by the courts, has steadfastly opposed all such regulation. The result has been that one form after another has been evolved in an effort to effect a combination that would permanently regulate competition without meeting the active opposition of the law. Whether the merger or the amalgamation affords the desired form will be indicated below.

Amalgamation Illustrated. One can hardly pick up a financial paper without learning of some consolidation. Because of their greater importance and interest, however, we will confine attention to two well-known cases, the American Tobacco Company and the "Powder Trust," the former illustrating amalgamation and the latter merger. Prior to 1904 the Consolidated Tobacco Company as a holding company had gained almost complete control of the common stock of the American and Continental tobacco companies and so had established a close community of interest in the tobacco industry. Such control seemed adequate, and there appeared to be little reason for change. But at least two reasons induced the leaders to form a more complete consolidation: they desired to simplify the organization, which under the community of interest through stockholding was very complicated, and also they wished to make their legal position stronger. In 1904, as already noted, the United States Supreme Court declared the Northern Securities Company to be in violation of the Sherman Act, and, as the organization of that company was not dissimilar to that of the tobacco interests, the decision caused doubt as to the legality of the existing arrangement. As the commissioner of corporations puts it: "There is little doubt that the stockholders and officers of the Consolidated Tobacco Company felt that this decision rendered the legal position of the Consolidated very uncertain, and that they therefore considered it desirable to transfer the actual assets of the American and Continental companies to a single corporation."

Accordingly, in the latter part of 1904 the directors of the three companies drew up a so-called "merger agreement" and submitted it to the stockholders concerned. This agreement provided that the stock held by the Consolidated together with

certain inter-company holdings should be canceled, that the small outside holdings should be retired by exchanging them for the stock of the amalgamated company, and that outstanding preferred stock should be exchanged for bonds. This agreement was favorably acted upon by the great majority of the stockholders—indeed, why should it not have been, when the Consolidated interests were that majority—and became the basis of the certificate of incorporation of the reorganized American Tobacco Company, into which the three concerns were amalgamated. Under the "agreement" a board of twenty-eight directors was established, all the members of which, but one, were directors of the amalgamating companies, and that one had been treasurer of the Consolidated. Promptly upon the merger, the entire stock issues of the old American company and the Consolidated and Continental companies were retired and complete consolidation reigned.

Was the legal position of the combination under this new form of corporate consolidation stronger than that of the old organization? Apparently not, inasmuch as seven years later it was forced to submit to a decision dissolving it. Nevertheless, as will appear shortly, the situation in which it found itself upon dissolution was very different from what it would have been had the amalgamation not been effected.

Merger Illustrated. The case of the "Powder Trust consolidation is even more interesting. Prior to 1899 the powder industry was not organized on consolidated lines, but price agreements and pools had been the form which combination had assumed. The leading powder producer was the firm of E. I. du Pont de Nemours & Company, a partnership. In the year mentioned, however, holding-company consolidation began. The du Pont Company was incorporated, and in 1902 its stock was turned over to a new corporation, the E. I. du Pont de Nemours Company (of Delaware), which company, in order to make itself a pure holding company, likewise turned all its assets over to two subsidiary concerns in exchange for their stock.

1 See U. S. v. du Pont de Nemours & Co., 188 Fed. Rep. 127 (1911); and Stevens, "The Powder Trust," in Quart. Jour. Econ., May, 1912, pp. 469-481.

But, beginning about 1904, at the very time the American Tobacco Company amalgamation was formed, the policy of complete consolidation by merger was substituted for securities holding. In 1903 The Consumers' Powder Company, the Enterprise Powder Company, the Moosic Powder Company, and the Oliver Powder Company, all Pennsylvania corporations, were merged into the E. I. du Pont de Nemours and Company of Pennsylvania (one of the subsidiary concerns of the Delaware holding company of 1902), that company increasing its stock from $2000 to $2,000,000, but retaining its identity. As the next step toward complete consolidation, in 1903 the E. I. du Pont de Nemours Powder Company was organized in New Jersey. This New Jersey du Pont company had a capitalization of $50,000,000 which it used in acquiring the Delaware company of 1902 (including its Pennsylvania merger) and several other corporations which had been organized to consolidate plants in various sections of the country. The situation in 1903, then, was this: (1) several preliminary mergers had been effected and scattered interests had been brought together in several holding companies; (2) the securities of these preliminary consolidations, complete or partial, were controlled by the 1903 du Pont powder company of New Jersey.

