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Lewis Corey

The Decline of American Capitalism

PART SEVEN
Monopoly Capitalism and Imperialism

CHAPTER XX
Trusts: Concentration and Combination

TRUSTS began to assume definite shape in the 1880’s, and have since increasingly dominated the American economy. [1*] The first social-political reaction was: “Smash the trusts!” But they grew inexorably. The second reaction was: “Regulate the trusts!” But they bent regulation to their own purposes: trusts became more and more ascendant. Regulation, at least in theory, was still suspicious: some limits ought to be imposed upon the trusts. Now apologists of the NRA, of state capitalism, urge another policy: complete acceptance, even the strengthening, of the trusts, with, however, “social control.” The policy has thus been formulated by Rexford Guy Tugwell:

“We are resolved to recognize openly that competition in most of its forms is wasteful and costly; that larger combinations must in any modern society prevail. We go further: we say that they should be allowed to prevail, but only under such conditions of control as assure a just distribution of the wealth they develop and now accumulate to the people as a whole.” [1]

This policy is not altogether new. For in the past it was argued that regulation should destroy the evil but retain the good in trusts, as they “organize” production and “implement” prosperity. The sufficient answer is the disorganization of industry which led to the economic catastrophe of 1929-34. Why should the “new” policy be more successful? ...

Trusts, the monopolist combinations of capital, arise out of free competition and accumulation, out of the struggle for profits and survival in which the stronger garner victory. Underlying this development was the technical-economic transformation of industry, augmenting fixed capital and the scale of production. Concentration is the basis of combination. While both are a reaction against competition and the result of accumulation, the emphasis is different. Industrial concentration is essentially technical-economic, originating in the efficiency of larger producing units. Combination is essentially financial, the centralization of control, exploiting but not limited by industrial concentration and technical-economic efficiency. Both concentration and combination yield greater control over competition, markets, prices, and labor.

The distinction between concentration and combination is not merely theoretical; it involves a difference in historical stages and in forms of class control. In the United States, before 1898, trustification was primarily industrial concentration, under control of industrial capitalists [2*]; after 1898, trustification was primarily financial combination, under control of financial capitalists, promoters, and bankers.

Concentration after the Civil War developed almost as rapidly as industrialization itself. This was particularly marked in the 1870’s. While the number of manufacturing establishments was virtually stationary, rising from 252,148 in 1869 to 253,852 in 1879 (including a multitude of hand and neighborhood enterprises, which minimize the trend toward concentration), capital investment rose from $1,694 million to $2,790 million, wage-workers from 2,054,000 to 2,733,000, and output from $3,386 million to $5,369 million. [2] This process of industrial concentration was the basis of trustification.

The primarily industrial character of concentration appears clearly in the development of three typical concentrated enterprises: the Standard Oil Company, the Carnegie Steel Company, and the meat packers, Armour and Company. Increasing efficiency, use of the most improved technology, and enlargement of the scale of production were the basic factors. Standard adopted the most economical methods of refining and marketing and promoted the more efficient pipeline transportation. Carnegie Steel was always introducing new processes, including coke, making plant improvements and extensions. The Armours led in the elimination of waste, the introduction of chemical control for better quality and more utilization of by-products, and the use of refrigerator cars. Enlargement of the scale of production produced integration, stimulated by competitive purposes of control over sources of raw materials and transportation and by efforts to secure the profits of related fields of production to offset the fall in the rate of profit. Carnegie Steel acquired iron and coal mines, coking plants, and means of transportation. The Armours owned stockyards, their own refrigerator cars, and distribution systems. While Standard adopted the plan of separate companies, under common ownership, specializing in production, transportation, refining, and marketing, the whole constituted one giant integrated concern. Efficiency, with its lower costs and prices, was used to wage ruthlessly the battle of competition. Except in the case of Standard Oil, and even with them only to a minor degree, competitors were not absorbed, they were destroyed. (The existence of many small producers made it unprofitable to absorb them.) Carnegie was against combination because it meant including inefficient plants; his emphasis on competition was typical of concentration and the industrial capitalist. Although efficiency was primary, it was not the only factor; competition was also waged by means of price wars, by terrorism, especially in the case of Standard Oil, against competitors, by extorting discriminatory rates and rebates from the railroads. Monopoly elements yielded particular advantages. Carnegie Steel became dominant only after acquiring the Frick coking interests, coke being indispensable in the newer and more efficient metallurgical processes; the dominance became almost impregnable with the achievement of monopoly in unfinished steel. Standard Oil had a monopoly of pipeline transportation and the Armours of refrigerator cars, placing competitors at an enormous disadvantage. The monopoly elements were strengthened by discriminatory agreements with the railroads; Standard Oil systematically used this method, acquiring large stock interests in railroads to invigorate its influence. Both “unfair” competition and the monopoly elements were an abandonment of efficiency as the means of waging the competitive struggle. All three concerns were built up by reinvestment of profits, not with the money of outside investors. This is as significant of concentration as technical-economic efficiency, which itself yielded the great profits (involving exclusive exploitation of new inventions and processes) whose reinvestment enlarged the scale of production. Although Carnegie and Armour started with money made in other ventures, their enterprises were built up with reinvested profits, the direct capitalization of surplus value. The original capital of Standard Oil was $1,000,000 (much of it earlier oil profits), and not one penny of new capital was thereafter invested. The masters of concentrated concerns were essentially industrial capitalists, whatever their origins; they were identified with one enterprise, responsible for it and active in its affairs, although management was increasingly functionalized and performed by employees. And all of the masters sweated labor, drove after more and more surplus value, crushed unionism. Concentration gave terrific control over labor. The Knights of Labor declared a boycott against Armour products in 1886, and Carnegie Steel is inseparably associated with the ferocious breaking of the Homestead Strike in 1892.

