XV.
THE SOVEREIGN RIGHTS OF THE PEOPLE AND OF THEIR REPRESENTATIVE, THE GOVERNMENT.

But with this goal reached, new questions at once present themselves. Can the interference of the government with private industries be defended? How shall government exercise its control, so as to protect the people without infringing vested property rights and discouraging private enterprise? It may be objected, too, that, while our preceding discussion has fully proved the weakness of other methods of dealing with monopoly, compared with that by the direct action of government, it has not been shown that the latter is practicable, or that it would not be likely to result in more harm than good to the people at large.

These questions are coming before the people in a thousand practical forms. They are being fought over in courts and legislatures and councils, and are destined to be fought over at the polls. How important their right decision is, we have already seen. Let us make some attempt to find what this right decision is.

In taking up first the question of the rights of private property holders, we touch a point over which there is likely in the future to be serious dispute. A certain faction vigorously contend that past precedents are no ground on which to base future action, and that little attention need be paid to the rights of private owners if the public interest is at stake. A far stronger and more influential faction are jealous of every thing which seems to question their right to hold and use their property in whatever way they see fit. But certainly, if their claims are just, they need not fear the result of that investigation which every idea we have inherited from former generations has in these days to receive. It would be beyond the scope of our investigation to make any exhaustive study of this subject, but it is necessary to note some of the important facts in connection with property rights as light upon the question at issue.

In the first place, it must be conceded that the question is to be decided upon its merits, and not by precedent. It is of little use for one faction to show, as they can, that the idea of private property is largely of modern growth; or for their opponents to prove, as they may, that the progress of law and government has been continually toward better protection of the rights of property. The question must be, on what grounds of inherent right or public expediency is property held to-day in private ownership? Distasteful as it may be, to realize that what has been considered a fundamental principle of civilized society is here challenged and put upon the defensive, the fact remains that the defence must be made, and must be based only on what is just and wise to-day, for the opposing side may properly reject arguments based on the wholly different conditions under which past generations lived.

The question of the rights of property in the products of labor we may pass briefly, as it is almost undisputed; and while certain thinkers have asserted that there is no such thing as a natural right to the ownership of property of any sort, it seems certain that this is true only in a technical sense; and that a man's right to hold, control, dispose of, and enjoy the fruits of his own strength or skill is as certain as his right to "life, liberty, and the pursuit of happiness," and follows from that right as a natural sequence. The most radical revolutionist hardly ventures nowadays to argue against this fact. Thus, though it is recognized that private property even in one's own strength and skill must, at times, be subjected to the higher law of public necessity—as when in time of war a man may be obliged to give up his time, strength, and even life for the public welfare—in general the right to hold the results of labor as private property is well established, on the grounds both of natural right and public expediency.

But when we consider the private ownership of the gifts of Nature and of public franchises, it is apparent that we are on very different ground. These forms of property, which constitute a great proportion of the world's total wealth, are not created by labor. Nature's gifts were not stored up to enrich and benefit any one man, but the whole race. It follows, therefore, that they are always, in the first instance, public property.

The argument presented to prove any inherent right of the private owners to any form of natural wealth seem to be insufficient to prove the case. The fact seems to be that the inherent right to the benefit of every one of Nature's gifts is vested, if perfect equity were established, in the whole human race; or, as a reasonable approach to this, in that portion of the public to whom this gift is a direct benefit. The title which the public holds may be transferred to private individuals, as a matter of expediency; but the public must still retain a prior claim upon the property. Its right to have the property used for the general welfare, transcends the right of any private owner to direct it solely to his own profit and the public injury.

It is thus plain that the private ownership of our natural wealth and of all public franchises rests on the grounds of expediency alone. All the lands and mineral wealth, all franchises for railway lines and for the various public works discussed in the chapters on municipal monopolies were the heritage of the whole people in the first instance, and they have only transferred the title to private owners because it seemed expedient so to do. On the grounds of expediency alone, then, is the private ownership of natural wealth to be considered.

It can hardly be doubted that in the case of our own country, the transfer to private owners of the title to our natural resources has been in the past the wisest and only proper course. It is a fact not often realized that the title to nearly all the natural wealth of the country, almost all the lands and mines and forests, has been held directly by the public within a century, and that the transfer to private owners of a great part of it has taken place within a generation.

The question now comes: Did the public, in transferring the title to a private owner, relinquish all its right to the future control of these valuable properties, as a private owner would have done? The answer must be in the negative. Regarded simply as a matter of expediency, it is plain that to cause the act of any public official to bind all succeeding generations, living under dissimilar conditions and circumstances, which were then unknown and unprophesied, might result in unbearable evils. Necessary as it might be at the start to give away valuable properties to meet present needs, one generation or its representatives has no conceivable right to sell for a mess of pottage the heritage of all succeeding ones. The fact is, then, that the natural title to all gifts of Nature is vested in the public at large; and while it is in duty bound to observe the contracts which it makes with private parties, it is also not to be thought that the dishonesty or incompetence of a public official, or the failure to foresee the future, can work for too long a time an injury to the community.

It seems certain that, in every case where the public has transferred to private owners the title to any gift of Nature, or has conferred any franchise upon a corporation, under whatever conditions, the right of supreme control still remains with the natural owner, the public; and when the need arises, this control may be exercised. The rights of the owners and the contract obligations into which the public has entered should be regarded so far as possible; but when the public necessity demands, control on its behalf can always be exercised.

This may seem like a formidable and revolutionary doctrine, but, in reality, it is based on every-day acts of the public representatives, with which every one is familiar. Suppose it is conceived to be for the public interest that a certain railway shall be built. To do this it is necessary to cross many hundred tracts of land, the title to which was many years ago transferred by the public to private owners who have bought and sold since then as they pleased, as if their control were absolute. Many of the owners of these lands may be opposed to parting with the right of way necessary for a railroad, but their private wishes must not stop the progress of improvements necessary to the general welfare. The State, which has the natural title, asserts its right to supreme control; and, if necessary, will use all its power to force these private owners to relinquish their land for the public good. This is the commonest example of the exercise of the right of eminent domain, but other cases frequently occur. The laying out of city streets, building public bridges, and, in fact, highways of every class, furnish a similar example. Provision of public water supply often requires an exercise of this power even more positive than in the cases just cited. By the construction of one great reservoir to store the flow of the Croton water-shed for the supply of New York City, it is proposed to condemn the dwellings and lands now owned and occupied by several thousand people. It is to be noted that, in every case, the rights of the private owners are observed, and compensation is made them for the damage done.

