11 :: THE ACCEPTANCE OF OLIGOPOLY
LIKE a number of other consolidations, the American Sugar Refining Company found itself facing dissolution in 1910 for having violated the Sherman Antitrust Act. The subsequent history of the suit against the American closely reflected the changing attitudes toward industrial combination during the Progressive and post-Progressive periods. It also reflected the difficulty of taking effective legal action against the “trusts,” given insufficient enforcement funds and the need to proceed slowly in order to build up a solid body of case law. While the executive branch tended to take an increasingly less tolerant view of the consolidations as time went on, the courts, concerned about the possible loss of scale economies and stockholders’ equity rights, were predisposed to move more cautiously. Whatever reservations of this sort judges may have had about ordering dissolution were greatly reinforced by the wartime experience when many of the same corporations being prosecuted proved invaluable to the military effort. This was particularly true of the American Sugar Refining Company, without whose co-operation it would have been impossible to stabilize the domestic price of sugar during the war years. After the Supreme Court ruled in the United States Steel case in 1920 that mere size alone did not offend the antitrust laws, the American Sugar Refining Company was among those defendants whose cases were settled by a consent decree leaving the oligopolistic structure of their industries unchanged. Thus oligopoly in sugar refining, as well as in other industries, came to be the accepted norm.
In November, 1907, acting on a tip from a former employee of the American Sugar Refining Company, federal agents raided the Havemeyer & Elder private dock in Brooklyn and uncovered an ingenious device by which the government was being systematically defrauded of revenue. The dock contained seventeen scales that were used to weigh incoming cargoes and to determine the duties owed the U.S. Treasury. These scales, located at intervals along the open wharf, were each operated from inside a wooden enclosure by a government weigher and a company checker. On the side of the scales where the latter normally sat, federal agents found that holes had been drilled and a spring attached to the weighing mechanism. By applying a single ounce of pressure to the spring, it was found, the company weigher was able to make the scale read forty-eight pounds less than the actual weight of the load resting on the platform outside.1
On the day that the federal agents made their unannounced visit to the Havemeyer & Elder dock, they were able to intercept two drafts of sugar shortly after they came off the scale; then, having them reweighed, they found that the government had been short-tallied by 14 and 18 pounds respectively.2 While these two intercepted drafts, together with the scales and their “seventeen holes,” provided dramatic evidence of fraud against the government, they still gave no clue as to how extensive the cheating was or who in the company bore the ultimate responsibility for it. But then, taking advantage of the offer by the American to examine its books, federal officials found that two sets of records had been kept. One showed the weights of imported sugars as recorded by customs officials; the other showed the weights as determined by “city weighers.” The latter were private individuals who acted in behalf of overseas sellers in ascertaining the actual weight of the sugar upon landing, and it was on the basis of the second reading, made only minutes after the drafts came off the government scales, that the sellers of certain raw sugar—that which was imported from Java—were paid.3 Comparison of the two sets of figures revealed a considerable discrepancy, and indicated that the federal government had been underpaid on raw sugar imported from the Dutch East Indies since at least 1895.4
Stimson, into whose hands the prosecution of the frauds eventually devolved,5 had more than sufficient evidence to convict the superintendent of the Havemeyer & Elder dock, as well as many of the men who worked under him. But again, as in the case of the railroad rebates, he hoped to accomplish a larger objective. First, he wished to establish the fact of corporate responsibility, and thereby enable the federal government to recover its lost custom duties while at the same time publicly exposing the American Sugar Refining Company once more as a wrongdoer. Then, going beyond what had been accomplished in the rebate cases, he hoped to establish the culpability and criminal liability, not only of the subordinates involved but also, more important, of the company’s highest officials.6
In the family biography, Henry O. Havemeyer, Jr., denies that his father was, in any way, connected with the customs frauds.7 Yet there is circumstantial evidence—the two sets of records kept in Havemeyer’s own office, the extra compensation secretly paid the company checkers who operated the hidden springs, the political pressure used to remove troublesome customs officials8—that Havemeyer did know of the customs frauds personally.
It was clear that the frauds had begun long before 1895, probably as far back as 1879 if not earlier.9 They were, in fact, part of the way in which the sugar refining business had been conducted through the years, at least in the port of New York. For the frauds, as it turned out, were not confined merely to the American Sugar Refining Company; they were prevalent among all the refiners operating in that locale—except the apparently naïve Warner Sugar Refining Company.10 Still, the American was to bear the brunt of the resulting prosecution.
Pursuing the line of attack that he had outlined to the attorney general before taking over the case,11 Stimson first brought a penalty suit (which was a quasi-criminal action under the customs law) to recover the back duties owed to the government plus a punitive sum. Because the evidence of underweighing was most conclusive for the year 1907, this initial suit sought to recover the government’s losses for that twelve-month period alone.12 On March 5, 1909, the case came to trial, and after an hour’s deliberation the jury ordered the American Sugar Refining Company to pay full penalties of $135,486.32. “I regard the case of very great importance,” Stimson wrote after the jury had delivered its verdict, “not only for itself, but because it is the first successful breach in what I believe will be a wall of corruption connecting the defendant sugar company with certain branches of the Treasury Department.”13
Having established in court the American’s criminal liability, Stimson was now prepared to push on with a civil suit to collect the back duties owed to the government from earlier years. But the American had lost its will to fight. Once again suing for peace, it agreed to pay an additional $2 million in estimated back duties, provided the government would accept this sum as full restitution. While the terms of this settlement were acceptable to Stimson as far as the civil suit was concerned, he refused to call off further criminal prosecution of individual officers of the American. On this matter he had the full support and backing of the attorney general. “What I am really more concerned with than the collection of the monies due the Government,” Attorney General George W. Wickersham wrote to Stimson when the American’s lawyers first indicated their client’s willingness to surrender without a court fight, “is to bring to justice those who are responsible for the frauds, if they can be discovered and convicted.”14 This hope was to be only partially realized.15
Stimson could take justifiable pride in the fact that the back duties and penalties collected from the American were the largest such amounts ever recovered by the federal government from a single party.16 They were, moreover, only the first of the large sums that the various sugar refining companies were to pay back into the treasury.17 Still, there was one important respect in which Stimson was disappointed by the results. The most effective weapon against corporate transgressions, he now believed more than ever, was unfavorable publicity.18 Yet, despite the seriousness of the charges brought against the American, and the company’s almost complete confession of guilt, none of the New York newspapers had given the case what Stimson felt was adequate coverage. For this reason he arranged through Theodore Roosevelt to have Outlook, the former president’s own political organ, do an extensive article on the sugar-fraud cases.19
The article in Outlook had its intended effect, leading to renewed interest in and criticism of the “sugar trust” in the New York press. But, in turn, this unfavorable publicity put pressure on the new Republican administration to bring suit against the American Sugar Refining Company under the Sherman Act—especially after George H. Earle, Jr., claiming that he had been forced to proceed on his own because the government refused to take action, succeeded in June, 1909, in obtaining a $2 million out-of-court settlement in his private suit against the company.20
Roosevelt, by ordering his attorney general in 1903 to bring the eventually successful suit against the Northern Securities Company,21 had rescued the Sherman Act from the state of virtual disuse into which it had fallen after the Supreme Court’s decision in the E. C. Knight case.22 Although it was a surprise even to his closest advisers, this decision to proceed against the Northern Securities Company—a holding company organized by the Hill-Morgan and the Harriman-Rockefeller interests to resolve their struggle for control of the Pacific Northwest railroads—was in keeping with Roosevelt’s determination to assert the ultimate authority of the national government over private business.23 But while the president subsequently spoke forcefully of the need to apply “The Big Stick” to industrial consolidations, he was inclined to proceed cautiously against any particular one of these combinations. In addition to the lack of precedent in such matters, this caution reflected the distinction Roosevelt customarily made between “good” and “bad” trusts and his consequent preference for regulation rather than prosecution, for publicity rather than dissolution.24 Nevertheless, the Roosevelt administration did institute suits against the beef, oil, tobacco, and blasting-powder combinations under the Sherman Act—the companies involved seeming to be rather clear examples of “bad” trusts—though the president had little faith in the efficacy of the basic antitrust approach.25
After inauguration day in 1909 William Howard Taft occupied the White House, and although he was Roosevelt’s hand-picked successor, he had his own distinctive views on certain issues, antitrust policy included. On this question he took a more optimistic position than Roosevelt had. While sitting on the U.S. Court of Appeals for the Sixth Circuit he had written the unanimous opinion, later upheld by the U.S. Supreme Court, in the Addyston Pipe & Steel case.26 That decision, relying heavily on common-law precedents, asserted the right of the federal government under the Sherman Act to deal with all combinations in restraint of trade, not simply those which were in unreasonable restraint of trade.27 This same unwillingness to differentiate between “good” and “bad” trusts remained with Taft when he became president. The former law professor, with his scholarly, judicial frame of mind, preferred to make a distinction of a different sort: between those combinations which had been organized primarily to restrict competition and those which, having been organized with other objectives in view, restricted competition incidentally. He believed that the Sherman Act offered the most effective remedy for consolidations of the former type.28
The American Sugar Refining Company seemed to be such a combination. In agreeing to settle out of court the suit brought against it by George H. Earle, Jr., the American appeared to have admitted the truth of the charge leveled against it—that it had conspired through illegal means to suppress a rival. Moreover, Earle’s victory in that suit removed whatever valid reasons the executive branch may have had previously for refusing to initiate actions of its own against the American.
On September 21, 1906, shortly after being appointed receiver for the Real Estate Trust and Pennsylvania Sugar Refining companies, Earle had written a letter to Roosevelt, asking that the American Sugar Refining Company be prosecuted by the government for its role in “destroying” the two bankrupt enterprises that had been placed in his charge. This letter was followed by others, all repeating the request.29 Earle was then instructed to present his facts to the attorney general, but shortly thereafter that official, William H. Moody, was nominated to the Supreme Court. Since Earle expected that any case initiated by the government might eventually reach that judicial body, and because he did not want Moody to have to disqualify himself, he decided to wait until Moody’s successor, Charles J. Ronaparte, could be sworn into office. On March 13, 1907, the change in personnel having been effected, Earle renewed his request that the government take action against the “sugar trust.” “I have come upon evidence,” he wrote to Bonaparte six months before federal agents made their surprise visit to the Havemeyer & Elder dock, “that justifies the suspicion that they [the officers of the American] are strengthening their monopoly, not merely by rebating and like infractions of the law, but by the most serious frauds upon the customs of the Government.”30
In reply Bonaparte wrote that he could see no difference between the charges now levied against the American Sugar Refining Company and those dismissed by the Supreme Court in the E. C. Knight decision. In both cases, Bonaparte pointed out, the American was charged with the same offense, namely, obtaining control over a competing refinery. Taking note of Earle’s pending private suit, the attorney general expressed an unwillingness to have the government, in effect, intervene in behalf of one of the contending parties to that litigation.
