are acquiring increased importance in the attempt to secure stability of price in a field peculiarly subject to violent fluctuations between prosperity and depression. When reasonably and fairly administered, having due regard, that is to say, to the welfare and patience of the consuming public, they promise some measure of success; otherwise managed, when rapacious in unduly forcing up prices, such pools have generally resulted in collapse; with greater evils both to the public and their own members than those whose cure was attempted. This is clearly exemplified in our reprinted outline of the history of the Wire Nail Association of 1895-96.1 A still more complicated arrangement, of special interest as throwing light upon the difficult question of public control in our own anthracite coal field, is afforded by the German Coal Cartell, which at the present time completely dominates the situation in that country.2

Patent as are the advantages to producers of pooling contracts, they suffer from two inherent defects. Of these the first is that they are at variance with the underlying principles both of common and statute law, and hence are not enforceable in the courts. No effective guarantee for good faith is afforded other than the creation of deposits, the imposition of fines and other more or less mechanical devices. And a second objection lies in the fact that pools are necessarily but temporary expedients after all, affording no certainty for stability of price or of industrial policy for any extended period. It was undoubtedly an appreciation of these facts which led to the attempts in the late '80's to remodel industrial combinations on the pattern of the Standard Oil Trust of 1882. On the other hand, it may perhaps be affirmed truly that the very indefiniteness and elasticity of such agreements has often rendered them successful at times like the present, when more rigid devices are proving somewhat ineffective in controlling prices in the face of a rising tide of independent production.

A trust may be defined as an organization managed by a board of trustees to whom all the capital stock of the constitu

1 pp. 46 et seq.

2 Publications American Economic Association, 3d ser., Vol. V, 1904, contains an excellent and elaborate study by Dr. Francis Walker.

ent companies is irrevocably assigned; in other words, the original shareholders accept the trustees' certificates in lieu of former evidences of ownership. The outline of a typical trust hereinafter printed will serve as an illustration.1 As a legal expedient for obviating competition such a trust is usually discussed as if it were now obsolete, possessing historic interest alone. This is only in part true. As an improvement upon the pool, both as regards stability and effectiveness, certainly it merits the importance ascribed to it during the decade following 1887. The first appearance of this legal expedient dates, of course, from the formation of the Standard Oil Trust in 1882.2 It derived added prominence through the formation of the Distillers and Cattle Feeders' Trust (Whiskey) and the Sugar Trust, both in 1887. It disappeared with the final judicial condemnation under adverse state and Federal legislation in the years 1891-92. The adverse decision in the case of the North River Sugar Refining Co. and the Standard Oil Co., in Ohio, finally proved the impossibility of this legal basis for effecting combinations.3 Recourse was necessarily had, therefore, to novel expedients, such as corporate organization under the newly revised laws of New Jersey and other charterbartering states.

It is an odd coincidence, that organization under a board of trustees issuing certificates representative of ownership of property, although condemned by the courts and obsolete as a resource for the great industrial combinations of the country at large, should still flourish under the laws of Massachusetts. This commonwealth has, in the main, steadfastly resisted pressure for a loose, or even for a liberal, policy in corporate legislation; yet it is notable among the other states to-day as permitting the trust form of organization to flourish as an expedient for consolidation. This is perhaps indirectly an outcome of the consistent policy of the state not to permit the holding of real estate for investment by corporations organized

1 Consult Chapter II, pp. 22 et seq.

2 Miss Ida M. Tarbell's monumental study of the Standard Oil Co. gives full details concerning both the form and dissolution of this trusteeship.

3 Vide pp. 244 and 265 infra.

under its general laws. Moreover, this latter practice would be difficult under the common law rule against perpetuities. For about half a century, therefore, real estate in Boston, if held for permanent investment by a number of people jointly, must have its ownership vested in voluntary associations, managed by trustees. An important ruling of the Massachusetts supreme court in 1899, upholding the validity of such associations, has greatly enhanced their prestige. A recent compilation includes no fewer than sixty real estate trusts in the city of Boston alone, holding upwards of $60,000,000 of property.

