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three of the chambers of commerce have taken the initiative in calling meetings to make inquiries into the price of coal and into the refusal of the coal combination to furnish to all customers in accordance with their demands. The consumers and manufacturers naturally have accused the syndicate of monopoly and of an effort to extort monopoly prices. The syndicate, on the other hand, has defended itself by claiming that it was working its mines to their full normal capacity at the present time, that the increase in price is but the natural result of the most extraordinary demand, and that as a matter of fact they have rigidly held prices down below what they would have been, had the different mines been working in competition with one another, each ready to supply orders in accordance with the full demand. In order to fill all orders, the directors of the syndicate claim that it would have been necessary to open many new mines with the consequent large increase of fixed plant required and the bringing into the business of thousands of workmen more than would be, needed in normal times. When the present extraordinary demand should cease, this would result in leaving idle a large amount of machinery, and in the discharge of thousands of workmen, which would of course result in widespread dissatisfaction. On that account, it is thought best not to open too many new mines nor to attempt to satisfy a speculative demand. The syndicate shows, too, that it has increased its output more rapidly in proportion than have the outside producers. It claims that many of the manufacturers in sending in their orders have not merely attempted to satisfy their manufacturing needs, but that they have attempted also to speculate by laying in large stocks for purposes of sale to others or in order to meet future needs, fearing a still greater increase in the price. It has therefore, it claims, supplied the really legitimate demand for manufacturing purposes, although not the speculative demand, and has held prices down to what, under the circumstances, might be considered very moderate rates. Its managers claim, also, that by so doing, they have been able to give steady employment to their laborers and that they shall be able in the future to continue to do so, whereas if they had allowed themselves to be led onward by the strong speculative demand, they would have simply brought on a crisis which within a comparatively short time would of necessity have resulted in a checking of production, a discharge of thousands of workmen, and, in consequence, great suffering.
It is perhaps worth while, as an indication of public feeling, to note the attitude of the Government regarding this special question. In a sitting of the 1st of February, 1900, of the Prussian House of Representatives the charge was made that there had been a very great increase in the price of coal and of founding coke. Attention was called to the fact that the average price of coke in 1898 was 16.25 marks per ton, whereas at the date of the address it was selling at from 21 to 22 marks. Smelting coke in 1898 sold at the average price of 14 marks. In February, 1900, at 17 to 20 marks. Likewise the various grades of coal had increased in like proportion. The claim was made that although the demand since 1897 and 1898 had increased very decidedly, the price had increased considerably more than enough to correspond. This, it was claimed, had naturally led to great complaints, so much so that the speaker felt justified in inquiring of the ministry whether this increase in price were not due to the coal syndicate, and whether the ministry would not do well to give the question full consideration and be ready to express an opinion as to the attitude which it would take regarding the matter. Attention was also called to the fact that the stocks of the various companies engaged in the production of coal had also increased in value to a marked degree, which would seem to justify the charge that the increase in price was due primarily to the coal syndicate.
The Minister of Trade and Commerce, Brefeld, replied. He called attention to the fact that although there had been a marked increase in price, the same condition of affairs was found in all the other countries on the Continent, perhaps to an even greater degree than in Germany. In order to check the increase in price, the tariff on coal had been removed in Russia, and the question was considered likewise in France whether it would not be wise to remove the duty on coal. He further said that the increase in price in earlier years had in many cases been even greater than during the years 1897 to 1900. For example, from 1871 to 1875 there had been a decided increase in production of all kinds, which had been followed by a period of depression no less marked. He presented figures showing the course of prices from 1894 to 1898. In Oberschlesien in 1870 the average price per ton of coal was 5.12 marks; in 1871, 5.95; in 1872, 7.64; in 1873, 8.26; in 1874, 8.03; in 1875, 6.49—a rapid increase, with a correspondingly rapid decrease thereafter. In 1894 the average price was 5.74; in 1895, 5.75; in 1896, 5.76; in 1897, 5.84; in 1898, 6.97. He thought that these figures showed a much more satisfactory course of prices than those of the earlier period. While there had been an increase, the increase had been steady
and was not likely to be followed by so rapid a decrease. He quoted likewise the figures in Westphalia. In Dortmund in 1870 the price was 5.85; in 1871, 7.16; in 1872, 8.56; in 1873, 10.99; in 1874, 11; in 1875, 7.27. On the other hand, in 1894 the price was 6.37; in 1895, 6.36; in 1896, 6.77; in 1897, 7.03; in 1898, 7.31. Corresponding figures in Saarbrücken showed the same general course.
He drew the conclusion from this that the price development during the later years had been, on the whole, a perfectly normal one, and declared that in consequence there was really no sufficient ground for complaint, although he recognized the fact that within the last years there had been a considerable increase in the price of coal beyond what had been expected.