Although Earle tried to overcome Bonaparte’s objections in a special brief prepared for the attorney general, Bonaparte could not be moved from his previously stated position.31 Undaunted, Earle proceeded to press his own suit. When, after a six-day trial beginning in January, 1908, the New Jersey Court of Chancery refused to sustain his claim against the American Sugar Refining Company for civil wrongs, Earle next proceeded to file suit in the District Court for the Southern District of New York, asking treble damages under the Sherman Act. Here, too, the court ruled against him, dismissing the complaint by citing the Supreme Court’s decision in the E. C. Knight case. But, taking the matter on appeal to the circuit court, Earle finally found partial vindication. In a unanimous decision ordering the lower court to rehear the suit on its merits, the U.S. Court of Appeals for the Second Circuit upheld Earle’s contention that the Knight case was not relevant to the present situation, pointing out not only the interstate ramifications but also the conspiratorial nature of the alleged acts. “A comparison of the Knight case with the case at bar,” the court’s opinion declared,
shows some striking superficial resemblances. Both relate to the actions of the American Sugar Refining Company in obtaining control of independent sugar refining companies in Philadelphia. But there is this fundamental distinction between them: The one was an agreement for the restriction of competition which related directly to manufacture and only indirectly to interstate commerce. The other was a conspiracy to prevent a manufacturer from engaging in business which necessarily directly restrained interstate commerce.32
It was because of this opinion, reopening what was thought to be a closed question, that the American Sugar Refining Company decided to reach an out-of-court settlement with Earle. But if officials of the American thought that this concession would put an end to the matter, they soon realized their mistake. For the circuit court’s opinion, removing as it did the haunting specter of the E. C. Knight decision, promptly led to action against the company by the Taft administration. In mid-June of 1909, Attorney General George W. Wickersham, President Taft’s personal choice to lead the fight against the “trusts,” called Henry A. Wise to Washington. Wise, who had succeeded Stimson as U.S. attorney for the Southern District of New York,33 was instructed to proceed as soon as possible against the American Sugar Refining Company under the provisions of the Sherman Act.34
Taking advantage of the facts brought out in Earle’s private suit, Wise obtained criminal indictments against the American Sugar Refining Company, its directors, and others connected with the Segel loan within two days of his return from Washington. Those named as defendants included Washington B. Thomas, Arthur Donner, Charles Senff, George Frazier, John E. Parsons, Thomas Harned, and Gustav Kissel.35 After being informed of the grand jury’s action, Wickersham wrote to Wise, “I feel great personal regret that men of the prominence of these gentlemen should be indicted, but the facts under the law, as laid down by the Circuit Court of Appeals, seem to justify no other course.”36
Despite this promising start, the government’s case soon ran into a legal snag. Under federal law, criminal prosecution was barred three years after the alleged offense by the statute of limitations; the loan to Segel, the act forming the basis for the indictments, had occurred in 1903, six years before the government decided to initiate its own suit in the matter. To get around this difficulty, Wise alleged that the loan to Segel was part of a larger, continuing conspiracy to suppress the competition of the Pennsylvania Sugar Refining Company. But Judge Holt, before whom arguments to quash the indictments were heard in October, 1909, was no more willing to sustain a charge of conspiracy in this instance than he had been in the railroad rebate cases.37 Wise, in behalf of the government, appealed Judge Holt’s decision dismissing the conspiracy charge, but until this and other issues could be resolved by a higher judicial body, the criminal case against the American Sugar Refining Company and its chief officers would be left hanging.38
The government having been stymied in its efforts to obtain a quick criminal conviction, Wickersham ordered Wise to begin gathering evidence for a civil suit against the American. In line with these instructions, Wise issued subpoenas to Heike and other officials of the American to appear before a federal grand jury beginning December 1, 1909. This investigation continued through December into the new year; and as more of the facts were revealed, Wise began to realize the extent of the American Sugar Refining Company’s influence over the domestic sugar industry. Deciding that it was necessary to gather evidence outside New York, he arranged for one of his assistants, James R. Knapp, to go to Colorado and California to question witnesses before grand juries in those states.39 Meanwhile, the grand jury investigation in New York had run into a legal difficulty of its own.
A 1903 appropriations measure, which incidentally had provided the first specific funds for antitrust enforcement, stipulated that persons testifying or producing evidence in cases involving the Sherman Act were to be granted immunity from prosecution, except when guilty of perjury.40 As part of his inquiry into the American Sugar Refining Company’s affairs, Wise sought to obtain copies of the company’s correspondence and other pertinent records. Officials of the American refused to produce these records, however, without first being sworn in as witnesses and thereby qualifying for immunity—a protection Wise did not want to grant. On the other hand, they refused in the name of the company itself to turn over the records, claiming that the American was entitled to protection against self-incrimination under the Fifth Amendment of the Constitution. Thus the matter stood for several weeks until finally a federal circuit court judge ordered the American Sugar Refining Company to pay a fine of $500 for contempt of court. Through this and parallel decisions at the same time there was established the important principle that a corporation—as distinguished from its officers—could be compelled to produce records for inspection by a federal grand jury.41
Once this issue had been resolved, Wise was able to proceed with his investigation. By summer’s approach he had largely completed the examination of witnesses and had begun the task of preparing the government’s bill of complaint. Despite Wickersham’s frequently expressed hope that the matter be expedited, Wise insisted on taking time to prepare his petition thoroughly, receiving assistance in these labors from J. C. Reynolds, an eminent corporate lawyer who had been retained as special counsel. Thus it was not until September, 1910, that the draft of the bill was finally completed.
For the next three months the petition was gone over carefully by Justice Department officials in Washington to remove possible legal flaws and strengthen the line of argument. Then the 220-page document was printed. Finally, on November 28, 1910, a full year after Wise had initiated the inquiry into the affairs of the American Sugar Refining Company, a bill of complaint was filed in the U.S. District Court for the Southern District of New York.
The petition outlined in exhaustive, if not always accurate, detail the history of the sugar refining industry’s consolidation, charging “derogation of the common rights of all the people of the United States” and violation specifically of the Sherman antitrust law. As equity relief, it called on the court to order the dissolution of the sugar empire which Havemeyer, with the help of others, had worked so hard to erect.42 Before proceeding any further in the matter, however, Justice Department officials decided to await the Supreme Court’s decision in the cases still pending against the Standard Oil and American Tobacco companies.
Both of those companies had long been favorite targets of would-be “trust-busters” because of the well-publicized methods they had employed to suppress competition. In November, 1906, responding to the growing public clamor for government action, the Roosevelt administration had finally filed suit under the Sherman Act against the first of the two companies, and then, two years later, against the other. In both cases the relief asked was quite broad—dismemberment of the offending consolidation into several parts.43
While the Northern Securities case seemed to afford a precedent for such recourse, it was clear that a victory for the government in its dissolution suits against the Standard Oil and American Tobacco companies would establish an important new precedent. For the Northern Securities decision merely indicated that a holding company organized to bring an end to competition between two competing railroad systems could be enjoined from carrying out that purpose; it said nothing of breaking up large industrial corporations that had been allowed to operate unchallenged for many years while continuing to sell its shares to the public at large.
The courts were heard from first in the case against the American Tobacco Company. In December of 1908 a four-judge panel specially convened in the Southern District of New York under the 1903 Expediting Act upheld, by a three-to-one margin, the gist of the government’s complaint against the defendant, finding that the American Tobacco Company had violated the Sherman Act and ordering that it be barred from interstate commerce “until the conditions existing before the illegal contracts or combinations were entered into are restored.”44 However, the court exempted from the terms of this decree certain important affiliates of the American Tobacco Company, and since neither of the parties to the suit was entirely satisfied with the decision, both appealed to the Supreme Court.45 A year later, on November 20, 1909, another specially convened four-judge panel in Missouri upheld the government’s charges in full against the Standard Oil Company, ordering it to divest itself of all subsidiaries within thirty days. This decision was also appealed to the Supreme Court, but by the defendants alone.46
In May of 1911 the Supreme Court delivered its verdict. Chief Justice Edward D. White, speaking for all but one of his fellow justices, affirmed, in most of its details, the lower court’s decision ordering divestiture of the Standard Oil Company’s various subsidiaries. In so doing, however, he apparently narrowed the scope of the Sherman Act, declaring, in an opinion so tortuously written that its exact intent will never be known, that the act’s prohibition on contracts in restraint of trade referred only to restraints that were “unreasonable” in nature.47 Two weeks later the Supreme Court affirmed the dissolution of the American Tobacco Company, including under the terms of its decree the various affiliates exempted by the lower court.48
The power of the courts to break up a large industrial consolidation having been established, Wise could now proceed with his prosecution of the American Sugar Refining Company. His next move was to have a special examiner appointed, as had been done in the Standard Oil case, to take pretrial testimony. Due to the congestion of the federal court calendars, this could not be arranged until the end of April, 1912.49 Then began what turned out to be 140 days of hearings, extending well over a year, to present the government’s case alone. During this time 12,000 pages of testimony were taken and 2,800 exhibits were introduced into the record.50 Altogether, the nineteen volumes of typewritten pretrial testimony provided an incomparable insight into the evolution of the sugar refining industry’s industrial organization; and even before all testimony had been taken, attorneys for the defendants indicated that they might accept settlement rather than have the case go to trial.51
The government’s objectives in the suit had, to a certain extent, already been accomplished through the death in 1907 of the American Sugar Refining Company’s first president. Although Henry Havemeyer had hoped that his son would succeed him as head of the American and its related companies, Horace—twenty-one years old at the time—obviously was too young and inexperienced for the position. Instead, he had to be content with being elected a director of the company, while Washington B. Thomas succeeded to the presidency.52 Later, when it was realized how few shares the Havemeyer family actually held in the company, Horace’s influence dwindled to insignificant proportions.53 Thomas, who together with his family turned out to be the American’s largest single stockholder, became the dominant figure in the company; but although he was an experienced sugar man, coming from an old sugar family, he lacked the personality and standing that had enabled Havemeyer to dominate his colleagues. Thus, one of the principal unifying forces in the industry had been lost.