While industrial concentration usually results in greater efficiency, it has definite limits as a means of overcoming competition and raising profits. More efficient productive equipment costs money, as do price wars; the new equipment, moreover, comes into general use, competitors adopt still more efficient methods of production, and the rate of profit moves downward. Where competitors are small and numerous, they may be killed off; but the survivors, who become stronger, cannot be as easily exterminated. Concentration makes competition more destructive and unprofitable. While Carnegie Steel was the dominant factor in the industry, other enterprises, partly by concentration and partly by combination, had become almost as powerful. By 1900, the iron and steel industry was on the verge of a most destructive competitive war; all the more so as Carnegie’s rivals were identified with great financial interests, particularly the Morgans. The threat was overcome by combination, by merging the rivals into the United States Steel Corporation. The combination was not, however, formed by industrial capitalists but by financial capitalists, by promoters and bankers. It marked the retirement of Carnegie, the most powerful industrial capitalist; United States Steel was dominated by the financial overlords of the House of Morgan.

There had been combinations before 1898; but their number was limited and they had been formed primarily by industrial capitalists. In some cases, however, there was active participation by promoters and bankers, whose profits were large. Formation of the Standard Distilling and Distributing Company, the Whisky Trust, yielded $250,000 in stock to the underwriters for every $100,000 cash advanced to buy plants, and another $150,000 to the promoters. [3] After 1898 promoters’ profits became a decisive factor. A series of combinations in the iron and steel industry, in 1898-1900, netted the promoters nearly $100 million in profits. United States Steel paid the Morgan syndicate a “commission” of $62,500,000, in addition to large amounts of common stock issued as bonus with preferred for property or cash. [4] From now on the profits of promotion (a charge upon prospective surplus value) were a major source of income for the rapidly developing financial oligarchy.

Considerations of increasing efficiency were not dominant in combination. On the contrary, efficiency was usually sacrificed by the inclusion in combinations of obsolete, inefficient, or unnecessary plants. Where, in general, industrial concentration destroyed competitors by increasing efficiency, combination absorbed competitors, who usually were willingly absorbed because they received huge profits from the over-capitalization of the new enterprises. Combination aimed to control competition and prices, to check the fall in the rate of profit by limiting competition and so “earn” monopoly profits. According to one bourgeois economist: “Least influential of all was the expectation of reducing costs. The large proportion of trusts formed which accepted a loose form of organization indicates that reduction of costs was not the dominant objective. Many consolidations acquired inefficient plants and clearly relied more on buying out competitors or killing them off by resort to unfair methods of competition than on driving them out by lower prices based on lower costs.” [5] Monopolist combinations were made possible by previous industrial concentration, and they promoted concentration; but their emphasis was financial, not industrial, recapitalizing combinations on the basis of prospective monopoly profits. Their tendency, one of the elements of capitalist decline, was to retard the development of efficiency, although (another contradiction of capitalist production), combinations developed new forms of competition; this forced efforts to increase efficiency because of the downward tendency of the rate of profit and resulted in more and larger combinations.

By 1904, there were 440 great American trusts, with a capitalization of $20,379 million; one-third of the capitalization was in seven combinations, over which towered the United States Steel Corporation. [6] Trustification grew in manufactures and in mining, on the railroads and in municipal traction.

Two important developments accompanied the combination movement: the multiplication of stockholders and the centralization of financial control over corporate industry. Combinations, mainly to pay the huge profits of promoters and former owners, needed large amounts of new capital, which could be raised only by selling masses of stock to the general public. Ownership was no longer vested in the active industrial capitalist, but in a mass of investors; ownership and management were separated, while control was usurped by financial capitalists. Many of the older industrial capitalists became financial capitalists. Armour acquired large interests in railroads, banks, and insurance companies. In the 1890’s the Rockefeller oligarchy became a group of financial capitalists, with far-flung interests in all sorts of enterprises, active speculators and promoters on a large scale. They typified the fusion of industrial and banking capital: with the huge cash resources of Standard Oil the Rockefellers went into banking; in cooperation with James Stillman they built up the National City Bank of New York, which engaged actively in promotion, speculation, and investment banking. At the same time banking, particularly investment banking, moved toward more direct participation in industry. For the banks were no longer mere intermediaries who mobilized the nation’s savings for the use of industry, they were rapidly becoming the masters of industry. The separation of ownership and management did not vest control in management but in financial capitalists and the banks which they controlled or with which they were in “community of interest.” Commercial banks became increasingly investment institutions; when this was prohibited by law, the banks organized investment affiliates. And financial control of industry was increasingly institutionalized in the banks, including private investment banking houses. They acquired control of the resources of insurance companies and used them for investment and promotion purposes. Investment banking houses in turn acquired control of banks (and insurance companies) to facilitate their operations. The “money power,” with its control of investment resources and credit, imposed its dominion over trustified industry. By 1912, 180 individuals representing eighteen investment banking houses, commercial banks, and trust companies held 746 interlocking directorships in 134 corporations with total capitalization or resources of $25,325 million. The most powerful group, the House of Morgan, its affiliate, the First National Bank, and its ally, the Standard Oil National City Bank, held 341 directorships in 112 dominant corporations with total capitalization or resources of $22,245 million, distributed as follows:

• Thirty-four banks and trust companies: resources, $2,679 million, 13% of all banking resources.

• Ten insurance companies: resources, $2,293 million, 57% of all insurance resources.

• Thirty-two railroads: capitalization, $11,784 million; mileage, 150,000.

• Twenty-four industrial and commercial combinations: capitalization, $3,339 million.

• Twelve public utility companies: capitalization, $2,150 million. [7]

This fusion of industrial and banking capital, which thrust power into the hands of a financial oligarchy operating mainly with the money of others, increasingly dominated capitalist production. The oligarchy did not merely participate in combinations, it ruled ruthlessly. The system was one of private property without direct ownership and responsibility, without the control of ownership; financial capitalists garnered their largest profits by plundering stockholders, by violating the “rights” of private property. And the combinations and their financial overlords were ruthless in their exploitation of labor; only on the railroads was unionism able to establish itself successfully ...