Under the common law the owner of lands bordering a running stream has certain rights to its use; and these riparian rights, as they are called, have been established by precedent for centuries. But, in the State of Colorado, it was found that the water in the streams was of such value for irrigation that the old system of permitting private ownership of these riparian rights led to grave abuses. The State Constitution, therefore, declares that all water in running streams is the inalienable property of the whole people, and the system providing for its use by private parties is based on this principle.

So much for the power of the public to exercise its supreme control, when public exigency requires, over Nature's gifts in land and water. As an example of the supreme control of the public over the franchises which it grants, take the case of the railway again. It is well established that the public has the right through its legal representatives to regulate the management and operation of the railway in every detail; and not only that, but the rates which the railway may charge for its services as well. Many other examples might be given, for the necessities of the present decade have awakened men as never before to the facts which we have just discussed. The final conclusion must inevitably be that the public as the sole possible holder of the natural title to the gifts of Nature, while it may find it expedient to transfer this ownership to private owners, retains always supreme control, which may be exercised as the public exigency demands.

We have next to determine in what cases the exercise by the public of this right of supreme control over its heritage is demanded. We are greatly aided here, however, by the thorough study we have made of the laws of competition. It is evident at once that competition in the case of natural agents acts according to the laws already found. Agricultural land in this country is so abundant and its ownership is so widely diffused that any monopoly of it is now impossible. Each farmer competes with every other farmer, and the extension of transportation facilities has so broadened the field of competition that in no industry is the day when the few competing units shall replace the many, and monopoly shall ensue, farther off than in this. In Great Britain and Ireland opposite conditions prevail. A limited amount of land is held by a few owners, and its rental is fixed without competition; consequently the land question has been almost, if not quite, the chief issue in British politics during this decade.

If we examine Nature's gifts to the world in the shape of metals, we find iron to be so widely distributed that competition has always acted to reduce profits, and that combinations to restrict competition in the production of the metal have only recently become even possible. On the other hand, the workable deposits of copper are so scarce and the number of competitors in its production is so much smaller, that it has become the subject of the greatest monopoly the world has ever seen.

With these examples—and any number of others might be cited—is it not plain enough that the laws of competition are exactly applicable to aid in solving the problem? The smaller the number of competing units, the stronger the tendency to monopoly. Certain gifts of Nature are given to us in profusion. The people transfer the title to private owners, and of these there must of necessity be so many that they will compete steadily with each other. The consequence is that the people receive the benefit from the country's natural resources, while the private owner gets only enough to compensate him reasonably well for the labor he employs and the capital which he invests. Certain other gifts of Nature are, as we have found, very scarce; the number of men who can own and use them and compete with each other in offering their advantages to the public is necessarily small. The inevitable result of this condition is, first, intense competition and then monopoly.

It is thus evident that there is no necessity for the State to interfere with the private ownership of those gifts of Nature which are so widely distributed that competition can act for the protection of the public. As regards those other gifts which are so limited in their extent that their control has become a matter of monopoly, the right of the public to exercise its control is already proven. Whether in any given case the exigency is so great as to call for the assertion of this power, is a question which must be decided in each case separately.

It may be objected, with truth, that nothing short of the actual ownership of all Nature's gifts by the public is in accord with absolutely perfect justice; but as a matter of fact every human work carried out by human hands and brains is only an approach to perfection. It will never be possible by any human agency to distribute the wealth production of the world with absolute equity. A careful writer says: "The view that the right of every human being to his share in the gifts of Nature should be recognized is not an unreasonable one." But by no system possible of putting into practical execution can these gifts be equitably divided among all men. What can be done is to cause the benefit of these gifts to be widely distributed, and to prevent them from being monopolized for the benefit of a few.

The fact maybe alluded to, that even under widespread competition the holders of the most favorably situated and richest lands, mines, etc., receive a benefit which in absolute equity should be divided among all men. But the vastly more important matter of the monopolies which prevent the public from obtaining the benefit of the natural resources to which it holds an inalienable title, so overshadows such trivial injustices that they may be neglected. So much attention has been called of late, however, to the fact that land as a gift of Nature should, if absolute justice were done, have the benefit from its use equally divided among all men, that something further on this subject may be said.

Let us first note the fact, which no one will dispute, that the title held by the public refers only to the "site value." The value of all improvements which are the product of labor belongs to the owner by natural right. Now it is conceivable that of the total value of $10,197,000,000 at which the farms of the United States were valued at the last census, $7,000,000,000 may perhaps have been the value of the land apart from the value of the buildings and improvements made since the country was settled. In 1880 there were at least 3,500,000 farmers who owned agricultural lands. It is a well-known fact that the holding of agricultural land in large parcels is the rare exception. We may reasonably conclude, therefore, that the "site value" held by each farmer was about $2,000. This is the sum which in absolute equity is said to belong to the public at large. But let us reflect that each farmer has only received a small proportion of this $2,000 through the increase in the value of his land. The fact is that the land which at first was actually valueless has increased in value with each generation, and it is this increase alone, apart from the increase due to the betterments, after which the public has any right to inquire. Remembering the number of sales and changes in the ownership which take place in this country, how often the benefits which have accrued to a single property are divided up among a number of heirs, and that each owner represents on the average a family of three individuals, it seems reasonable to suppose that this increase in the "site value" of each farm may have been divided among twenty different persons. Thus, while the statement may be made that the public has a claim upon the farms of the country of $7,000,000,000, it must be remembered that this sum has been divided among about 70,000,000 different people, and that this division has been in progress for over two centuries. When the benefits of our natural resources are so widely distributed as this, there can be little occasion to alarm ourselves regarding injustice through the private control of farming lands.

This, however, is somewhat apart from our argument. The main point, of which we must not lose sight, is that the private ownership of those gifts of Nature which are widely distributed operates to the general benefit of the community far more than any system of public ownership that could be devised. But, on the other hand, in the case of natural agents limited in amount, it is practically certain that sooner or later a monopoly will be established by their private owners, to the serious detriment of the public at large. The sovereign right of the public in this latter case to take such steps as are necessary for its proper protection, is something which both a priori reasoning and judicial decisions amply prove.