By his own choice, Thomas inaugurated a less personal and at the same time less secretive rule. In recognition of the fact that a majority of the American Sugar Refining Company’s shares was now held by residents of New England, two additional directors were added to give that region greater representation on the board. Among the new directors was Edward F. Atkins, who had been connected with the old Bay State Refinery before its absorption into the trust and who was now asked by Thomas to help him with the active day-to-day management of the American.54
These changes constituted a virtual revolution in control—a fact which was then cited in urging that the government call a halt to its dissolution suit. “The old gang has been cleaned out,” Henry Lee Higginson, head of a Boston banking firm, wrote to Charles D. Norton, President Taft’s secretary and a fellow New Englander, in August of 1910, “and the present directors are good, honest and able.… They are thoroughly ashamed of the conduct of affairs under Mr. Havemeyer, and astonished at it.… They have pushed the reorganization of this company most energetically, and have got it pretty well done. These directors have the confidence of the public and, as it seems to me, are entitled to a chance to show themselves for what they are.”55
This same theme was later repeated by Thomas and Atkins when they were called to testify before a congressional investigating committee. The House of Representatives, which had gone Democratic in the 1910 election, had become impatient with the administration’s delay in prosecuting the American Sugar Refining Company, among other alleged “monopolies,” and appointed a special committee under the chairmanship of Congressman Thomas B. Hardwick to look into the company’s affairs, especially its relations with various beet sugar companies. This investigation of the American Sugar Refining Company was paralleled by a similar inquiry into the affairs of the United States Steel Corporation by a second special committee under the chairmanship of Congressman Augustus O. Stanley—sugar and steel, in the eyes of the Democrats, being the two outstanding examples of protected industries in which “trusts” had arisen.56
In their testimony before the Hardwick committee, Thomas and Atkins both emphasized the change in management which had occurred, arguing that the present officers and stockholders should not be penalized for the sins of the old regime.57 In effect, they hoped to convince Congress that the American Sugar Refining Company had been transformed from a “bad” trust into a “good” one. But the time had passed when simply “cleaning house” was sufficient to satisfy the government’s demands for reform. In the course of his year-long investigation into the affairs of the American, Wise had discovered that the dominant position of that company was predicated not only on the personal qualities of its first president and on the obtaining of railroad rebates but also, and more important, on the web of interlocking corporate relationships which Havemeyer had created. It was the destruction of that web—and nothing less—which Wise and his superiors in the Justice Department insisted upon.
Again, Henry O. Havemeyer’s death had, to a certain extent, accomplished this objective. In some instances, control of another company rested not with the American Sugar Refining Company alone but with the American and the Henry O. Havemeyer family jointly. This was true in the case of the Utah-Idaho, the Great Western, and the Continental Sugar companies.58 Moreover, in certain related enterprises it was the Havemeyer family alone and not the American Sugar Refining Company which held an interest. This was true of Palmer’s Dock, now renamed the Brooklyn Eastern District Terminal, and it was true also of the Cuban-American Sugar Company.
The latter company had been organized in 1906 to consolidate various cane-growing properties in Cuba acquired in the years following the Spanish-American War. The purchases had been arranged by the partners in B. H. Howell, Sons & Company, with James Post persuading Henry Havemeyer personally to join in the venture. In 1906, when the properties were consolidated under the name of the Cuban-American company, Havemeyer emerged as the owner of 9,783 shares of common stock and 8,275 preferred shares, slightly less than 12 per cent of the value of all the shares issued in the new company.59 These holdings marked the first, small beginnings of direct investment by U.S. sugar refining interests in cane-growing lands in Cuba. But the greater significance of the Cuban-American Sugar Company, at least for the moment, lay in the fact that two years after its formation it had acquired control of the Colonial Sugars Company with a refinery just outside of New Orleans at Gramercy, Louisiana—potentially the most important competitor of the American Sugar Refining Company’s new refinery being built at nearby Chalmette.60
The split nature of these holdings in various other companies had not mattered as long as Henry O. Havemeyer was alive, for as president of the American Sugar Refining Company he was able to exercise a unified direction over the jointly owned enterprises. But after his death, and especially after his son Horace found himself shunted to one side, this divided control began to take on an important dimension. It meant that, much as the American Sugar Refining Company’s new management might have preferred to sever the last link with the old regime, for the sake of public appearance, if for no other reason, Horace Havemeyer’s continued association with the company was essential for the maintenance of the over-all community of interests. Finally, however, in December of 1910, growing restive over his relatively minor voice in the company’s affairs, Horace decided to resign from the American and seek an independent role for himself in the industry.61
Horace’s announced plan was to have the common stock of the National Sugar Refining Company which had been set aside for his father, but never actually claimed, transferred to his own name. These 95,000 shares, together with the 2,623 preferred shares which the Havemeyer family held, would have been sufficient to give him, if not an actual majority interest, at least effective working control of the National. Horace also indicated his desire to cancel the commission agreement between the firm of B. H. Howell, Sons & Company and the National and take over the management of the mercantile end of the business himself.62
These moves, if successful, would have confronted the American with a powerful rival. For in addition to the National’s several refineries in the New York area, Horace would have controlled the lighterage facilities on which the American was dependent, the largest single block of stock in the Great Western Sugar Company,63 and other significant holdings in the Utah-Idaho Sugar Company, the Continental Sugar Company, and the Cuban-American Sugar Company. And behind these properties would be the wealth of the Havemeyer family itself. Perhaps most important for the American Sugar Refining Company, Horace Havemeyer’s actions, particularly his announced intention to cancel the Howell contract, threatened to upset the community of interests which ruled the sugar industry.
At the instigation of the American Sugar Refining Company’s officials, other owners of preferred stock in the National Sugar Refining Company brought suit to cancel the company’s common stock, charging on the basis of the evidence uncovered by Wise’s own investigation that the stock had been issued “without consideration”—that is, without anything of value being given up in exchange.64 In dispute was the question of what, if anything, Havemeyer had contributed to the formation of the National Sugar Refining Company that would warrant his receiving almost half the company’s authorized capital stock. The case, which dragged on in the New Jersey Chancery Court for nearly two years, was finally decided on August 1, 1912, with a ruling upholding the complainants and ordering cancellation of the entire common-stock issue.65
While this decision temporarily ended the threat of a rival Havemeyer interest challenging the American Sugar Refining Company’s leadership, it further complicated that company’s relations with the government. For the cancellation of the National Sugar Refining Company’s original common-stock issue left outstanding only the preferred shares, now converted to common stock, of which the American Sugar Refining Company had by now come to own slightly more than half.66 For some time, in order to be able to present their company in a more favorable light, officials of the American had been trying to sell off their company’s holdings in other enterprises, particularly its holdings in the various beet sugar companies. This effort presented certain problems because it was not easy to find buyers for such large quantities of stock at a price that was reasonable. Still, by the beginning of 1913, officials of the American had succeeded in selling their entire half-interest in the Western Sugar Refining Company, their holdings in the American Beet Sugar Company, all their stock in the Carver County Sugar Company, $2,758,800 out of $9,224,100 worth of shares in the Great Western Sugar Company, and $2,000,000 of the $4,098,300 in stock held in the Michigan Sugar Company.67 These efforts toward divestiture, however, were now largely offset by the increased hold that the American Sugar Refining Company had acquired over the National as a result of the New Jersey court’s decision.
To avoid this embarrassing situation, officials of the American sought to distribute the shares that the company owned in the National among its own stockholders on a pro rata basis. Then, when Wise objected that such a procedure would not sufficiently dilute control, they agreed instead to sell the shares to their stockholders at par value. Under this arrangement the American disposed of slightly more than half of its holdings in the National; but it was still unable to find buyers for the remaining 24 per cent interest.68
Meanwhile, the government was reaching the end of its case against the American Sugar Refining Company in the civil dissolution suit. It already had decided to abandon its criminal prosecution of the company and its officers for their actions in regard to the Segel loan. First, the case had been delayed in coming to trial for two years as a result of various appeals to the Supreme Court by certain of the defendants.69 Then, when the case finally did reach the trial stage in the spring of 1911, Wise had been greatly handicapped in his presentation of evidence by the statute of limitations barring testimony in regard to any events before 1906. The fifteen-day trial had ended in a hung jury, eleven of the twelve members voting for acquittal. Although the government could have sought a retrial, Wise advised against it. Of the principal defendants, he pointed out in a letter to Wickersham on November 23, 1912, Havemeyer and Kissel were both dead; only John Parsons was still alive, and he was eighty-two years old. In view of these circumstances and the severe handicap under which the government would be forced to operate in presenting its case a second time, Wise urged that the criminal prosecution be dropped, and Wickersham agreed.70 Since the railroad-rebates matter and the customs-fraud cases had been concluded, this left the civil dissolution suit as the only litigation still pending against the American Sugar Refining Company.
On July 1, 1913, the government presented the last of its evidence in this case.71 Wise, however, was not on hand for the occasion. On March 4, the new Democratic administration of Woodrow Wilson had been inaugurated, and Wise had been replaced as U.S. attorney for the Southern District of New York by F. Snowden Marshall, one of the attorneys representing Earle in his treble-damages suit against the American.72 Wise had taken great care in preparing the government’s case. He was, as Stimson remarked, “an even, hard worker.” But as Stimson also pointed out, he “did not have a subtle mind.”73 By failing to bring the prosecution to a speedier conclusion, he had forfeited his chance to see the case through to the end—and by so doing had helped contribute to the image of the Taft administration as sluggish in enforcing the Sherman Act.
Control of “trusts” and “monopoly” had been one of the major issues in the previous fall’s election. While Wilson was more disposed than others to view the problem in moral terms, he had nonetheless formulated a position during the campaign—largely with the help of Louis D. Brandeis, one of his chief advisers—which sharply differentiated him from either of his two opponents: Taft running as the regular Republican candidate and Roosevelt running as the Bull Mooser. On the one hand, the Taft administration was criticized for its handling of antitrust enforcement, in particular, of the Standard Oil and American Tobacco dissolution suits. Wilson and his supporters charged that the final settlements in those cases, to which the Taft administration had given its approval, were a “sham”; for while both of the consolidations had been ordered broken up into a number of separate parts, the same groups of stockholders previously in control of the over-all combinations were allowed to retain their interest in the several reconstituted companies. On the other hand, Roosevelt’s program of federal regulation for large corporations was also attacked. This approach, Wilson and his supporters argued, would give legal sanction to clearly illegal monopolies; they called instead for a program of vigorous antitrust enforcement, aided by new laws, to revive and preserve competition.74 These campaign positions were soon reflected in the new administration’s handling of the dissolution suit against the American Sugar Refining Company and its fellow defendants.
When the government finished presenting its evidence in the case, certain of the defendants, most particularly the beet sugar companies, expressed their willingness to accept a consent decree. In return for an end to the government’s efforts to dissolve them, they indicated that they would agree to sever all ties with the American and with one another. The Justice Department, while receptive to this plan, insisted that the case against them was inextricably linked to the case against the American, and that it was reluctant to reach an agreement with them for fear of prejudicing its case against the chief target of the suit.75 In the fall of 1913, counsel for the American Sugar Refining Company, former Judge James M. Beck, indicated that his company also was interested in an out-of-court settlement. He suggested that if the American were allowed to retain its refineries in New York, Boston, Philadelphia, and New Orleans, it would dispose of its holdings in the National Sugar Refining Company and the various beet sugar companies. In effect, he proposed that the American be reduced to its size as of 1895, the time immediately following the E. C. Knight decision.76
This proposal was strongly opposed by James R. Knapp, Wise’s former assistant, who had been retained by the Wilson administration as a special prosecutor in the sugar case. Such an arrangement, he pointed out in a letter to the attorney general, would leave the American Sugar Refining Company as the dominant firm in the industry, for it was still capable of supplying 40 per cent of all the sugar consumed in the United States. In Boston, New Orleans, and Philadelphia its share of the market would be 95, 90, and 85 per cent respectively.
