constitute it, in itself, a monopoly in restraint of trade. That the new status created by the decree is not a hopeless one for independent interests in the industry is indicated by the recent activity among independent tobacco manufacturers and especially by the organization of the new Tobacco Products Company. It does not necessarily follow, indeed, that the disintegration of the combination could not have been carried somewhat further. It is not certain that the formation of only three principal companies or four including the R. J. Reynolds concern to conduct the tobacco business of the American was essential to a successful and equitable scheme of segregation. If time had permitted a more careful examination of the elements of safety of investment, of the problems of economy, manufacture and distribution, of the possibility of removing brands from one plant to another without disturbing the status of the employees, the values of the different properties, the security of brand values and the preservation of legitimate advantages, it might have been possible to devise a distribution that would have been more acceptable to the outside interests. As already stated, however, the position taken by the government and accepted by the circuit court-that the possession of one-third of the business in any line does not constitute a monopolistic control-was adhered to as far as possible, and the distribution was carried out on this basis. Whether it should have been the effort of the government so to disintegrate the combination as to give practically all the elements in the industry an even start is a matter of opinion; everything depends upon the point of view taken of the purpose of the government in enforcing the Sherman Act. From an economic point of view, a distribution on this basis could scarcely be defended as desirable, even if it had been feasible.

Criticism of the distribution adopted was directed especially at the large business left in the hands of the American Tobacco Company, as compared with that assigned to the Liggett and Meyers and the P. Lorillard concerns. It was claimed that the American retained a virtually monopolistic control. While it is true that the total reported assets of the American (computed on the basis of 1910 data) were greatly

in excess of the assets of either of the two other concerns$138,611,344 compared with $67,447,499 and $47,552,501 respectively-yet the actual tangible assets in the direct tobacco business of the American Tobacco Company (excluding good will and stock holdings of the American Cigar and other concerns, the stock of most of which has already been disposed of for the benefit of the common stockholders) is only ten per cent larger than the similar assets of the Liggett and Meyers Company and only eighteen per cent larger than those of the P. Lorillard Company. It has already been pointed out that the proportion of the direct business which the American controls in the separate branches is not much greater than that controlled by either of the two other concerns, although the activity of the American is extended over a somewhat broader field.1 A material diminution of the size of the American Tobacco Company would have necessitated, therefore, an almost equal diminution of the direct business of the two other companies, if the competitive ability of each against the other was to be maintained. Moreover, any very considerable decrease in the size of the American would have increased the difficulty of so adjusting the finances as not to give a stronger position to the twenty-nine individual defendants. It would certainly have made it necessary to withdraw from the public, not only the bonds of the American, but also a part of the preferred stocks. This would have increased the proportion of the outstanding common stock of the American Tobacco Company, thus giving the individual defendants a larger control over its business. The earnings statements of the different companies at the end of the first year of independent operation do not indicate that the American Company has retained undue advantages.

The third general ground of criticism was found in the distribution of the brands in the different branches. The business, as already indicated, was actually distributed by plants rather than by individual brands, because groups of brands similar in nature were manufactured in the same plant. The distribution, therefore, was not perfect from the point of view of brand

1 Cf. supra, p. 266.

competition. The method of distribution chosen undoubtedly resulted in the maintenance of some more or less non-competitive groups. The peculiar character of the tobacco business, however, and the fact that the brand has something of the nature of a proprietary article made a distribution of the entire business along strictly competitive lines an impossibility. Particular brands are in themselves more or less non-competitive, and they not infrequently occupy so prominent a position in a particular branch of the business that the entire branch is practically non-competitive. Within each of the larger divisions of the business, moreover, there are sharply defined groups of brands which, strictly considered, are not competitive. Thus, in the cigarette branch Turkish and domestic brands of cigarettes do not ordinarily compete. Even within the Turkish branch of the business, certain groups of brands do not compete with the brands of other groups. In the plug, smoking, fine-cut and snuff branches, similar groups of brands can be found. In the reorganization of the tobacco business, it would doubtless have been possible to make the business of the three large companies more competitive if the distribution had been made by brands rather than by plants, but it is evident that the business itself offers insuperable obstacles to the creation of perfect competitive conditions under any method of distribution. It must be considered, moreover, that the tobacco industry is not in a static condition, but is constantly changing with the development of new brands. The lack of a perfect distribution at the time of dissolution, therefore, is not of prime importance so long as public demands are changing and so long as any distribution must be subject to these changing conditions.

Most of the criticisms of the plan of disintegration came from parties who had either a direct or an indirect interest at stake; and in most cases they revealed a somewhat narrow point of view. They show clearly, however, that a careful consideration of the economic problems involved is requisite in the enforcement of anti-trust legislation. Legal knowledge must be supplemented by a clear appreciation of the economic and financial problems involved. Only in the light of such combined knowledge is it possible to pursue a policy of successful disintegration

of great combinations which shall be in harmony with the best interest of all parties involved.

Finally, some consideration should be given to a general criticism-the failure of dissolution proceedings under the Sherman law to give any real relief against alleged monopolistic conditions. If, under the previous régime of monopolistic control, prices were excessive, it is argued that they should fall under the new régime, if competition has indeed been reëstablished. Thus far, in the tobacco industry, the most noticeable result has been a considerable increase in competitive advertising. There has been no reduction of prices. It is not probable that any such reductions will follow, because in any industry whose products partake of the nature of proprietary articles -and tobacco brands, as already stated, may be classed among such articles-increased competition tends rather to increase advertising and selling expenses than to lower the price of the article to the consumer. In the tobacco industry, moreover, the statutory determination of the size of package in connection with the customary round price paid for it tends to prevent changes.

The disintegration of the tobacco combination under the Sherman law is an accomplished fact. That the attempt to enforce the law is a failure, because, as recently asserted, the securities of the new corporations have a collective value not much below those of the old combination prior to the dissolution proceedings, does not necessarily follow. In the first place, the market value of the old securities was unduly depressed during the period of litigation. Moreover, the large earnings of the combination were only in part disbursed in dividends, the American Tobacco Company having accumulated a surplus of more than $61,000,000 in less than a decade. The prospect of a freer distribution of earnings, even if in the aggregate they are less, has naturally maintained a relatively high value for these securities.

In considering the efficacy and value of disintegration proceedings, it must finally be borne in mind that the almost complete domination of an industry by a single group of interests is not necessarily the most desirable status that can be conceived. A

great consolidation, such as the American Tobacco Company, called into being by the ambitions of a few individuals, fostered in part by the desire of underwriting syndicates for large profits and in part by the opportunity offered for stock manipulation, can not be declared off-hand to be the best form of development in any industry. It is by no means evident that such a combination can be made capable of producing the best economic results or of giving the best service to the public, even if placed under strict governmental control. Disintegration, as it has been carried out in the tobacco industry, has produced a new status. It has created from the combination a limited number of relatively large businesses, each equipped to maintain all the economies of production developed by the original combination and in a position to compete with each other. Whether this new status will prove in the long run more acceptable than the old remains to be seen. The economic soundness of dissolution proceedings against monopolistic combinations must be determined by their ultimate results.

WASHINGTON, D. C.

ALBERT CHARLES MUHSE.