The great problem of monopoly would be a far easier one to solve, both theoretically and practically, were it as easy to regulate justly those forms of monopoly whose strength lies in combination only, as it is those whose power depends on the possession of gifts of Nature, which we have just considered. In dealing with trusts, monopolies in trade, and labor monopolies, we are in danger, on the one hand, of sanctioning oppressive interference with private business, and on the other of permitting a license in the conduct of private business which encourages its managers to continue to extort unjust gains from the public. In the face of this difficulty, which careful consideration shows to be very serious, and in the dread of other evils, such as the government proving incompetent to safely undertake these new and strange responsibilities, we may well feel like trying to get along with the aid of those old defenses against monopolies that have always, until the modern concentration of industry was accomplished, been ample to hold them in check.

But the one argument which prevents this is the fact that this tendency to concentration and consolidation is still actively at work. In the words of Prof. Ely: "Production on the largest possible scale will be the only practical mode of production in the near future." It is for this reason that we must not cease to look about for some better protection against this new class of monopolies than are afforded by merely placing stumbling-blocks in their way. We shall have need, for many years yet, of such weapons in fighting monopoly as the public is already familiar with; the creation of new competitors and their support by public opinion, judicial decisions against combinations, and the like. But before these grow absolutely useless, we ought to be prepared to meet the new conditions of industry with something better than mere opposition; and even now be experimenting and studying upon a permanent and consistent policy.

In attempting to control monopolies which are not dependent on natural agents for their strength, we are met at once by the declaration that the government has no power or right to interfere with property which is the product of labor; and that the owner cannot be prevented from making such disposition of it as he chooses. The President and Counsel of the Sugar Trust said after Judge Barrett's decision was announced: "We do not believe that the law prevents two persons engaged in rivalry with each other from uniting their interests." This seems indeed true; and yet, on reflection, it appears to be absolutely certain that power must reside in the sovereign people to protect themselves from the unjust taxation which a monopoly may seek to enforce. Let us brush away cobwebs and set the facts clearly before us. That competition among producers is the sole present protection of the public against extortionate prices is undoubted. When by combination this defense is abolished, has not the public a right to adopt some other means of protection? There can be no doubt that it has; the only question is, what form should that protection take?

It must be plain that, as a general rule, it is unfitting that government should own and operate industrial establishments. Practical experience has indicated that this experiment is wellnigh certain to result in failure, for reasons so evident as to require no mention here. The only alternative remaining is government regulation with private ownership and management. The essential features in the adoption of any plan should be that the returns of the private owner should be in proportion to the skill and economy which he exercises in managing his business; that competition and its resulting waste be done away with; and that the industry be placed on such a safe and stable basis that the capital invested in it shall receive the lowest possible rate of interest, thus leaving the greatest possible amount for the payment of wages of labor and permitting sales of the product at a low price.

XVI.
PRACTICAL PLANS FOR THE CONTROL OF MONOPOLIES.

The investigations which the author has pursued in the preparation of the preceding chapters and for certain other purposes have suggested to him certain principles in the practical execution of plans for the control of various monopolies, which seem to him necessary to success in the work. Well understanding the fallibility of any one man's judgment, especially in these matters of detail, he has determined to outline in a brief way what seem to him the most feasible plans for the control of each class of monopolies. These suggestions, however, are to be regarded in an entirely different light from the general laws propounded in the preceding chapters; and they are presented with a full knowledge of the fact that slight variations in circumstances may necessitate wide changes in plans and processes.

Taking up the monopolies which by their use of natural agents or their exercise of a franchise granted by the public, are already acknowledged to be subject to the public control, let us consider first the railway system. The two years in which the Interstate Commerce law has been in force have seen a great progress toward the final solution of this problem, even though railway affairs are at present in so unsatisfactory a condition. The important features of our future policy which now seem to be quite generally understood are: full State and national control over both tariff rates and facilities; the abolition of competition, either by consolidation or by legalized agreements to that end; and strict prohibition of the construction of parallel lines not warranted by the traffic.

That we are working very rapidly in this direction, no one will deny who is familiar with the progress of legislation affecting railway interests and with the opinions of railway men. Evidently, however, government cannot justly take so prominent a part in railway management without becoming in some degree responsible to railway stock- and bond-holders for the protection of their interests; and it is a difficult question to say in what manner this responsibility should be met. It has been the intention of the author in devising the following plan for the control of our railway system to make this responsibility a definite one, and not leave it as now, a vague constitutional right. For according to the law at present, State and national legislators may make laws to vary the receipts and expenditures of the railway companies as much as they please, and the only redress of the railway owner is an appeal to the courts, the judges of which must decide whether the company's revenue is so injured that its legal rights are infringed.

Space will not permit here a full statement of the many serious evils and abuses with which our present system of railway management is burdened. The study which the author has made of them has convinced him of their importance and magnitude. The following plan is designed to permit their remedy as well as to remedy the special evils of monopoly with which our present investigation is concerned:

Let the government acquire the title to the franchise, permanent way, and real estate of all the railway lines in the country. Let a few corporations be organized under government auspices; and let each, by the terms of its charter, receive a perpetual lease of all the railway lines built or to be built within a given territory. Let the territory of each of these corporations be so large and so planned with regard to its neighbors that there shall be, so far as possible, no competition between them. For instance, one corporation would operate all lines south of the Ohio and east of the Mississippi rivers; another all lines east of the Hudson and of Lake Champlain, etc. Let the terms of rental of these lines be about 3¼ per cent. on the road's actual "present cost" (the sum of money it would cost to rebuild it entirely at present prices of material and labor) less a due allowance for depreciation. The corporations would be obliged to keep the property in as good condition as when received, and would own absolutely all their rolling stock, machinery, etc.

It is not proposed, however, that the government shall own any interest in the railways save the legal title. Bonds would be issued to the full amount of the appraised valuation, running twenty-five years and bearing interest at 3 per cent., principal and interest guaranteed by the government, and these would be sold to the highest bidder. Thus the real ownership of the roads would be vested in the bondholders. As is well known, there is a great and fast increasing need for investments of absolute safety, even though they bear very low rates of interest. This is especially desirable for the continuance of our national banking system, in order to insure us a safe, stable, and ample currency. Such bonds would find a market at a premium as fast as offered.

