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Public Policy Toward “The Greatest Trust in the World”

Published online by Cambridge University Press:  11 June 2012

Robert M. Aduddell  and
Louis P. Cain
Robert M. Aduddell
Affiliation:
Associate Professor of Economics, Loyola University of Chicago
Louis P. Cain
Affiliation:
Professor of Economics, Loyola University of Chicago
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Abstract

In the first of two articles, Professors Aduddell and Cain introduce the complex relations between a dynamic meatpacking industry and a government committed, in uncertain degree, to the philosophy of antitrust. From its earliest beginnings as an industry in the 1830s, meatpacking has experienced constantly changing parameters of technology, supply, demand, and public policy. Matters reached the first of several climaxes a few years after the new and naive Federal Trade Commission was established. Admittedly the dominant factor in a highly integrated meat industry, the largest companies were diversifying into non-meat food products, giving rise to the charge that they proposed to “monopolize” the entire food industry. The outcome was a consent decree in 1920 that, in confirming the large companies in their domination of meatpacking in return for their withdrawal from non-meat foods, revealed a government with a very weak case against an industry that it had made the cynosure of 120 million Americans. True to the familiar pattern of antitrust settlements, the dynamics of technology in transportation and marketing thereupon proceeded to render the decree meaningless. The second article, bringing the subject down to recent times, will appear in the Autumn issue.

Type
Research Article
Information
Business History Review , Volume 55 , Issue 2 , Summer 1981 , pp. 217 - 242
Copyright
Copyright © The President and Fellows of Harvard College 1981

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References

1 Food Investigation Report of the Federal Trade Commission on the Meat Industry (hereafter FTC Report) in five volumes (Washington, D.C., 1919). For our purposes, the precise definition of the meatpacking industry is SIC code 2011.

2 Russell, Charles Edward, The Greatest Trust in the World (New York, 1905).Google Scholar

3 See Clemen, R. A., The American Livestock and Meat Industry (New York, 1923), 768–781Google Scholar, and Virtue, G. O., “The Meat Packing Investigation,” Quarterly Journal of Economics, 31 (August, 1920), 628f.Google Scholar

4 On this early period see Aduddell, Robert M. and Cain, Louis P., “Location and Collusion in the Meat Packing Industry,” in Cain, and Uselding, Paul J., eds., Business Enterprise and Economic Change (Kent, Ohio, 1973), 85–117Google Scholar; Kujovich, Mary Yeager, “The Refrigerator Car and the Growth of the American Dressed Beef Industry,” Business History Review, 44 (Winter, 1970), 460–482CrossRefGoogle Scholar; and Kujovich, , “The Dynamics of Oligopoly in the Meat Packing Industry, an Historical Analysis” (Ph.D. dissertation, The Johns Hopkins University, 1973).Google Scholar See also Chandler, Alfred D. Jr,The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977).Google Scholar

5 Chandler, The Visible Hand, 349.

6 This is summarized from the U.S. Government complaint entered with the Consent Decree. See U.S. v. Swift & Co. et al., 37623, Equity Supreme Court of the District of Columbia, February 27, 1920. The major provisions of the decree appear in the appendix.

7 Stigler has argued that this view has had a long, honored, and probably unwarranted place in the history of American antitrust law: “There is a deep seated suspicion of vertical mergers in American antitrust law, on the ground that such a merger forecloses part of the market for rivals.” Stigler, George J., The Theory of Price, 3rd ed. (New York, 1966), 237.Google Scholar

8 The difference is attributable to different rules for cattle, on the one hand, and hogs and sheep, on the other. There were also differences between the states.

9 For example, see Williams, Willard F. and Stout, Thomas T., Economics of the Livestock Meat industry (New York, 1964), 207f.Google Scholar

10 Aduddell and Cain, “Location and Collusion,” 89.

11 Ibid., 106.

12 FTC Report, part V, June 28, 1919, p. 26.

13 FTC Report, Summary and part I, June 24, 1919, p. 39. Six papers were reported as completely or partially under the major packers control; the source explains how they exercised this control.

14 FTC Report, part III, June 28, 1919, pp. 30, 73, 94–99. There were possibly other consequences of packer control, but these were the principal ones that the FTC documented.

15 Refrigeration and rapid transit made slaughtering near the production point technologically possible. It always had been economically feasible. Other important external factors were the mileage allotment and the preferential car treatment afforded the major packers' refrigerator cars. These are discussed below.