Combination and the centralization of financial control proceeded steadily, in spite of the opposition of agrarian and middle class radicals, in the midst of clamor against the trusts and regulation by the government. Legislation against the trusts merely forced them to adopt new and, ironically, more impregnable forms. [3*] When courts declared illegal the original trustee device (whence the term “trust”), which combined corporations by assignment of stock and control to a board of trustees, it resulted in the development of the most successful method of combination, the holding company. For the holding company merely owns stock, and may combine and control corporations by ownership of a bare majority of their stock. The government’s efforts to “smash” or “regulate” the trusts led them to adopt more clever means of evading the law (making the corporation lawyers indispensable and millionaires); public clamor was stilled with minor reforms, in the interest of trustified industry itself, and regulation ended in regularization, the consolidation of the power of the trusts. In the midst of the struggle against the trusts, in 1907, the Aluminum Company of America was organized: the one perfect monopoly, with almost unlimited control over sources of raw materials, manufactures, and distribution. In 1911, the United States Supreme Court “dissolved” the holding company trust, Standard Oil, and the operating company trust, American Tobacco; but simultaneously, with its “rule of reason,” the Court accepted and justified trustification. After dissolution, Standard Oil was still under common control; the separate companies, instead of specialized concerns, became more fully integrated, combining production, refining, and distribution. If Standard’s monopoly control was lessened, it was not a result of the Court’s decision but of the enormous growth of the oil industry due to the automobile. The needs and patriotic hysteria of the World War were exploited by the trusts to consolidate their control over industry. Trust magnates, formerly denounced as criminals and “undesirable citizens,” blossomed forth as $1-a-year heroes to “make the world safe for democracy” (meanwhile protecting their own interests and the interests of their class). And in 1920 came the final legal victory of the trusts: the Supreme Court decision denying the government’s petition to dissolve the United States Steel Corporation. The Steel Trust, said the Court, six to three, was “not monopoly, but concentration of efforts with resultant economies and benefits.” [8]

Concentration and combination now proceeded on an unprecedented scale. Trusts again strengthened their control in the depression of 1921-22 (one of the sweet uses of capitalist adversity), and made new conquests in the ensuing period of prosperity. Never were there as many mergers; the number of firms which disappeared through mergers rose from 760 in 1920 to 1,245 in 1929; disappearances were 140% higher in 1930 than in 1922. [9] Industrial concentration was unusually active, stimulated by the upswing in the output of capital goods because of the growth of old and new industries and of mass production for mass markets, on the basis of increasingly larger masses of fixed capital required in modern industry. Concentration was especially marked in the newer industries, which do not usually repeat the small-scale phases of the older industries: they adopt the newer technology and large-scale production at the start (and are usually promoted by financial capitalists). Profits were high, and a large part of them was reinvested in more efficient equipment and plant extensions. But the higher composition of capital, excess capacity, and intensified competition forced down the rate of profit. This led to the introduction of more efficient equipment to raise the productivity of labor and to more industrial concentration, either by enlarging the plants of a particular enterprise or by consolidating formerly independent plants. But because of the restriction of markets, the greater the concentration and efficiency, the greater and more menacing was competition. For concentration, as in the earlier stages, was still determined primarily by technical-economic efficiency, the production of more goods at lower cost and their sale at lower prices; this meant a fall in the rate of profit because of intensified excess capacity and competition. Hence a strengthening of the movement toward monopolist combination, to control production, markets, and prices. [4*] Combinations, however, went beyond this purpose, and became involved with the purely financial and speculative manipulations of the financial oligarchy. As, under the conditions of monopoly capitalism, the production of financial and speculative profits is increasingly more important than the production of goods, combination increasingly outstrips its technical-economic basis in industrial concentration and efficiency: becomes more and more subordinate to the predatory purposes of the financial oligarchy. Innumerable mergers, reorganizations, and combinations had no other aim than the profits of promotion and speculation. In the case of an automobile company, whose private family ownership was transformed into “public” ownership, recapitalization yielded the bankers profits of $15,000,000; the Van Sweringen mergers and reorganizations, an evasion of government regulation, yielded profits of over $100 million, $23,933,000 from one transaction in 1929; one small airplane merger promoted by the National City Company, investment affiliate of the National City Bank, in addition to the bank’s profit of $2,499,000, netted large profits for “close friends, officers, and key men” who sold their stock on a rising market. [10] Economic efficiency and corporate safety were sacrificed by combination, especially where the main purpose was to inflate values on the stock exchange or to consolidate the control of financial oligarchs. One of the most striking examples was the stupendous and fraudulent Insull combination in the public utility field: it yielded enormous profits to its promoters and favored “insiders” (including politicians); and it crumbled easily under the impact of depression. The “abuses” of combination were condemned by “liberal” economists, who consider the abuses as independent categories and not as inseparable accompaniments of monopoly capitalism. One of them said early in 1929:

“Mergers have not proved, and are not likely to be, a cure-all for excess capacity, overproduction, or cut-throat competition, or a royal road to exceptionally large profits in any field ... They have to depend to-day mainly upon their potential superiority in efficiency to control or dominate the market. While such superior efficiency has been achieved in some fields, it has not been demonstrated in every instance ... Many mergers that have been promoted by financial interests in recent years have been based upon exaggerated hopes or uninformed calculations of cost reduction and market control, and have dissappointed investors ... If the merger movement is going on so strongly to-day, it is chiefly because the widespread ignorance of fundamental business conditions and the fantastic security markets based upon this ignorance have offered an exceptional opportunity to unload contingent securities upon the general public.” [11]

Thus the “liberal” economist persists in separating economic categories from their capitalist social relations. Combinations sacrifice efficiency? Of course, for efficiency contributes to excess capacity and competition, forcing down the rate of profit; monopolist combinations aim to overcome them. They are not overcome? That is more proof of how hopelessly capitalist production is entangled in its contradictions and antagonisms. Investors are disappointed? Naturally; their losses are one condition of the profits of the financial oligarchs. Monopolist combinations may violate economic efficiency, cheat investors, and aggravate contradictions; but they promote, and this is the decisive factor, the profits and control of the financial oligarchy, which dominates monopoly capitalism: an indication of constantly greater parasitism and decay.

