no clearer lesson than that as the law has cut off one form of combination another has taken its place, and in following the line of least resistance each form has either been more secret or more compact than its predecessor. As agreements and pools have been made illegal, community-of-interest organizations, mergers, and holding companies have sprung up. These forms may or may not be worse than the pool. That is not the point here. The point is that anti-pooling laws tend to freeze the pools, as it were, into solid masses which fill the same beds that the pools occupied.

But, in the second place, it is not true that monopoly is always bad. This subject has already been touched upon in discussing the legality of combination in general, and will be mentioned again. Most thoughtful economists now are agreed that the wastes of unrestrained competition may outweigh the dangers of regulated monopoly in certain cases, and here monopoly, under governmental supervision, is good.

The foregoing point leads naturally to a final observation on pooling from the public point of view. Among the wastes of competition is a fluctuating and unstable condition of prices accompanied by unjust discriminations. Unstable and fluctuating prices mean greater risk, higher interest and insurance rates, and retarded industrial plans, and in this way they constitute a social evil. Not only this, but the door is open to all sorts of unjust discrimination and favoritism and industrial terrorism. It is now a veritable commonplace to state that the

1 The following excerpt from a recent decision indicates some of the advantages that may come from pooling. "... there was from the jobbers' standpoint much that was attractive in the scheme as a whole. Competition had been fierce. It had not always been either wise or honest. A badly made article may. deceive. .. When the defects were speedily discovered, the jobber might have to take back the article. The cost of doing so ate up the profit. . . . If every dealer signed the agreement, more of them could gain by any ware... not standard of its kind. The lowest price the makers could take would buy a good article . . . friction with customers would be lessened. The reputation of the ware would be raised. Every jobber would know that he was buying and selling on the same terms as his competitors. He could tell to the traction of a 'cent what his gross profit on every article sold by him would be. He could regulate accordingly his expenditures for handling and advertising it." U. S. v. Standard Sanitary Mfg. Co. et al., 191 Fed. Rep. 177 (1911).

railways are placed at the mercy of large shippers when they are not banded together so as to enable them to turn down requests for special favors, strong in the knowledge that the rival carrier is bound to do likewise. Pooling, in addition to maintaining a level of prices which may be lower than the average of fluctuating prices, affords a distinct benefit by merely making prices stable. Mere price agreements tend to do the same thing, but are not sufficiently enduring. Pools also lack the permanence necessary to secure the best results on this score; but they have often met a temporary need successfully, and in their better organized forms have lasted for years. If legalized and regulated they could do the work. And, in addition, they would enable the honest producer to maintain reasonable trade conditions and prices against the undercutting of weak or dishonest competitors.

After all has been said, however, it must be agreed that pooling agreements are dangerous to the best interests of society unless prices or the price-determining conditions are under some sort of public supervision. Is it safe to allow pooling when monopolistic and extortionate prices may be charged? And is the mere right to sue for damages in the courts an adequate safeguard against extortion? Since the Interstate Commerce Commission secured power over railway rates, the benefits which might be expected from railway pools may be said to outweigh the dangers, and sound public policy would lead to a legal recognition of the railway pool as is the case in European countries. In manufacturing industry, however, the case is not so clear. Here, as already indicated, reasonable pooling agreements may do great good, especially in large fixed-capital industries; but the public hardly has an adequate protection against monopoly prices which might be set. In another connection, the author has concluded " that, though a pooling agreement does not primarily concern rates, under private ownership the rate is the center of the problem; if pooling is to be allowed, then rates should be regulated to safeguard public interests"; and a similar conclusion has some bearing to-day

1 A Congressional History of Railways (Madison, Wis., 1910), Vol. II, p. 303.

upon industrial pools. Is the inference not clear that, as with railways, so with manufactures we need administrative control - a commission under whose supervision legalized pooling agreements may be established? Probably no attempt should be made to regulate prices now, but any pool would have to be open to any plant which might desire to enter, its existence should be limited to some short period of time, and its agreements and proceedings should be filed with the commission just mentioned. And until we have these things the status of industrial pooling must be doubtful. Meanwhile, the courts may make some progress through establishing the principles that should distinguish the reasonable from the unreasonable pooling agreement.

CHAPTER XIII

COMBINATION TRUSTS

TRUST combinations grew out of the weaknesses of pooling agreements. The latter form of business organization, while possessing several advantages over closer combinations, had the great disadvantages of instability and imperfect centraliza tion of direction and management. This weakness of management was apparent in the existence of numerous plants with a capacity far in excess of the market for products at paying prices. Some pools were more successful than others, but on the whole such agreements came and went without permanently improving the situation. When the Whisky Trust was formed in 1887 at the end of years of nearly futile pooling agreements, it immediately shut down sixty-eight out of eighty distilleries and was soon producing as much of the fiery fluid as ever with the twelve remaining plants. This spelled economy. A similar situation existed in the sugar- and petroleum-refining industries. Trust organization, then, was divised to meet the weaknesses of the less centralized federation forms.

The trust to be discussed in this chapter is a very different affair from some of the organizations to which the term is popularly applied different in form, though not, perhaps, in purpose. Popularly, the "trust" is any big monopolistic combination; but as a specific business form it has a more definite meaning. The somewhat cumbrous definition which is necessary adequately to distinguish it is as follows: A combination trust is a form of business organization established through temporary consolidation, in which the stockholders of_the_constituent organizations under a trust agreement transfer a controlling amount of their stock to a board of trustees in exchange for trust certificates.

These certificates show their equitable interest in the income of the combination Obviously the trust thus defined differs from the corporation in that it is necessarily a combination of business units. But, more than that, its legal attributes are quite dif-. ferent from those of a corporate combination. Trustees are not as directors, the paid servants for the stockholders; nor are they mere agents. They act as principals, making contracts for themselves and being able to sue and be sued. Under the unmodified common-law organization, the debts of the trust are not those of the beneficiaries, but are the personal debts of the trustees.

In some respects the combination trust is like a stable pool, even in method of organization and in form. For one thing it is based upon the mutual consent of the members who sign a trust agreement." Thus, a contractual relationship is involved, which differentiates it from the forms to be discussed later. Again, the net income of the constituent organizations available for dividends is virtually pooled, for the dividends declared by the combined corporations on the stock transferred to the trustees all flow into a common fund in their hands. This dividend fund, or pool, is then paid out to the certificate holders in proportion to their interests therein as evidenced by the certificates.

But here the likeness ceases. The trust involves a great deal more than a mere pooling of dividends. There is a transfer of the legal title to stock in the constituent concerns, which is in the nature of a deed of trust. The rights of the members are defined in a "trust agreement," and a formal organization is provided for with an assured succession of trustees. Above all, however, the trust is no mere federation but is a consolida tion of interests. The agreement provides that the trustees vote the stock transferred to them, thus giving them power to elect the directors of the constituent companies and so control their policies. Through common ownership of stock and direction of management the various units embraced are closely combined. They lose the large measure of independence which is retained in the pool, and may remain separate only in name