CHAPTER X FEDERATION ORGANIZATION: SIMPLE "AGREEMENTS" AND PRICE COMBINATIONS1 Definition and General Nature. In passing over to the field of combination organization, we enter a region where forms are so complex, interrelated, and shifting, that accurate classification is difficult. Such was once the case with simple associations of individuals when in the sixteenth and seventeenth centuries various forms of partnership and joint-stock company, temporary and permanent, unincorporated and incorporated, were being tested by business men and lawyers. One result of this greater complexity is the loose terminology used by the press and popular writers on the subject of combinations. Naturally the looser forms of combination are treated most unsatisfactorily, and so a word about the meaning and classification of "agreements" and "pools" will not be amiss. Both of these forms come under the idea of "federation," for both are alliances of separate and largely autonomous organizations for mutual benefit in relations which are largely external to themselves. The pool is the more highly developed form and is more easily defined. As its name indicates, the pool as a form of business organization involves the establishment of a common fund which is to be divided among the members on some agreed basis. This is the essential element; and income, output, or market may be thus "pooled " by any number of producers. The pool is thus a special kind of agreement and generally involves a considerable amount of organization for its maintenance. The "simple agreement," various forms of which are to be 1 See Appendix, p. 414, for the constitution of a typical agreement organization. discussed in this chapter, is a less highly organized and compact form of federation among business organizations. In most general terms, an agreement is simply an express understanding concerning business affairs, and so would embrace pools. A pool is a sort of agreement. But the latter term has come to have a more limited and special meaning, and that class of agreements in the general sense which concerns pooling is excluded from "simple agreements " in the special sense. The term "simple agreement" will be used to cover all express understandings between separate business units in so far as they do not concern any collective control of the quantity of output to be marketed, Such understandings concern prices or trade conditions directly and immediately, and do not seek to restrict supply or demand, -the price-making conditions. The " agreement," then, is to be taken to mean the looser forms of business organization, such as are variously called "working agreements," " price combinations,' gentlemen's agreements," "associations," etc. 99.66 In 1776 Adam Smith wrote: "People of the same trade hardly meet together even for merriment or diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Over one hundred years later, Mr. C. M. Schwab, the steel magnate, when asked if there had been pooling agreements in the steel industry before the trust, replied: "Yes; in all lines of business, not only in steel, but in everything else. There were similar agreements, known as joint agreements, to maintain prices. They have existed in all lines of business as long as I can remember.' And undoubtedly as long as there have been groups of business men engaged in the same industry, among whom communication has existed, such agreements have been made. The period in which they came into special prominence as a means of federating important business organizations, however, may be said to extend from the Civil War time till 1875 or thereabouts. Then, "big business" was only just developing in this country, and the agreement was naturally the first recourse under the new " 1 1 Report of the Industrial Commission (1901), Vol. XIII, p. 474. circumstances. To-day, however, agreements may be found everywhere. In all trades there are wholesalers' or retailers' "associations," often organized into national and local branches, which loosely federate business organizations. Conventions are held at which trade conditions are discussed and steps taken to secure the advancement of the business. "Unfair" competition is ventilated and decried. Moreover, the members of such organizations sometimes prepare catalogues or price lists of standard articles, the understanding being that the terms thus circulated will be observed. 