The increasing concentration of industry and centralization of financial control more than justify the analysis and prediction made by Marx. [5*] One aspect of industrial concentration and combination is the growth of corporations. In 1929, while only 101,815 manufacuring plants out of 210,945 were under corporate ownership or control, they employed 89.9% of the workers and produced 92.1% of all manufactures. Plants with an output of $1,000,000 up, less than 6% of the total, employed 58.2% of the workers and had 69.2% of the output. [12] Industrial concentration, in terms of single plants, was as follows:

• Plants with 501 or more workers, numbering 2,718, employed 3,336,980 or 37.8% of the workers.

• Plants with 101 to 500 workers, numbering 14,035, employed 2,920,185 or 33% of the workers.

• Plants with 51 to 100 workers, numbering 12,467, employed 891,671 or 10.1% of the workers.

• All other plants, numbering 181,739, employed 689,897 or 19.1% of the workers; of these smaller plants, 95,767 employed only one to five workers. [13]

In the first category are the plants of such industrial giants as the United States Steel Corporation, employing (in prosperity!) over 250,000 workers. In the fourth category are petty producers, mainly non-corporate, 125,559 of whom reported, in 1924, profits of $380 million, an average of only $3,000. [14]

The single plant statistics do not, however, give a complete picture of industrial concentration, as many of the plants are units of larger corporate enterprises. Concentration is not measured alone by the size of single plants; it may, and this was particularly marked in 1923-29, concentrate and integrate plants by means of common ownership, management, and control. Thus, in 1929, 8,246 multiplant groups employed 48.4% of the workers and produced 54.3% of the total output of manufactures. [15] But multi-plant groups, while measuring industrial concentration and integration, the basis of combination, do not measure the centralization of corporate control. This appears more fully in the distribution of net income. In 1929, 1,299 manufacturing corporations, mainly large combinations, 1.3% of the corporations engaged in manufactures, received 75.8% of the net income [16]: a centralization of control much greater than industrial concentration.

Nor is this centralization of control limited to manufactures. In 1929, 1,314 corporations, 0.27% of all corporations, had assets of $147,697 million, 44% of all corporate assets; capital stock of $48,522 million, 44.2% of all capital stock; and surplus of $29,188 million, 57.5% of all corporate surplus. [17] Still larger was the share in corporate net income of these giant combinations of capital, because of their monopoly advantages; in 1929, 1,349 of them, only 0.26% of all corporations, received 60.1% of total net income (Table I). Centralization of control is underestimated by the statistics: net income of the larger combinations does not include all the income of their subsidiaries, many of which must file separate income-tax reports; combinations, moreover, tend to have larger bonded indebtedness than small corporations, and the high interest payments are not included in net income. In 1929, 238 corporations making consolidated reports covering from six to 286 subsidiaries for each corporation, reported net income of $4,148 million, or 35.6% of all net income. Concentration of profits and centralization of corporate control increased steadily in 1923-29: the number of corporate giants rose from 1,026 to 1,349, although they remained constant as a proportion of all corporations, and their share of net income rose from 47.9% to 60.1%. Concentration and centralization are overwhelming.

Under these conditions of centralization of control in monopolist combinations, the small producer and other petty enterprisers are a negligible economic factor. In 1929, 228,475 small non-corporate enterprises of all types reported profits of $1,836 million, an average of only $8,000; roughly three-quarters of the total profits were derived from trade and services. [18] The essential element in the old middle class, the small producer, is no more a factor in capitalist production, while the “new” middle class is dominated by the managerial employees of corporate enterprise. [6*] This is why the struggle against the trusts ended in 1923-29.

Combination centralizes control of economic life beyond the limits of industrial concentration. Monopolist combinations may unite a series of independent producing plants; engage in all stages of production from raw materials to final manufacturing and marketing; manufacture a series of different products; or combine totally unrelated enterprises merely for the profits of financial exploitation and control. An indication of the rapid growth of giant combinations in the post-war period is the fact that where in 1919 there were only seven corporations with assets of $1,000 million up, combined assets $18,847 million, in 1931 there were twenty-three, combined assets $43,126 million [19], one-seventh of all corporate assets. Acceleration was marked. The assets of the 200 largest non-banking corporations grew from $26,000 million in 1909 to $81,000 million in 1929, an average yearly rate of growth of 5.4%, compared with 3.6% for all other corporations; but from 1924 to 1928 the average yearly rate of growth in the assets of the largest corporations was 7.7%, compared with only 2.6% for all other corporations. [20] The economic power of monopolist combinations grows faster than production or corporate wealth in general.

Concentration and combination develop unevenly in the different fields of industry, but everywhere they tend to be dominant (Table II), with the tendency for them to become still more dominant.

The unevenness reflects the general unevenness of capitalist development, a fruitful source of contradictions and antagonisms, expressing the planless and exploiting character of capitalist production. But everywhere monopolist combinations, alone or in agreement with others, wield measurable control over production, markets, and prices. While this appears clearly enough in the general statistics, it appears still more clearly in particular fields of industry.

