2. The Rise of Big Business: The Failure of Trusts and Cartels continued – Murray N Rothbard

20th Century American Economic History

2. The Rise of Big Business: The Failure of Trusts and Cartels continued

Lecture by Murray N. Rothbard

Despite the drive for monopoly, only oil, sugar and corn products ended up dominated by a particular company. Bigger was not better. Biggest was not best. Smaller and more mobile was more competitive. Major inventions are still coming from small firms.

2 of 8 from Murray Rothbard’s 20th Century American Economic History lecture series.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/20th-century-american-economic-history

Source: 2. The Rise of Big Business: The Failure of Trusts and Cartels continued – Murray N Rothbard – YouTube

http://www.readrothbard.com/2-the-rise-of-big-business-the-failure-of-trusts-and-cartels-continued-murray-n-rothbard

TRANSCRIPT

00:00
despite the driver for monopoly tried by
00:09
the mentality at least for money please
00:10
event of monopoly is the key thing will
00:12
provide more efficiency ignore course
00:14
the higher prices nor that really by the
00:17
end of this period we’re talking about
00:18
only oil sugar and corn products were
00:20
dominated by a single company and steel
00:24
is 50% now they’re not 90 but there we
00:26
also see the collapse of the US deal
00:29
attempt
00:30
[Music]
00:35
there’s also again as Charlie examples
00:39
of what happens here those are the so
00:42
kind of risky trust any small firms and
00:47
they were ski industry you know the
00:48
spoilers on cattle feeders for us and
00:53
first thing they do they concentrate
00:54
their production 21 plants a scrap the
00:57
other plants like figures on raise
00:58
prices cut production and price of
01:02
whiskey was then raised okay so what
01:04
happens when happens in the stimulates a
01:06
group of small local in from something
01:08
popping of those key business undercut
01:10
before the stores and trust so what are
01:14
they alright so what are you doing he
01:15
have the stores in cattle feeders trust
01:17
a trying to form monopolies they
01:19
desperately you know they get through
01:20
you guys together they merge and finally
01:22
find these these crumbs so they pop up
01:24
and undercut them what are they doing
01:25
about you know they can ignore that
01:25
which case they lose their monopoly or
01:27
they buy them out but again they can’t
01:29
keep I have people for everyone so they
01:31
went bankrupt in 1896 again justice
01:35
triumphing they tried again another
01:37
distorts company tries it later and we
01:40
should a kind of a similar thing that
01:42
you have a lot competitors been a pop up
01:43
again
01:44
they really nineteen hundred’s similar
01:47
thing happens in the National Biscuit
01:48
Company try to establish a my originally
01:50
in the National Biscuit Company is not
01:51
just a beloved a lovable but intervening
01:53
in this gets they are you also try to
01:56
establish monopolize originally supposed
01:57
to be the monopoly company 100% producer
02:00
of biscuits and other such stuff
02:05
was originally a 1998 the National
02:08
Biscuit Company was formed as a giant
02:09
combination of three regional giant
02:11
combinations a Greek National Bank they
02:14
tried their best to control prices and
02:15
production limit competition by out the
02:18
competition they try to buy out every
02:19
every new Biscuit Company and popped up
02:21
too expensive they met the master
02:23
process finally 1901 this is only three
02:27
years but there was a very traumatic for
02:29
years for National Biscuit Company and
02:30
finally and might even when they gave up
02:33
they said we have it bring it a
02:35
beautiful annual report which professor
02:38
Chandler quotes from it has a famous
02:39
article
02:44
anyway it’s classic article and just
02:46
like reprinted money and widely
02:48
reprinted the mention 1901 a National
02:51
Biscuit Company gives up the idea of
02:52
controlling prices of rail cutting
02:54
production raising prices monopolizing
02:55
everything and saying we’ve had it
02:57
almost bankrupt they changed the idea of
02:59
cutting costs improving efficiency and
03:02
not worrying too much about the
03:03
competition coming systemic marketing
03:05
and so forth and improving authority of
03:07
the biskits by anybody else
03:11
however and what they did when they
03:14
decided to buy or anybody else they came
03:16
up with a great invention you need a
03:17
biscuit the first phrase the first
03:20
consumer market innovation of the first
03:23
guys to solve packaged cookies packaged
03:26
stuff look at before that even when I
03:32
was growing up I’m not that old I was
03:34
wrong you didn’t really buy packaged
03:36
stuff in a consumer much you really went
03:38
to the head for the grocery you went to
03:39
the grocery story and Boyd Mercer had a
03:41
tub of butter and they had a bunch of
03:43
pickle a jar of pickle when he sort of
03:44
reach in you say one give me a slice off
03:47
a quarter pound of butter and the guy
03:48
would go to a hack away at his big tub
03:50
and though break stone or fire stone a
03:52
lot of stuff was just butter and we
03:55
didn’t we were deprived of the choice
03:56
between brands we couldn’t pick between
03:57
this car and margarine this kind of
03:59
butter and this kind of little corn oil
04:00
it was just butter yellow stuff and they
04:04
act at all
04:05
and this was the sort of the idea of
04:07
consumer brand is very new it’s really
04:09
as a great thing because then we can we
04:12
can pick we could choose with mallomars
04:13
UNITA biscuits in them some of the
04:19
health nuts around him like spoiling
04:20
this choices I think is important I mean
04:31
hopefully on Europe man-beast the
04:33
national biscuit company’s annual four
04:34
of 1901 announcing this change I hope
04:37
when we look back over the four years I
04:40
was the point of a before miserable
04:41
years even exist when we look back over
04:44
the four years we find that a radical
04:46
change has been run in our methods of
04:47
business when this company started it
04:49
was thought well yes control competition
04:51
and an allure to do this we was either
04:53
fight competition or buy it
04:55
he was driver to the wall on someone
04:57
you’re fine now the first meant a
04:59
ruinous war our prices they rejected our
05:02
deann a great loss of profit right the
05:04
second a constantly increasing
05:05
capitalization for five more mourners
