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that is to say, it is fair to expect that the combinations will secure whatever advantages can be secured through the tariff.
In still another place Herr Wittgenstein, referring to the tariff, says the following: “If it is found that the tariff is too high and too burdensome for the consumer, the tariff may properly be lowered. If it is found that the advantages are not too great, the manufacturers should be allowed to enjoy them.”
Probably the most active man at the present time in the iron combination in Austria is Herr Kestranek, the Central Director
of the Prager Eisen-Industrie-Gesellschaft, the largest and most important member of the general iron combination in AustriaHungary. In a letter written on the 6th of November, 1900, after calling attention to the fact that the different members of the combination make their own sales independently, Mr. Kestranek says that nevertheless the natural result is that, although the sales of goods are not made by one central bureau, and although there is no agreement regarding prices, still the prices are held at a higher level than would be the case under free competition. Because each member of the combination knows that he can not take any more orders than corresponds to his percentual quota, on that account he is compelled to secure the best possible price. He says further, however, that prices can not be raised in Austria unduly, but that they find their highest limit through the competition of foreigners. Since the Austrian "iron industry, in consequence of its unfavorable natural conditions, is much weaker than the German or the English, to say nothing whatever regarding the American, which has surpassed all others, there is always the danger of having to meet this foreign competition. On that account the home prices can not be held higher than those of the world market, together with the necessary costs of freight and of the Austrian tariff. In that way the world market is, of course, the regulator for the price of the iron production in Austria. If the Austrian iron manufacturers wish to put their prices above this level mentioned, foreign iron will, of course, be imported, and the home industry would lose its market. The iron prices in Austria-Hungary are, therefore, always dependent upon foreign iron prices, especially those of Germany, since the German iron industry is strong in Austria, and it determines competitive prices.”
In a conversation also held with Mr. Kestranek when he was in the United States in May, 1901, he stated further that it was their usual custom to use the protective tariff in order to secure the best prices possible. He did not think the protective tariff was unreasonable under the circumstances, and did not hesitate to be quoted as saying that the iron manufacturers expected to make the best use of it. În his letter, however, he calls attention to certain circumstances which will prevent abuse of it. “The world market,” he says, “is not determinative of the price in AustriaHungary when within the country competing establishments arise which do not belong to the combination, and which wish to compel the combination to accept them through underbidding, In this case the price movement in Austria has cut free from the conditions of the outside market and depends merely upon competitive conditions within. So it has happened that in the last years, in spite of the unexampled advantageous situation of the iron world market, the iron prices in Austria-Hungary have not followed this favorable course, but, on the other hand, have lowered continually, since the establishments which belonged to the iron combination were compelled to meet the competition of those outside, even though they were establishments of no very great importance. This industrial strife would have remained, of course, without any effect upon prices if in Austria-Hungary, as in other states which have combinations of special significance in the iron industry, the demand for iron had been an increasing one which would have kept busy both the establishments belonging to the combination and those outside. In such a case, of course, the prices in Austria-Hungary would have followed the same course as those in the United States, in England, and elsewhere. Since, however, the iron demand in Austria-Hungary has been small of late years, in consequence of the unfavorable industrial conditions and of the most unfortunate political situation, the combination in Austria has stood in marked contrast with those existing elsewhere, and there has been seen a marked lowering of prices.”
The views of Mr. Kestranek regarding the part which a tariff ought to play and especially regarding the relation of the tariff in Austria to that in the United States and other competing countries is set out in a memorial which he sent to the chamber of commerce in Prague in reply to a request from them for his views regarding possible amendments to the iron tariff of Austria. He does not hesitate to say that the market within Austria-Hungary is practically controlled by the combination, although he recognizes that there is more or less competition that will become greater provided there should be too great profits from increased prices. He believes, however, as has been intimated, that their real competition, in spite of the tariff, is with foreign countries-Germany, England, and in the future, especially, the United States.