Knapp conceded the truth of the American Sugar Refining Company’s contention that competition “is now keener and stronger than it has been” since the company was formed. For example, he said, “the American has not even voted its stock in many of the beet sugar companies since the beginning of the action and these beet sugar companies are selling their products in wider markets and at comparatively lower prices than ever before.” But he warned that this state of affairs might not endure once the government’s antitrust suit was ended. “These conditions,” he declared, “are to a great extent the result of the moral pressure which exists while the action is pending, and if it should be terminated it would be necessary in order to continue or improve them that the American be placed in a position where it would be unable to accomplish a return to the old condition of universal domination.”
In addition to the terms proposed by Beck, Knapp argued that the government should at the very least insist that the American divest itself of either the Spreckels or the Franklin properties in Philadelphia. “The company which owns both the American refineries in New York and the Spreckels and Franklin in Philadelphia is certain to be the dominating factor in the United States in the fixing of the price of sugar,” he said. Since sufficient competition already seemed to exist in New York—and was likely to become even greater after the American disposed of its holdings in the National Sugar Refining Company—Knapp preferred that one of the Philadelphia refineries be sold off. Since the Spreckels plant was the more efficient, while the Franklin trade-mark was more valuable, it did not seem to matter which of the two properties was relinquished.
Knapp recognized that the Boston area could not support more than one refinery, but, that being the case, he felt that at least this one should not be controlled by the American. He also believed that an independent company should take over and operate one of the two refineries owned by the American in the New Orleans area. These last two suggestions, Knapp indicated, were less important than the divestiture of one of the Philadelphia refineries and might even be dropped in the interests of a speedy settlement. He recognized that, in light of the earlier E. C. Knight ruling, a court might be reluctant to go along with his recommendations.77
In effect, Knapp advocated that the government seek a radical restructuring of the industry, creating the maximum degree of competition compatible with technical economies of scale. And his superior, Attorney General James C. McReynolds, who had resigned as a special prosecutor during the previous administration in protest against what he felt was the ineffectual dissolution of the American Tobacco Company, was inclined to support him.
Knapp’s proposed terms of settlement, however, were hardly designed to appeal to officials of the American Sugar Refining Company; and rather than accept them, these men proposed to fight the case to the end. On March 20, 1914, two months after the breakdown in negotiations and three years after the institution of the suit, attorneys for the American Sugar Refining Company finally began presenting testimony, a process which, together with the evidence presented by the other defendants, was to last another year.78
During this period, the various defendants continued their efforts to cast themselves in a more favorable light. Leaders of the Mormon church, for example, began to buy out the American Sugar Refining Company’s interest in both the Utah-Idaho and Amalgamated Sugar companies.79 Officials of the National Sugar Refining Company announced their intention to purchase the American’s remaining shares in their own company—although they subsequently found that they lacked the funds to do so.80 Even the American Sugar Refining Company made a conciliatory gesture, with Reck arranging for a company to be formed in Louisiana to take over one of the refineries in that state. But McReynolds informed the American’s counsel that the case had already progressed so far that he believed it was best to let the matter go to trial and be decided by the courts.81
On April 3, 1915, the pretrial testimony in the case of United States v. American Sugar Refining Company et al. was finally brought to an end, and oral arguments were scheduled for the first Monday in October. When fall came, however, it was decided to postpone these arguments until after the Supreme Court announced its decision in the case against the International Harvester Company.82
International Harvester was one of several large consolidations promoted by the firm of J. P. Morgan & Company. Organized in 1902 with a total capitalization of $120 million, International Harvester brought together under one management five previously independent companies that accounted for more than 80 per cent of the farm implements produced in the United States. The heart of the combination was the union of the rival McCormick and Deering interests. The former represented the descendants of the reaper’s inventor, the latter a family which had entered the business relatively recently but which had succeeded in establishing itself as a close rival to the McCormicks. The bitter competition between the companies owned by the two families had greatly depressed the price of farm implements; and it was this competition which the formation of International Harvester was designed to eliminate. Soon after its organization the consolidated enterprise had purchased a sixth firm, thereby bringing its total market share to more than 85 per cent. It had then pursued a policy of tying up local dealers through exclusive distributorship arrangements, acquiring control of important patents, and buying out potential competitors, all with the purpose of maintaining its market dominance.83
In April, 1912, just as he was preparing to do battle with Roosevelt for the Republican presidential nomination, Taft ordered the Justice Department to bring suit against the International Harvester Company for violation of the Sherman Act.84 Two years later, after testimony and evidence in the case (running to nearly 10,000 printed pages) had been compiled, a federal district court in Minnesota handed down its decision. A majority of the court said it could find no evidence of “unfair” competition, that is, of direct suppression of competition. Nonetheless, on the basis of the large share of the market controlled by the company, as well as the various methods used to maintain its dominance, the court held that the International Harvester Company had been a combination in restraint of trade ever since its formation in 1902. It therefore ordered that the company’s business and assets “be divided in such manner and into such number of parts of separate and distinct ownership as may be necessary to restore competitive conditions and bring about a new situation in harmony with the law.”85
This decision was appealed to the Supreme Court, the defendant taking hope from the lone dissent to the lower court’s ruling. “The evidence in this case seems to me,” Judge Sanborn wrote in his minority opinion,
to present a new case under the Anti-Trust Law. No case has been found in the books, and none has come under my observation, in which the absence of all the evils against which that law was directed at the time the suit was brought, and for seven years before, was so conclusively proved as in this suit, the absence of unfair or oppressive treatment of competitors, of unjust or oppressive methods of competition, the absence of the drawing of an undue share of the business away from competitors and to the defendants, the absence of the raising of prices of the articles affected to their consumers, the absence of the limiting of the product, the absence of the deterioration of the quality, the absence of the decrease of the wages of the laborers and of the price of the materials, the absence, in short, of all the elements of undue injury to the public and undue restraint of trade, together with the presence of free competition which increased the share of the competitors in the interstate trade and decreased the share of the defendants.86
The case did, in fact, break new ground, which was why the parties to the suit against the American Sugar Refining Company wished to wait until the Supreme Court had a chance to review the district court’s decision. For the American undoubtedly would plead that, at least since 1907, it had not engaged in unfair competition and that over that same period its share of the market had fallen.
Before the Supreme Court could rule in the matter, however, the United States found itself at war in Europe, the possibility of which had for some time been drawing attention away from domestic problems such as antitrust. To get on with what it felt was the more important business of prosecuting the war, the Wilson administration agreed to accept a consent decree in its suit against the International Harvester Company. Under the terms of that settlement, the company was to sell off three of its trade lines to independent companies. (Despite the many years since the merging of the rival interests, the various product lines of the previously independent firms had never been fully integrated. Thus International Harvester’s dealers were forced to carry several different models of the same farm implement.) In addition, the company agreed to locate no more than one dealer or distributor in any one town. In case the government’s objective in the suit—“to restore competitive conditions in the United States in the interstate business in harvesting machines and other agricultural implements”—was not achieved within eighteen months after the end of the war, the government was to have the right to seek further relief.87 While the terms of this decree amounted to a substantial retreat from the previous insistence on a drastic breakup of the International Harvester Company, they could be interpreted as a partial victory for the government since the accused was technically forced to admit having violated the Sherman Act.88
Some officials in the Wilson administration hoped to dispose of the suit against the American Sugar Refining Company in a similar manner. But Henry E. Colton, the latest of the special prosecutors retained by the government in the case, advised against a consent decree. The American, he pointed out, still controlled 50 per cent of the sugar trade in the ten populous northeastern states and 30 to 40 per cent of the trade in the country as a whole. “I think it will embarrass the Government in its argument of the Steel and Can Cases,” Colton wrote, “to have already consented to the continued existence of the American Sugar Refining Company, which, under the Government theory of the law, was at the time of its formation clearly an illegal combination, and which, as the result of such illegal combination, still greatly outclasses its competitors and controls such a large percentage of the trade in an important section of the country.” He then added: “It seems to me, under the circumstances, that the Executive Department ought to leave it to the courts, especially as the proof has already been taken, to determine whether the American Sugar Refining Company’s control over the sugar trade has declined to such an extent as to fully restore competitive conditions in the sugar trade.”
Adjudication of the International Harvester case, Colton realized, might well bring a demand from the American Sugar Refining Company that its case also be settled. Moreover, he was aware that a “decision in the Sugar Case at this time, if adverse to the Government, would weaken the force of the Government’s victory in the Harvester Case.” Nonetheless, Colton wrote, “I am inclined to think … that the Government would be more embarrassed by a settlement which leaves intact such a powerful combination as the American Sugar Refining Company would still be after its so-called investment stocks have been disposed of, than it would be by an adverse decision in the New York Court.”89 Thus the matter was allowed to remain in abeyance until after the war, while Colton went off to join the Field Artillery.
The coming of peace in November, 1918, brought with it a quite different mood toward big business. In the view of many, it was the productive power of the American economy, and especially its large-scale enterprises and giant corporations, which had made victory possible in such a short time.90 The American Sugar Refining Company shared in this generally favorable attitude toward big business, for its own contribution to the war effort had been significant.
Upon the United States’ direct involvement in the conflict, and even before, a serious sugar shortage had seemed likely. The problem was not the lack of raw sugar but rather the difficulty in obtaining adequate shipping to transport the raw sugar from Cuba and other semitropical islands to the United States. Moreover, as the various Allied countries began bidding among themselves for the available sugar supplies, the price rose to extraordinary heights. To deal with this and similar problems, Congress had enacted soon after America’s entrance into the war a Food Control bill which established the Food Administration under the direction of Herbert Hoover. In passing this measure, however, Congress failed to give Hoover the power that he had requested either to fix sugar prices or to make purchases of raw sugar abroad.91
Without this authority, the Food Administration’s Sugar Division was able to carry out its assigned duties only through the voluntary co-operation of the sugar producers, most notably, the American Sugar Refining Company. First, the refiners agreed to buy all their raw sugar through a single committee, known as the American Refiners’ Committee, which in turn was to co-ordinate its purchases abroad through the Allied-controlled International Sugar Committee. Representing the United States on the latter were Earl D. Babst, who had become president of the American Sugar Refining Company in 1915, and William A. Jamison of Arbuckle Brothers. Next, the domestic beet producers agreed to sell their product for a maximum price of 7.25 cents a pound, shipping it only to those localities and in those quantities designated by the director of the Food Administration. Meanwhile, profits in the wholesale and retail trade of sugar were strictly limited by administrative edict. This regulation of the domestic sugar industry was similar in nature but far greater in effectiveness than the control which Henry Havemeyer had at one time established; and when some persons questioned whether these arrangements might not constitute a violation of the Sherman Act, an opinion was obtained from the attorney general attesting to their legality.92
In the second year of the war, this system of voluntary agreements was replaced by a Sugar Stabilization Board operating under the legal authority granted it by Congress.93 Still, there could be no doubting the importance of the co-operation given by the domestic sugar producers both before and after the board was established. This fact was pointed out by, of all persons, George H. Earle, Jr., who urged that the government dismiss its antitrust suit against the American Sugar Refining Company. In a letter to the attorney general, Earle wrote that as an appointee to the American Refiners’ Committee he had “had an opportunity of observing Mr. Babst’s earnest and complete devotion to the National interests, whilst acting as a member of the International Committee.” He then added:
… As I have no connection but one of rivalry with the American Sugar Refining Company, and in the past conducted to a successful issue a serious litigation against it, I felt that it was appropriate, and could not be misunderstood, for me to ask your careful and public-spirited consideration of the question, whether it would not be a gracious thing, and subserve public interest to have the litigations on behalf of the Government, which have been so long held over that company, withdrawn, in view of the fact that they all originated years ago, and against a management that has long since ceased to exist, and of which Mr. Babst was no part.