05:09
experienced soon proved to us that
05:11
instead of bringing success either of
05:13
these courses and persevered in must
05:15
bring disaster this led us to reflect
05:19
whether it was necessary to control
05:20
competition we soon satisfied ourselves
05:23
that within the company itself we must
05:24
look for success we turn our attention
05:26
and our energies to improving the
05:29
internal management of our business
05:30
they’re getting full benefit from
05:31
purchasing our raw materials and large
05:33
quantities to become to economizing
05:35
expenses of manufacturer to
05:37
systematizing and rendering
05:38
more effective or selling but partly and
05:40
above all things and before all things
05:42
to improve the quality of our goods and
05:44
the condition in which they should reach
05:46
the customer it became the federal
05:48
policy of this company to to buy out no
05:50
competition and this really sort of says
05:55
it experiences Ammar they didn’t arrive
05:57
at this through lays a theory there
05:59
either through hard-nosed Kuroko
06:02
colleagues as much as would say they
06:04
were educated through struggle the enemy
06:11
I have one of my brightest students I’ve
06:13
had in my marketing on the history last
06:14
year was conserve converted from light
06:16
from antitrust busting lay the affair my
06:18
reading this report nothing that’s kind
06:20
of a cute
06:21
it was pushed over the brook all right
06:33
we have a similar thing and agricultural
06:35
machinery once again JPMorgan Memphis
06:38
the feeling of hand work tries to set up
06:43
my monopoly agricultural machinery sets
06:45
up the International Harvester company
06:46
all of the McCormick’s and the 1902 this
06:52
is both the another great monopoly
06:53
tapping the you know efficiencies giant
06:56
scale production center what happens
06:57
international officer Crum he’s a Jewish
06:59
singing li unprofitable their fights
07:02
between McCormick’s and dealings with
07:03
the emerging this thing they were radio
07:05
left the G is for organization
07:07
overconfidence I was a great to cry on
07:09
their shares of a market from 1903 the
07:14
National harvester had 91 percent of the
07:15
mowers in the country produced 91 of the
07:17
mowers and 96 percent of the finders by
07:20
1911 they were reduced from 96 to 87
07:23
percent of the miners and from 91 at 75%
07:25
of the mowers and the harvesters
07:28
produced maybe five percent in 1902 to
07:30
64 percent 1918 so by the time you have
07:34
after 10 20 years or over International
07:36
Harvester they cut down and
07:37
systematically to size so to speak have
07:40
a non merged companies need to expand
07:42
the competitors are not in on this great
07:43
novels attempted monopoly on the free
07:45
market such as beer & Company GI case
07:49
expand and fill in the interest of
07:51
Caesar to speak of this this operation
07:55
continue the story in 1922 is I think I
07:58
said well total farm machinery
07:59
International Harvester 44% of the total
08:02
farm machinery 90 22 by 1948 had 23%
08:05
steady decline
08:07
setting and happy to correct those it
08:08
wasn’t like to see this sort of thing
08:10
happen and also they were lag behind the
08:13
new combined market they were the last
08:15
guys to get in the combines behind them
08:17
an idea of rubber rubber tire tractors
08:19
and so forth so on behind again and
08:21
fundamental innovations in the and in
08:23
particular industry
08:32
the I was less something by Morgan Lee
08:35
the portable touched on before late
08:40
night in 1819 the fines for these
08:42
combinations came essentially from
08:43
manufacturers and salad of cooling of
08:45
their assets after 1897 particularly the
08:48
famous great merger away of 1897 1901 a
08:51
possibility the great merger boom
08:52
something we have a key role the Wall
08:55
Street financiers in this thing
08:56
investment bankers of the commercial
08:58
bankers the industrial stock pakka is
09:00
just really coming in then before that
09:03
really the stock market I was largely
09:04
railroad bonds and government bonds that
09:06
sort of thing so it’s really these
09:09
investment bankers the Morgan theis
09:10
promoter the great Marjorie wave in 1897
09:13
1901 okay we also have the sugar trust
09:27
this is I’m referring out of great
09:29
article by Richard Zerby and on the
09:31
sugar sugar trust journal one economics
09:34
I mentioned before he’s show that they
09:38
were though predatory price cutting who
09:39
attempted to be done by by mergers the
09:44
we had an increasing concentration of
09:46
sugar and 1960s 1880s approximately and
09:52
one of the things that stimulate
09:54
increases of tariffs might not have a
09:59
blood of cartels and again they
10:01
collapsed once again the same story
10:02
begins to repeat itself the year the
10:07
sugar industry although that was kind of
10:09
peculiar thing is largely concentrated
10:11
in Brooklyn in that period the there
10:17
were ten front that was evacuated I was
10:19
probably concentrated there were ten in
10:22
sugar found in New York City sugar
10:23
manufacturing in the 1880s and six of
10:25
them up on three of the largest from the
10:28
year the Q value of course the sugar
10:30
initially this Prairie was Henry o
10:31
Havemeyer having we’re family and
10:33
Harkins Sugar Refining Company and so
10:35
forth how it was have a buyer who coined
10:38
the great phrase of tab is the mother of
10:39
world trust
10:40
having I was said quote the mother of
10:43
all trusses the customs tariffs building
10:45
this thing bill which tariff 1897 and
10:48
the preceding ones up in UK have been
10:49
the occasion of the formation of or
10:51
large trusts the idea again is you have
10:55
to keep out foreign competition in order
10:57
though people have any kind of
10:58
successful trust at all
11:02
and there’s a saga of the sugar crush
11:06
saga can be okay well outlined as far as
11:11
what the power of goes kind of a cute
11:14
thing here requesting British to find
11:29
sugar customization terrific New York
11:32
prices British
11:37
[Music]
11:39
why
11:50
so we’re all
11:58
[Music]
12:30
[Music]
12:35
thirty-eight I’m afraid everybody the
12:43
price even with transport for ready I
12:46
only have you he went right over the
12:48
price to do much sugar was refined sugar
12:52
644 bro
12:57
[Music]
13:03
Shoei I think pretty clearly that the
13:05
you know I say sugar refinery they’ve
13:07
had to close up shop pretty well a huge