“We must recognize, however,” he continued, “likewise the fact that at present the developmentof industry in general has gone far beyond that which was anticipated, and that with the great increase in manufacturing it was, of course, to be expected that there would be an increased price in the various means of production. On the one side, money would increase in value, as shown by the increased rate of discount; on the other hand, coal would be expected to increase in price. There is, therefore, nothing unhealthy, in my opinion, in this development. We have, therefore, not yet, at any rate, any reason for charging the coal syndicate with having brought about an unhealthy condition of affairs. I must say rather on the contrary-I have already on another occasion said this—that up to the present time no one can justly make complaints against the workings of the syndicate. It has, speaking generally, had the result of making the development of prices, as well as the development of the course of wages, more even, steady, and certain than it was in earlier times, and I am firmly convinced that if the syndicate did not exist we should have had at the present time prices entirely different from those which we have had, and that we still further should have to complain hereafter of a depression in prices, which would be overcome by industry and by consumers only with the greatest difficulty.
“What, however, is still worse, with this course of prices there would go pari passu a course of wages which is much more dangerous. Now we have a steady, although slow, increase in wages, an increase so quiet that up to the present time it has been possible to prevent such upheavals as on the other side of the border have shown themselves in the most dangerous way. That is a matter, so far as it concerns peace among the workmen, of quite extraordinary significance. On that account, therefore, I should like also to believe that the syndicates, which indeed are lately somewhat strongly inclined toward further increase in the prices of their product, would above all be cautious. Exactly at the present time is an increase in the price of coal most unusually dangerous, and I, for my part, should like to give expression to the wish that the syndicates should in this condition of affairs be extremely cautious.
“So far now as concerns the question whetherit is necessary for the State to undertake any more careful supervision of the syndicates in any way, I have already on an earlier occasion declared in the Reichstag that doubtless, although the activity of the syndicates up to the present time has been a beneficial one, it was not impossible that there should grow out of this for the future very great dangers, and I have on that account considered it, so far as I was concerned, the task of the State to give careful attention to the development of the syndicates. I can, however, also assure you, gentlemen, that that has as a matter of fact been done. On my initiative there have already come together the interested parties among the officials in order to consider in council in what way a better, more secure, and more trustworthy basis can be created for supervision of the people over the organization of syndicates; that is, to find out exactly what syndicates have been created, for what purpose, in what localities, how their business is carried on, in order that we may have in fact complete information so as to be able to judge at any time whether and how far it may
be necessary in the future to meet this development with restrictions of different kinds which may seem desirable. You see therefore, gentlemen, that the Government has not failed in exercising proper care and caution.”
This address of the minister seems to show clearly that, although the question is one that has been raised in Prussia, and one that apparently is to be considered in the future with somewhat more care, up to the present time the Prussian Government is inclined to favor the combination.
The question came up again in somewhat different form in the latter part of January, 1901. In Silesia, in East Germany, the coal production has been pretty largely in the hands of two or three producers, but in that section of the country the Government has certain coal mines which also furnish coal for the public. Complaints were made that in the East likewise the price of coal had been unduly high, and that there had been a restriction in the production, and the Government was charged with the misuse of its power in delivering coal produced in the State mines. In reply, the Minister of Commerce again defended the action of the State, showing how the coal
had been divided among the different classes of consumers in different years, and claiming that the best possible distribution of the product had been made. He was still of the opinion that it would be well for a syndicate to be made in East Prussia in which the State itself should take part as one of the members, or if that at first were not practicable, that at any rate there be a common selling place, so that the entire product could be distributed to the best advantage in the interests of the public.
It appeared from the debate that there had been much feeling aroused in some places against syndicates, but also in part against the wholesale dealers in coal, some of the speakers ascribing to them the evils that seem to have arisen. The inquiries that had been made led to the organization of a commission of 28 members, whose business it should be to look carefully into the situation and see if any further measures could be taken to improve the situation. It developed also in the debate that in the opinion of some of the speakers the situation in the Westphalian district had decidedly improved during the year.
On the whole, these later discussions in the House of Representatives of Prussia seemed to show what was indicated earlier, that, although the public had in many individual cases been inclined to question the wisdom of the organization of combinations and to fear that prices would be raised by them unduly, many others, and especially, perhaps, the Government, were rather of the opinion that the results had on the whole been favorable to the public. The Government, however, stood ready to make careful investigations and to protect as best it could the interests of the public against abuses that might come from the very great power of the combinations.
REASONS FOR COMBINATION.
The reasons given for the organization of combinations in Germany are substantially the same as those that have appeared elsewhere. Particularly is emphasis laid upon the unreasonable competition which leads to the ruin of legitimate industry.