. . . . . . . . . . .
Among the strange results that the War has forced upon us, is the fact that under Government request, if not compulsion, the sugar refiners are very largely doing as a public service, things very nearly approaching those which gave rise at least in great part, to such actions as that against Mr. Babst[’s company].94
Although the suit against the American Sugar Refining Company was left standing, the ultimate disposition of the matter was soon foreshadowed by the Supreme Court’s decision in the United States Steel case, delivered in March of 1920. The United States Steel Corporation was perhaps the greatest of the consolidations promoted by J. P. Morgan & Company. Organized in 1901 as the world’s first billion-dollar corporation, it had brought under one management 180 previously independent firms, many of which were the result of previous mergers. Together, the combined enterprise controlled from 80 to 90 per cent of the steel produced in the United States.95
The antitrust action initiated against the company by the Taft administration in 1911 had not come before the courts until four years later, at which time a four-member district court panel in New Jersey ruled against the government. The judges had been divided as to the original purpose of the consolidation. Two of the court’s members held that the formation of the United States Steel Corporation was intended to realize certain economies of vertical integration, that it “was an evolutionary, a natural consummation of the tendencies of the industry.”96 The other two members of the panel took the opposite view, arguing that the consolidation was intended to achieve market control “and thereby monopolize and restrain trade.” But whatever its original aims, the latter agreed with their colleagues that the United States Steel Corporation no longer stood in violation of the Sherman Act.97 They based this conclusion on the fact that the company had “resorted to none of the brutalities or tyrannies that the cases illustrate of other combinations.” Then, in a view of the law reminiscent of the dissenting opinion in the International Harvester case, they added:
It did not secure freight rebates; it did not increase its profits by reducing the wages of its employees; it did not increase its profits by lowering the quality of its products, nor create an artificial scarcity of them; it did not oppress or coerce its competitors—its competition, though vigorous, was fair; it did not undersell its competitors in some localities by reducing its prices there below those maintained elsewhere, or require its customers to enter contracts limiting their purchases or restricting them in resale prices; it did not obtain customers by secret rebates or departures from its published prices; there was no evidence that it attempted to crush its competitors or drive them out of the market; nor did it take customers from its competitors by unfair means.…98
The exemplary behavior cited by the two judges was a result of deliberate policies initiated by the head of the United States Steel Corporation, Elbert H. Gary. A lawyer rather than a practical steel man, Gary had been selected as chairman of the board of directors by Morgan himself to serve as the company’s spokesman to the outside world as well as the arbiter of its internal conflicts. Recognizing that a corporation of that size and degree of market control was vulnerable to attack under the Sherman Act, Gary had seen to it that the United States Steel Corporation followed policies least likely to offend public opinion. Acquisition of additional steel companies had been avoided; the purchase of the Tennessee Coal and Iron Company was one of the few exceptions, and in that instance the acquisition had been carefully cleared beforehand with the Roosevelt administration.
Meanwhile, the questionable methods employed by other large industrial consolidations to forestall the entry of new competitors had been eschewed—control of the Mesabi iron-ore lands already provided an effective substitute barrier.99 As a result of these limitations imposed by Gary, the share of the market controlled by United States Steel had gradually declined over the years. Yet the company’s chief executive officer had not been concerned about this reduction in market share, for he had found that he was effectively able to coordinate prices throughout the industry by means of the famous “Gary dinners”—discontinued just before the government’s suit was initiated—and the “Pittsburgh-plus” basing-point system. Rather than a cause for criticism, these practices so characteristic of oligopolistic industries became the reason for praise by the two lower-court judges. “… Instead of relying on its own power to fix and maintain prices,” their concurring opinion declared, “the corporation, at its very beginning, sought and obtained the acceptance of others.”100
Following its defeat in the lower court, the government had appealed to the Supreme Court, but because of the war the case was not argued for the second and final time until October of 1919. Five months later, in March, 1920, the Supreme Court handed down its decision. Justice Joseph McKenna, speaking for the four-to-three majority, concurred in the lower court’s finding that the United States Steel Corporation, whatever may have been true at the time of its formation, was no longer a monopoly in restraint of trade. The only cause for complaint shown by the government, he said, was the preponderant market position of the defendant. Then, in a passage that was soon seized upon by others, he added:
The Corporation is undoubtedly of impressive size and it takes an effort of resolution not to be affected by it or to exaggerate its influence. But we must adhere to the law and the law does not make mere size an offense or the existence of unexerted power an offense. It, we repeat, requires overt acts.… It does not compel competition nor require all that is possible.101
In affirming the lower court’s judgment, the Supreme Court not only gave a new twist to White’s earlier rule of reason but also, in effect, put the stamp of judicial approval on oligopoly as a form of industrial organization.
Within a year after this decision, the Wilson administration was swept out of office by the Republicans. Having campaigned for a “return to normalcy,” Warren G. Harding had no desire to strike out boldly in the field of antitrust; rather, he was content simply to follow the implicit dictates of the Supreme Court in the United States Steel opinion. Antitrust actions involving the American Can and Quaker Oats companies already had been abandoned,102 leaving among the few cases still pending the suit against the American Sugar Refining Company. On May 9, 1922, this case, too, was finally brought to an end through a consent decree, twelve years after it had been formally initiated.
The American Sugar Refining Company, like the International Harvester Company before it, was forced to admit that it had at one time violated the Sherman Act—though the government on its part conceded that the violation no longer existed. Aside from this “confession,” however, the decree merely sanctioned the status quo. The American was allowed to retain the interest it still held in other companies—25 per cent of the stock in the National Sugar Refining Company, 31 per cent of the stock in the Great Western Sugar Company, and 34 per cent of the stock in the Michigan Sugar Company—on the condition that it would neither vote nor increase the shares it held in those companies. These holdings were all that remained of the considerable interest the American had once had in the various other sugar companies. Finally, the American and the other defendants in the case were enjoined from “combining and conspiring among themselves to restrain interstate and foreign trade.”103
While the American Sugar Refining Company thus emerged somewhat scarred but still intact from its protracted legal battle with the government, there were other developments no less critical to its survival and growth. Over the years between 1907 and 1922, the company had undergone a series of changes in its organizational structure which, taken together, were of considerable significance for the future. Like many of the other consolidations, the American had become, in Alfred Chandler’s words, an integrated, multi-departmental enterprise.104
In September, 1917, an Operating Department had been created as successor to the Manufacturing Committee originally set up during the trust era.105 Within this department there were seven separate divisions—engineering, refining, packing, delivery, etc.—and the heads of these divisions, together with the vice president in charge of operations, constituted an operating board which oversaw the technical performance of the American’s five refineries, offering staff assistance to the individual plant superintendents. This board, consisting of men with a specialized knowledge of some particular aspect of refinery operations, stood in sharp contrast to the original manufacturing committee, the members of which had had only a generalized, though perhaps more intimate, knowledge of the refining end of the business. The Traffic Department, previously comprised solely of Thomas Riley and several clerks, had also become institutionalized and bureaucratized. It now contained four divisions—a rates division, a routing division, a claims division, and a superintendent-of-transportation office—which reported through a traffic manager to the vice president in charge of operations and provided staff assistance to the four district freight agents in New York, New Orleans, Boston, and Chicago.106
There had also been changes in organizational structure on the mercantile side of the business. While the buying of raw sugar and other essential inputs was still carried out in much the same manner as when the trust was first formed (the reorganization of this activity still lying in the future), the sale of refined products was now handled somewhat differently from Havemeyer’s day. Instead of simply waiting passively for orders from the wholesale grocers, the American Sugar Refining Company had moved, beginning in 1917, to establish its own sales force to actively solicit business. The purpose was to give the company greater control over how its products were promoted. In particular, it was hoped that with a sales force to push its own brand—Domino sugar—and a substantial advertising campaign to make that brand well known to the public, American might be better protected against the inroads of competitors. This had been the strategy followed by the National Biscuit Company when Babst, the American’s president, had been associated with it, and it was the strategy which the American hoped to emulate successfully. Toward this end a $1 million reserve fund for advertising was set up which, together with the $1 million a year normally spent for that purpose, was intended “to make certain a continuous advertising policy, through good and poor years.”107
These changes in sales policy were subsequently reflected elsewhere in the company’s organizational structure. Within the General Sales Department, headed by a vice president in charge of sales, a Domino division was established to handle the sales of trade-mark products, and a separate advertising division was created to develop consumer loyalty to those products. Although the American subsequently realized that it could not replace the wholesale grocers, because of the heavy cost involved in setting up an alternative distribution system,108 the separate Domino and advertising divisions were nonetheless retained to supplement the wholesale grocers. Meanwhile, because of the increasing importance of sales to other food processors, a manufacturers’ division was formed within the General Sales Department and a service bureau was attached to it to help meet the special needs of industrial customers. An export division, which grew to substantial size during the war years and immediately thereafter, completed the General Sales Department.109
On the financial end, organization had also become more structured. Under a vice president in charge of finance there were a treasurer and a comptroller, the latter directing the activities of several divisions, including accounting, auditing, billing and ledger, and statistics. The Legal Department, however, reported directly to the president of the company, a reflection of the critical importance attached to that department’s activities. Babst himself was a lawyer by profession, as was his counterpart in the United States Steel Corporation. The secretary of the American, who was responsible for managing all of the company’s vast real estate holdings, also reported directly to Babst. While there were thus several anomalies in the company’s organization chart, a rational, bureaucratic structure had nonetheless been created.
Turning from the American’s internal organization to the structure of the sugar refining industry as a whole, it can be generally stated that the latter had changed only superficially during the years between 1907 and 1922. Two new refineries had been built, the Godchaux in New Orleans in 1920 and the Savannah in 1922, thus bringing the total number of separate and independent cane-refining enterprises to fifteen; but while the American Sugar Refining Company’s share of the cane market had declined from 53 per cent in 1907 to 36 per cent in 1918 and 32 per cent in 1922,110 the slippage had had little to do with the entry of the new firms. It reflected two other factors: one, the relatively more rapid growth of the West Coast market in which the American did not compete and, two, the inherent disadvantage of being the industry price leader with the government’s antitrust lawyers peeking over one’s shoulder. Like the dominant firms in other industries, the American Sugar Refining Company found that its rivals continually took advantage of the efforts to maintain uniform prices by granting secret price concessions and thereby enticing away customers. The stake of these smaller firms in price stability was not nearly as great as the American’s. The secret price concessions, in turn, reflected the fact that the American Sugar Refining Company was no longer able to exercise the same degree of control over its rivals that it had during Havemeyer’s last years.