13:10
tariff which young which makes English
13:12
sugar uncompetitive and allows Havemeyer
13:15
to do his dirty work trying to carve
13:18
fries Carlo is the sugar on the street
13:21
the sugar trust of course assist
13:24
refining company lobbying very heavily
13:25
for for a high higher tariffs on on
13:28
refined sugar and lower tariffs on raw
13:31
sugar pressing the sugar industry have a
13:32
peculiar situation we buy sugar from
13:35
Cuba for a short lunch we were refined
13:38
in the United States let me sell it so
13:40
the idea was you have be a big big
13:42
free-trade theorists so it comes the raw
13:44
sugar and be a big American system
13:46
theorists who knows refined sugar and
13:49
the fortunes of the sugar industry in
13:51
this period overall it can be directly
13:52
related and one of those time ago to
13:55
talk to us for every light of the
13:57
fortunes of tariffs now empower close up
13:59
those damned power washer leftover ban
14:00
immediately
14:01
profits are effectively prices are
14:03
affected sugar mill street in 1887 they
14:18
should have so called sugar trusses form
14:19
the American Sugar Refining Company more
14:21
specific more accurate I will eighty
14:23
percent of the total American sugar
14:25
refining output so obviously on the
14:27
stimulus of this this big tariff
14:30
I have a Meyer again was obviously being
14:31
completely accurate when he said he
14:33
would ever even trying to form a sugar
14:36
sugar trust without the without the high
14:38
tariff and what they try to do was to
14:48
was to lower production and raise price
14:51
well then of course this tariff tariff
14:53
retention so in 1888 the originally 20
14:58
plants honey sugar passes and the sugar
15:00
trust they reduced it to ten they put
15:02
them out of business either dismantling
15:04
them or combining them in some way
15:06
and they operated of race only
15:12
much less than full capacity even even
15:14
look they just have the plants and 1888
15:20
they already dropped in one year after
15:22
this cartel arrangement even within the
15:24
tariff barrel tariffs all in one year’s
15:27
primary they had for the American Sugar
15:29
Refining Company share of a market of
15:30
from eighty percent to seventy three
15:32
percent
15:32
especially on the west coast they for
15:34
the fifty percent because what happens
15:36
in the West Coast the Hawaiian sugar
15:39
manufacturer so called sugar king of a
15:41
Sandwich Islands house speckles enters
15:43
the sugar industry in California slips
15:46
in the California because here boy
15:48
Kansas I have a mine he’s raised the
15:50
sugar prices a lot of profits here let’s
15:52
produce the churro refiner sugar
15:53
refineries and so speckle it begins to
15:56
build sugar refineries on the west coast
15:57
so not only they have not only is this
16:00
is the feat that purpose is to have a
16:01
large purpose of having this monopoly
16:03
cartel kind of situation but yeah as
16:05
he’s faced with a permanent pain in the
16:07
neck which is Spreckels you know
16:08
dependent new competition coming up
16:09
which which what would have been : to
16:12
being without the Sierra the original
16:13
higher price the
16:24
the pipes of before this attempted
16:26
monopoly price of sugar I’ve been
16:28
falling for 1881 I was 9 for like two
16:32
cents a pound this represents a fool who
16:34
were they literally have to trust trust
16:37
comes in 1988 the price goes up from
16:39
seven thousand seven point six cents and
16:41
bingo speckled lips in and and now we
16:47
have a prominent production I think the
16:49
production of speckled the other the
16:50
other independence increases from a
16:52
thousand barrels a day to ten thousand
16:53
hours a day and we wind up for the sugar
16:58
trust by 1889 the sugar class has only
17:00
66 percent of total sugar Rock right
17:01
in other words of two years the American
17:04
Sugar Refining Company share the market
17:06
Falls from eighty percent sixty six
17:07
percent as a speckled pops up with new
17:12
plants and the price of sure something
17:15
is the fool finally goes down by four
17:16
point seven cents and as a whole attempt
17:24
and then the sugar trust right the by
17:25
sparrows out the and he does by speckles
17:27
at and we have an American sugar
17:29
refining company making on to literally
17:31
in the reorganized company we should
17:34
strike a little $6 people and now has
17:37
95% of the sugar production
17:38
okay we’ve won Spreckels after late
17:40
shake their money purse on the
17:41
production product there’s only two
17:43
independents left the Nathan’s a great
17:45
point 1892 merger only two independent
17:47
stock one small plant in Boston for
17:49
making only five hundred dollars of
17:50
sugar a day another cheat teeny plant in
17:52
Louisiana making 400 a day
17:54
I think otherwise
17:58
there was only beat sugar which so lean
18:02
is about four percent reduction in those
18:04
days from a very little so here is okay
18:07
we finally have the reorganized thing we
18:08
bought Spreckels now we have a little
18:10
have a my our alliance now on all sorts
18:12
of old sugar hands but then I think
18:14
we’re gonna come back in the business
18:15
hey we’ve got higher prices we know
18:17
higher profits and we have two gentlemen
18:21
named Adolf Siegel of feta fabric
18:23
hippler one of the business of producing
18:25
sugar plants ability to refine soul add
18:27
the sugar fighting coming out to Baia
18:29
once again we have a circle of blackmail
18:31
arrangement it’s really great Amy I
18:33
really ought to really be with good
18:35
sugar manufacturer wait who’s the build
18:36
a plant
18:37
I have to buy it takes it off for your
18:40
hands so and one time the sugar was a
18:44
priest or when they found out they
18:45
bought a plant from hippo Segal they
18:47
found out there was a water supply there
18:49
the whole thing is are they anything
18:50
else with no equipment was a big ripoff
18:55
so this so this could be your gone by
19:02
1894 the same process only two years
19:05
after the American Sugar Refining
19:06
Company has 95 percent of total sugar
19:08
production 1894 they have only 85
19:10
percent they drop 10 percent in two
19:12
years and then the play starts freely
19:14
again does they have to compete for
19:16
these new independence popping up 80 95
19:21
96 they try it all over again I have a
19:23
new car toleration between the old Sugar
19:25
Refining Company the old hammer my spec
19:27
