances is it not time