It would not even be necessary that the money to pay the interest coupons should pass through the government's hands. The operating company would pay it directly to the bond-holder and at the same time the ¼ of 1 per cent. would be paid into the government treasury.

The object in making the bonds run for no longer time than twenty-five years, when it is intended that the whole value of the road shall be perpetually held in the form of bonds, is that at proper intervals a revaluation may be made of the improvements to the road and the interest charges may be readjusted to correspond with the general change in the income from capital. When the bonds fall due, a new block would be issued and sold to the highest bidder. The interest rate should be set at such a point that the bonds could be sold at a premium. These premiums, with the ¼ of 1 per cent. on the bonds, paid by the operating company to the government, (which we may regard as a legitimate fee to the government for its guaranty) should form a government railway fund. This should be used, first, to defray the expenses of the government department of railways, and second, to pay the deficit when on any line the net receipts after operating expenses are paid are insufficient to pay the rental. The remainder should be expended in making improvements and additions to the railway system, such as building new bridges and stations, and improving the line, the cost of which, however, should be represented by additional bonds at the end of the twenty-five-year term. The amount of income should be so regulated, by varying the rate of interest on new bonds, that the sum remaining for the last purpose may be about sufficient for usual needs. The whole administration of the receipt and expenditure of this fund should be vested in the government department of railways. In this way the danger that the whole work of this government department might be blocked through the neglect of Congress to make necessary appropriations, would be avoided.

The readjustment of existing stocks and bonds presents difficulties which will be considered in very different ways by different classes of persons. The "granger" element, for instance, would cut off the holder of "watered stock" with a shilling. Fortunately, if we take time enough, we can arrange this matter with no shadow of injustice. To illustrate: The government can purchase the A. B. & C. road outright at its market value, which, owing to inflated prices and watered securities, is perhaps $3,000,000. It is desired to wipe out $1,000,000 of this to place the road upon its proper basis. The government issues 3 per cent. guaranteed ten-year bonds upon the road and leases it at an annual rental of 6 per cent. on what it has paid. At the time the bonds are due, the accumulation of rentals over interest is more than sufficient to pay off $1,000,000 of the bonds, while the remainder are renewed on the permanent basis.

The author is well aware that a very strong prejudice exists against the lending by the government of its credit to private corporations. This prejudice—which has perhaps already been sufficient to condemn the plan, as thus far presented, in the mind of the reader—he believes to be a very wise and well founded one. The assumption by the government of any risk in connection with corporate enterprise is highly undesirable. It is now to be noted that this objection is wholly overcome; for, notwithstanding the fact that the government guarantees the bonds of the railways, it is not proposed that it shall really assume any risk, as will be seen from the further description of the powers and obligations of the operating corporations.

These should be essentially private companies, but there should be two or three representatives of the government on the Board of Directors. They should be required to operate the roads in a safe, efficient, and economical manner, and to keep accurate and simple records, open to the inspection of the Government Commissioners, of the receipts and expenditures on every separate line of road. The rates of fare and freight should be, first of all, stable. When once fixed they should neither be raised nor lowered except by the direction of the Government Railway Commissioners. Next—and this is the cardinal feature of the whole plan—it should be the endeavor to fix the rates of fare and freight at such a point that the total receipts would be sufficient, first, to pay the whole expense of operating and maintaining the road; second, to pay the annual rental of 3¼ per cent. interest on the cost of the road; and, third, an annual dividend to the stockholders of the operating company of from 4 to 8 per cent. The capital stock of the operating company should be fixed by law at about 1¼ times the actual cost of rolling stock and machinery. The operating company should be allowed to issue only one class of securities, and these should represent at par the actual cash capital invested by the operating company.

Under this plan it is evident that every community would pay its equitable share of the cost of transportation, since the rates would be based on the cost of service.[6] Instead of roads running along, bankrupt for years, as now, we would have every community paying for its transportation facilities just what it cost to furnish them. But if, on any road, such a rule would raise the rates above a certain prescribed maximum point, then the rate could be lowered, if necessary, to a point where it was only great enough to pay the operating expenses; and part or all the bond interest would be paid out of the government railway fund.

"But," the objector says, "is it not true that when you limit the profits of the companies and base rates on cost of service you take away all incentive to economy and careful operation? The public, and not the company, gain if the cost of service is reduced; so why should the manager exert himself to economize? This very same principle has been tried. Many States have chartered railway corporations, and provided that fares and freight rates should be reduced when dividends exceeded a certain per cent., or else that a percentage of the surplus earnings, above the amount necessary to earn, say 10 per cent. dividends, should be paid into the State treasury. Of course the railway corporations who have been able to earn surplus dividends which they were not permitted to pay, have been sharp enough to spend their surplus on their own property instead of turning it over to the State treasury. How is it possible, then, to base rates on cost of service and still leave the incentive to economy, frugality, and efficiency which exists, when the corporation is permitted to make all the profits it can?"

To discover a means of overcoming this difficulty, let us see how it is overcome under competition. A man invents a new machine, for instance, which effects a saving in the cost of some manufacturing process of 50 per cent. One manufacturer adopts it because it greatly increases his profits, and one by one his competitors follow suit. The competition between them cuts the prices lower and lower, till finally the consumers of the goods get all the benefit from the saving effected by the new machine, and the manufacturers' profits are no greater than they were originally. But the important point to be noted is this, that the benefit to the manufacturer continued long enough to repay him for introducing the machine. So in our attempts to base railway rates upon cost of service, we must permit the profit from the introduction of economies, the use of improved appliances, etc., to be gathered by the railway company long enough to induce it to work toward that end.