house people new guys they have now a
19:29
cardinal ization covering 90% of
19:31
production the price of sugar then goes
19:33
up the price of sugar had formed during
19:35
this competitive period from four point
19:37
eight cents at four point one son and
19:39
now I’ll have before I have something so
19:43
everything is hunky-dory about a year
19:44
then no guy enters the picture new old
19:47
sugar though I also got down on
19:49
something else class to assure and the
19:51
Arbuckle brothers probably the ancestor
19:54
of the famous Fatty Arbuckle and a
19:57
little bit more stupid fatty so the
20:00
automotive brothers in the door sure
20:01
enter the business they live in here
20:03
they take advantage of the high power up
20:04
and take advantage of the higher prices
20:05
higher profit than going great you three
20:07
songs and and they begin to win out of a
20:14
competitive struggle in by 1898 there’s
20:16
only two years later they’re down to 75%
20:20
of lead in the a five the price of sugar
20:25
fools again is essentially all buckle my
20:27
little broke the cartel with a lower
20:29
class on superior product
20:32
I remember will divide the ID info will
20:35
be packaging sure you usable for coffee
20:38
finally having the Florida ring first
20:39
off big new the big new things and it
20:42
seems obvious to us
20:46
well they really do about this when I
20:50
form another card tell me these guys
20:51
didn’t give up for a long time they were
20:53
in the profitable 1901 haven’t learned
20:55
all before guess I got a new sugar
20:57
cartel including almost all the eastern
21:00
refiners and they they’re speckle didn’t
21:03
want to join speckles by this time and
21:04
nip down and build some more plants
21:06
really wasn’t so for life okay he
21:09
vandalized his plan is one case for an
21:11
authentic case with a unique sabotages
21:13
plant and and we has we have another
21:18
great merger in 1902 we have a new
21:20
merger American Sugar Refining Company
21:22
with 90 percent of all a blur back up
21:24
finally painfully again a 90% profits
21:26
went up sugar price went up five point
21:29
three cents and and once again we start
21:40
up the West Coast pops up again the
21:46
Hawaiian sugar plantations pop up again
21:49
anew Hawaiian guy start building plants
21:51
in California and shipping the sugar to
21:52
California and a fine rate and that’s it
21:57
that doesn’t work either and also the
21:58
beet sugar of people hasn’t been heard
22:00
from before now begin there’s a bit of a
22:02
market I mean types of sugar is going on
22:03
Papa’s going often settle itself sauce
22:05
selling beet sugar there also have been
22:08
a higher tariffs or a fine sugar 19 in
22:10
England 1897 which is also talked of
22:13
them under this picture so will suddenly
22:16
have a little bit sugar interest me how
22:17
in the Louisiana cane sugar people ganna
22:19
increase their and and so then the sugar
22:27
trust feel they have to start buying up
22:28
the beet sugar companies they start
22:29
racing around the front of mind these
22:31
people off they’re becoming a threat
22:33
well let’s say none of this really
22:35
worked again we have the same sort of
22:38
pattern the the 1902 when the finals
22:43
when the final eat sugar thing was 20%
22:45
of the total output by 90 1905 he only
22:49
had 70% full output by nineteen seven
22:51
and sixty percent by 1911 they had 54
22:53
percent and be sure as we kept popping
22:56
out more and more
22:57
raising their share for 14 to 7 so and
23:08
also in cane sugar more competition
23:10
comes out Spreckels comes up again other
23:13
plants come up at California and so and
23:16
so I’m here five that said we’re down to
23:18
70% and sixty percent would be 4% rate
23:22
sugar trust doesn’t work after Willie’s
23:24
constant headaches after buying out
23:26
people and all the rest of it the thing
23:28
the thing collapsed if you didn’t have a
23:30
governmental government promotion or
23:32
encourage me the cartel or government
23:34
enforcement at the current time the
23:36
refined sugar price and then again at me
23:38
and if against the for once again for
23:40
5.3 cents down about four four they
23:46
trying to have international pilot
23:48
international cartel agreement that
23:49
didn’t work either and as well see again
23:51
once again more war one just this in the
23:53
steel industry justice just this world
23:55
war one block for a joint of a parts of
23:57
Judge Gary subtle and sugar industry
24:00
world war one book for joy to the hearts
24:02
of the sugar manufacturers finally came
24:05
into their home one more one for joining
24:08
the heart of many people in high specs
24:09
not those of course were killed
24:12
[Music]
24:18
I’m Amara again to have another cold on
24:20
terra firma he said he said the Sugar
24:25
Refining had the buildup on her quote
24:27
enormous protection without the tariff I
24:29
doubt if we should have dared to take
24:31
the risk of forming will trust I
24:32
certainly should not have risk though I
24:34
have and trust unless the business of
24:36
heaven protect it as it was
24:39
but even that even with the tower
24:41
protection between coops
24:42
[Applause]
24:53
we finally what they finally had to do
24:55
was simply keep the price low keep the
24:57
profit margins low and not keep
24:59
stimulating increase competition anyway
25:03
they gave up the idea really trying to
25:05
establish a monopoly price now stop at
25:17
this point who the more are me I’m a
25:18
failure of the trusting part-time
25:21
[Music]
25:24
progressive period attached the contract
25:27
[Music]
25:31
[Applause]
25:37
get back to the failure of the trust and
25:41
so forth and the by thee as violet by
25:50
nineteen even by 1900 by the early
25:52
1900’s all the block trees the question
25:55
how come these guys and learn about it
25:56
Forrest mentioned Morgan was a pretty
25:58
good statement about the Morgan’s
26:00
benefit from my Commission’s for forming
26:02
trust cetera but the various business
26:06
around were beginning to see is early
26:07
1900 of the things a trust thing those
26:09
can be working price theoreticians for
26:18
example the are in a steel industries I
26:19
think I might have mentioned numerous
26:21
independent firms pop up after us
26:23
deagles founded and they start to share
26:25
on the alleged profits mergers and so
26:27
forth and Iron Age Iron Age the magazine
26:31
of iron and steel industry writes writes
26:36
about this rather sadly September 20th
