How We Got Here (22)

June 10, 2014

Trusts and anti-trust

Domestically, the beginning of the century was the time period that Theodore Roosevelt began to attack the influence on the national economy of trusts. While he didn’t actually do much about them (his one-term successor William Howard Taft, later to be Chief Justice of the Supreme Court did far more), he did put what he called the “bully pulpit” of the presidency behind attacks that until then had been confined to the “muckrakers” – crusading journalists such as Ida Tarbell, Upton Sinclair, etc. (And even this had its ironic aspects, for it was TR who first called them muckrakers, cribbing from John Bunyan’s Pilgrim’s Progress, and meaning it in no complimentary way.)

Trusts had come into existence after the Civil War, and the nation was slow to appreciate how great a change they made in the nation’s economic life. Their net effect was to consolidate control (regardless of ownership) of various industries in ever fewer hands. Standard Oil, to give one famous or infamous example, was a trust, and that structure allowed it to put its tentacles everywhere. In 1890, as we will see, Congress had passed the Sherman Anti-Trust Act. (No, not General Sherman; this was his brother John, for an entire generations one of the Senators most respected for his economic understanding.) But for a long time the Sherman act was used, not against the corporate combinations it had been designed to curb, but against labor unions, seeing them as combinations in restraint of trade!

Now, a trust in itself is not necessarily a bad thing. We employ them all the time, as for instance when a parent established a bank account for a minor child and holds it in trust. And it isn’t necessarily a bad thing on a corporate level, either, but its effects certainly can be anti-competitive. In effect, a group of companies held in trust are no longer independent; their activities can and will be controlled by the company holding them in trust. Thus, if you control the Standard Oil trust, you can determine the economic actions of every company whose shares you control. You dictate what they charge, where they sell, everything.

John D. Rockefeller consolidated the oil industry that way. Andrew Carnegie did the same for steel. In their own eyes, they were rationalizing and standardizing what had been a chaos, and it may well be that they were right. But the result was the creation of a class of merchant princes. Could any republic survive that kind of concentration of economic power in so few hands?

The danger of the situation was illustrated, to those few who understood what was going on, when banker J.P. Morgan was able to dictate the terms of his agreement to do the things needed to end the Panic of 1907. Morgan wasn’t a bad man, and what he dictated simply seemed to him to be what needed to be done. But here was a private merchant prince conferring with the head of the government as one prince to another. Anybody could see it was dangerous. But seeing that a situation is undesirable is not the same as knowing what to do about it.

 

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