All we need to do to effect this end is to somewhat delay the change in rates to correspond to change in cost of service. As already stated, it is most necessary that rates should be stable, and it is proposed to make any change, either advance or reduction, only through the action of a Government Commission. Now, suppose that some such clause as this forms a part of our railway law: "upon the petition of any railway corporation, or of not less than twenty-five patrons of any single 'railway district,' it shall be the duty of the Railway Commission to investigate regarding a readjustment of rates to correspond more closely to the cost of service. If it shall be found that in the given 'railway district' the net receipts over the operating expenses and fixed charges have been for one year not less than 9 per cent. on the capital of the operating company invested in the given railway district; and that for two successive years they have been not less than 8 per cent.; or, if they have been for one year 8 per cent., and for two years 7 per cent., and it shall be proven to the satisfaction of the Commission, that any due and proper measure of economy, to which the attention of the officers was called in writing has been wilfully neglected, or that any uncalled for and manifestly extravagant expenditures have been entered into during that time, then it shall be the duty of the Commission to lower the rates. If it shall be found that for one year the net earnings have been less than 3½ per cent., and for two years less than 4½ per cent., unless it shall be proven that this deficit has been fostered by neglect of due economy, or by extravagant expenditure as aforesaid, the rates shall be raised. In all cases where rates are readjusted, it shall be the endeavor of the Commission to set them at such a point that the net earnings will equal 6 per cent. on the capital stock."

The provision requiring two years of excess or deficiency before a change, would be necessary to avoid the fluctuations which occur in single seasons. Every piece of economy is so much gain to the stockholders, and its benefit is received for at least two years. It must be remembered that in any railway corporation, as at present conducted, none but the highest of the managing officials have any personal interest in the profit from operations. It may well be believed, therefore, that the measure of economy and efficiency effected would be at least as great as now. As this plan also contemplates government representation on the Board of Directors, any action by the higher officials to evade the law would be unlikely to occur.

The receipts of a company operating say 30,000 miles of railway and carrying its traffic at fixed rates would vary but little from year to year; and its stock would be so largely held by investors and would vary so little in price that there would be very little speculation in it. To bankrupt the company would be an impossibility, since its receipts would always be regulated to preserve its revenue, although not so strictly but that the company would still have every incentive to cultivate traffic by offering good facilities, and to economize at the same time by the introduction of improved methods.

No doubt it can be shown where every detail of the foregoing plan leaves loop-holes for abuses to creep in. It will be much the same with any plan whatever. The questions to be asked are, would abuses, waste and stealing be any more likely to occur than under any other plan? Could they be any more prevalent than they are now,—bearable only because we are calloused to them? Of course, the foregoing is a mere outline of the general principles of the plan. Details which readily suggest themselves would, of course, be necessary to carry out the principle successfully.

That some attempt should be made in this connection to solve the perplexing problem of strikes on railway lines is proven by the memorable engineers' strike on the Chicago, Burlington, & Quincy system. Perhaps a provision requiring every employé and officer to hold at least a certain number of shares in the operating company in proportion to his salary would help to solve the labor problem; and it might give the higher officers a greater interest in their work than they always show.

The author has deemed it worth while to outline the foregoing plan for the equitable control of railway monopolies with considerable fulness, because, to a very great extent, the principles followed in the design of this plan are applicable to a great number of other monopolies. These important principles are: (1) Government protection to the owners of fixed capital so that the public may obtain the use of it at the lowest possible rate of interest. (2) The operation of monopolies by corporations rather than by the government, thus securing the increased efficiency of private over official management. (3) Securing to the people at large the benefit of the monopoly by basing the prices for its product on cost of service. (4) But leaving a suitable incentive for the company's managers to maintain economy and efficiency in its operations. (5) Government representation in the directorate controlling the ordinary affairs of the company.

It is evident that the plan just outlined for railways would be especially well adapted, with but slight changes, for the control of the telegraph lines of the country.

We will next consider the monopolies discussed in Chapter III. It seems too plain to need proof that our mines and quarries are certain to have a steady increase in value as we use up the easily worked surface deposits and have to dig deeper shafts and develop the poorer deposits to supply the demand. In the case of any metals or minerals of which the deposits are so abundant, easily worked, and widely scattered, that the number of evenly matched competitors is great enough to ensure steady competition, the public will get the benefit of the especial gift of Nature, and its owner can receive little more than an ordinary return for his labor and capital. But, as we have already amply shown, in the production of a great number of minerals and metals competition has been killed, or is heavily handicapped by the vast advantages of a few bonanza mines, and the public is being taxed millions of dollars for that which belongs to it by right.

How long is this condition to continue? Must all succeeding generations pay for coal, copper, zinc, lead, nickel, marble, oil, gas, and various other products of our mother-earth just what those who control the chief deposits choose to ask? Because a pioneer stumbles upon a valuable mine, shall the sole right to use the product of that mine be secured "to him, his heirs and assigns" forever?

Suppose, now, that each of the several States were to acquire the title to all the productive mines, quarries, and mineral wealth within its borders, and enact laws providing that future discoverers of minerals on land where they are not now known to exist should be liberally rewarded, if the discovery proved valuable, but the minerals should belong to the State and not to the owner of the land. The same principle which we found to apply in the case of the railways would serve here in readjusting values, viz.: the difference in the rates of interest on safe investments and on risky ones. When acquired, the mines should be leased to private parties for operation. In the case of coal-mines and perhaps of iron, it would be well to copy largely from the scheme proposed for railway operation, viz.: place all the business in the hands of a single company, which should thus be enabled to carry on its business on the largest possible scale; do away with wasteful competition, and aim to regulate prices to provide a certain reasonable steady income on its capital to the mining company.

For mines of copper, zinc, lead, and similar metals, it would be best to pursue a different plan, and simply provide by statute that such mines should be leased for short terms of years to the bidder who would offer to sell his product at the lowest price per ton at the mines, all lettings and relettings to be publicly advertised, and the successful bidder to give bonds for the faithful performance of his contract. It is difficult to see how, under these conditions, a combination to defeat competition could be formed. Relettings of expired leases would be frequent; and bidding by the selling price, a single competitor would be sufficient to break any combination. Of course the lease should specify a minimum product which the mine should furnish.

It would be advisable, too, that a manifest duty of the government, which should be undertaken even under present conditions, should be observed. It should be required to work the mine with due attention to saving the greatest possible amount of ore or mineral contained in the seam or vein.