26:45
1904 meeting this is especially true
26:49
where the combination is is naming they
26:53
further fixing confessedly high prices
26:55
for its goods and is at the same time
26:57
under heavy expenses on a kind of buying
26:59
our competitors or subsidizing them to
27:01
keep out of the market so iron age saw
27:03
this thing as early as 1900 even before
27:07
the US the final US Steel merger and in
27:11
November of nineteen first 1900 RNA
27:13
again says quote the most serious
27:16
problem of confronts trust combinations
27:18
today is competition from independent
27:19
sources when the papers speak of a
27:21
cessation of operation in certain trust
27:23
industries they fail to mention the
27:25
awakening of new life and independent
27:27
plants so they’re seeing this I mean
27:29
either the for the more thoughtful
27:31
members business community wording
27:33
flashed on to this evening play this it
27:35
was really 1900
27:38
their other their other trust that the
27:42
same thing happens to their example the
27:44
wallpaper trust which brings up rather
27:47
quickly than eight years or so the
27:54
Continental company limited film in 1899
27:57
and 1900 controlling 95% of the sales
28:00
screen doors and windows dissolved in
28:04
one year one crummy year from from this
28:09
commanding height of 95 percent of the
28:11
business dissolves why because of
28:13
growing competition due to the high
28:14
prices if they were trying to charge and
28:16
the failure to achieve any kind of
28:18
really cannot economies you know of
28:20
course it’s not all so second far as I
28:24
go and statement about the cheap money
28:25
that’s a very important point about
28:27
theme which stimulates emulate of the
28:29
merger movies in that period
28:30
Benjamin asked about M Anderson great
28:32
work you know make some public welfare
28:34
also points to this as being like doing
28:37
the keeping spur of this merger movement
28:40
a couple of other cases they were for
28:43
you with too many cases by finally
28:45
fascinating a leather trust here we have
28:52
a highly competitive industry making
28:54
sole leather we have a lot of small
28:57
firms very little capital required to
29:00
invest in any particular firm and
29:03
they’re mostly concentrated in southern
29:05
New York in Pennsylvania five of the
29:07
largest firms get together and form the
29:09
US leather company in 1893 controlling
29:12
58 percent of the pan so leather 72
29:16
percent of Hemlock tanned and 45 percent
29:18
of unions and suffered as a matter fact
29:22
Lenin was formed in 1893 the US by other
29:25
companies the largest single the largest
29:26
capitalized firm in the country in time
29:28
totally one hundred thirty million
29:30
dollars of capital Standard Oil Trust
29:33
for example in New Jersey is only a
29:34
hundred and two men so what do they
29:38
expect the tenors they expect at the end
29:39
of competition would bring them high
29:41
prices prosperity high profits and
29:43
economies in large-scale production
29:47
yes what happens to the US while their
29:50
company almost immediately they
29:52
certainly lose 1.3 million dollars no
29:56
dividends on our common stock the
29:58
profits continue to be very low why is
30:04
that while it was a business lump they’d
30:06
also they’d over expanded their their
30:09
assets they had their prices continue to
30:14
be competitive even though they were
30:16
because they couldn’t really big Monica
30:18
they finally couldn’t raise their prices
30:20
because the small tanners that were
30:22
competing with them are very well
30:23
entrenched a lot of ours a lot of
30:25
independents that a lot of large open
30:27
Union tanners they because they really
30:28
only sort of control limits so some walk
30:31
tanning and they found out that the the
30:33
small businesses also had very superior
30:35
management to them and the end of this
30:39
saga took 11 years by 1904 us mother
30:44
company quote we organize goes bankrupt
30:47
the end of the leather trust as also the
30:51
saga of the cornstarch trust I think I
30:53
mentioned yesterday there were three
30:55
companies leading industries where there
30:58
was almost a monopoly oil corn storage
31:01
the sugar the corn stocks beginning we
31:06
have a highly competitive and if you
31:07
start with a highly competitive industry
31:08
falling prices and so forth we have a
31:16
foreman 1890 they form a national starch
31:20
manufacturing company a merger of twenty
31:22
storage factories controlling about
31:25
seventy percent of the total total
31:26
starch ah but including the largest
31:28
single factory in business so what
31:31
happened well I am Lou they got severe
31:33
competition somebody coming in from
31:34
Western corn both Western bulk store
31:36
your two kinds of starch friendly both
31:38
starch billion manufacturers and box
31:41
start just went to the consumers so they
31:44
find severe competition from Western
31:46
bulk storage and then they find that
31:48
after five years see what happens one of
31:50
the guys emerged with among the large
31:51
firms merging
31:53
form the largest factory since a forming
31:56
with national starch manufacturing
31:58
combine
31:59
during a glencove manufacturing company
32:02
there’s only have there three a family
32:04
and they signed this thinks I am going
32:07
on for five years when I heard the
32:08
business well five years are up three
32:10
aids ibsen of the business again no new
32:12
plants you know more competitive more
32:14
newer than the previous ones and becomes
32:18
highly competitive and this is the
32:19
relative output of national scarce
32:20
manufacturing company 6 1899 s they
32:26
start under they try not try they try it
32:28
again
32:28
3a included this time we have the United
32:32
starch company but included the union of
32:38
the four biggest box starch happens at a
32:40
time and 1900 the whole group merges the
32:44
united starch company in the old
32:45
national starch
32:47
factoring company and us glucose can’t
32:50
they all merge in one giant gigantic
32:52
national starch company capital on in 21
32:54
million dollars the national starch
32:56
company now has 90 percent of the box
32:58
starch in country and 75 percent of the
33:00
two low starch box and all so they’re
33:03
pretty young if they think I’m selling
33:05
in pretty good shape
33:06
they expect big monopoly profits of work
33:09
what happens profits below offers are
33:12
coming they find the marketing costs are
