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The growth of the principal packing companies has been phenomenal, especially during the last two decades. From the one slaughtering plant owned in 1857 by Swartzschild and Sulzberger, predecessor of Wilson & Co., the number of plants owned by the group had increased to 20 in 1897, 57 in 1907, and 91 in 1917. In 1884 there were two branch wholesale houses or markets operated by Armour; in 1912 there were 591; and in 1917, 1,120; of which nearly half were owned by Armour and Swift. In other words 89 per cent of the branch houses in the United States were operated by the five big packing concerns in 1917. The branch houses investment in November, 1918, amounted to $240,052,434. Of this sum Armour held over $198,225,023 and Swift $82,669,274.5
In 1929 the wholesale slaughtering and meat-packing industry (not including small plants slaughtering direct for retail trade) ranked second among the manufacturing industries of the United Sates when measured by gross value of its products. The production of meat in federally inspected plants in 1928 was 11,317,000,000 pounds. At the time of the Federal Trade Commission investigation the Big Five had a total capitalization of $243,000,000 and controlled over 60 per cent of the interstate livestock slaughter.
The multifarious activities of the big packing companies as revealed by the commission's investigation was another indication of the vast magnitude of the industry. For instance, it was estimated that the five packers in 1917 handled half the poultry, eggs, and cheese in the main channels of interstate commerce. Swift handled 50,000,000 pounds of butter, half of which it manufactured, and four of the big companies owned 56 creameries and controlled many others. The packers had also become important distributors of canned fruits, vegetables, fish, milk, and groceries. By the terms of the packers' consent decree of 1920 the companies were directed to withdraw from the grocery business and from lines of activity held to be unrelated to meat packing. The Big Five has also engaged heavily in the fertilizer business and has held stock in numerous banks and cattle loan companies. These activities were carried on by hundreds of different corporations all closely tied in with the five parent organizations. In November, 1918, the five packers had a combined wealth estimated at $555,000,000. An important control of foreign-meat trade reaching into South America and European ports was long ago established.?
The meat-packing business as organized by the four big packers consists of three major activities, namely:
(1) Purchase of livestock, such as sheep, cattle, and hogs.
The stock cars and the stockyards are two important factors in the purchase of livestock by the packers. The packers own only a small number of stock cars while they exercise a wide control over the stockyards, enabling them to buy advantageously, it is claimed. Three factors are involved in (2), the conversion of livestock, namely:
* Virtue, G. C., The Meat Packing Investigation, in Quarterly Journal of Economics, No. 34, 1919-20, • The Federal Trade Commission, op. cit., Part IV, p. 33.
U.S. Department of Commerce Yearbook, 1929, Vol. I, pp. 254-259. i Federal Trade Commission, op. cit., Summary and Part
1, pp. 90-94.
In general the organization of each of the big packers is similar and the action of all is concerted. The financial practices of each of the packers and the industrial integration they form serves to command large capital and credit. The operation of the business is a highly developed process of conversion of raw material into finished products. The minute utilization of livestock has resulted in the absorption of varied lines of industry wholly unrelated to the meat business.
Rapid and easy distribution of products of livestock is a most important factor in the meat industry. Success had been attained by the refrigerator car, the "peddler" car, and by the branch house. The refrigerator car, dating from 1871, and privately owned and operated by the packers, has been the greatest single factor in the enormous expansion of the meat-packing business in the United States and throughout the world during the past 50 years. Of 16,875 beef cars
. in the United States (those fitted with brine tanks for frozen meats) 15,454 belonged to the five big packers, 1,146 were owned by other interstate packers, and 275 by other interests at the time of the investigation. The "peddler” car has carried meat products into practically every nook and corner of the Nation. Great fleets of these cars cover the continent hauling both meat and other perishables. J. Ogden Armour gives to his father the credit for the development of the refrigerator car for fruit, berry, and produce business. It is a romantic story of initiative and enterprise.
Finally the branch house, the receiving agency for the products of the packers, occupies a commanding position in the organization of the industry. There is only one step left in the scheme, that of retailer to consumer, and if the packers' consent decree should be modified as requested this will be eliminated, and there will be an unbroken chain of packer manufacture at the plant, and packer distribution direct to the breakfast table of the consumer. The wholesale grocers and many retailers throughout the Nation who fear the extension of the chain-store system say that this plan if brought into effect will not only force them out of business but that it will be highly prejudicial to the consuming public through the establishment of a monopoly with subsequent monopoly prices. On the other hand the great packers claim that the system will be far more efficient and will serve to reduce cost to the consumer by the elimination of a middleman.