Regarding the tariff schedule he says that he thinks the duty on iron in Austria, which is unfavorably situated as compared with the other iron-producing countries, ought not to be the result of a subtle grouping of figures showing the costs of production of the different lands, but that it should be the outcome of study free from small theoretical considerations and be such that it would give real protection. He calls attention to the fact that the tariff of the United States levies on crude iron a tariff of 8.20 gold gulden per ton, while the Austrian tariff is only 64 gulden, and the German only 5. The United States have, therefore, among the lands which need to be considered, the highest tariff on crude iron as well as upon manufactured iron, although it has the most favorable conditions for this industry. The consequence of this policy of protection of the United States and of Germany is that the iron industry in those countries secures, from the exclusive control of their well-protected home consumption, the power to take up with effect the fight on the open world market. He continues: "The protective system of these states shows in that way what is really a system of concealed export premiums, inasmuch as the industries there secure prices at home which pay them so richly that they enable them to carry on vigorously export business which is less lucrative and at times which must be carried on even at a loss in order that they may secure in this way an increased production and all of the advantages which come in connection with that. This condition coming from protection has shown in later years, besides this, a marked advance also from the organization and growth of great industrial combinations (trusts), inasmuch as the union of single establishments into powerful combinations have enabled the latter in an increasing measure to make use of the advantages offered them through the protective tariff so as to be able to become much more powerful factors in export. In this respect I see in the great combinations of North America and Germany (where, in opposition to the ruling opinions in our own land, they are not only endured by the public authorities, but are even furthered by them) an increased danger for our home industry.” He thinks, therefore, that the Austrian tariff should be placed much higher than has heretofore been considered really necessary. He continues: “In view of this modern industrial situation quite beyond the scientific theses of the theoretical political economists, the measure of the protective tariff can not be limited to the difference in the costs of production, but must rather be made dependent upon the height of the protective tariff and upon the intensity of those efforts for export against which they have to serve, as has been explained. This needs to be taken the more into consideration, as the prices which are fixed in those countries for export are by no means proportional to the costs of production, for the reasons given above."
In order to make clearer his statements through certain examples, he stated that in the year 1895 the same German works fixed a base price of from 90 to 100 marks per ton for bar iron, which, at the time of his memorial, June, 1900, were asking 190 to 210 marks per ton. This difference in price, he declared, bore no relation to the small increase in the cost of production. He cited the figures of the cost of production as they had been given in their official annual report published a little time before. According to that the cost of production of the crude iron amounted in the year 1895 to 28.65 marks per ton; in 1896, to 30.9 per ton; in 1897, to 31.66; in 1898, to 34.76; in 1899, to 36.30; that is to say, with an increase in the cost of production of a scant 8 marks per ton the selling price of the finished product, bar iron, had increased 100 marks per ton and more.
To the same effect is a citation of the English market which showed that English crude iron in 1896, in Middlesborough, was selling at 38 shillings per ton, and in April, 1900, at 77 shillings, with only a comparatively slight increase in the cost of production. The most interesting example which he gives comes from Russia, where, at an international competition for the delivery of armor plates (Panzerplatten), an American firm offered to supply at $249 per ton, while the same establishment, in response to a request for bids from the Navy Department at Washington, asked $425 a ton for similar plates, with the claim that the cost of production amounted to $400
When the Navy. Department at Washington called attention to the offer made to Russia, the establishment declared that the price given to Russia was made with the deliberate intention of shutting out all competition, and with no reference to the cost of production.
With these examples of foreign competition in mind, showing that Germany, England, and the United States have fixed their prices regularly with little reference to the cost of production, and with the belief also that the United States in particular, being sure of a good profit from its home market on account of the high protective tariff, is able and willing to enter foreign markets, even if necessary often below the cost of production, he repeats his demand for Austria that the measure of tariff protection be determined not by the difference in the cost of production of Austria as compared with competing states, but rather “by the intensity of the export efforts
of the competing states against which the Austrian tariff is called to serve as a protective barrier.”
In a discussion at Vienna over their export trade in 1898, several business men took a position regarding the Austrian trade similar to that which Central Director Kestranek took with reference to foreign trade. Attention has already been called to some examples given by Professor Philippovitch. Some of the technical men who followed him in the discussion gave even more striking examples. Expert Rudolf Hofferr cited examples in which common bar iron was selling in Austria for 62 per cent more than in Germany; Martin boiler plate of the first quality cost in Germany 8 florins 23 kreutzer, in Austria 15 florins—that is, 82 per cent more. These figures are supposed to represent the costs in the two countries. He declared that if one were to take into account also the increase in price that came from the higher cost of manufacture the difference was still greater, making the selling price 98 per cent higher in the case of bar iron and even 126 per cent higher in the case of the Martin boiler plate in Austria than in Germany. He cited numerous other examples to the same effect, in order to show that the Austrian tariff, in addition to the less advantageous situation in Austria, made it necessary for the Austrian consumers to pay much higher prices than would be required if the goods were imported direct from Germany, and with the strong intimation further that these differences were to a considerable extent to be ascribed to the combination, which secured large profits. He sums up his address with the words: “One can not ascribe to the Austrian Government any special hostility to the home industry, but one may properly ascribe hostility to home industry, so far as the iron industry is concerned, to the iron combination. This is costing us a great deal of money.