33:14
very high doing very well and they try
33:17
to raise rise our and what happens is
33:19
they the rise in the price of corn
33:21
they’re trying to affect shifts the
33:26
Middle’s little buying starch they try
33:29
to raise the corn to the price of corn
33:30
starch the little star buying a potato
33:32
starch is a new gimmick so suddenly pops
33:34
in which is not the monopolize an
33:37
addition of that independent Mills
33:39
independent court starts to pop up new
33:42
hydraulic processes with area lower cost
33:44
plants and more more rapid production so
33:49
forth the profits for national stock
33:51
company fool and very very quickly
33:56
they’re down a forty percent of the
33:57
share of the market from the original
33:58
minding if there’s that’s the starch
34:05
there’s also the glucose trust there’s
34:06
an obscure technological connection
34:10
within starch and glucose which I’m not
34:12
going to go
34:12
I feel I’m on shaky ground the only
34:15
other technology is start to cook the
34:19
glucose in the street and the glucose
34:22
firm was trying to make a form of pool
34:24
in 1885 maybe a five 1890s big glucose
34:27
pooling and they signed quotas of
34:30
production of each plant every plant
34:32
gets its allocated promoter and we have
34:36
first the American Lou coast company
34:37
which has 65% of the glucose Morton but
34:41
so what happens while newer
34:43
manufacturers come in they increase
34:45
their production and they try to they
34:47
try to bring them into the quota system
34:49
that means each quota offer each each
34:51
member of the glucose Martin wilcos
34:52
company team at the cut their production
34:54
and we wind up with all these headaches
34:56
a very short amount of time a few years
34:59
the American glucose company down a 45
35:01
percent from its original 65% of the
35:03
market one of the things that happens is
35:06
the Chicago Sugar Refining Company
35:07
breaks the pool just breaks at the start
35:11
breaks away it starts increasing is
35:13
production cutting prices engages a
35:15
severe competition when the American
35:17
glucose company which Stephen Stanko
35:18
more rapidly so in 1897 they try okay
35:21
will bring a little together and they
35:23
have a mighty consolidation six large
35:25
companies into the glucose sugar
35:26
refining company worth 40 million
35:29
dollars and it’s only 85% on the book
35:30
closed market this time the Chicago
35:32
sugar fighting company back in and the
35:35
largest plant the American whose company
35:37
Coast companies also included we have
35:39
this mighty merger and they raised the
35:42
price of glucose and first time making
35:44
high profits you be there in so what
35:47
happened while the stimulates the high
35:48
profits stimulate new manufacturers
35:50
entering the industry and new glucose
35:54
firms pop up the Illinois sugar
35:56
reporting company national stars company
35:57
that’s Charles paper coast company which
36:00
cuts prices of the candy manufacturers
36:02
and a New York glucose company which is
36:05
essentially expanded oil system see here
36:06
subsidiary will need two guys and
36:07
they’ve been with more modern machinery
36:09
and we only a school kosher refining
36:12
company was in big trouble by 1901 only
36:15
four years after they they were formed
36:17
with 85 percent of the market down a 45
36:19
percent of the market and making severe
36:21
losses and their stocks are collapse the
36:23
stock prices of stock is collapsing and
36:24
so forth
36:27
only in 1902 they haven’t given up yet
36:31
another consolidation takes place
36:33
promoted by the bankers who code Sugar
36:37
Refining Company the National Sugar
36:38
Company and Charles Polk company
36:40
Illinois Sugar Refining Company and New
36:43
York glucose company are making a half
36:45
of their stock their one giant company
36:47
the corn products company capitalized at
36:49
seventy six million dollars they’d even
36:51
sent a starch and glucose market and
36:54
they expect boy oh boy now I can have
36:56
high profits I have this virtual
36:58
monopoly a scrap many of their plants to
37:00
reduce production so what happens very
37:03
very quickly once again new starch
37:06
factories glucose microwaves Nippon
37:08
Morgan appeal Brothers Company Water
37:11
Company corn products company finds
37:14
herself again with the cloning profits
37:15
again the high cost of corn to get into
37:19
the corn market limits the market for
37:22
corn by the second year of the corn
37:25
products company and they’re suffering
37:26
heavy losses their stock prices collapse
37:28
and by 1903 which is one year after corn
37:35
products something was formerly deepest
37:37
on the market and down a 45 percent I
37:38
believe nobody tire starts glucose
37:40
business which are probably now been
37:41
consolidated and then a 45% there’s talk
37:44
of collapse by 1906 a new consolidation
37:49
takes place the gloom products something
37:51
new I’ll propose Warner and Lois glucose
37:54
into the corn products refining company
37:56
with 91% on the market excuse me many
37:58
million dollars at 74% of Morgan except
38:00
at this time their size and I’m not
38:02
trying to raise prices and I got trying
38:03
to buy up a lot of competitors they’re
38:06
gonna stick the low-cost production and
38:07
distribution and sort of go the way of
38:08
nationalistic I’m gonna even have a
38:10
regular company and not try to be
38:11
monopoly that’s essentially the core
38:13
product who code stars saga quick survey
38:27
okay and I have some of our assessments
38:30
here of this thing over nearly 100
38:36
companies is a tight consolidated trust
38:38
companies formed in nineteen ninety nine
38:40
ninety nine hundred by 1900 know that
38:43
the one-year three quarters we’re not
38:44
paying dividend three quarters around
38:46
and rotten and bad financial shape
38:49
most of the hopes of the promoter at
38:51
least the hoax has been to the public
38:53
not realized new competition was you
38:55
know comes poori and then comes all of
38:57
these cases and the various overall
38:59
figures cocoa points and strife
39:00
conservatism of the 50 largest with 50
39:03
largest corporations in 1909 by 1919 by
39:08
nineteen nineteen nineteen nineteen ten
39:10
years later seven had dropped out of the
39:11
top 100 and by nineteen twenty nine
39:14
twenty had dropped down twenty of the
39:15
fifty dropped out of the top 100 not
39:17
just the top fifty of 100 largest
39:19
