industry, considered from the point of view of production, has at any particular time a size which may be regarded as its normal size of maximum efficiency. This normal size of maximum efficiency is determined by the extent to which division of labor and the use of machinery can be applied. To increase such an industry by one-half would not result in a decrease of the cost of manufacture, for it would occasion a less effective application of the principle of division of labor. While, therefore, it is true that the concentration of capital and labor under a single direction is followed by economy up to a certain point, it is not true that combination and concentration beyond that point tends to reduce the cost of production. He who accepts this statement of the case must conclude that manufacturing combinations (I say nothing of other forms) contribute nothing to the reduction of the cost of manufacture beyond what would be contributed should each of the industries continue its independent competitive existence. This is a curt answer to a profound question, but it is believed to rest upon sound analysis and to lead to the conclusion that the motive for a trust organization of manufacturing industries is not found in a desire to benefit the public by the reduction of cost.

It is not so difficult to suggest the line of reasoning upon the second question submitted. The chief argument in favor of combinations among producers is that by this means product will be measured to demand, and consequently there will be no overstocking of the market, no commercial depression, and no commercial panic. I shall not undertake to argue this proposition, but content myself with a single comment. Opposed to this theory of commercial depressions stands the well-wrought theory of socialistic writers which rests upon the claim that a stocked market is due to an uneconomic distribution of values, and not to an overproduction of goods. It certainly is true that goods cannot be sold when the property in the goods, as also the money with which to purchase them is in the same hands. A steady market implies an equation between goods on the one hand and purchasing power in the hands of those for whom the goods are made on the other. You perceive at once the bearing of this line of reasoning upon the claim that combinations tend to steadiness of trade. For if the trusts which tend to concentrate industrial control, concentrates also industrial values, it is evident upon the theory of industrial crises just related that such organizations intensify the conditions that lead to commercial crises. An adjustment of the output to the current effective demand is of the utmost importance. It may be questioned, however, whether

a yet further concentration of industrial power than that which now exists is the best means of attaining this result.

In addition to these purely industrial considerations it is necessary to inquire respecting the general social and political results of trust organizations before one can accept them as a healthful tendency in modern life. It must be remembered that our industrial society rests upon English jurisprudence, that English jurisprudence acknowledges the individual as the center of all industrial activity, that it provides for him the institution of private property, holds him to strict accountability, and assumes that competition between producers, on the one hand, and purchasers, on the other hand, is a guarantee of justice and equity in all industrial conduct. Do trusts fit naturally into this theory of society? For the preservation of democracy there must be maintained a fair degree of equality in the social standing of citizens; do trusts tend to such equality? For the normal workings of that industrial society which is the product of six centuries of history the door of opportunity must not be closed; do trusts tend to close the door of opportunity? For the realization of the American idea of government there must be a balance of power, not only between the several departments of government, but between the government on the one hand, and the interests that lie outside the government, on the other hand; do trusts tend to destroy this balance of power? I would not claim, without discussion, that the trust organization of society destroys reasonable equality, closes the door of industrial opportunity, or tends to disarrange that fine balance essential to the successful workings of an automatic society; but I do assert that the questions here presented are debatable questions, and that the burden of proof lies with the advocates of this new form of business organization.

If the current tendency toward consolidation in manufacturing industries does not spring from the nature of the industry, and if the benefits accruing to the public from these consolidations are at least questionable, it is incumbent upon us next to inquire out of what conditions these modern indust.ial organizations have sprung. I shall venture but three suggestions in this connection. Doubtless many more will be presented as this convention proceeds in its deliberations.

The inequalities which exist in established schedules of railway rates, as also the proneness of railways to depart from published schedules in order to secure the business of large shippers, works toward the consolidation of manufacturing industries and commercial enterprises. It is not intended to say that mal-administration on the part of railways is of itself responsible for

present industrial tendencies. It is, however, true that in so far as railways discriminate in favor of large shippers, they present a motive to shippers to become as large as possible. This is too familiar a fact to call for discussion. The truth is that the business of transportation underlies all other businesses, it determines the conditions upon which other forms of industry are carried on, and by the manipulation of rate schedules tone, color and character can be given to industrial society at large. While the solution of the railway problem would not necessarily cause all trusts and combinations to disappear, its solution is essential for dealing wisely with the trust problem. No one can deny that inequitable railway charges and discriminations in railway rates are important elements in the conditions that foster commercial combinations.

In further explanation of the current tendency toward business combination on the part of industries that by their nature are not monopolistic, reference may be made to the fact that the commercial jurisdiction of modern business is much broader than the political jurisdiction of the governments whose protection they seek and by whom they should in theory be controlled. The federal government has no authority over many of the questions raised by a study of trusts, while the state governments are confined in the exercise of their authority to their local jurisdictions. Such a condition must result in confusion of laws, in uncertainty of procedure, and in enabling the interstate enterprises which rest upon state foundations to become a law unto themselves, so far as the conduct of their affairs is concerned. Competition cannot work inequitably under such conditions. Justice attends competition only when competitors stand on an equal footing. It is, therefore, no occasion for surprise to one who is familiar with the present condition of state laws upon industrial affairs that small and localized industries should find themselves at a disadvantage in their struggle for existence with the great combinations. A national market has taken the place of the local market, but we still rely upon local law for its regulation and control. Uniformity of law and harmony of procedure is as essential as uniform railway rates and absence of discrimination, to restore those conditions in which competition can effect its normal and beneficent results.

We are thus carried by our analysis from the consideration of economic relations to the stupendous question of political organization and legislative procedure. He who believes in local government will not readily consent to the proposition that the federal Congress should assert exclusive authority over commer

cial and industrial conditions. Nor, on the other hand, will he who appreciates the significance and the beneficent results of a world's market consent to the suggestion that the business transactions of a state concern should not extend beyond the borders of a state. Here is a problem for statesmen to contemplate, and it is possible before arriving at its solution that the constitutional relations between the local and the federal government will be subjected to modification. Without entering upon this phase of the subject, may I submit for consideration the following proposition: The true function of a central government in dealing with problems of internal economy is to determine the fundamental principles of legislation, while the true function of local government is to express those principles in the terms of local conditions and to administer the laws thus expressed. By this means harmony of action at least would be secured and one of the conditions out of which industrial combinations spring will have been set aside.

My third suggestion in explanation of the persistence of combinations in industries which from their nature are subject to competition is found in the unsatisfactory condition of state laws of incorporation. This is a question that should be considered by a lawyer, but by the lawyer who is familiar with the industrial history of the English speaking people. Originally a corporation created by the state was regarded as an arm of the state. Individuals were clothed with some degree of public authority because they undertook to perform what were regarded as public duties. The East India Company, which planted an empire, is an illustration of such a corporation. The modern idea of a corporation is entirely different. It is regarded merely as a business organization. I have not time to discuss this abstruse question, even had I the ability, but of one thing I am confident: The theory of law which now prevails respecting industrial corporations should be so changed that the public element is again brought into prominence. Industries should be classified, and the right of incorporation granted to one class and denied to another, and special restrictions, if not constant supervision, should be exercised over such industries as are incorporated before we can again reintroduce into this modern, complex machine-organized industrial society the conditions favorable to the normal working of the beneficent principle of competition.

Whatever may be said upon the questions thus far submitted, there is one point respecting which all should agree. Industrial combinations, whatever their form, whatever their purpose, whatever their explanation, are matters of public concern. It is said,