World War I tended to obscure the true situation in the industry, for with the government itself providing over-all regulation, there had been no need for any private party to fill that role. When after two years the government’s price-control machinery was abruptly dismantled, the American found itself handicapped in trying to reestablish its former hegemony. It was not only that in the interval its own grip on the industry had necessarily been loosened, or even that it was still limited in its freedom of action by the pending antitrust suit. The precipitate termination of wartime control led to wildly fluctuating prices as first the suddenly released, pent-up demand drove prices skyward and then, when this demand was partially satisfied, the war-stimulated overproduction of sugar drove prices downward again, past the original starting point. When prices finally stabilized in 1922, the American Sugar Refining Company found itself forced to absorb substantial inventory losses, to the point where it had to pass the dividend on its common stock for the first time in its history. Moreover, it found itself embroiled in numerous law suits with wholesale grocers and other customers over whether they could be held to the contracts they had entered into before the price of sugar fell so sharply.111 It was the American’s weakened financial condition, the result of these events, which prevented it from dealing more effectively with the secret price concessions, concessions that were to become even more widespread in the years ahead.112
But while the American could no longer be said to exercise the same degree of control over sugar prices it once had, its influence on the industry was still considerable. Approximately three times the size of its largest competitor, it remained the undisputed price leader. And when it thought other firms were secretly shading the price, it did not hesitate to match them, concession for concession, until it was convinced that its own announced price list was once again being adhered to. In announcing the final settlement of the antitrust suit against the company, Justice Department officials declared, “It is believed that the consumer of sugar can now rest assured that competitive conditions in the industry have been entirely restored and that the price he pays for his sugar in the future will be the result of natural unrestrained competition.”113 This claim was, of course, greatly exaggerated. The one-time competitive character of the sugar refining industry had not been restored; the government had merely acquiesced to the continued existence of oligopoly.
It had been the hope of some, especially those Progressives associated with the Wilson administration, that the results would be otherwise, that a resolute application of the antitrust laws would bring about a return to the competitive conditions prevailing before the Corporate Revolution. But in the sugar refining industry the most that the efforts in this direction had accomplished was to create a better-balanced oligopolistic situation. The American Sugar Refining Company had, it was true, been forced to surrender its voice in the affairs of other sugar companies. The resulting increase in autonomy was particularly significant in the case of the National Sugar Refining Company, which was soon to grow into the American’s most formidable rival. It was also true that the years of facing prosecution at the hands of the government had made the American Sugar Refining Company somewhat circumspect in its behavior—although, insofar as this constrained the company’s one-time dynamic role as innovator, it also had its negative aspect. Still, in the final analysis, making it possible for other firms in the industry to exercise their independence was not the same thing as restoring the old competitive order.
Despite the fact that the American Sugar Refining Company emerged from fifteen years of litigation with its control over the industry greatly impaired, the objective of the original consolidation—the elimination of price competition or at least its confinement within certain narrow limits—had not been lost. The American still dominated the industry, especially in the eastern half of the United States. And, even in the case of those companies in which the American had been compelled to relinquish all influence, the many years of close cooperation had established patterns of interdependent behavior which were not readily extinguished—as the prosecution of the Sugar Institute, a trade association formed in 1928 to co-ordinate pricing activities throughout the industry, would subsequently bring out.114
The oligopolistic pattern that emerged in sugar refining as well as in other industries was a condition to which the American people, as reflected by their political institutions, seemed to give tacit approval. For neither the executive nor the legislative branch of the federal government made any effort to overrule the principles of law in regard to industrial consolidations which the courts had laid down. Those principles were that while the combining of all the firms in an industry under a single large corporation would no longer be tolerated, the regrouping of the industry under several large corporations was beyond the reach of the law—as long as no overt effort was made to exclude the entry of new firms. These principles were to apply not only to those industries which already had been consolidated but also to those which, as a result of evolving technology, would be ready for consolidation at some future date.
Thus it was that through the interaction of powerful economic and political forces—the insistence, on the one hand, of those manufacturers for whom fixed costs were a significant portion of their total costs that they be allowed to organize in such a way as to have some degree of control over prices; and the refusal, on the other hand, of the great majority of Americans to countenance what they felt was excessive market power—there came into being a unique social institution, the large corporation, or megacorp, as part of an oligopolistic industry. To create such an institution was not what either the “trust” organizers or the “trust-busters” had intended, but it was, in fact, what emerged as a result of the Corporate Revolution, not only in sugar refining but in many other industries as well.
It was testified that from 1901 to 1908 the average profit per 100 pounds at the Havemeyer & Elder refinery was 8.8. cents, compared with 22.8 cents at the Matthiessen & Wiechers refinery in Jersey City, 24.4 cents at the Standard refinery in Boston, 17.0 cents at the Louisiana refinery in New Orleans, and 18.0 cents at the Spreckels refinery in Philadelphia. The sentimental reason for Havemeyer’s wanting to keep the Havemeyer & Elder refinery going was that this was the plant most closely identified with his family and name, the one he had brought into the trust and the one with whose work force he was most intimately connected. The pecuniary reason was that Palmer’s Dock, which the Havemeyer family owned, received the two-cents-a-hundredweight allowance for “transfer” only on the sugar produced by the plant. It was to protect this traffic that Havemeyer had earlier refused to give the Pennsylvania Railroad a share of the sugar business out of New York. See pp. 201–2 above.
Havemeyer himself, of course, had died in the meantime, leaving as the only other official of the American in any way connected with the customs frauds Charles R. Heike, the company’s secretary. His link to the frauds was the fact that he had initialed the entries which comprised the two sets of records found by federal officials. On January 14, 1910, Heike, too, was indicted; he was the last person connected with the American to be indicted (ibid., p. 17; U.S. House Committee on Expenditures in the Treasury Department, pp. 36–37).
Heike vehemently proclaimed his innocence, contending that the difference in weights shown in the two sets of records merely reflected the more “liberal” tally made by the city weighers on behalf of their foreign clients and that, in any case, he had been entirely ignorant of any frauds perpetrated on the government. In fact, he said, it was he who enabled federal officials to make sense of the two sets of figures (ibid., pp. 37–38). But Stimson as well as other government officials connected with the case (all except Youngs) were convinced that Heike’s involvement in the frauds was more direct than he was prepared to concede, and the jury which decided the case on June 10, 1910, agreed. That same jury also convicted Gerbracht, sentencing both men to pay a $5,000 fine and to serve eight months and two years in jail respectively (Memorandum prepared June 14, 1911, for Congressman Coxe, JD File No. 121616).
Heike, meanwhile, had appealed his indictment on the grounds that he was entitled to immunity for turning certain of the American Sugar Refining Company’s records over to the U.S. attorney during the latter’s investigation into violations of the Sherman Act. The Supreme Court did not finally rule on the issue until 1913, at which time it rejected Heike’s claim to immunity (Heike v. United States). By this time Heike was in failing health, and for that reason President Taft, despite considerable criticism, commuted his prison sentence to the time already served. Gerbracht, meanwhile, had been pardoned after serving thirty days of his sentence, on the condition that he assist in recovering certain back duties from the American. With his help the government succeeded in collecting a further $700,000 for excessive drawback payments (Wise to Wickersham, May 3, 1912, JD File No. 121616). The other company employees convicted were also pardoned after serving only a small portion of their sentences, the five company weighers, on Stimson’s recommendation, as soon as the conviction of Heike and Gerbracht had been obtained in June, 1910 (Stimson to Wickersham, June 13, 1910, ibid.).
American S. R. Co.
National S. R. Co.
McCahan S. R. Co.
Winfred T. Dennison, Assistant Attorney General, to Representative Joseph W. Fordney, February 21, 1913, JD File No. 121616.
1 Harold J. Howland, “The Case of the Seventeen Holes,” pp. 25–29.
2 A third load was also intercepted, but apparently not before the company weigher’s suspicions were aroused, for the third load when re-weighed showed no undercharge.
3 Raw sugar imported from Cuba and other nearby lands was generally purchased on the basis of “invoice weight,” i.e., the weight at the time the sugar was loaded aboard ship for the journey to the United States. However, the sugar imported from Java tended to deteriorate during the long ocean voyage to this country, and for this reason it was customarily purchased on the basis of “landed weight.” It was this second type of commercial arrangement which afforded an opportunity for fraud not present in the case of “invoice weight” sugar, since the invoices themselves were checked by American consuls at the ports of embarkation. Incidentally, the decision to develop a domestic beet sugar industry had the effect of reducing the quantities of raw cane imported from Java and hence the extent of fraud, since it was this source of supply which the domestic beet sugar displaced.
4 Howland, “The Case of the Seventeen Holes,” pp. 29–38.
5 Since the frauds were discovered in Brooklyn, the cases were initially handled by U.S. Attorney for the Eastern District of New York William Youngs. It was he who actually discovered the two sets of books when he took up the American Sugar Refining Company’s offer to examine its records. But Youngs made the tactical error of choosing to try first a subsidiary case involving charges of attempted bribery of a federal officer by the superintendent of the Havemeyer & Elder dock, Oliver Spitzer, arising out of the initial investigation of the customs frauds. When Youngs lost this case, largely because the federal agent who had allegedly been bribed reversed the testimony he had given before a grand jury, the government was put on the defensive. Moreover, Youngs seemed not to understand the strategy required to win a case of such magnitude; this was apparent particularly in his feeling that the evidence was insufficient to convict anyone higher in the company hierarchy than Spitzer. For this reason Justice Department officials contrived to have Stimson switched to the case in the summer of 1908 by pointing out that the main offices of the American Sugar Refining Company lay in the Southern District. This face-saving gesture was necessary because Youngs was a close friend of Stimson and the latter had no wish to injure his feelings. See Department of Justice (JD) File No. 121616, especially the correspondence prior to August 15, 1908.
6 Report, Stimson to President William H. Taft, April 20, 1910, pp. 8–9, Stimson Papers; Stimson to Attorney General Charles J. Bonaparte, March 18, 1908, JD File No. 121616.