From 1903 to 1907 the merging went on merrily. It is known that during those years the New Jersey du Pont company and a subsidiary, the Eastern Dynamite Company, gained control over sixty-four different corporations which they caused to be dissolved, and merged the properties of the dissolved concerns into their own companies. In 1907, when suit was brought against the organization now under discussion, the defendants frankly acknowledged that their policy was "eventually to vest absolute ownership of all the plants, manufactories, and tangible properties acquired by the methods above mentioned in one corporation, and then to dissolve the subsidiary corporations." The suit was brought before this policy could be entirely carried out.

1 U. S. v. E. I. du Pont de Nemours & Co. (1911), 188 Fed. Rep. 146, opinion of court.

The object is plain enough, being similar to that of the tobacco amalgamations, namely, to simplify organization and gain a stronger legal position. Thus, counsel for the defendants in the suit just mentioned contended that the title of the New Jersey du Pont company, into which the others had been merged, could not be impaired. The most that government in any event can claim," they argued, "is that prior to the organization of the present defendant companies there did exist contracts and combinations in restraint of trade, and possibly a monopoly . . ., and that such combinations and monopoly were participated in by some of the corporations which were later purchased by the present defendants. . . . Even so, the corporation had title to such properties, and if such combination and monopoly no longer exist, the title to such property must be good in subsequent purchases thereof." As in the tobacco case, however, the defense based upon the consolidated form of the combination was given little weight by the court.

Railway Consolidation. Just a glimpse at the situation in the railway business. Every one knows that here great systems have been built up which are more or less compactly organized and which divide up the United States into transportation principalities. The question as to how these systems are organized and held together is an interesting one. Every year numerous changes take place. Some roads are being reorganized, some merged, some amalgamated; others are being leased, others abandoned, and some are merely having their names changed. The net result, however, has been that three fourths of the railway mileage consists of roads which are operated by the companies that own them and are independent operating lines, while only the remaining one fourth consists of roads which are operated by companies that do not own them in fee. The largest part of the latter class of roads is operated under lease, while others are controlled by stockholding, by trackage rights, and other contractual arrangements.

One can infer, then, that complete consolidation has been carried to a great length in the railway world. Back in 1894 only 68 per cent of the railway mileage was operated by inde

pendent companies which owned their lines; in 1904 the percentage was 74; in 1910, as just stated, it was 75. Most thinkers agree that this tendency to complete consolidation is the result of laws prohibiting railways from coöperating by means of the looser forms of organization like pooling and traffic agreements, and doubtless the application of the Sherman Act has encouraged the merger and amalgamation of railway companies. Also there is some evidence that the tendency to shift from securities-holding organization to complete consolidation, which we have found in manufacturing, appeared in transportation. The statistics show that the independent operating roads increased markedly in number in the 1904-1906 period, and that the increase was not due to a splitting-up process, for at the same time the mileage embraced in large systems of over 1000 miles each grew steadily.

The maximum number of complete consolidations occurred during the three years 1900-1902, the great majority being of the merger type; but this fact is partly to be explained by the great mileage built in 1899-1900 and 1901-1902, which resulted in numerous mergers of newly constructed lines into parent companies. The following table taken from the data given by the Interstate Commerce Commission's Division of Statistics show the facts:

The largest part of the mileage of the subsidiary roads is controlled by lease, and such control may be mentioned as a kind of temporary consolidation similar to stock ownership. Leasing has been so commonly resorted to in the railway business partly because the laws of several States prohibit complete consolidation. In a way, too, it is a simpler process than consolidation, for no new capitalization need be issued and the