corporations 1989 47 had dropped out of
39:22
the top 100 115 1961 I dropped out by
39:25
1929 so we have a very mobile a
39:28
situation very high turnover of the top
39:31
corporations in this period Arthur doing
39:37
is done a great excellent qualitative
39:40
study of the least of these what
39:42
happened to these trusts was reprinted
39:45
finally in his mammoth two-volume work
39:47
but you’re unfortunate just consider a
39:49
corporate finance textbook so nobody
39:50
ever really reads it full of natural
39:52
policy corporations and sort of footnote
39:59
exit Arthur is doing de w ing if the old
40:06
the old style classical footnote we go
40:09
on about five pages and you have
40:10
footnotes on to the foot enough I like
40:13
that thank you you don’t have to read
40:16
the footnotes dealing is the overall
40:23
assessment his statement on the subject
40:26
we’re going to anything he says that you
40:30
know the climax comes around really by
40:32
1901 a little bit by night – the
40:34
scattering number of Morken solid
40:36
trusts formation to them
40:38
$2.99 three and more or less stop by
40:41
there he says wise as well trust turn
40:45
out badly they didn’t suppress
40:46
competition I didn’t realize big economy
40:48
large scale economies Lee investor it
40:50
didn’t realize their expectations the
40:54
prices of the stock totally decline the
40:56
promoters found a large amount of
40:57
security and remain owned so few paid
41:00
any dividends most of the trust actual
41:02
and many of the truss actually collapsed
41:04
actually in fact up but doing this he
41:07
took a random sample of 35 of these
41:10
trusts industrial solid nations of the
41:12
approximately how long I was over this
41:17
kind of obscure exactly how many thing
41:20
we’re certainly over a hundred and
41:21
hundred and thirty maybe in science 260
41:23
little men a right to the random sample
41:25
35 industries these kind of trusted
41:28
salvations you compare the earnings of
41:31
the kind of a constituent competing
41:32
parts getting firms before the trust was
41:35
a warm with the anticipating
41:37
participated earnings eclair by the
41:39
promoters of the bankers when the trust
41:42
was being formed with the earnings for
41:44
the first year after the trust was
41:45
formed and then ten years after that so
41:48
in other words you take the what’s HAP
41:50
what happened the individual companies
41:51
before the trust now what happened after
41:53
the trust was formed found out on the
41:55
average that the earnings just before
41:59
the trust or twenty five percent higher
42:02
than the earnings the first year after
42:04
the trust okay having to take an average
42:07
25 Cyclops and also that the earnings
42:12
before the trust were more than the
42:14
average earnings for the first ten years
42:15
after the formation of transit even even
42:17
for the tenth year so as well as weight
42:19
of ten years after the first was form
42:21
they’re still making less profits and
42:23
the original firms did before the whole
42:25
thing’s concede the estimates what
42:28
promoters as far the estimates of the
42:29
promoters and bankers went the
42:33
expectation what would happen on the
42:35
large scale economies supposedly in
42:37
cooperation replacing competition these
42:40
estimates of a promoters and bankers
42:42
were fifty percent higher than the
42:44
actual first year earnings so in other
42:45
words the the actual earnings before the
42:48
trust with 25 percent Harlan the
42:50
earnings afterwards and the
42:51
promoters expectation average 50% higher
42:54
than what actually happened and content
42:56
also considerably higher in the first 10
42:59
years were the earnings of the the
43:01
promoters doesn’t overestimated even for
43:03
the 10 years ahead we’re taking another
43:05
set of statistically in another life of
43:14
these 35 trusses 13 have appreciate
43:18
earnings equal to the pre trust and 22
43:21
has fresh earnings less plan pre trust
43:23
earnings and this is also about the same
43:26
ratio for the first 10 years after the
43:28
trust was formed then I only four had
43:31
earnings equal to the anticipation of
43:32
the promoters while we’re looking at
43:37
another way earnings after the trust
43:41
were expected to be 40% higher than
43:43
before the trust though the average
43:44
expectation by the promoter of the
43:47
bankers etc were that you’re gonna have
43:48
a 40% increase in earnings once you have
43:51
this consolidation but actually haven’t
43:52
they had 20% less in the first year and
43:55
10% less for the first time year period
43:57
so this gives you these sort of the
43:59
range what happened the only goes into
44:03
some of the reasons for this very
44:05
interesting discussion he says the pools
44:09
with two of the expected economies of
44:13
our scale production his expectation
44:15
were basin of pure analogy as I
44:16
mentioned thing last night all night
44:17
before it figure is better than biggest
44:19
asbestos turns out being correct its
44:22
argument from analogy all right they
44:24
assumed there was no limit of economies
44:26
of scale they seemed with no limit to
44:27
successful organization size and also
44:33
you point out that they when you have
44:34
this trust everything is routinized and
44:36
your opera ties you eliminate
44:38
creativity’s we’re talking about a
44:39
couple of days ago
44:40
and let me eliminate the input of
44:43
intelligence by each the creative
44:45
intelligence of each of the individual
44:46
entrepreneurs and you’re replacing a
44:48
bureaucratic I’m fed up and he said you
44:51
know you stamp on individual human
44:53
judgment initiative which can’t be
44:55
replaced by automatic automatic huh
44:58
routine processes any points now the
45:00
management ability is scarce our
45:02
entrepreneurial ability is scarce
45:04
things you guys didn’t realize and he
45:07
said the loyalty was to each to their
45:09
firm was weakened the individual
45:10
entrepreneur is no longer really gave a
45:12
damn who these part of this huge solid
45:14
organization and the personal touch of
45:19
the personal salesman role was weakened
45:20
and so forth and so on
45:22
[Music]
45:23
also as he pointed avidly a larger is
45:28
this very large size will open up
45:29
disadvantage a handicap and a feeding
45:31
with smaller and more mobile competitors
45:32
I mentioned the Pushcart problem he
45:34
didn’t tease me he’s mighty little
45:36
squarer than any right it’s that sort of
45:38
analysis he also points out this very