16 The 300-mile figure can be explained as the feasible marketing distance of a single plant with rudimentary refrigeration techniques.

17 R. A. Clemen, The American Livestock and Meat Industry, 121–122.

18 Ibid.., 124, 687.

19 Clemen, R. A., By-Products in the Packing Industry (Chicago, 1927), 8.Google Scholar

20 FTC Report, part V, 72. By 1900 any firm's profit position was strongly correlated with the proportion of by-products on which that firm could show a return.

21 Senate Reports, 51st Congress, 1st Session, Report No. 829 (1889–1890), in four volumes.

22 The Supreme Court affirmed the injunction on January 20, 1905. Swift & Co. v. U.S. 196 US 395.

23 Report of the Commissioner of Corporations on the Beef Industry (Washington, D.C., March 3, 1905).

24 Cudahy and Sulzberger (later Wilson) declined to participate in the merger. See Chandler, The Visible Hand, 400–401.

25 See R. A. Clemen, The American Livestock and Meat Industry, 761.

26 Ibid., 763–765

27 FTC Report, part III, 85–112.

28 FTC Report, part II, June 25, 1919, pp. 39–60.

29 Chandler, The Visible Hand, 299.

30 Clemen, The American Livestock and Meat Industry, 797.

31 In 1884 Armour owned the only two branch houses. By 1890, the top five owned a total of 77. The figures for later years are as follows: 1900, 591; 1910, 946; 1917, 1120. FTC Report, part I, 153.

32 FTC Report, part I, 145–146.

33 Affidavits of Swift Defendants in Opposition to Motion of United States for Summary Judgment. U.S. v. Swift & Co. et al., Civil No. 58C613, 189F. Supp. 885 (Northern District of Illinois 1960, vol. I, 189). Hereafter U.S. v. Swift & Co., 58C613.

34 FTC Report, part I, 25. At the time of the investigation, the major packers owned 92 per cent of the specialized refrigeration cars used to ship meat and meat products. FTC Report, part III, 123.

35 Aduddell and Cain, “Location and Collusion,” 102–106.

36 FTC Report, part I, 23.

37 Statement of Swift and Company issued on August 19, 1918 on the Summary of the Report of the Federal Trade Commission on the Meat Packing Industry, July 3, 1918, pp. 14, 25.

38 Colver, William B., “The Federal Trade Commission and the Meat Packing Industry,” Annab of the American Academy of Political and Social Science, 82 (March, 1919), 171.Google Scholar Colver explicitly excluded reference to meat by-products.

39 See, for example, G. O. Virtue, “Meat Packing Investigation,” 636, and Weld, L. D. H., “The Meat Packing Investigation: A Reply,” Quarterly Journal of Economics, 32, (May, 1921), 416–417.Google Scholar

40 FTC Report, part IV, June 30, 1919, 18–21. To take but one example, Armour was charged with being the world's largest rice merchant with 1917 sales of 30 million pounds, while it had not dealt in that commodity previously. According to the Historical Statistics of the United States, series K-287, U.S. production in 1917 was 1.56 billion pounds. Armour's sales were less than 2% of U.S. production, to say nothing of the world.

41 The FTC also alleged, without good supporting evidence, that conditions in the livestock producing and retail food industries were affected adversely by the policies of the major packers.

42 This would lead one to expect a declining share for the major packers, which, in fact, occurred after 1920. The FTC data came from a period when wartime circumstances artificially increased the major packers' share.

43 FTC Report, part I, 77.

44 FTC Report, Summary and part I, 26.

45 See hearings on H. R. 13394, House of Representatives 65th Cong. 2nd Session, Jan. 1919; S. 2199 and S. 2202, U.S. Sen., 66th Cong. 1st Session, 1920; also Hearings on the Sims, Kenyon, and Gronna Bills December 1918 through April 1920, 65th and 66th Congress.

46 H. R. 6320, An Act to Regulate Interstate and Foreign Commerce in Livestock, Livestock Products, Poultry, Poultry Products, Dairy Products, and Eggs and for Other Purposes.

47 In 1935 a Title V was added that further expanded the Act by bringing poultry handling under its general provisions.

48 U.S. v. Swift & Co., 386 US 106 (1932).

49 The administrator of the Packers and Stockyards Act approved the acquisition without questions being raised by the FTC or the Attorney General. This is consistent with the argument that the FTC was unconcerned with concentration within the meat packing industry.

50 See Aduddell and Cain, “The Consent Decree in the Meat Packing Industry.”