In manufactures 627 giant corporations received 64% of the net income. In addition, these monopolist combinations control many other subsidiary plants directly and indirectly: many “independent” plants are dependent upon the giants for their markets. Concentration and combination are most marked in heavy industry, the basis of modern economic life. Six companies in 1930 controlled 75% of the steel making capacity, compared with only 58.9% in 1920. United States Steel and Bethlehem Steel alone had assets of over $3,000 million. What coke plants are not owned or controlled by the iron and steel companies are in the power of the gas utilities, whose control is centralized in a few monopolist gas and electric holding companies. Electrical manufacturing is practically a monopoly of three corporations working in harmony and bound together by the financial power of the House of Morgan – General Electric, Westinghouse, and Western Electric, with combined capital stock in 1929 of $506 million, in addition to stockholdings of $243 million in other electrical manufacturing enterprises and power and light companies. Two giants, with assets of over $2,000 million, dominate the automobile industry. In 1930, four companies produced 70% of all rubber tires and a large proportion of other rubber goods. The Allied Chemical and Dye Corporation, which, through political manipulations and for a song, acquired the German patents expropriated during the World War, is the dominant combination in the chemical industry. The E.I. du Pont de Nemours Company, with assets of $986 million in 1929, produces an extraordinary variety of chemical products, and has in addition large interests in munitions and automobiles. Concentration is high in pulp paper manufacture, with its great masses of fixed capital, and so is combination, the companies owning forests, power plants, and newspapers (to control orders); one company in 1929 had assets of $767 million. The Aluminum Company of America has an almost air-tight international monopoly, owning bauxite mines and aluminum plants in many countries. Although the monopoly of Standard Oil was lessened, primarily by the enormous expansion of the industry, renewed concentration and combination has been going on actively. In 1930, seventeen companies had 80% of the operating refinery capacity, 61% being held by seven companies. The Standard Oil group is still dominant, for it controlled, in 1926, 73% of the pipeline transportation facilities and marketed 45% of motor oil. Although the Radio Corporation of America was “dissolved” in 1932, it still masters the industry; Westinghouse and General Electric disposed of their Radio stock, to their own stockholders, but community of interest is maintained by the Morgans, the financial overlords of the three corporations. Eight companies, including du Pont Rayon and the Viscose Company, control rayon production. One company controls agricultural machinery, one company boot and shoe machinery, three companies aviation products, five companies over one-fourth of the flour milling output. [21] In every field of manufactures, heavy and light, a similar condition of monopolist domination prevails.

In mining, 65 great corporations received 84.6% of the net income. This does not, however, tell the whole story, for the control of strategic natural resources is a decisive aspect of monopoly capitalism. In 1922, two companies controlled over half of the iron ore reserves, four companies nearly half the copper reserves, six companies about a third of the developed water power, eight companies over three-quarters of the anthracite coal reserves, thirty companies over a third of the immediate bituminous coal reserves, and thirty companies one-eighth of the petroleum reserves. Almost as great was the concentration of production. In 1929, fourteen iron mining enterprises produced 46% of the output; fourteen copper companies employed 72.5% of the workers; 118 bituminous coal companies produced 59.8% of the output. This concentration of power over natural resources was much greater because many of the separate companies are merely dependents in the system of centralization of financial control. Concentration has since increased, moreover; thus, in 1931, a merger of the Phelps Dodge Corporation and the Arizona Mining Company resulted in the new combination, with assets of $370 million, becoming the second largest producer of copper in the United States. [22]

The greatest concentration and centralization prevail in public utilities, because of three factors: the element of “natural monopoly,” the great masses of fixed capital required, and the tremendous development of the holding company as a means of centralizing financial control. In 1929, the telephone trust, the American Telephone and Telegraph Company, had assets of $2,477 million. Six railroad combinations had combined assets of $9,546 million. The Van Sweringen system, by means of a series of holding companies with combined investments of $519 million, controlled 28,631 miles of railroads, in complete defiance of regulation by the Interstate Commerce Commission and its plans for unification. In the six years 1923-28, 3,933 electric power companies merged or were acquired by other companies; the number of “independent” systems decreased from 125 to twenty-two. The United Corporation, formed in 1929 by the House of Morgan and affiliated interests, augmented an already great centralization of financial control, a combine of combinations; in 1931, with assets in excess of $600 million, United dominated, by means of stock ownership in subsidiary holding companies, underlying power properties with assets of $5,459 million. Before this, in 1925, five combinations controlled 46.9% of the output of electricity, 10.7% by the giant Electric Bond and Share Company, an affiliate of the General Electric Company. [23] The formation of United Corporation, the subsequent breakdown of the Insull empire, and other developments resulted in a redistribution and greater centralization of control.

Concentration and centralization appear comparatively small in trade and service. This is particularly so in service, which is largely personal; yet even here the trend is away from petty individual enterprise. Hotels are dominated by chain systems. In 1926, 5,000 out of 20,000 moving picture theatres were owned or operated by a few large producers and distributors, and the proportion has since grown. The “free” professions are increasingly dependent upon corporate enterprise. In 1929, chain-store systems in retail trade did a combined business of $10,771 million, or 21.5% of the total (compared with probably 5% in 1920); nearly one-half of the chain business was in the hands of 321 national chains. The Great Atlantic and Pacific Tea Company, with 15,737 stores, increased its sales from $200 million in 1922 to over $1,000 million in 1929. Chain stores have invaded all retail fields; they made 31% of all grocery sales, 27.7% of apparel sales, 30.8% of general merchandise sales, 19.5% of furniture sales, and 33% of gasoline station sales. (Gasoline chains are owned mainly by the great oil companies.) Growth of the chain stores forced independent storekeepers to fight fire with fire; in 1929, 60,000 independents were organized in “voluntary chains,” with one-third of the independents doing 65% of the business. [24] Even the surviving petty enterprises of the middle class are becoming “collective”! This concentration and centralization in trade and service, which were once considered the final bulwark of petty individual capitalist enterprise, is of enormous significance. Developments in management, accounting, and statistical control have made all types of enterprise capable of large-scale corporate organization, breaking down former limitations. It is another objective element of socialism ...