Unfavorable industrial conditions, particularly those which existed at the time of the crisis of 1873–74, gave the first noteworthy impulse toward the organization of the combinations, but closely connected with that was, of course, the increase in the risks of capital that came with the newer methods of production and the large increase in the amount of fixed capital employed.
It was recognized also that the combinations would be able to make better use of favorable circumstances of whatever kind, either protective tariffs or an increased demand, or a surplus of labor or other factors.
The savings from combination here, as in Austria, are not so much emphasized as in the United States or in England. The reason for this is doubtless found in good part in the form of the combination itself, which has ordinarily been such that the individual members mostly remain in the business, so that certain savings found in the United States do not appear or appear only rarely in the German combination. Others, especially those connected with the sale of the product, of course are made and thus are frequently cited as reasons for the organization of the combination. The situation, however, so like that already explained in connection with Austria that further attention need not be given to it.
FORMS OF THE COMBINATIONS.
1.-It has already been intimated that in Germany there are many mercly local organizations; for example, among breweries in different cities, and in other lines of business which are largely local in their sales.
Speaking generally, however, the combinations in Germany are of more than merely local extent. In cases where the industry falls into different local groups, as, for example, in the mining of coal or in the manufacture of iron in different localities, they often embrace simply those situated somewhat near together, even though their market may include the entire country or even extend beyond its borders. For example, the Westphalian Coal Syndicate does not include any of the coal mines in Silesia, although the range of its influence is international. Very many
. Liefmann, who has made a very satisfactory study of conditions in Germany, thinks that the combinations among the capitalists, as they are managed in Germany, can be defined as a means of securing for their members, under present conditions of free competition and in spite of competition, the advantages of monopolists. They serve thus, according to his view, three purposes, the realization of which is indispensable in securing the greatest possible profit. First, the attainment of high prices; second, the rendering possible a rational regulation of supply; and third, the procuring of a monopoly for each individual capitalist, or, at least, for each group of capitalists. Upon these aims depend to a considerable extent the form of organization.
of the combinations, however, are national in extent and include a very large per centage of all
of the producers in Germany in the special line of industry under consideration. For example, the new sugar combination includes over 97 per cent of all of the sugar refiners and producers in Germany. The new spirits combination has a similar percentage of the producers of spirits in Germany. Even some of the smaller ones, such as the ultramarine combination and the paint-brush combination, although the industries themselves are small, include a very large percentage of the entire German industry, and in both those cases produce a very large percentage of the entire world output.
2.—As has been pointed out before, the form of combination that is most usual in Germany is some kind of an agreement regarding extent of output or regarding prices, or both, in many cases including a special selling bureau. In a comparatively few instances the organizations have come together into a single corporation, which has bought the plants of all the different members, and which are in consequence organized quite after the method so frequently followed in the United States. Reasons why this form of combination has not become more common and the effect of the working of such combinations in individual instances will be given hereafter.
Inasmuch as the forms of agreement concerning output and prices are almost as numerous as the combinations themselves, depending in each individual instance upon the circumstances of the business, it will perhaps be best to give in some detail the plans followed by several typical leading combinations in order that the efficiency of various forms can be most readily seen.
The potash combination. One of the most interesting combinations in Germany, particularly on account of the fact that some of the German States are themselves active members of the combination, is the so-called potash combination (Kalikartell).
The present potash industry has been the result of chemical discoveries made in 1861, potash being now derived chiefly from mines, whereas formerly it came mostly from vegetable sources. Its uses are perhaps primarily in agriculture as a fertilizer, and secondly, in manufactures of different kinds.
All of the mines which produce the mineral potash were until 1875 owned by Prussia and Anhalt, the factories which worked up the raw material being held at first in private hands. Competition among these private manufacturers led them to form a temporary agreement on prices in 1876, but it was later disregarded. In 1875 new mines were opened by private companies. The States shortly afterwards, in 1879, formed a combination which lasted until 1883, and was then extended until 1888. Before the end of the second period Prussia erected factories of her own to work up the product of her mines, in order that she might be in a better position at the time of the making of new agreements. In the earlier combinations a commission composed of representatives of different members of the combination fixed the extent of production, determined the prices, etc. From 1883 to 1888 it had the right of veto over any increase in the price of the product.
It will be noted, of course, that the State as a member of such combination may have interests quite different from those of any private producer, inasmuch as the first interest of the State would not necessarily be dividends, but rather the welfare of the community. In the case of Prussia, it might well be thought that a low price of potash for use among the farmers would be much more desirable than any revenue which might come from increase in price, and it was doubtless on this account that Prussia insisted upon having through her Government a veto upon any proposed change in price. The members of the combination formed in 1888 to run until 1898, since extended under substantially the same conditions, are the 10 owners of mines. The independent factory owners in business at the time of the organization bound themselves to observe rules which the mine owners laid down for their own factories. The mine owners in consideration of this fact pledged themselves not to sell their ore to other factories outside the combination, thus protecting the independent establishments from new competition. They agreed likewise to deliver certain quantities of the mineral ore to the private factory owners, the amount being agreed upon beforehand.