1 Not so extensive, but much more effective, are the numerous little groups of "magnates" whose agreements occasionally come to light. Thus there were the notorious "Gary dinners " of steel manufacturers, at which "there were no understandings reached to maintain prices, but the general effect was that prices were maintained.” There is the Bridge Builders' Society formed "to establish perfect frankness as to furnishing such information as to bids, terms, prices, and tonnage as may reasonably be required," but whose members maintain that they are in active competition with one another. For years, without any formal organization, the price of anthracite coal has been regulated effectively by obvious agreement among a small group of mine owners. The various railway traffic associations bring agreement concerning rate schedules, as every one knows, without any consolidation or pooling organization. And recently the limelight has been turned upon the secret meetings of the "big six" among the packers, who each week came to an informal agreement on prices and margins. As they also regulated output after the manner of pools, this agreement shaded into pooling. In fact, few if any outsiders know the exact scope of these secret agreements, and several of those mentioned may embrace pooling features. 1 Evidence by J. A. Topping in recent suit to dissolve the U. S. Steel Corporation, as reported in the press May 15, 1912. Judge Gary himself said before a House Committee recently, "I do believe that if one individual is possessed of information concerning the conditions surrounding the other's business that it prevents many times, and perhaps in most cases, the extreme, the unreasonable, the bitter, and destructive competition which used to exist." This was the object of his dinners. Illustrations of Various Kinds of "Agreements.” 1 - From the formal point of view, two broad types of "simple agreement" organization exist: those which trust to the spoken word of the parties for the enforcement of their terms; and those which seek to secure more binding results through written contracts, penalties, or other devices for compulsion. The former type embraces the so-called "gentlemen's agreements." 1 To facilitate an understanding of agreements the following attempts at classification are presented: A. As to scope and membership: 1. Trade conditions. a. Sellers (with or without sales agency). (1) Manufacturers, growers, etc. (2) Wholesalers or jobbers. (3) Retailers. (4) Wholesalers and retailers. (5) Manufacturers and jobbers. (6) Manufacturers, jobbers, and retailers. b. Buyers (as under a; but not so full). 2. Prices. a. Sellers (as under 1, a, "Factors' Agreements" included). b. Buyers (as under 1, b). 3. Output, and Prices and Output. II. STATE AND NATIONAL (as under I). III. INTERNATIONAL (as under I; but perhaps not I, 1, a, (3), (4), (6). B. As to methods: I. MONOPOLISTIC (generally secret). 1. Gentlemen's agreement (generally voluntary). 2. Contract agreement. a. Voluntary (with or without a sales association). 1. Without forfeit. 2. With forfeit. a. Refusing to sell to or buy from violators. b. Boycotting. c. Pledge deposit. d. Fines. e. Use of patents. b. Involuntary or compelled (with or without sales association, as un II. OPEN. der a). 1. Gentlemen's agreement (generally secret and voluntary). 2. Contract agreement (as under I, 2). a. Secret. b. Public. Such organizations are numerous and widespread. Their effectiveness depends entirely upon the honor and faithfulness of the members in holding fast to their informal word, but they are often more effective and more strictly observed than more formal contract agreements. They include no formal organization for regulating output or maintaining prices. While the other type is not necessarily, per contra, a rascal's agreement, it depends less upon the honor of the parties, and forfeits are provided in case of infraction. Such agreements are described in the pages which follow. Within each of these types several different classes of agreements might be distinguished. Some are loose and secret; others are more open and have written by-laws. Some concern the conditions under which business is transacted; others concern the prices charged for products; still others go further and include an agreement concerning the output. It is the purpose of this chapter to examine in outline the more important forms of "agreement." As descriptions of them are not readily obtained, it has seemed best to include brief accounts of numerous agreements, even at the risk of confusing the reader; but, as such a variety exists, after all the confused picture will be the truer likeness. 1. Trade-conditions Agreements. Most simple agreements of the present time concern prices; but many do not have the fixation of prices as their direct and primary object, and some do not relate to prices at all. As such agreements concern various conditions of trade, such as terms of credit, methods of packing and shipping, dealing with competitive products, advertising, transportation, and labor supply, they may well be called "trade-conditions agreements." One great branch of trade-conditions agreements is formed by the commercial organizations of cities and towns which are variously known as "chambers of commerce," "boards of trade," "commercial clubs," etc. These organizations are characterized by the fact that (1) they are based on locality; 1 See Brand, "Commerical Organizations," Department of Commerce and Labor, Bureau of Manufactures, Special Agents' Series, No. 60 (Washington, D.C., 1912). |