7 Henry O. Havemeyer, Jr., Biographical Record of the Havemeyer Family, 1606–1943, pp. 69–70.
8 These were the two sets of records found by federal officials. In regard to the second point, the five company checkers handling dutiable importations of sugar were paid $20.00 a week, while all other company checkers were paid only $13.50 a week. The pay envelopes of all the men, however, were marked the same amount, and the only evidence of the additional payment was to be found in the company’s books (Youngs to Bonaparte, March 21, 1908, JD File No. 121616). As for the removal of troublesome customs officials, Secretary of the Treasury Wayne McVeigh (the same individual who had advised that the commission agreement between the American Sugar Refining Company and the American Beet Sugar Company violated the Sherman Act) and Attorney General George W. Wickersham later reported to President Taft: “The evidence at the trial [of those involved in the customs frauds] indicated that the company’s superintendents exercised a large amount of influence in the New York Customs House, and they often procured the removal of obnoxious weighers and Government laborers from their docks. Whether this influence was purely political or was exercised by means of payments to higher Government officers had not been ascertained.” It was brought out that small, regular payments were made to customs-house officials by the American Sugar Refining Company, but they were so small in amount as to seem to be no more than mere gratuities. As for Havemeyer’s personal involvement, the report by McVeigh and Wickersham to Taft declared, “The evidence adduced indicates that this company, down to minute details, was virtually run by one man, and that its executive management during the period of the frauds was in the hands of the president, Henry O. Havemeyer.” The report is dated May 5, 1910, and can be found in JD File No. 121616. It closely follows the earlier report of Stimson to Taft, April 20, 1910, Stimson Papers.
9 Report, Stimson to Taft, April 20, 1910, pp. 19–20, Stimson Papers; U.S., Congress, House of Representatives, Committee on Expenditures in the Treasury Department, Hearings on Sugar Frauds, p. 21; see also Chapter 3 above.
10 U.S. House Committee on Expenditures in the Treasury Department, Hearings on Sugar Frauds, p. 30; Report, Stimson to Taft, April 20, 1910, pp. 10–14, Stimson Papers. At a later congressional hearing it was suggested that Havemeyer had continued to countenance the underweighing of the Java sugars because the Havemeyer & Elder refinery had become a high-cost plant, and that for sentimental as well as pecuniary reasons he wished to make it appear that the refinery was able to operate more economically than it actually did so it would not be forced to shut down in favor of one of the other plants owned by the American (U.S. House Committee on Expenditures in the Treasury Department, Hearings on Sugar Frauds, pp. 24–27).
11 Stimson to Bonaparte, March 18, 1909, JD File No. 121616. This letter was written five months before Stimson took over the management of the case, at which time Bonaparte, concerned over the way Youngs was handling the prosecution, asked Stimson for an advisory opinion on the strategy to be followed.
12 Report, Stimson to Taft, April 20, 1910, p. 8, Stimson Papers. A criminal suit would have permitted a maximum penalty of $5,000 for each offense.
13 Stimson to Wickersham, March 5, 1909, JD File No. 121616. Stimson’s hopes in this respect were somewhat premature. Asking for the services of a secret agent only two months later, Stimson wrote to Wickersham: “From the reports which I am getting from the men now at work, I find that the bulwark existing around the corrupt agents of the Company and the corrupt representatives of the Government has not yet been penetrated. The Assistant Weighers (themselves officials of the Government) are still more afraid of the Sugar Company’s influence than they are of our prosecution, and will not talk freely with my agents. From these, as well as other circumstances, I am convinced that men, very high in the Customs Service, are still exerting their influence to prevent me from getting at the real facts” (Stimson to Wickersham, July 6, 1909, ibid.). Although minor customs-house officials were ultimately convicted and the service itself was drastically overhauled, proof of collusion between high customs-house officials and high sugar-company executives was never uncovered; see the report of McVeigh and Wickersham to Taft, May 5, 1910, ibid.
14 Wickersham to Stimson, April 26, 1909, ibid. Although officials of the American had begun to sue for peace immediately after losing the penalty suit in March, a final settlement in the civil cases was not reached until two months later on May 19, 1909.
15 Stimson’s plan in regard to the criminal prosecutions was first to indict the less important subordinates involved in the sugar frauds, in the hope that with the threat of jail hanging over their heads they could be persuaded to give evidence against those higher up in the company. Accordingly, the first indictments obtained were against Spitzer, the superintendent of the Havemeyer & Elder dock, and five of the company checkers. Stimson’s hopes that these underlings would provide evidence against their superiors proved wrong, however, and on December 10, 1909, a week before all six were found guilty by a federal jury, a criminal indictment was obtained against Ernest Gerbracht, the superintendent of the entire Havemeyer & Elder refinery. See the report of Stimson to Taft, April 20, 1910, pp. 16–18, Stimson Papers.
16 Elting E. Morison, Turmoil and Tradition, p. 103.
17 The full amounts recovered by the government from the various sugar refining companies were as follows:
18 Report, Stimson to Taft, April 20, 1910, p. 21, Stimson Papers.
19 Stimson to Theodore Roosevelt, March 8, 1909, ibid. The article was Howland’s “The Case of the Seventeen Holes.” Later, when the terms of the civil settlement were criticized by several New York newspapers, Stimson wrote: “… I should be mighty well pleased to see some of these light-tongued gentlemen of the press try to do any better in a similar situation. At the time when we needed help—namely, in February of last winter, when we were trying the critical case against the Sugar Trust, the gentlemen of the press, instead of giving us their aid, were doing their best to suppress the real facts; and their over-zeal now, after the battle has been won, has always struck me as being a little bit ludicrous.”
20 New York Times, June 15 and 19, 1909; New York World, June 9, 1909. Of the $2 million settlement, $1.25 million represented the cancellation of the loan made by the American through Kissel.
21 Northern Securities Co. v. United States.
22 See pp. 186–87 above.
23 George E. Mowry, The Era of Theodore Roosevelt, pp. 130–31; John M. Blum, The Republican Roosevelt, pp. 119–20. In his autobiography, Roosevelt pointed out that the Supreme Court’s decision in the E. C. Knight case had implied that the federal government lacked the power to deal with industrial combinations which took the form of holding companies chartered by one of the states. “This decision,” he said, “I caused to be annulled…” (An Autobiography, p. 426). Roosevelt seems to have been reinforced in his determination to proceed against the Northern Securities Company when, after the suit was announced, Morgan suggested that Roosevelt send his “man” to see Morgan’s “man” to see if a compromise acceptable to both parties could be worked out (Blum, The Republican Roosevelt, p. 121). Earlier, Roosevelt had been irked when Morgan talked to him as though he were a rival businessman “who either intended to ruin his interests or else could be induced to come to an agreement to ruin none…” (Joseph B. Bishop, Theodore Roosevelt and His Times, Shown in His Own Letters, quoted in Mowry, The Era of Theodore Roosevelt, p. 133). The Northern Securities case itself has a rich and dramatic background; see William Letwin, Law and Economic Policy in America, pp. 182–237; Hans B. Thorelli, The Federal Anti-Trust Policy, pp. 421–25, 470–75; John A. Garraty, Right-Hand Man, pp. 90–91; Donald Dewey, Monopoly in Economics and Law, pp. 214–15.
24 Letwin, Law and Economic Policy, pp. 244–47; Blum, The Republican Roosevelt, pp. 116–19.
25 Mowry, The Era of Theodore Roosevelt, pp. 131–32, 134.
26 United States v. Addyston Pipe & Steel Co., 1 F.A.D. 631 (1898); see also p. 187 above.
27 Although the emphasis earlier was on the Addyston Pipe & Steel case’s prohibition of cartel-type combinations, what is now being stressed is its legal jurisdictional implications. It and the later Northern Securities case both widened the scope of federal authority under the Sherman Act, the Addyston Pipe & Steel case eliminating the need for the government to prove “unreasonable” restraint—that is, “unfair competition”—and the Northern Securities case bringing holding companies under the purview of the law.
28 Letwin, Law and Economic Policy, p. 252; Henry F. Pringle, The Life and Times of William Howard Taft, 2: 654–59. To force the courts to choose between “reasonable” and “unreasonable” competition, Taft later declared, “is to force upon the courts a burden they have no precedents to enable them to carry, and to give them a power approaching the arbitrary, the abuse of which might involve our whole judicial system in disaster” (Special Message to Congress, January 7, 1910, reprinted in William H. Taft, Presidential Addresses and State Papers, pp. 524–32). Taft twice seemed to shift in this view, first when he was serving in the Roosevelt administration, and later as president when he refused to criticize the Supreme Court’s decision in the Standard Oil case, in which the rule of reason was first enunciated (see note 47 below). But both instances were essentially examples of Taft’s loyalty to institutions—to Roosevelt as chief executive and to the Supreme Court as the highest judical body—which overrode his own views with regard to the Sherman Act.
29 George H. Earle, Jr., to Roosevelt, September 21, 1906, Department of Justice (JD) File No. 60–104–0, pt. 1; Hardwick committee investigation, 1911, pp. 1227–28. The correspondence can also be found in S. Doc. 687, 60th Cong. 2d sess., 1908.
30 Earle to Bonaparte, March 13, 1907, JD File No. 60–104–0, pt. 1.
31 Bonaparte to Earle, March 19, 1907, and Earle to Bonaparte, March 20, 1907, JD File No. 60–104–0, pt. 1. The refusal of the Roosevelt administration to prosecute the American Sugar Refining Company for its role in the Segel transaction was later to become a political issue, this being one of the matters covered by the Hardwick committee investigation in 1911 (see p. 308 below). Earle himself cited this alleged failure of the Roosevelt administration in urging support for Taft over Roosevelt for the 1912 Republican presidential nomination. In retrospect, however, it appears that the Roosevelt administration probably was correct to proceed first against combinations in other industries, where the precedent of the E. C. Knight case would be a less immediate factor. This appears especially true in light of the limited resources then available for antitrust prosecution. Even Wickersham subsequently agreed with Roosevelt, after the latter had borrowed the Justice Department’s files to review the correspondence in the case, that Bonaparte had been correct in refusing to bring suit against the American Sugar Refining Company at the time. For the correspondence between Roosevelt and Wickersham, as well as that between Earle and Wickersham, see JD File No. 60–104–0, pts. 4 and 5.
32 JD File No. 60–104–0, pt. 1; Pennsylvania Sugar Refining Co. v. American Sugar Refining Co., reprinted in S. Doc. 718, 60th Cong. 2d sess., 1908. The quotation can be found on p. 2 of the printed document.
33 Stimson had resigned as U.S. attorney in the fall of 1908; however, in order that he might continue to direct the prosecution of the sugar-fraud cases, he had received an appointment as special assistant U.S. attorney.
34 Wise to Wickersham, June 24, 1909, JD File No. 60–104–0, pt. 2.
36 Wickersham to Wise, June 25, 1909, ibid. Wickersham was referring, of course, to Pennsylvania Sugar Refining Co. v. American Sugar Refining Co.
37 Wickersham to Wise, June 27, 1909, and Wise to Wickersham, October 28, 1909, JD File No. 60–104–0, pt. 2. Judicial reluctance to sustain indictments for conspiracy is a reflection of the historical use of such charges to get around constitutional and similar prohibitions on the right of the state to prosecute.
38 Memorandom, Wise to Wickersham, April 5, 1910, ibid., pt. 3.
39 Wise to Wickersham, December 1, 1909, and January 5 and February 17, 1910, and Memorandum, Wise to Wickersham, April 5, 1910, ibid., pts. 2 and 3.
