speculative purposes by the directors, it is because they are men above temptation of that kind.

In some instances, also, the Boards of Directors are so classified and the terms of their office so arranged that those who are first put into control as directors by the organizers of the company may keep that control for a period of years without any possibility of being ousted by the shareholders, unless their methods of management are so palpably fraudulent that the courts will order their removal. Under those circumstances the directors and officers are in a position of strong temptation to manage business in their own interests with comparatively little danger of being found out for a considerable length of time. Here, again, an investor who sees in the articles of incorporation and by-laws provisions which deprive him and his fellow shareholders of all effective power over the directors for a period of years, buys. the stock knowing his own risk.

It is not intended, of course, to overlook the fact that too great power given to the shareholders, or too close a knowledge of the interior management of a corporation by the share

holders, may easily result in injury to the interests of the great majority of them. It is not desirable for a corporation to have its competitors know the details of its management. If any shareholder were at liberty to examine the books of the corporation at any time, or if the directors were compelled to give to the shareholders the privilege of examining closely the details of their management, it would be a comparatively easy matter for the manager of a rival company to buy a few shares of stock in order that the lawful and proper secrets of the corporation might become his. It would also be possible for an individual shareholder practically to levy a blackmail upon the corporation, which it will promptly, however unwillingly, pay, in order to prevent proper secrets of management from

becoming public property. While one may readily grant that these dangers to the real welfare of a corporation exist if too great power is given to the shareholder, one must not overlook the fact that the other extreme is no less dangerous.

It would be very desirable if more careful study were made of the forms of organization, as shown in the charter and by-laws of corpo

rations. Intending investors would in many cases by such study be prevented from putting their money into corporations organized evidently for purposes of speculation, or for the special advantage of the directors and officers against the interests of the shareholders.

So, too, if more attention were paid to this feature of corporation organization and management, there would soon be some decided improvements in our corporation laws.

Of course these statements regarding Trusts apply to all large corporations, but the opportunities for speculation against the interests of the shareholders and of the public are so much greater in the case of the very large corporations, which have some monopolistic power, that the offence becomes almost of a different kind,

9

CHAPTER VIII

PRICES

If in any industrial combination the economies which are made by saving the wastes of competition can be secured, it is evident that, if the managers of the combination wish, it is possible, without the profits being lessened, to put prices of the finished product below former competitive rates; or, on the other hand, to put prices for raw material above those common before. Or again, if, as a result of the combination, there comes an increased output from the demands of the export trade or from an added demand that might come from lowered cost, the price paid for raw material might through either of these influences be raised somewhat. What may be done if a certain degree of monopoly can be held, has already been discussed at considerable length in the chapter on Monopoly. What may be done. is, however, but one consideration. It is, perhaps, of more importance at the present date to

show what has been done, in order that we may be better able to judge the present industrial situation, to note possible changes in the future, and to see what measures of legislation, if any, may be needed in order to adapt these combinations to our present industrial conditions. It will, perhaps, be best to give as careful a statistical representation as possible of the prices over a series of years in several lines of industry where the statistics can be gathered, and thus to test the effects of the industrial

combinations upon prices. While the effects can thus be shown here upon only a few articles, it is believed that they are sufficiently typical, so that they represent fairly well the actual effects of combination up to date. Similar studies of many other articles show, in the main, the same general results. From a theoretical discussion we can judge, perhaps, somewhat more accurately what the effect is likely to be in the future.*

The actual effects of the industrial combinations upon prices form certainly one of the best

* The remainder of this chapter has been reprinted, with some changes and additions, from the chapter written by the author for the United States Industrial Commission, and printed in their Preliminary Report on Trusts, Vol. I., Part I., pp. 39-57.