The third class of monopolies, whose legal subjection to public control is acknowledged, are those connected with our municipal public works. There is already a widespread movement toward taking the control and operation of these out of the hands of private corporations, and placing it directly with the city government, and progress in this direction is very rapid. The author believes, however, that the general law already stated is applicable here. If the public works of States and of the nation are more economically and efficiently managed when in the hands of private parties, it is surely unwise, as a general rule, to entrust the operation of municipal works to the average city official. While it is in the highest degree desirable that water-works, gas, and electric-lighting plants, street railways, and the other municipal enterprises, discussed in Chapter V., should be owned by the municipality, their operation, in cases where the employment of considerable labor and the carrying on of intricate business and mechanical operations is involved, should in general be entrusted to private companies. In every case where the financial condition of the municipality obliges it to rely at first upon private corporations for the construction and ownership of its public works, the franchise should expire at the end of a short term of years, and the city should then have the privilege of purchasing the works at their actual cost.

As regards works for water supply, there can be little doubt that almost invariably the municipality should operate as well as own the works, for the administration of the works requires but a small amount of labor, and that of such a class that the city can safely carry it on. But gas or electric-light plants, both for street and resident lighting, should be operated by private companies.

These industries are making such rapid progress in the way of new processes, effecting both economy and improvement, that it is somewhat difficult to say what steps should be taken. Many are of the opinion that gas is destined to be entirely replaced by the electric light; but while this may eventually prove true, it will probably be a very long time before the existing gas-works cease to supply consumers. Thus the true solution of the problem seems to be that when a growing town nowadays wishes to establish a new lighting plant of its own, it should adopt electricity. But in the case of a town having gas-works already established, the municipality is safe in assuming their ownership.

As regards the operation of lighting plants in small towns, it would doubtless be best to lease the plant for short terms of years to the highest bidder, making sure that the call for proposals is widely circulated. Great cities, however, would find this policy unsatisfactory. If a ten-year lease of the Philadelphia gas-works, for instance, were advertised for sale to the highest bidder, there would be but few really close bidders upon it, and the danger of "a combination to defeat competition" would be great. It is at least worth considering whether such a plan as we proposed for railways could not be made feasible here. Let a corporation be chartered to operate the lighting plant of the city, and let the charter of the corporation provide that its rates shall be such as to pay an annual dividend upon its capital stock (fixed by law and not changeable) equal to the legal rate of interest in the State. Provided, that in no case should the rates be lowered unless the net profits in one year were more than 2 per cent. in excess of this rate, and that the excess for two consecutive years was more than 1½ per cent. in excess of this rate. Provided also, that in no case should the rates be raised unless the deficit exceeded 1½ per cent. in any year, and 1 per cent. for two consecutive years, and that it should be proven by the company that it had exercised all reasonable diligence, care, and economy in the management and operation of its business.

A certain proportion of the stock—less than a majority—should be held by the city; and the mayor should appoint directors to represent the city, at least one of whom should be personally conversant with the industry carried on by the company.

Although not often so considered, the matter of passenger transportation is a much more important matter in our greatest cities than either lighting or water supply. The laboring man, who has to pay perhaps twelve cents for the necessary ride back and forth to his work every day, feels this tax most severely. Suppose that under such an arrangement for street railways as we have outlined for gas and electric lighting companies the fare would be reduced to three cents. His savings from this source would amount to at least $18 per year. Counting the extra rides and those which his wife and children have to take, the annual saving would probably reach $25, a sum which to the average laboring man with a family dependent upon him means a great deal.

Our municipal monopolies are now taxing us that they may pay swollen dividends on millions of dollars of fictitious capital. It is quite time that the public recovered possession of the valuable franchises which are its rightful property, and managed them for its own benefit. The legal difficulties in regaining the title to these franchises are certainly not insuperable, and the readjustment of capitalization can be made on the principle outlined in the case of steam railways. To illustrate: The city of "Polis" purchases the works which supply it with water from the private company owning them, paying the average market value of the stock and bonds during five years past, which amounts, perhaps, to one and one half times the cost of the works. The revenue from the works has been sufficient, probably, to pay 8 per cent. on these securities. The city issues 3 per cent. ten-year bonds to raise funds for the purchase, and it then operates the works so as to gain a yearly revenue of 6 per cent., or 2 per cent. less than that gained by the private company. At the end of ten years the surplus income from the works is enough to pay more than one third the bonded indebtedness; and, if desired, the rest may be reissued as new bonds to run for a long period.

The three classes of monopolies just discussed—railways, mineral wealth, and municipal works—include practically all the monopolies which are generally acknowledged to be subject to the public control by virtue of their use of natural agents or the exercise of franchises granted by the public.

We will next consider the monopolies in trade, in manufacturing, and in the purchase and sale of labor, to see what steps should be taken to protect them from encroaching on the rights of the people. In exercising the right of the people at large to take control of these purely private industries from the hands of their owners, we are assuming a power which, like a strong medicine, may be as potent for evil as for good. Only extreme necessity should sanction its use, and its abuse must be carefully guarded against. It is not saying too much to assert that the abuse of this power has already become an evil. We have become so used to legislation for the benefit of special industries, that legislation for their injury does not seem to be regarded as the exercise of a dangerous prerogative. Thus we are threatened with a flood of laws to fix the prices in various industries now subject to monopoly, or to crush them out altogether by enacting some restrictive measure,—legislation which, by its directness, is apt to strike the average lawmaker very favorably, but which, it needs little wisdom to see, is the sure forerunner of abuses. The author trusts that nothing in this book may be construed as advocating or defending some of the crude and ill-considered attempts at anti-monopoly legislation already made, or that may be made in the future.

We have proven in the preceding chapters that, from the character of modern concentrated industry, a very large number of our manufactures must either exist as monopolies or else must engage in intense and wasteful competition. If the monopoly can be so managed that it shall carry on the industry economically, adopt improvements, keep up the character of its product, and keep the prices therefor so low as to make no more than ordinary profits, it would be for the public advantage that monopolies rather than competition should exist. Can we regulate monopolies to secure such results? If so, our problem will be solved.

The author has proposed for the first class of monopolies—those obtaining the benefit of natural agents and public franchises—government ownership of fixed capital and regulation of prices, with private operation and general management. But he is far from believing that such a plan would now be wise for regulating trusts. It may indeed be that, at some time in the future, many of the great staple manufactures will be formally established by the government as monopolies, and controlled in a similar way to that which we have outlined for the railway system; but it is so far in the future that we need not consider it in detail now. Under our present political organization it would be practically impossible for the government to undertake to regulate justly and equitably such an industry, for instance, as the steel-rail manufacture. We have set our State, national, and municipal governments a hard enough task in the preceding pages of this chapter, in bringing under public control our monopolies of transportation and communication and our productive mines; and although it is a work possible of accomplishment, it will need good statesmanship to carry it out. By the time that task is accomplished, a similar plan, improved as experience will then suggest, may perhaps be found available for the regulation of the important manufacturing industries.