III. EARLY HISTORY OF MEAT PACKER COMBINATIONS
A. PERIOD OF DRESSED MEAT POOLS (1885–1902) The first public record of an official inquiry into the relations of the great meat packing concerns of the United States is contained in a Senate joint resolution which was adopted on May 16, 1888. Under this resolution a committee of five Senators was appointed by the President of the Senateto examine fully all questions touching the meat product of the United States; and especially as to transportation of beef and beef cattle; and the sale of the same in the cattle markets, stockyards, and cities; and whether there exists or has existed any combination of any kind, either on the part of the Trunk Line Association or the Central Trade Association, or other agencies of transportation or on the part of those engaged in buying and shipping meat products, hy reason of which prices of beef and beef cattle have been so controlled or affected as to diminish the price paid the producer without lessening the cost of meat to the consumer.'
* Armour, J. Ogden, The Packers, the Private Car Lines and the People, pp. 37-38.
This committee headed by Senator Vest, of Missouri, held its initial meeting at St. Louis on November 20, 1888, and proceeded to take testimony from representatives of the International Cattle Range Association and the Butchers National Protective Association. Despite internal conflicts as to policy among the membership of these two groups there was unanimity of thought on the fundamental fact that while there was a very decided depression in the prices paid to the producers of cattle that the price of meat to the consumer remained as high as before. It was brought out that market prices for cattle commenced declining in 1885, the selling price of the best grade of beef dropping from $7.15 per hundred pounds at Chicago in 1884 to $5.40 in 1889.?
Another fact gleaned by the committee and upon which there was agreement was that during the 10-year period beginning about 1878 the method of selling beef cattle had been entirely revolutionized resulting in a concentration of the market at a few large centers, namely Chicago (the principal point) Kansas City, Omaha, St. Louis, Cincinnati, and Pittsburgh. In other words, the whole system in vogue prior to 1878 under which the shipper and the butcher went from one cattle raiser to another, competing in the purchase of cattle, had been almost entirely eliminated by the year 1888. This revolution, it was developed, was largely the result of the construction of railroads and the subsequent combination between these corporations and the stockyard people, as well as by the ability of a few men, chiefly of Chicago, to control enormous capital resources. For instance, the committee developed the fact that by the so-called Evener combination, which began in 1873, three great trunk line railroads, the Pennsylvania, the New York Central, and Erie, agreed to charge $115 for each carload of cattle shipped from Chicago to New York and to allow certain shippers in Chicago designated "Eveners" a rebate of $15 per car. This resulted in the destruction of the St. Louis cattle market and the great development of the Chicago market as revealed in the number of cattle received at the Union Stockyards in Chicago 393,007 in 1866 as compared with 1,096,745 in 1876. The three great railroads monopolized the entire cattle transportation from Chicago to New York, amounting to 4,000,000 cattle, between 1871 and 1879.
The Senate committee developed the further fact that the dressedbeef business, which became important in 1878 with the advent of the refrigerator car, as early as 1888 was practically controlled by four great Chicago concerns, namely, Armour & Co., Swift & Co., S. W.
1 U. 8. Sepate, Report on Transportation and Sale of Meat Products, No. 829, 51st Cong., Ist sasa., p. 1 :U. S. Senate, op. cit., p. 1. U.S. Senate, op. cit., p. 3.
Allerton, and Hammond & Co., Armour and Swift being by far the largest.
These “charter members” formed the "Allerton pool," so named because the business of the pool was held in the office of Packer Allerton. This pool decided upon the quantity of meat to be shipped by each member. It was a rather crude set-up and was not particularly effective since the territory at that time was not extensively elaborated. The control of the cattle market was absolutely within the grasp of these four companies if they chose to assume such control, and there was much evasion on the part of witnesses, many of whom, being cattle men dependent for a livelihood upon maintaining the good will of the packers, were reluctant to give the facts, it was charged as result of the committee probe. The four great packing concerns, it was brought out, had an agreement not to compete with each other in the purchase of cattle.
