which the addition of plants brings no further economy.
Just where the limit is can be proved neither by abstract
reasoning nor by statistical investigation. It is dif-
ferent in different industries. There is little reason to
believe that in most industries a combination controlling
the entire business would be appreciably superior, with
respect to the elements of efficiency above mentioned,
to a combination having a minor fraction of the business.
Take, for example, the matter of cross freights. In
some industries freights are not an important element
of expense.
In others the location of materials, or of
consuming markets, or like conditions, make it impos-
sible to locate plants with a view to saving freight either
on materials or products. There are, however, a good
many industries in which scattered plants competing
with one another incur much needless expense in trans-
portation. In such industries a combination by ship-
ping from the nearest plant could effect material savings.
It does not follow that a combination of all the plants
in the country could save more than a combination of a -
moderate number of well distributed plants.

If in a

7

Where an industry derives peculiar advantages from X the integration of successive and related processes, combination on a large scale may be essential to the full realization of economies of this character. single one of the related branches of business the greatest efficiency requires the handling of a large part of the total business by a single organization, then it may be advantageous for the combination to conduct other branches of the business on a corresponding, scale. There are, however, few, if any, important industries in which successful integration requires the control of the major part of the business by a single combination. In

a good many instances a concern that has not more than a single plant engaged in each of the different stages of production has been able to secure an efficiency at least closely comparable with that of a widereaching combination. This is the case, for example, with several independent concerns in the steel industry and even with some of the recently developed independent concerns in the oil industry.

There is another economy sometimes claimed for the combination of separate plants, namely, that it is able to close down the inefficient plants and concentrate business in the largest and most modern. This, however, is not an advantage to the public. No combination, unless with monopolistic intent, would take in inefficient plants. The fact that a good many trusts have, shortly after their organization, dismantled numerous plants is proof simply of their monopolistic purpose. Under a régime of competition the inefficient plant will in due time be forced out of business and the public will no longer be burdened with supporting it. When a combination takes in an inefficient plant and dismantles it, the public pays the bill, provided the combination succeeds in obtaining a sufficient degree of monopoly power. The combination either charges prices high enough to enable it to write off the cost of such a plant out of its profits, or that cost is permanently represented by securities on which dividends are expected to be paid. A combination which takes in a limited number of selected, efficient plants is in this respect far more conducive to economy than a monopolistic combination.

It thus appears probable that most of the economies claimed for the trusts could, in many if not all indus

tries, be secured in approximately equal measure without permitting combinations sufficiently comprehensive to possess any approach to monopoly power. There remain those alleged economies of trusts which arise not from mere magnitude or from mere assembling of separate plants, but from the elimination of competition. These require more thoro consideration. They are few, namely:

1. Prevention of needless duplication of plants.

2. Elimination of that part of the cost of selling goods which results from the effort to secure business at the expense of competitors.

3. Elimination of waste due to irregularity of operation, and of the losses of so-called destructive competition.

Let us take these up in order:

1. It is contended that competition leads to excessive investment of capital, to the erection of plants with a capacity in excess of the needs of the country. This is true only in a very limited degree of ordinary mining, manufacturing, and commercial business. Such business differs radically from the so-called industries of increasing returns, such as transportation. In order that there shall be any rail transportation between two points, it is necessary to build a track which may have more than capacity enough for all the traffic. Under such conditions, the one railroad can increase its business without corresponding new investment. In fact, up to a certain limit, even the operating expenses of a railroad do not increase proportionately with volume of business. The building of a second railroad under the conditions mentioned would mean unnecessary duplication of capital and perhaps also of the operating

expenses.

In the case of the ordinary manufacturing industries it seldom happens that a single plant, however large, can supply the entire demand of the territory to which it has natural access. The construction of a second plant usually does not mean needless duplication of investment. The aggregate capacity of all plants is not likely to exceed materially the demand in times of prosperity. The desire of each competitor to be ready to get as large a share of the trade as possible may lead to some excess in plant capacity, but not to a great excess. Moreover, in manufacturing industries, even if there be some excess of plant capacity, operating expenses are not likely to be materially augmented. The plant working at less than full capacity can lessen its force more or less proportionately. Operating

expenses vary fairly closely with output.

It must not be forgotten that the great majority of the industries of the country are steadily and rapidly growing. In industries where trusts are powerful, as well as in other industries, additional plant capacity is constantly being constructed, and additional working force taken on. Even if it were not for the growth of demand, the improvements in methods of production would necessitate the construction of new plants. The older and less efficient plants in a manufacturing industry ought not to be taken into account in judging the relation of plant capacity to demand.

The reasoning as to duplication of plant capacity which applies to manufacturing industries applies as well to mining and to mercantile business. There are a few manufacturing industries in which it is customary for the manufacturer to conduct also some special form of transportation. Ecomony in such transportation

may demand that duplication of plant be avoided, that there be monopolistic operation. If the transportation business cannot be divorced from the manufacture, or subjected to separate regulation, monopolistic operation of the manufacturing business as well may be unavoidable or at least advantageous. For example, the Standard Oil Company and other leading refiners of petroleum operate pipe-lines for transporting crude oil and also tank cars and tank wagons for delivering refined products. Needless duplication of plant and of operating expenses may be involved in competition. in these two branches of the oil industry. Unless they can be divorced from the refining business proper, it may prove necessary to tolerate monopoly in petroleum refining. It has been proposed to require the owners of pipe-lines, be they refiners or others, to transport oil as common carriers at reasonable charges to be fixed by the government. There are serious technical difficulties in the way, but it is probable that they could be overcome by special methods of government regulation. Whether it would be possible to manage the tankwagon delivery business in a similar way is more doubtful. Were it not for the extraordinary difficulty of regulating the prices of refined petroleum products, arising from the fact of joint cost, a simpler way of avoiding the evils of monopoly in the oil industry might be through such regulation of prices. Regulation of profits may be the most feasible plan of meeting the situation.

The Steel Corporation is also engaged in transportation. It operates railroads which to a large extent are patronized by its competitors, and it operates steamships. To require the Steel Corporation to divest itself