40 32 U.S. Stat. 903 (1903). The amount authorized was $500,000 and led to the creation of the Antitrust Division of the Justice Department; see Thorelli, Federal Anti-Trust Policy, pp. 534–37.
41 Memorandum, Wise to Wickersham, April 5, 1910, and Wise to Wickersham, April 11, 1910, JD File No. 60–104–0, pt. 3. The American Sugar Refining Company appealed the circuit court judge’s ruling to the Supreme Court, but the appeal was dismissed without a hearing (American Sugar Refining Co. v. United States).
42 United States v. American Sugar Refining Company et al.: Plaintiff’s Petition.
43 Allan Nevins, Study in Power, 2: 356–62; Richard B. Tennant, The American Cigarette Industry, pp. 57–59.
44 United States v. American Tobacco Co., 164 Fed. 700, 704 (1908). Because of the crowded calendars of the federal courts, the provision for the expeditious handling of antitrust cases was as important to the effective enforcement of the Sherman Act as the special appropriation for antitrust passed by Congress that same year (see note 40 above).
45 Tennant, American Cigarette Industry, p. 59.
46 United States v. Standard Oil Co. of New Jersey, 173 Fed. 177 (1909); Nevins, Study in Power, 2: 378.
47 United States v. Standard Oil Co. of New Jersey, 221 U.S. 1 (1911). For two interpretations (largely in agreement) of what White did mean, see Letwin, Law and Economic Policy, pp. 256–64, and Dewey, Monopoly in Economics and Law, pp. 181–82. Their view is that White meant only to point out that the Sherman Act did not apply to all combinations which might incidentally result in restraint of trade. Nevertheless, this was not the interpretation placed on the decision at the time, although Harlan’s dissent may well have been responsible for part of the confusion. It is interesting to note in this connection that President Taft himself described the decision as a “good opinion,” thereby disappointing those who had expected him to attack the rule of reason enunciated by the court’s majority (Pringle, William Howard Taft, pp. 664–67; see also note 28 above).
48 United States v. American Tobacco Company, 221 U.S. 106, 184 (1911).
49 Wise to Wickersham, April 30, 1912, JD File No. 60–104–0, pt. 6.
50 United States v. American Sugar Refining Co. et al., pretrial testimony, 1912; Wise to Attorney General James C. McReynolds, May 7, 1913, JD File No. 60–104–0, pt. 7.
51 Wise to Wickersham, November 14, 1912, JD File No. 60–104–0, pt. 6. There were twenty-eight volumes altogether, but only nineteen of them dealt with the government’s original presentation.
52 Hardwick committee investigation, 1911, pp. 2971–75.
53 United States v. American Sugar Refining Co. et al., pretrial testimony, 1912, pp. 6683–89.
54 Hardwick committee investigation, 1911, pp. 35, 2040–41, 2983–93.
55 Henry Lee Higginson to Charles D. Norton, August 8, 1910, JD File No. 60–104–0, pt. 3.
56 U.S., Congress, House of Representatives, Congressional Record, 62d Cong., 1st sess., 1911, 47: 1142–47.
57 Atkins’ and Thomas’ testimony can be found in the Hardwick committee investigation, 1911, pp. 3–176 and 1911–2061 respectively.
58 The following table shows the par value of the shares held in the three companies by the American Sugar Refining Company and by the Havemeyer family:
59 United States v. American Sugar Refining Co. et al., pretrial testimony, 1912, pp. 6662, 6696–909. Although the Cuban-American company’s authorized capital was $20 million, only $15,119,400 in common and preferred shares was issued (ibid., pp. 6697–98).
60 Ibid., pp. 6760–65. The refinery at Chalmette, completed in 1909, was being built to replace the older refinery in New Orleans, which had become outmoded (Hardwick committee investigation, 1911, p. 394). It, incidentally, was the first refinery built by other than outside interests since the original trust was formed.
61 Norman B. Tooker et al. v. National Sugar Refining Co.: Answer and Crossbill of Louisine W. Havemeyer et al., p. 117.
62 Ibid., pp. 103–4; United States v. American Sugar Refining Co. et al., pretrial testimony, 1912, p. 6662.
63 As a result of subsequent sales since the government’s complaint in the civil antitrust suit had been filed, the proportion of stock held in the Great Western Sugar Company by American had declined to 32.6 per cent. See Hardwick committee investigation, 1911, p. 100, as well as note 58 above.
64 Norman B. Tooker et al. v. National Sugar Refining Co.: Bill of Complaint, pp. 1–19.
65 Norman B. Tooker et al. v. National Sugar Refining Co.: Final Decree.
66 Hardwick committee investigation, 1911, p. 81.
67 New York Times, January 23, 1914; United States v. American Sugar Refining Co. et al.: Final Decree.
68 Wise to Wickersham, February 1, 1913, and Wickersham to Wise, February 5, 1913, JD File No. 60–104–0, pt. 7; New York Times, January 21 and 23, 1914.
69 United States v. Kissel and Harned, 218 U.S. 601 (1910).
70 Wise to Wickersham, November 23, 1912, and Wickersham to Wise, December 4, 1912, JD File No. 60–104–0, pt. 6.
71 James R. Knapp to James C. McReynolds, Attorney General, July 9, 1913, ibid., pt. 7.
72 Pennsylvania Sugar Refining Co. v. American Sugar Refining Co.
73 Stimson Diaries, bk. 1, Stimson Papers.
74 Ray S. Baker, Woodrow Wilson, pp. 353–58; Arthur S. Link, Wilson, pp. 241–43, 417–23.
75 Knapp to McReynolds, July 9 and October 21, 1913, JD File No. 60–104–0, pt. 7.
76 James R. Beck, General Counsel, American Sugar Refining Company, to McReynolds, October 21 and 23, 1913, ibid.
77 Knapp to McReynolds, December 29, 1913, ibid., pt. 8.
78 McReynolds to Beck, January 7, 1914, ibid.; New York Times, March 17 and 21, 1914. In an effort to bring pressure on the government to agree to a settlement on more favorable terms, the American Sugar Refining Company had its stockholders write to various federal officials, including the president, asking that the suit against their company be dropped. See JD File No. 60–104–0, pt. 8, for a copy of the circular sent to the American’s stockholders and some of the letters it brought forth.
79 New York Times, June 15, October 9, and December 11, 1914. By the end of the year the American had disposed of its entire interest in the Amalgamated and $2,325,250, or half, of its remaining interest in the Utah-Idaho company, the latter stock being sold for approximately $2 million.
80 F. Snowden Marshall to McReynolds, July 13, 1914, JD File No. 60–104–0, pt. 8.
81 Beck to Carroll G. Todd, Assistant Attorney General, October 23, 1914, and Todd to Beck, November 2, 1914, ibid.
82 Marshall to McReynolds, April 21, 1915, and Marshall to Todd, November 23, 1915, ibid.
83 Garraty, Right-Hand Man, pp. 126–27; United States v. International Harvester Co., 214 Fed. 988 (1914).
84 Garraty, Right-Hand Man, pp. 257–58.
85 United States v. International Harvester Co., 274 U.S. 696 (1927). The court at first ordered the company split into three equal parts (ibid., 214 Fed. 988 ), but then modified the decree as noted in the 1927 case.
86 Ibid., 214 Fed. 1010–11 (1914). Sanborn, incidentally, gave vent to the thought that must have been on the minds of many judges when they hesitated to order a drastic dismemberment of an industrial consolidation. “… It is not improbable,” he said, “that many parties hold stock of the International Harvester Company which they purchased during these ten years in reliance upon these facts, the value of which a decree against the defendants will greatly depreciate. So it is that in any event this suit does not appeal to the conscience of a chancellor with the force it might have had in 1903 or 1904 before the actual conduct of the business of the defendants had demonstrated its innocuous effect and no parties had been induced to act in reliance upon its freedom from attack.”
87 Ibid., 274 U.S. 697 (1927); Dewey, Monopoly in Economics and Law, p. 201, n. 16.
88 Garraty, Right-Hand Man, p. 388.
89 Memorandum, Special Assistant U.S. Attorney Henry E. Colton to Todd, November 14, 1917, JD File No. 60–104–0, pt. 9.
90 George E. Mowry, “The First World War and American Democracy,” pp. 174–75.
91 Joshua Bernhardt, Government Control of the Sugar Industry in the United States, pp. vii–10.
92 Ibid., pp. 10–20.
93 Ibid., pp. 42–49.
94 Earle to Attorney General Thomas W. Gregory, November 5, 1917, JD File No. 60–104–0, pt. 8. Although the letter predates the Wilson administration’s decision not to accept a consent decree in the suit against American, it nonetheless is indicative of the postwar climate of opinion.
95 Garraty, Right-Hand Man, p. 93; Ida M. Tarbell, The Life of Elbert H. Gary, pp. 72ff.; United States v. United States Steel Corp., 223 Fed. 161 (1915).
96 United States v. United States Steel Corp., 223 Fed. 55 (1915); Dewey, Monopoly in Economics and Law, pp. 232–33. The summary of the lower court opinions is taken from Justice Joseph McKenna’s majority opinion in United States v. United States Steel Corp., 251 U.S. 437 (1920).
97 United States v. United States Steel Corp., 223 Fed. 161 (1915) and 251 U.S. 441 (1920).
99 Tarbell, Elbert H. Gary, passim.
100 United States v. United States Steel Corp., 223 Fed. 161 (1915) and 251 U.S. 441 (1920).
101 Ibid., 251 U.S. 451 (1920).
102 Dewey, Monopoly in Economics and Law, p. 236, n. 19.
103 United States v. American Sugar Refining Co. et al.: Final Decree.
104 Alfred D. Chandler, Jr., Strategy and Structure, chap. 1.
105 American Sugar Family, 1 (February, 1920).
107 American Sugar Refining Company, Annual Report, 1917.
108 In this respect, the American Sugar Refining Company had failed to capitalize on its opportunities. When it finally decided to establish its own independent distribution system, it found itself financially handicapped by the losses which it had suffered from fluctuations in the price of raw sugar in the years immediately following World War I. If it had moved along these lines at an earlier date, when competition was weaker and its treasury richer, it might have been more successful in erecting this type of barrier to entry and in creating this form of product differentiation. Of course, in the years after 1911, the fear of antitrust prosecution was an important inhibiting factor.
109 American Sugar Family, 1 (February, 1920).
110 The information comes from the American Sugar Refining Company’s internal records, privately made available by the company.
111 American Sugar Refining Company, Annual Report, 1922.
112 United States v. Sugar Institute et al.: Transcript of Testimony, pp. 9190–92.
113 Justice Department announcement, May 9, 1922, JD File No. 60–104–0, pt. 9.
114 United States v. Sugar Institute, 15 Fed. Sup. 817 (1900) and 297 U.S. 553 (1927); Arthur R. Burns, The Decline of Competition, pp. 72–73, 322–25.