The immunity from governmental supervision of voluntary associations under trusteeship especially in the issue of capital stock, under the strict Massachusetts anti-stock-watering laws applicable to corporations, has recently invited an extension of the principles of trusteeship into the fields both of transportation and industry. Thus the Massachusetts Electric Companies, controlling the stock of several hundred miles of street railways throughout the eastern part of the state, is managed through a board of trustees. This board issues certificates representing the equity interest of the original stockholders of the constituent companies included in the combination in the enterprise. This, it will be observed, is quite analogous to the devices originally adopted by the Sugar and Standard Oil Trusts. The Massachusetts Gas Companies, in the industrial field, have likewise, as the virtual successors of the New England Gas & Coke Co., acquired control of illuminating plants in and about Boston.1 Still another form analogous to these is found in the voting trusts until recently so common among American railways. These forms of control as vested in a board of trustees represent, not ownership of stock, but merely a unified voting power during a specified term of years. As applied in the cases of a number of industrial combinations, such as the American Bicycle Co. since reorganization, and the International Mercantile Marine Co. at its inception, these voting trusts vir

1 Professor John H. Gray has recently published a considerable series of articles on the Massachusetts gas situation in the Quarterly Journal of Economics. Consult the same author's address in Publications American Academy Political Science, 1900, and also Journal of Political Economy, 1903, pp. 257-272.

tually perpetuate monopoly. Although their primary object purports to be protection against rude disturbance of continuity in financial policy, their utility for the purposes of combination is quite evident. It thus appears that the principle of trusteeship in industrial management is by no means obsolete; although the statement is perhaps true as applicable to consolidation in the great staple interstate industries of the country.

The failure of the Trust form of combination under adverse legislation and judicial decisions came at a time when the industry of the country was languishing. The period from 1893 to 1897 being one of prolonged and acute industrial depression, the tendency toward consolidation made little headway. Sporadic attempts at pooling in the iron and steel industry were made in 1895 and 1896 as herein described. But the resumption of trade activity after this prolonged depression promptly brought the combination question to the fore. At the same time the revival of confidence among investors following a protracted period of speculative dulness opened new channels of activity for the financial agent. Meade, in his Trust Finance, has ably described the work of the industrial promoter at this time. The phenomenal outburst of industrial consolidation in 1899 made necessary a resort to a new legal expedient, that of the holding corporation. Prior to the enactment of the revised General Corporation Act of New Jersey in 1899, the uniform practice both in this country and abroad had been to prohibit by law the holding of the stock of one corporation by another. Vast possibilities were involved in the amendment of this clause in a code of American corporation law. Corporate organization could henceforth be promoted, not to serve the ends of industrial management, but solely in order that financial combinations might indirectly control operating companies through ownership of their capital stock. This practice had already been tested in isolated cases among railroads; as, for instance, in the organization of the Pennsylvania Co in 1870 to hold and control the stocks of subsidiary corporations owned by the Pennsylvania Railroad Co. west of Pittsburg. In 1880 the American Bell Telephone Co. was organized under 2 pp. 46 and 78 supra.

1 Consult pp. 244 et seq.

Massachusetts law practically as a holding company. Four years later the Southern Pacific Co. was chartered by the state of Kentucky to hold the stocks of parts of a great railway system in other and remote states. These were, however, all organized under special laws; while the General Corporation Act of New Jersey of 1899 made it possible to organize a pure finance company under a general statute. No operating duties at all were involved other than to hold the stock, elect officers, receive dividends from constituent companies and turn them over to their own shareholders. At the same time it was necessary merely to maintain a nominal connection with the authorities in the chartering state by renting desk room, displaying a sign and making a meagre and non-committal annual report.

Relatively few companies seem to have taken advantage of the New Jersey legislation at once. Among those which have been tested by extended experience is the United States Rubber Co., dating from 1893. Certain decisions of the United States Supreme Court, notably those touching the sugar combination in 1894,1 manifested an indisposition on the part of the Federal courts to interfere. The prospect was inviting also in many cases because of the elasticity of the arrangement. It enabled promoters to purchase the stock control of companies in the open market rather than at private sale. Less capital would be tied up in effecting a combination; inasmuch as ownership, not of all, but merely of a bare majority of the capital stock of companies absorbed, was necessary. Legal experts, moreover, hoped the scheme would prove invulnerable. Consequently, for a brief period the holding company suddenly assumed a noteworthy prominence in every branch of American business life. The Federal Steel Co., with a capital of about $100,000,000, later absorbed by the United States Steel Corporation, was chartered by New Jersey in 1898. Ownership by stock control was extended over a considerable range of interlocking properties such as ore bodies, steel works and railways. The following year witnessed the incorporation of the Amalgamated Copper Co., capitalized at $75,000,000, as a holding corporation to acquire and control the stocks of copper-mining companies. The year

1 U. S. v. E. C. Knight Co. See pp. 255 and 265 infra.