It was significant according to the committee report that the principal owners and agents of the dressed-beef establishments refused to obey the summons of the Senate committee to appear and testify, although subsequently Mr. P. D. Armour of Armour & Co., obeyed a subpæna to appear before the committee in Washington. Mr. Armour testified that there was no agreement between the packers relating to the purchase of cattle, but in rebuttal the committee secured an admission from the witness that he was not entirely familiar with all of the vast activities of his army of agents. Mr. Armour ascribed overproduction and overmarketing of cattle, especially range or southwestern cattle, as the chief cause of the decline in the price of cattle to the producers.
As a result of its investigation the Senate committee reached the conclusion that the four big packers:
(1) Combined to fix the price of beef to purchasers and consumers by artificial and abnormal centralization of markets.
(2) Refused to interfere with each other in certain markets and localities in the sale of meat.
(3) Acted together in supplying meat to certain public institutions.
(4) Combined in opening shops and underselling the butchers at Detroit and other places in Michigan and at Pittsburgh in order to force them to purchase dressed beef.
(5) Combined in refusing to sell any meat to butchers in Washington, D. C., because the butchers had bid against them for contracts to supply the Government institutions with meats.
(6) Acted jointly in Chicago in conspiring to refuse to give testimony to Senate committee.
(7) Received the bulk of the profit accruing from the depressed prices paid to the producers of cattle.
The committee declared as fallacious Armour's arguments as to overproduction in view of the large annual increase of population, and they also discounted his further argument of over marketing on the basis of statistics of cattle compiled at the great stockyards.
Summarizing, the committee declared that there was convincing proof of collusion with regard to (a) fixing of beef prices (6) division of
• Federal Trade Commission, op. cit., Pt. II, p. 13.
territory in business; (c) division of certain public contracts; (d) compulsion of retailers to buy their beef from the packers.?
The Senate committee cited as a remedy for the alleged beef industry combination the application of the law which had passed the Senate and was then pending in the House of Representatives, later known as the Sherman antitrust law, and admonished the State governments to enact laws to punish these combines operating within the State lines.
While describing a situation held to be menacing to the cattle producers as a result of the alleged greedy combinations of dressed packers and the rebating railroad companies, the Senate committee paused to strike a note of optimism, as indicated by the following statement which was placed in the Senate records along with the detailed summary of the testimony of witnesses:
A little reflection will satisfy every intelligent man that no combination can keep the prices of beef cattle at present quotations. The population of the country is increasing in a wonderful ratio, and of course the increase is greater each year. The foreign demand for American beef is annually growing and it can be only a short time until our store cattle will be admitted into the United Kingdom
Besides the cattle-growing region in the West is rapidly becoming limited. The admission of new States, and the settlement of agricultural lands, the quantity of which is enlarged by systematic irrigation, must necessarily decrease the grazing area. While this is so, there will be an increased demand for beef with increased population
It is impossible that the Chicago market should continue to control the cattle interest of the whole country as it does now, or that a few large operators shall retain their hold upon that market.
In other words the venerable Senators comprising the special investigation committee, fell back upon the doctrine of Laissez Faire which had its origin during the early part of the nineteenth century. A dangerous combination existed, the Senators admitted, but nevertheless everything would work out all right for the cattle men and the consumers in the end through natural economic forces.
This picture drawn in conclusion by the Senators must have been comforting to Messrs. Armour, Swift, et al. The solution offered—a trust bill not yet enacted into law, and reliance upon future State legislation-certainly should not have been disturbing to any individual or group bent upon extension of their business through control and power.
The Sherman anti-trust act was placed upon the statute books on July 2, 1890. The Senate investigation of the dressed-beef business may be said to be partly responsible for this law. It is appropriate therefore to sketch here very briefly the scope of this famous act about which so much has been said and written. In general this lawprohibited every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, and every monopoly or attempt to monopolize.10
Specifically, according to later decision, the Sherman law was (1) adopted to prevent all kinds of contracts or combinations which directly or hurtfully restrain trade or commerce subject to Federal control, or monopolize or attempt to monopolize, and (2) no twilight zone was left which could not be reached either by Federal or State
7 U. $. Senate, op. cit., p. 446. .U.S. Senate, op. cit., p. 33. . Ibid., p. 33. 10 Jones, Eliot, The Trust Problem in the United States, p. 23.