We decide, then, that it is for the public advantage at present that both the ownership and operation of manufacturing industries and of trade must remain in private hands. The next question is, will the greatest advantage to the public be secured by starting a crusade to re-establish competition and break up all existing monopolies in manufacturing and trade; or by taking the opposite course, legalizing monopolies and so regulating them by law that they shall be prevented from making undue profits by laying an exorbitant tax upon the public?

Practically all the efforts made or proposed thus far for remedying the evils of monopolies in manufacturing and trade have had for their purpose the re-establishment of competition. The investigation to which the first part of this book was devoted shows the wide extent of the movement to restrict competition. Is it possible to wholly counteract this? All our study of the laws of competition seems to show that the tendency of modern competition is to destroy itself by its own intensity. Certainly all the strenuous efforts to keep it alive by the force of legal enactment and public opinion have thus far proved unavailing. There are now, probably, at least a million persons in the United States who are directly or indirectly interested in unlawful contracts in restraint of competition; and among them are included many of the best financiers and most enterprising business men of the country. Certainly those who propose to drive these men into a renewal of competitive strife contrary to their will have set themselves a very difficult task.

Let us consider the opposite alternative. It cannot be a good thing to have such a great proportion of the active business men of the country, who bear the highest personal character, engaged in illegal contracts. Let us therefore take them within the pale of the law. They seem to be determined to make contracts with each other in restraint of competition; and believe, indeed, that they are forced to do it by modern conditions of trade. Suppose we were to legalize these contracts and permit the establishment of monopolies. What can we then do to protect the public from extortion in prices and adulteration in its products on the part of the monopoly?

In the first place, now that we have legalized monopolies there is no more excuse for secrecy. To work in darkness and privacy befits law-breakers, but is needless for legitimate enterprises. Let the law provide that every contract for the restriction of competition shall be in writing, and that a copy shall be filed, as a deed for real estate is filed now, with the proper city or town officer where the property affected is situate, and also with the Secretary of State where the contract is made. Certainly no honest man will object to this provision. The contention has been made that contracts to restrict competition were necessarily kept secret because they were "without the pale of the law." Very well; we have legalized them. There can be no further defense of secrecy. If any now refuse to make public their contracts to restrict competition, the refusal is evidence that the contract is for the injury of the public or some competitor and therefore properly punishable. We shall now know just what monopolies exist; just what is their strength, and for just how long a time their members are bound. Let us next see what measures we can adopt to prevent these legalized monopolies from practising extortion upon the public and abusing the power they have gained by the combination.

The first important means to secure this which the author would suggest is simply an extension of the common-law principle of non-discrimination. A man in conducting certain sorts of business is permitted to do as he chooses. He may sell to one person and refuse to sell to another; he may give to one and withhold from another. But if he enters business as the keeper of an inn or as a common carrier of passengers or freight, he can no longer exercise partiality. He has elected to become a necessary servant of the public, and as such he is bound to serve impartially all who apply. In the same way a manufacturer while he engages in business under the usual laws of competition, may sell to whom he pleases and exercise such preference as he chooses. But when he combines with all other manufacturers of the same sort in a combination to restrict competition, he and his allies voluntarily change their relation to the public. Is it not true that they do actually elect to become necessary servants of the public—far more necessary, indeed, than the inn-keeper or the stage-coach driver,—and ought they not therefore to be placed under similar legal restrictions?

In every case where combination or consolidation restricts competition in an industry, one effect produced is an increase in the power over the public which the industry possesses. But this increased power over the public, thus voluntarily assumed, must inevitably carry with it increased responsibility to the public. It is the duty of the government to see that this responsibility is legally enforced.

This first principle, then, should be embodied in a law providing, in substance, that every person or firm entering into a contract to restrict competition should, so long as that contract was in force, be debarred from showing any preference in his or its purchases and sales, by giving more or less favorable prices to any person or firm than those quoted to any other person or firm. To enforce this requirement and prevent its evasion it is necessary to provide also that prices shall be public and that they shall not be altered without due notice. The requirement of publicity might be best effected by providing that the contract restricting competition should contain a schedule of prices, which would usually be the case in any event.

While this may seem like quite an assumption of authority on the part of the State, it is exactly what trusts and trade associations are striving to effect, though with the important qualification that when occasion, in the shape of an obnoxious competitor, requires, they wish to be at liberty to put prices up or down at short notice and exercise their preferences as they choose.

Let us now see what we would effect by the enforcement of this principle of non-discrimination. We have explained in the chapter on combinations in trade how one monopoly gains strength by alliance with another; as when the firms belonging to the car-spring combination made a contract with the steel combination by which that monopoly agreed to sell to them at a reduced price and to make an extra rate to their competitors. Under this law it would be impossible to found one monopoly upon the favors of another in this manner.

The obnoxious trade boycott, too, which is now becoming so common, would be effectually checked. And the scheme for crushing out a rival by giving all his customers specially favorable rates would no longer be practicable. The fact is that if we can stop the discriminations which the monopolies have practised, we shall cure a large share of the evils they have caused. It may be said that the courts will already punish many conspiracies of this sort; but a monopoly which is already breaking the law by its contracts of combination, finds in its methods of doing business plenty of chances to evade the laws against conspiracy. Certainly with a properly drawn law with reference to the publicity and stability of prices, it should be possible to practically wipe out the evil of discrimination by monopolies. It is also to be noted that the requirement of non-discrimination and of public and stable prices would bring profit in doing away with the waste of competition.

We have now to inquire what means it is possible to take to ensure that the prices charged by the monopoly shall not only be the same to all, but that they shall not in themselves be so exorbitant that the monopoly will reap large profits at the public expense. How can we keep the prices charged by the monopoly from rising far above the point where they would stand if free competition were in force? Two methods are open to us. We may keep down the monopoly's rates by what we will call potential competition, or we may reduce them directly by legislative enactment.