In a similar spirit, Expert Anton Himmelbauer, a Government official (k. k. Commercialrath), mentioned the very great increase in the cost of production and of the selling price of various manufactured articles which depended upon imported raw material. A councilor of the chamber of commerce believed that the combinations were of the greatest advantage possible to large producers, but that they were correspondingly injurious to smaller establishments. He said, for example, that in discussing the question the iron industry ought to be divided into two large groups—the first, a small group of producers of iron in its cruder forms, which was made up of great capitalists. The second group, including perhaps 90 per cent of the iron producers, was formed of those who, taking the cruder forms of iron as material, worked them up into smaller manufactures. The first group in Austria had, he thought, 354 members; the second group had over 40,500 members, the exact figures which he cited being 40,605. This second group, inasmuch as they were compelled to use the materials produced by the members of the first group, which was largely controlled by the combination, suffered severely as the result of the combination. The advantage of the first group was shown not merely in their higher prices, but also in the way in which their stocks had advanced. He thought that the tariff which had been laid upon the cruder forms of iron was not to be considered as merely protective, but even as prohibitive, and he believed that the iron combination had taken advantage of this prohibitive tariff to secure unreasonable profits. “The results,” he said, “of this policy are not to be overlooked for the leading members of the combination, the Prager-Eisen-Industrie-Gesellschaft and the Alpine-Montangesellschaft,” these two being the two most prominent members of the combination. “At the time,” he continues, “when this combination was made, the shares of the Alpine company stood at 15 florins; of the Prager Eisen company at 100 florins. To-day Alpine stands at 157 and Prager at 738, and the iron and steel producers (of the smaller class) have become beggars. * They (the combined producers of crude iron and steel) have understood how simply to take entirely away from us our property. They are still fortunate; they wish an export; they wish to send goods out and bring gold in. We should be happy if we could receive something for our goods within our own country.”
S. Jokl, member of the presiding board of the Merchants' Association of Vienna, said that by virtue of the soda combination there had been a great increase in the price of soda, which had affected unfavorably an entire line of industries which were dependent upon soda for part of their raw material, such as the paper, textiles, glass, and other industries. He even went so far as to think that the Government, which is in control of the salt production of Austria, ought to refuse to sell salt to the soda combination unless it would place and keep its prices reasonably low, the proper price to be determined by Government experts.
We thus see that, although members of the combinations are able to show that on the whole the absolute prices of their products in many particulars have not increased, and although they can also show that in certain particulars at least they have been able to lower the costs of production, many other business men who are familiar with price conditions in Austria believe that the effect of the combinations has been
to increase prices materially, and that they have likewise been able to take advantage of the protective tariff to raise their prices to an unreasonable extent. That the protective tariff has been used to increase prices is, as we have seen, freely conceded by the managers of the iron and petroleum combinations, but they of course do not concede that it has been used to an unreasonable extent. They believe that the tariff in itself is not unreasonably high, and that they are fully justified in fixing their prices as high as the tariff itself will permit.
The chamber sums up its conclusions regarding prices about as follows: It begins with the assertion that an entrepreneur's profit is a conditio sine qua non of the existence of any industry. But as free competition has brought overproduction and price crises, which threaten to ruin industry by depriving the manufacturer of profit, some remedy must be found. Two ways are suggested: One, the increase of consumption; the other, regulation of production. The former is beyond the power of anyone; the latter at present may be effected by industrial combinations. The combinations are the children of necessity. They must be considered as a healthy phenomenon in so far as they restore equilibrium between demand and supply, introduce economy in business transactions, etc. Consumers are not the best judges of prices, for they always want the lowest prices, even though the result should be the ruin of the producer. The chamber, in analyzing the charges regarding prices brought against the combinations, namely, that they increase prices and make lower export than domestic prices, simply repeats the answer of the different combinations. The combinations can not raise prices much without inviting new competitors, and the fact that foreign products have less access to the inland market since the formation of combinations proves that the prices have not increased. The combinations can afford to sell at cheaper prices abroad because, producing on a large scale a uniform article, the cost of production is reduced. Without export, inland prices would be higher. The combinations fix a uniform price within the country, which is of advantage to the buyer.
INDUSTRIAL PROGRESS. The committee of the chamber of commerce reached also the conclusion that technical progress is not hampered by combinations. It is interesting to note that they base this conclusion in part upon the experience of the Standard Oil Company as well as upon experience of the combinations in Austria. They are of the opinion that under unfavorable conditions for an industry no improvement can be made. Believing, then, that the combinations, with their central selling bureaus, have simplified all business transactions and have tended to make conditions more favorable, they believe that, on the whole, they have tended to further rather than to check improvements.