45:42
large size often raise the price of raw
45:43
material too much opportunity analysis
45:46
to get very big and you start 50 by
45:49
instalments here on you and raise the
45:51
price and the meantime a small
45:53
competitor could shop around in secret
45:54
sort of make secret deals with me raw
45:56
material suppliers also the small
46:00
competitors had a lower overhead so they
46:01
could they could nip out in four years
46:03
because I’m get out of the business or
46:05
so reduce their production some more
46:06
years and then it back in in the gears
46:08
and is again more mobile on them in this
46:10
competitive contest I don’t want
46:15
something point foul so he didn’t point
46:16
does that right after this that’s a
46:19
great thing studies were made in the
46:21
last 10-15 years there’s this fits in
46:24
with our creativity discussion mister
46:26
than a sound that most it’s usually
46:29
considered by yellow socks historian
46:31
close considered well a 19th century
46:33
most of the big inventors he measures of
46:36
great new products and processes were
46:39
small and they were a small businessmen
46:41
are also independent you know people’s
46:42
Pickering laboratory in the basement but
46:45
now a twentieth century all the really
46:46
big inventions have to come from big
46:48
corporate huge corporate are in the kind
46:50
of fact have processes it turns out it’s
46:53
not true it’s still true in the 20th
46:56
century the major invention is really
46:58
fundamental creative inventions haven’t
47:00
spoke this building maybe my small
47:01
independent guys in the backyard or in
47:04
small laboratories and small firms have
47:06
been several studies of this truck
47:08
surrender your attention
47:10
John juices Juke say words in film and
47:14
his great work the sources of adventure
47:15
and things in the library
47:18
goes through a systematic study of all a
47:20
top invention 19th century and chosen
47:22
the largest part of them were spilled on
47:24
my small pipes small people small firms
47:27
and also other studies my annual Hamburg
47:31
local R&D; and my shmoop ler notes and a
47:34
whole bunch of other people have done
47:36
studies of court of invention and
47:37
Industry and innovation and demonstrated
47:40
this I think be successfully I mentioned
47:42
xeroxing Polaroid is one of our heroic
47:46
case which I saw use my students you
47:50
have to have some sort of a grabber I
47:51
think which is relevant in close six
47:53
days to their concerns
47:54
it’s one of my favorite examples of this
47:56
is the great the greatest the great
47:59
invention in modern times a shaving
48:01
shaving Fields was firstly the Teflon
48:03
coated razor razor blade before this
48:08
happened Joe life had run enough money
48:09
for something they had a huge proportion
48:11
of razor they were advertising
48:13
everywhere of course every sporting
48:14
event the last 40 years of my life have
48:17
been Gillette tank Gillette you know
48:20
worldwide of sports worldwide sports or
48:22
whatever so and yet despite this we have
48:25
this teeny little company and anyone
48:27
Wilkinson Sword company purely is a
48:30
byproduct I’m stumbling into this
48:32
develops of Teflon coated blade so they
48:36
can use the other processor stainless
48:38
steel black forever coated with Teflon
48:41
and they produce it they don’t really
48:43
care about plays like they’re throwing
48:44
in a way they’re giving it away in as a
48:46
package deal to promote their swords
48:48
they really the only thing I really
48:49
interested in swords beautiful swords
48:52
it’ll sharpen one rest of it easily
48:54
those have a couple of blades will throw
48:55
in show you how my great swords we met
48:58
and I remember this little personal
49:01
experience because they didn’t want to
49:04
promote it and they had a little teeny
49:05
office in Madison having you have to
49:07
walk up down the swanky apartment I mean
49:09
with a sort of lower master I mean he
49:11
had to walk up to three flights to a
49:12
little office the word got around purely
49:15
by word of mouth but had these great
49:17
plays and terrific much better than
49:18
Gillette and and people in your
49:21
lines would show up I have to ration
49:22
your one blade because the worst
49:25
and you along with form around the block
49:27
eagle up there anyone they were driven
49:30
by this fantastic the man by the word of
49:32
mouth has started to start with the
49:33
flight business and not only that but
49:34
July not only Thunder the other super
49:36
giant we’re driven to the copy otherwise
49:40
going under despite their huge size
49:42
despite their enormous brainwashing
49:44
every time there’s another heroic
49:47
example smaller buys invention
49:49
competition busting through the takers
49:53
[Laughter]
49:58
so large scale what it has a business as
50:01
date does not necessarily make it more
50:02
and cuddler more efficient or more
50:03
innovative and doing another great
50:06
another great book which sums up a lot
50:09
of the glucose and start to another by
50:13
doing called corporate promotions
50:15
reorganizations his is more of a little
50:17
preface very sort of sums up in his
50:19
human world and he says quote I have
50:22
been impressed throughout by the
50:23
throughout my own powerlessness of mere
50:25
aggregates of capital capital the whole
50:27
monopoly I’ve been impressed to are the
50:30
tremendous importance of individual
50:31
innate ability or it’s like and
50:33
determining the success or failure of
50:35
any enterprise with these observations
50:38
in mind one may Hanser the belief that
50:40
whatever trust problem unquote exists or
50:43
work out its own solution the doom of
50:45
the inefficient waits on no legislator
50:47
regulation it is rather delayed thereby
50:50
restrictive regulation will perpetuate
50:53
the end of the inefficient corporation
50:55
by furnishing an artificial prop to
50:57
support natural weakness of that social
51:00
darwinism rhetoric by furnishing an
51:03
artificial prop support natural weakness
51:06
it will hamper the efficient by impeding
51:08
the free play of personal ambition
51:10
terrific some might be okay from this
51:19
point it’s concludes my likes your
51:21
second block of lectures who speak on
51:24
business the rise of big those in the
51:26
for the trust this is the rise of big
51:28
those in the fool

Leave a Reply

Your email address will not be published. Required fields are marked *