Free Ashes to Ashes by Richard Kluger Page A

facilitated supervision of geographically dispersed activity and economies of scale.
    But in their very potential to improve productivity, trusts carried the seed of great mischief-making. To invite their growth in the name of economic expediency was to hope for benign limits to the exploitation of highly vulnerable markets. The peaceable amalgamation of businesses to advance their joint interests was plainly progress over the old law of the jungle, where the fight was to the death unless the vanquished accepted enslavement. What if, though, economic expediency invited alliances that created immense opportunity forplunder, as in the building of the American railroads, ventures so chancy that their operators felt entitled to extract from their dependent customers all that the traffic could bear? With flaring resentment, the people turned to the frail reed of government to check such abusive profiteering and to tame it without quashing the go-getting spirit.
    Such was the genesis of the Sherman Act. Besides far-flung railroad systems, trusts or trustlike combinations had won command over petroleum, sugar refining, whiskey, meatpacking, copper, lumber, and, lately, cigarettes. And the trend was growing; the boom that followed the depression of 1893 would lead, in the year 1899 alone, to the registered formation of eighty-seven new combinations capitalized at an average of $20 million, an immense sum for the time.
    If competition and combination were polarizing drives in U.S. society, Buck Duke had brilliantly exemplified the virtues of the former. Competition served to create markets, propagate goods, consume labor, and, ideally, yield profits to reward the investor and plant new growth. For Duke’s rivals, however, the competition proved withering, and combination with him was their only salvation. But where competition created markets, combination was logically intended to control them. Was such control necessarily tantamount to an illicit restraint of trade or commerce within the meaning of the broad Sherman antitrust language and therefore undesirable on its face? Weren’t there “good” combinations that, by curbing the excesses of competition, promoted prosperity for all participants? Buck Duke’s conduct as helmsman of the cigarette business would not advance that argument.
    To meld five hotly competing companies into one organization, Duke lost no time in picking the ablest employees from the collective pool and discarding the rest. No one could call that cruelty—only prudence. Similarly, American Tobacco’s cigarette manufacturing was now centralized at the former Allen & Ginter factory in Richmond, closest to the source of the basic commodity and an abundant supply of labor. The Bonsack company, which had promoted the cigarette combination in order to help achieve economies of scale and a more popular and profitable product, was rewarded by having its royalty rate driven down to about one-third its former level—but where else could Bonsack turn except abroad? Duke’s distributors, too, now had to accept a profit margin ceiling of 10 percent, like it or not, and monitor the prices fixed by the company for retailers to charge the public. Those jobbers who did so vigilantly were rewarded with a rebate, while those who failed in their oversight risked temporary or permanent blacklisting. Advertising and promotional costs could now be cut sharply without fear of losing customers to waiting competitors. And the cigarette combination was big enough now to avoid competitive bidding at auction for the raw leaf; tobacco farmers, having hauled their perishable crop long distances to market, were thus often at the mercy oftake-it-or-leave-it bids by American Tobacco. Against his few surviving competitors Duke employed comparably grinding tactics, cutting prices selectively by brands and locations until the smaller independents died off or could be absorbed on the cheap.
    All of these steps netted Duke’s combination