The amount of ore to be produced from each of the different mines was fixed in the contracts on which the combination was based. Of one of the two principal potashbearing ores, Carnallit-Salzen, the State mines produced together 29 per cent of the total amount. Of the other ore they produced 2,600 centner out of a total of 7,200
1 Das Deutsche Kali-kartell in Seiner Entwicklung und Gegenwärtigen Gestalt, von G. Engelcke, Bergassessor. Schriften des Vereins für Social-Politik, Leipzig, vol. 60, 1894. Die Kaliindustrie in Ihrer Bedeutung und Entwicklung von H. Paxmann, Bergmeister, Stassfurt 1899. Die KalisalzIndustrie in Preussen von Em. Przibilla, Bergingenieur, Köln 1895.
centner. Any changes in the total amount of the ore to be delivered to the factories requires a two-thirds vote of the members of the executive committee representing the different owners, including the vote of the chairman.
The representative of the Prussian mines has the right at any time to demand an increase of production, provided that the Prussian Ministerfor Commerceand Industry, after hearing the executive committee of the combination, declares such increase desirable. This reservation of power to the Minister of Commerce and Industry, of course is made for the protection of consumers. Likewise the fixing of the price of the product normally entrusted to the executive committee of the combination is also subject to a reservation in favor of the Prussian minister. After hearing the opinion of the committee he may even fix exceptional prices for German agriculturists in order to secure the widest possible use of potash at home, or because of any exceptional conditions that affect domestic agriculture. In fact such special concessions have been made on more than one occasion to German farmers, even at the cost of a considerable reduction of the profits of the syndicate. The Prussian mines and factories have the right of leaving the combination at the end of any calendar year, so that Prussia could at any time break the monopoly in case she thought it desirable. The private members of the combination have to provide bonds in the form of Prussian securities to guarantee the faithful performance of their contract. The quality of the product, the method of preparing it for the market, the delivery of the goods, etc., are under careful regulation. A special laboratory has been established to make regular examinations in order to see that the rules are observed, and severe penalties are inflicted in case of violation.
At the present time the administrative powers of the organization are vested in the general executive committee, composed of representatives of all the mines and works. Each party has one vote in deciding questions of general interest. In case of matters affecting only part of the members only those concerned have a vote. There is also a special selling agency, composed of two or three members, who have charge of sales and of the advertising which is undertaken to increase the use of potash. All contracts are made through this mercantile agency, but the filling of the contracts is intrusted to the separate producers who are paid directly by the customers. The different factories keep an account of the sums received, and from time to time an adjustment of receipts is made in accordance with the contracts on on which the syndicate is based.
It will be noted that the State has exerted its influence regularly in favor of German citizens-agriculturists and chemical manufacturers. As has been intimated, special prices have been made to the German farmers and it has regularly been the case that export prices have been considerably higher than domestic prices, contrary to the custom of most manufacturing combinations that have attempted to extend their trade abroad. It is the opinion of the writers on the subject that, had it not been for the influence of the syndicate, and at times for the influence of the Prussian Government itself in the syndicate, the potash mineral resources of Germany would have been exhausted much more rapidly; that prices, owing to competition, would have fallen to an unremunerative point, and that a far too great proportion of the product would have gone to foreign countries that would thus have received the benefit of the fertilizer at the expense of the German farmer.
It is thought also that the educational work of advertising done by the syndicate has been of great advantage to German agriculture. Much of this especially advantageous work is due to the Prussian Government, whose aim has been the advancement of German agriculture rather than high profits for the syndicate. A somewhat similar case has already been noted in connection with certain agreements regarding coal in East Prussia, and it will be noted that in still other lines of industry, e. g., in spirits, the Prussian Government has at times granted favors to the combinations for the sake of the development of some German industry; in no case for the sake of the profits of the combination itself.
It should be noted that the syndicate has also established a protective boring association, which attempts to make discoveries and open mines more quickly than private capitalists are likely to do in those parts of the country where the right of development belongs to the first finder. In 1893 the syndicate found it necessary to carry on a competitive war against a private enterprise in order to force it finally into the syndicate. It succeeded in doing so at length at considerable cost. According to Mr. Engelcke, at the time of this report, the Prussian Government had under consideration a bill to give to the State the exclusive right of prospecting for and of producing potassic and magnesic salts, the intention being not to expropriate the present private producers, but to prevent others from coming into competition and to preserve the situation as it was then.