LAW REGARDING COMBINATIONS. The experience of Austria, both regarding laws aimed directly at industrial combinations and as regards certain features of their corporation laws which tend toward the same end, is more interesting than that of any other European country. As long ago as 1870, in a law that had to do particularly with the relations between employers and workmen, it was declared that agreements of business men for the purpose of increasing the price of any ware to the injury of the public were invalid. This law found little application until after complaints began to be made regarding the larger industrial combinations of later days. "These combinations in Austria, as has been explained, are mostly in the nature of agreements between different establishments regarding extent of output and regarding prices. In very many cases for the violation of these agreements forfeits have been posted, or at any rate certain forfeits are agreed upon among the members of the combinations, either in fixed terms or to be determined at the time of the dispute by an arbitration committee.
In 1898 a dispute arose between different dealers who, as long ago as 1887, had made an agreement regarding the sale and furnishing of goods to customers. When the agreement had been violated, one of the parties attempted to enforce the penalty through the courts. The claim was made by the defendant that the entire claim was invalid under the law of 1870, and the court decided (1) that the combination agreements were invalid and could therefore not become the subject of any valid contract; (2) that such an invalid contract was without legal validity, not merely as regards the public, but also between the members of the combination itself; (3) that in order to make such an agreement invalid, it was not necessary to prove that in consequence of the agreement the price of the goods in question had in reality been increased. On this point the court says:1 “It is not of importance in this case
1 No. 1427, decision of the 20th of January, 1898, p. 242, II Senate.
whether the agreement in fact had really the effect of increasing the price of the goods to the public, for the law does not require this in order that such an agreement be declared legally invalid.” It considers rather the possibility that in consequence of such an agreement the price can be made more unfavorable for the public, as the words of the law, “in order to increase the price of goods," clearly shows. Such proof would be indeed difficult to make and would injure the effect of the law, since an increase in price might take place entirely independently of any agreement and outside of the same. It was decided also that in the law the expression “busi-ness men (Gewerbsleute) included also those producers of goods who produced their goods in factories as well as those who were merely the manufacturers of goods by manual labor.
A second decision also brought into question the application of this law of 1870. This had likewise to do with an attempt to enforce a contract by which a combination had been made. The extent of the law seemed to be widened decidedly in that in the decision the court said that in order to make such a coalition invalid it was immaterial whether all or how many of the members of any branch of industry had taken part in the combination. It was not necessary to prove an absolute monopoly. And, in the second place, it was decided that not merely was the artificial increase in price of articles of necessity for daily life forbidden, but also an increase in price of any of those goods which satisfy the needs of the public and whose increase in price can therefore be felt by the public.
A third decision, which is not so directly in line as the other two, has also a bearing on the interpretation of this law. In this case it was decided that a contract between an employer and an employee, by which the latter agreed, after finishing his term of service with his employer, neither to enter into the service of a competing establishment as assistant or partner for a period of 5 years, nor to found an independent competing business during the same length of time, was invalid.
A lower court, also, has decided in still a fourth case that the ordinary agreement that has been made among the members of the Austrian combinations, by which a common selling bureau fixes the percentages of output and determines the prices, doing such work on a commission, is invalid, and that such commission can not be collected nor can any penalty be inflicted for a violation of the agreement.
These decisions of the courts, in effect declaring invalid the larger part, in all probability, of the contracts which unite the combinations in Austria, have tended naturally somewhat to weaken these organizations. One can perhaps detect a slight tendency for the combinations to reorganize in the firmer form of corporations; but, for reasons to be explained later, this development of corporations has been checked quite decidedly by certain features of the corporation law.
Likewise, apparently in more direct response to popular opinion, there have been efforts made on the part of the Government to formulate new laws which should deal directly with the combinations. In the first instance, it was believed by the Ministry of Finance that some of the combinations among the producers of sugar, brandy, beer, petroleum, salt, articles which were subject to a heavy internal-revenue tax, through their power to increase the price, might very materially lessen the quantities consumed, and in consequence, lessen the revenues of the Government. At the same time it was doubtless also thought wise, if they were about to undertake a new line of legislation so important as that which dealt with industrial combinations, to begin at first with only certain classes of industries in order that experience might show possible defects in the laws before they were extended to all industries which were in part or entirely controlled by combinations.
In consequence, in 1897, the Government introduced a bill into the House of Representatives regarding combinations in relation to articles of consumption which were subject to an internal-revenue tax. This was intended to touch particularly the industries mentioned above and other combinations which might be formed to control the production of similar articles of daily use. The main features of this bill were these: All such combinations were to be brought directly under the supervision of the State. In order that the combinations should be considered valid they must be recognized as such by a State board, to which they must make full declaration regarding (a) the aim and the means of the combination; (b) the percentage of the industry and the number of establishments, with the firm name and the capacity of each one; (c) the rights and duties of the members, the fines agreed upon, and the other pledges of various kinds of the members; (d) the office of the combination, or, if its main office be in a foreign country, the site of the principal office within the country itself; (e) the officers, with their duties; (f) their method
1 No. 130, decision of the 6th of April, 1899, p. 3419, II Senate.