Concentration and centralization in finance is even greater than appears in the fact that 283 financial corporations, only 0.21% of the total, received 47.7% of the net income. The picture is obscured by the existence of thousands of petty brokers and “independent” banks, all, however, dominated by the great financial institutions. In 1932, six life insurance companies owned 69% of total insurance assets, and ten more owned another 13% [25]; these giants wield an enormous financial influence. The large number of small banks (steadily decreasing since 1920) seems to indicate the existence of a “democratic” banking system in comparison with the oligarchic system in other highly capitalist countries; but, in fact, American banking is dominated by the financial oligarchy. [7*]

The control of industry by monopolist combinations is augmented by the community of interests of intercorporate stockholdings and interlocking directorates. Intercorporate dividends rose from $870 million in 1923 to $2,593 million in 1929 [26], representing mainly an increase in stock ownership and influence over corporations by monopolist combinations, holding companies, and financial institutions. In some cases a combination is specifically organized to unify particular interests: United Corporation was a concentration of the interests of other combinations; the Radio Corporation of America, which dominates radio manufacturing and transmission, represented (until the dissolution) the patent monopoly and other interests of the General Electric Company, the Westinghouse Electric and Manufacturing Company, and the American Telephone and Telegraph Company. And every monopolist combination is represented on the directorates of other corporations; this appears from the number of directorships held by the directors of the following combinations:

United States Steel 174, General Motors 167, Radio Corporation of America 232, United Corporation 77, General Electric 218, International Harvester 77, Anaconda Copper 164, American Telephone and Telegraph 226, E.I. du Pont de Nemours 96, International Paper and Power 174, Bethlehem Steel 198, United Fruit 197, Goodrich Rubber 85, Aluminum Company of America 149, Armour and Company 173, American Smelting and Refining 179, Pennsylvania Railroad 241, Consolidated Gas 195, Standard Oil Company of New Jersey 41, New York Central Railroad 306. [27]

Some of these interlocking directorships are personal business affiliations, others are directorships in subsidiaries, still others are manifestations of community of interest; all of them represent centralization of corporate power. It is partly an expression of economic interdependence, an objective socialization of production; but this progressive development becomes the basis for the erection of a predatory empire ruled over by the financial oligarchy.

While the apologists speak of “control” over monopolist combinations, their power is augmented by the NRA, whose program is an immense cartellization of industry. Where in Europe before the World War, especially in Germany, government encouraged the formation of cartels but did not participate [8*], the American government under the NRA both encourages and participates actively (e.g., RFC loans to industry, government representation on the cartel governing boards, the code authorities). There are four essential elements of the cartel: Elimination or modification of competition, the fixing of prices, restriction of production, and allotment of sales quotas or trading areas. All these elements appear directly or indirectly, openly or in disguised form, in most of the codes. The element of restriction of production is accepted with particular enthusiasm. Listen to a “liberal” member of the NRA:

“Industrialists will tell you frankly that their aim is to set up codes under which they can break even when operating plants at 35% of capacity and make a good profit at 50%. The combination of fixed prices, controlled production, and the licensing of new machinery and plants, they feel will bring this about. One industry, which had been losing money since 1923, was able, through advancing prices, to make huge profits in 1933. Now this same industry is asking for the right to license new equipment and otherwise control production. Another industry, with an amazing profit record in 1933, asks to be allowed to buy up and scrap the excess plant capacity of the industry.” [28]

The monopoly policy of the NRA is a continuation of previous developments: of “trust busting” giving place to regulation and of the relaxation of all anti-trust laws in 1923-29. Both the policy and the developments express the dominant economic power of trustified industry, the inevitability of monopoly capitalism. Price-fixing and the restriction of production must favor the great corporations [9*], which, moreover, dominate the codes and the NRA itself. Small businessmen moan and protest, the government speaks of “helping” them with loans, and General Hugh Johnson makes the pledge: “Certainty of protection against monopoly control and oppression of small enterprise.” [29] But the philosophy and practice of Niraism, an expression of monopoly capitalism and its decline, must strengthen the great combinations. Still the small businessmen moan and protest. They object most strenuously to minimum wages, for wages are a larger item of costs among them than among the great enterprises. According to the report of the Advisory Review Board on NRA Codes (the Darrow board), “codes are developing a monopolist trend and are doing injury to small industrialists and businessmen.” The report was denounced by the embattled chiefs of the NRA. According to the Federal Trade Commission, several provisions in the electrical industry code “tend to eliminate and oppress small enterprises, discriminate against them, and thus promote monopolies.” The Commission also sharply criticized the code for the iron and steel industry: the code strengthens the monopolist combinations, it is used to justify practices prohibited by the Commission as opposed to fair competition, and it oppresses small enterprises. The code authority, which is composed of the directors of the Iron and Steel Institute, is governed by plural voting based upon the amount of sales, and is consequently dominated by two or three large enterprises. [30] Of the oil code, one observer writes:

“The industry, or so it is contended, will discipline itself. The new arrangement provides for price-fixing by the industry, or rather by the dominant major companies, instead of by a public agency. It encourages centralization of control of the industry in the hands of relatively few companies. It slights the interests of the consuming public and affords no protection to small enterprises. The major companies can in effect dictate the terms upon which independent gasoline distributors and others may do business ... Nine of the financially strongest companies have the power of life and death over the pool which is to ‘maintain and support proper relationships of gasoline prices’.”