The right of the public to take this latter course may be defended on the ground that the monopoly has voluntarily made itself a necessary public servant, and in that capacity offers to the public its goods. While it is true that the people permit the monopoly to become a necessary public servant and protect it in the contracts by which it restricts competition, it is also true that the monopoly cannot justly make merchandise of the necessities of the people. The public may allow a combination to obtain control of all the sugar refineries, for instance, and protect the combination in its formation. But suppose the owners of the combination then say: "The people are obliged to have sugar and we control the supply. We will set a high price on sugar, therefore, because we know that they will pay it rather than go without." They are then making the necessity of the public a source of gain, and it cannot be believed that this will be permanently suffered.

The serious difficulty in fixing by direct government action the prices which a monopoly of this sort shall charge, is that we cannot stop at that point. When once the government steps in to do so radical a thing as to fix the price which a monopoly shall charge, it becomes in equity responsible to the owners of that monopoly for the maintenance of their incomes from their capital invested. If their profits have been so reduced by this action as to seriously injure the value of their property, they have a legal right to claim compensation from the state for the injury it has done them. And in almost every case they would set up the claim that their property had been thus injured. To determine the point at which reasonable prices and reasonable profits become extortionate prices and unjust profits is a task requiring expert knowledge and the most comprehensive judgment, aided by the most accurate statistics. To impose this task on our already overburdened courts would permanently block the wheels of justice, and would give to the judicial department of government a work which its machinery is wholly unsuited to carry on.

It seems evident, therefore, that when it becomes necessary for the state to directly fix prices to be charged by monopolies, a more radical step should be taken. The monopoly should be established on a permanent basis, and the state should have some part in its direct control.

Discarding, therefore, direct action by the state to fix prices as inexpedient, for the present, at least, let us see what we can effect by means of "potential" competition, which term we will use to signify that competition which may be established in any monopolized industry if the inducements offered are sufficiently great. It must be remembered that nowadays men of capital and enterprise are always on the look-out for every opportunity to invest money and expend their industry where it will bring the greatest returns. If any monopoly seems to be making large returns, people are generally ready to believe that it is making twice as great profits as it really is; and some one is quite likely to start in as a competitor, if there is a prospect of large profits. Now we wish to do two things. We wish to make it so easy for new competitors to enter the field against a monopoly that its managers will keep their profits down in order not to call in any new competitors. We also wish to so modify the intensity of competition between the monopoly and the new competitor that the latter may have a chance at least of being repaid for its expenditure in entering the field. The simplest and best of the legal provisions which we may enforce to this end is the one already stated of non-discrimination. The monopoly can no longer reduce its price to apply to only the limited field in which the new competitor works, but must reduce its prices everywhere to meet those made by the rival. In the case of monopolies in trade and all monopolies in manufacturing in which the fixed capital required is but small, this is all that would be needed to encourage the establishment of new competitors and discourage the monopoly from grasping after undue profits from the public.

In the case of those manufacturing monopolies in which a large fixed capital must be invested at the start by any new competitor, we have a much more difficult problem. It is true that in this case the monopoly itself has more at stake; and this may induce the starting up of new competitors simply to be bought out by the trust,—a sort of blackmailing operation which is certainly repugnant in its character. It might be possible to provide that rates charged by the monopoly must be so stable that a competitor would have a chance to establish itself before the monopoly could bring its own rates down. It might be possible to force the monopoly to keep all its factories in operation, and thus oblige it to keep down its price in order to dispose of its products; but there are evident practical difficulties in the way of enforcing such laws. It seems a great pity that just now, when to find some employment of prison convicts in some manner that will not "compete with free labor," and thus displease the labor interests, seems an impossibility, we cannot set the convicts at work to compete with the trusts and bring down their profits to a reasonable point. Surely the labor party would find no fault with this use of convict competition.

There is one step, however, which we can take, and whose effect would certainly be very great; in its desirability, apart from questions of monopoly, all honest men are practically united. We can reform our laws regarding corporate management. It is a mild arraignment compared to what is deserved, to say that our present laws regarding the formation and management of corporations, taking the country as a whole, are a shame to the people and a disgrace to the men who made them. They seem designed to place a premium on fraud and knavery, and to assist the professional projector and stock manipulator in reaping gains from innocent—generally very innocent—stockholders. Now a real reform in our corporation laws would greatly simplify our work in controlling monopolies. Let us have no more stock-watering of any sort at any time in a corporation's life. Let us have no more "income bonds" which yield no income, and "preferred stock" in which another is preferred after all. Two classes of securities are enough for an honest corporation, and the public interest requires the charter of no other class of companies. Let us have done, too, with the iniquitous custom of one corporation holding another's stock or bonds. With a few such simple reforms as these effected, the holders of stock in our corporations would have some idea where they stand and what their securities represent, and would take some interest in the control of their property.

With these reforms, in the case of every corporation making a contract to restrict competition, it would be required that the company make public annually a full statement of its receipts, expenditures, and profits. Every monopoly would stand before the public then in its true position, and every one would know if it were making 50 per cent. per annum on the actual capital invested, or only 5 per cent. With these facts made public, if any monopoly ventured to raise its price till it reaped unusual profits, some of the heaviest consumers of the monopolized product would be very apt to start a factory of their own in opposition. It is to be remembered that under the law of non-discrimination the monopolies would be prevented from currying favor with the large consumers by giving them specially favorable prices. It is now common to do this, as it removes the danger of combination among these important customers to compete with the monopoly.

To sum up, the chief features of the plan proposed for the control of monopolies in manufacture and trade are as follows: Make contracts to restrict competition, legal and binding, instead of illegal and void as now. But; provide that every such contract shall be filed for public inspection; that prices charged by the combination shall be public, stable, and absolutely unvarying to all; that the affairs of the combination shall be managed according to a consistent and stringent corporation law; and that an annual report of the operations of the combination be made to a public commission.

Contrast this with the existing law upon this important subject. In Judge Barrett's decision in the Sugar Trust case he said:

"The development of judicial thought, in regard to contracts in restraint of trade, has been especially marked. The ancient doctrine upon that head has been weakened and modified to such a degree that but little if any of it is left. Indeed, excessive competition may sometimes result in actual injury to the public; and anti-competitive contracts, to avert personal ruin, may be perfectly reasonable. It is only when such contracts are publicly oppressive that they become unreasonable, and are condemned as against public policy."