The code fosters monopoly, declared the small operators and refiners in a memorial to Congress: “The proration and fixed price ruling of the code administration makes it possible for the larger companies to obtain more than their fair share of available petroleum trade.” These are also the sentiments of small operators in bituminous coal, in shipping, of small enterprisers in general. [31]

The apologists of the NRA, who speak of “social control” over monopolist combinations, admit in so many words that the forms of a new social order are clashing with the older social relations of production. They say “control” is for purposes of “social justice,” of “redistributing” wealth, of “increasing” mass purchasing power. That is mere pretense; the program of state capitalism is to bolster up the old order, make it more workable; to manipulate the forms of the new social order to prevent that order from definitely emerging. For, in a decisive historical sense, monopoly capitalism is no longer capitalism. It is no longer capitalism where “collective” combinations of capital dominate industry, where ownership, management, and control are separated, where the personal rights of property persist in an impersonal system of collective industrial property, where the state, presumably representing society, does not merely use political power to insure the domination of the ruling class, but intervenes economically to aid industry, using collective economic resources and action to insure the rights and income of individual ownership.

Within the objective socialization of production and institutionalization of management there is still private ownership and appropriation, competition and the clash of personal property interests, making impossible the planful management and regulation of industry. These contradictory elements are strengthened by the NRA and state capitalism, which cling to the older social relations of production. The whole social-economic situation is one of transition, whose only progressive outcome is socialism, a revolutionary act liberating production from its capitalist fetters and making possible a new social order. But state capitalism tries to “freeze” the transition: it restores neither the older competitive capitalism, with its free play of economic forces, nor does it complete the transition toward the new social order. Hence, neither one thing nor the other, Niraism and state capitalism aggravate all the contradictions and antagonisms of capitalist production. This means more instability, transition converted into disintegration. The attempt to “stabilize” disintegration: that is state capitalism (and, still more, fascism). And it necessarily is monopoly state capitalism, dominated by the economic and social weight of monopolist combinations and the social relations of production out of which their power arises. It is the strengthening of monopoly and finance capital and their predatory domination of society.

 
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Footnotes

1*. And, of course, the economy of other industrial countries. In addition the trusts, by means of the export of capital and imperialism, have increasingly dominated the economy of non-industrial and economically backward countries.

2*. Concentration and combination proceeded almost simultaneously on the railroads, because of greater capital requirements and more ruinous competition. While manufacturers were dominated by the industrial capitalist operating with his own money, railroads were dominated by the financial capitalist operating with the money of others, including the government. Separation of ownership, management, and control, by the multiplication of stockholders, appeared on a large scale first on the railroads. Buccaneers of the type of Vanderbilt, Daniel Drew, Gould, Jay Cooke, Collis Huntington, and Leland Stanford plundered the railroads at a time when similar plundering was almost unknown in other fields of industry (except municipal traction, where financial plundering, mismanagement, and political corruption were at least as great as on the railroads). Buccaneering, mismanagement, and ruinous competition threw most of the railroads into bankruptcy from 1879 to 1899. This gave bankers and other financial capitalists another opportunity. Railroad reorganizations, mainly by J.P. Morgan and Company, not only yielded great profits but promoted combination and the tightening of financial control. By 1900 more than half the railroad mileage was included in six systems: Morgan, 19,073 miles; Morgan-Hill, 10,373 miles; Vanderbilt, 19,517 miles; Pennsylvania Railroad, 18,220 miles; Harriman, 20,245 miles; Gould, 16,074 miles. As their bankers and members of the directorates, the Morgans had considerable influence over the Vanderbilt and Pennsylvania systems. Harriman and Gould were allies, and owned stock in banks and insurance companies. Harriman, in particular, was associated with the National City Bank of New York, dominated by Rockefeller interests. See Lewis Corey, The House of Morgan (1930), Chapters XV-XVII and XIX.

3*. As in the case of the “due process” clause in the constitutional amendment intended to protect the Negro’s rights, which was instead transformed into a bulwark of the “rights” of corporate property, the anti-trust acts were used against the workers, who supported the middle class and agrarian radicals in the demand for legislation against the trusts. Labor unions were increasingly considered by the judiciary as “combinations in restraint of trade.” Because of its economic and political weight, the capitalist class transforms concessions, wrung from it by other classes, into new means of domination and oppression.

4*. Of the British amalgamation movement in the early post-war years, G.C. Allen, British Industries and Their Organization (1932), p.296, writes: “The main impulses behind the movement were the wish to ensure markets and supplies and the hope of controlling prices.” In later years the rationalization movement, both in Britain and Germany, stressed industrial concentration and efficiency; but it included “financial rationalization,” i.e., combination and the centralization of financial control.

5*. “The continual retransformation of surplus value into capital displays itself as a steady growth of the capital engaged in the process of production. This, in turn, becomes the foundation of an increase in the scale of production and of the accompanying methods of increasing the productivity of labor and of bringing about an accelerated production of surplus value ... As the mass of wealth which functions as capital increases, there goes on an increasing concentration of that wealth in the hands of individual capitalists, with a resultant widening of the basis of large-scale production ... Accumulation presents itself, on the one hand, as increasing concentration of the means of production and of command over labor; and, on the other, as the mutual repulsion of many individual capitals. This splitting-up of social capital into a number of individual capitals is counteracted by their attraction. The latter is not simply a concentration of means of production and command over labor, a concentration identical with accumulation. It is the concentration of already formed capitals, the destruction of their individual independence, the expropriation of capitalist by capitalist, the transformation of many small capitals into a few large ones. The process is distinguished from simple accumulation by this, that it involves nothing more than a change in the distribution of the capitals that already exist and are already at work ... Here we have centralization in contradistinction to accumulation and concentration ... It is possible for vast amounts of capital to be concentrated into one hand because comparatively small amounts of capital are withdrawn from a number of individual hands. In any given branch of industry centralization would have reached its extreme limit if all the capitals in this industry were fused into one ... A growing concentration of capitals (accompanied by a growing number of capitalists, though not to the same extent) is one of the material requirements of capitalist production as well as one of the results produced by it.” Karl Marx, Capital, v.I, pp.689-92; v.III, p.257.

6*. Marx, in blasting the “philosophy” of Malthus, who held out to the workers the inducement that they might rise in the world, said in Theorien über den Mehrwert, v.III, pp.59-60: “The highest hope of the profound thinker, Malthus, which he himself regards as more or less Utopian, is that the middle class should grow and the proletariat (which is employed) become a relatively smaller part (even if it grows absolutely) of the whole population. That is in fact the course of bourgeois society.” Part of this is quoted by Hans Speier, The Salaried Employee, Social Research, February 1934, p.124, to prove that Marx made “contradictory statements” about the disappearance of the middle class. There is no contradiction. Marx prophesied the doom of the middle class of small producers. The doom is fulfilled. Economically, the “class” of small producers is now helpless, unimportant in the shadow of the massive power of concentrated corporate capital; numerically, although they have grown, the small producers have shrunk to insignificance relatively to the working class. Marx never prophesied the doom of the elements which make up the “new” middle class; on the contrary, although he never analyzed the subject fully, because he died after writing only a few pages of his analysis of classes in Capital, Marx clearly indicates that he foresaw the growth of the “new” middle class. This is not really a class in the full economic sense, but an aggregation of diverse groups standing between the workers and the capitalists. Once the term middle class included the whole bourgeoisie, a class standing between the masses and the ruling aristocracy; now it includes only the lower bourgeois groups.

7*. This subject is discussed more fully in Chapter XXI, Monopoly and Finance Capital.

8*. European governments now participate. The pre-fascist governments in Germany took part in the trustification movement, particularly in the formation of the steel trust. France encourages trustification with legislation and public money. According to the New York Times, February 9, 1934, the British government is promoting a merger of North Atlantic shipping interests, the Treasury to provide the new trust up to 1,500,000 for working capital and 8,000,000 for the construction of giant liners. The “organization” of industry by fascist governments is nothing but cartellization or trustification on an enormous scale, with brutal emphasis on one of the major aspects of monopolist combination: suppression of the workers.

9*. Restriction of production in agriculture also favors concentration. “Smaller crops and fewer farms is the government program in all its ramifications. This will certainly relieve the small farmer – of his livelihood. To the large plantation owner this program is more than welcome. He has everything to gain and nothing to lose from a program which protects the price of his cotton by removing the small farmer from production ... We find 800,000 families, involving about 5,000,000 men, women, and children, who are in danger of losing their means of existence. It is probable that not all of these will be actually released. It is certain that a large number of them will be.” Webster Powell and Addison T. Cutler, Tightening the Cotton Belt, Harpers, February 1934, pp.315-17.

Notes

1. Rexford Guy Tugwell, The Ideas Behind the New Deal, New York Times Magazine, July 16, 1933, p.2.

2. Department of Commerce, Statistical Abstract of the United States, 1923, p.289.

3. United States Industrial Commission, Report and Proceedings (1900-02), v.I, p.15.

4. United States Bureau of Corporations, Report ... on the Steel Industry (1911), pp.251-57.

5. A.P. Usher, The Rise of Monopoly in the United States, American Economic Review, Supplement, March 1933, pp.1-2.

6. John Moody, Truth About the Trusts (1905), p.xi.

7. United States Congress, House of Representatives, Investigation of Financial and Monetary Concentration in the United States [Money Trust Investigation], Report (1913), pp.89-90.

8. Lewis Corey, The House of Morgan (1930), pp.390-94.

9. W.L. Thorp, The Persistence of the Merger Movement, American Economic Review, Supplement, March 1932, p.78.

10. New York Times, March 1, 1931; March 2, 1933.

11. Editorial, Fashions in Finance – The Merger, Commercial and Financial Chronicle, February 16, 1929, p.943.

12. Department of Commerce, Census of Manufactures, 1929, v.I, pp.61, 95.

13. Census of Manufactures, 1929, v.I, pp.6162.

14. Bureau of Internal Revenue, Statistics of Income, 1924, p.u.

15. Census of Manufactures, 1929, v.I, p.94.

16. Statistics of Income, 1929, p.234.

17. Statistics of Income, 1929, pp.338-39.

18. Statistics of Income, 1931, p.15.

19. New York World-Telegram, June 9, 1932.

20. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (1933), pp.33-35.

21. C.E. Fraser and G.E. Doriot, Analyzing Our Industries (1932), p.263; United States Bureau of Mines, Mineral Resources of the United States, 1929, v.I, pp.487-99; G.W. Stocking, Oil, Encyclopedia of the Social Sciences, v.XII (1933), pp.443-44; New York Times, August 30, 1931; Editorial, Unscrambling Radio’s Eggs, New Republic, December 7, 1932, p.86; H. W. Laidler, The Concentration of Control in American Industry (1931), pp.141, 282.

22. Federal Trade Commission, National Wealth and Income (1926), p.4; Mineral Resources of the United States, 1929, v.I, pp.10-11; v.II, p.715; New York Times, July 17, 1931.

23. New York Journal of Commerce, December 6, 1929. New York Times, March 1, 1931; W.L. Thorp, The Changing Structure of Industry, Recent Economic Changes, 2 vols. (1929), v.I, p.187. New York Times, March 15, 1931; W.S. Raushenbush and H.W. Laidler, Power Control (1928), pp.68-71.

24. New York Times, November 14, 1931; New York Journal of Commerce, February 16, 1929.

25. New York Times, May 14, 1933.

26. Statistics of Income, 1923, p.26; 1929, p.127.

27. Computed from Poor’s Directory of Directors, 1931, and Moody’s Manual of Investments, Industrials and Public Utilities, 1931.

28. Leon Henderson, New York Times, February 25, 1934.

29. New York Times, February 28, 1934.

30. New York Times, March 21, 1934; New York Herald Tribune, April 18, 1934.

31. Mauritz A. Hallgren, The NRA Oil Trust, Nation, March 7, 1934, pp.271-73; New York World-Telegram, February 14, 1934; New York Times, March 13, 1934.

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