Cornell UniucrSily Libraru HD9I35.J2 The tobacco industry in Itie United State 3 1924 002 654 808 N. Y. S. SCHOOL OF INDUSTRIAL & LABOR REUTIONS THE LIBRARY OF THE NEW YORK STATE SCHOOL OF INDUSTRIAL AND LABOR RELATIONS AT CORNELL UNIVERSITY Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924002654808 3 THE TOBACCO INDUSTRY IN THE UNITED STATES STUDIES IN HISTORY, ECONOMICS AND PUBLIC LAW EDITED BY THE FACULTY OF POLITICAL SCIENCE OF COLUMBIA UNIVERSITY Volume XXVI] [Number 3 THE TOBACCO INDUSTRY IN THE UNITED STATES BY MEYER JACOBSTEIN, Ph.D. Sometime Fellow in Economics, Columbia University PROPEl^^^^fBRARY NEW YORK STATE SCHOOL MOUSTRIAL AND LABOR RELATIONS CORNELL UNIVERSITY THE COLUMBIA UNIVERSITY PRESS THK MACMILLAN COMPANY, AGENTS London : P. S. King & Son 1907 Copyright, 1907 BY MEYER JACOBSTEIN PREFACE So far as the writer is aware, no broad and compre- hensive study of the tobacco industry in this country has ever been made. The technical and statistical report in the United States census of 1880 is now antiquated. Mr. B. W. Arnold's investigation of the industry in Virginia covers only a small fraction of the whble field, and that only for a short period.' The best work on the technical aspect of the industry was written by Killibrew and Myrick.'' What is lacking is a general study of the historical development of the industry as a whole, and an analysis of some of the special internal problems, of in- terest not merely to the planter or the manufacturer but to the economist and economic historian. In view of the great influence of the tobacco industry on our colonial development, as well as the magnitude of the industry to-day, no apology need be offered for such a study. Up to the close of the eighteenth century tobacco was the chief commercial crop of the South, and was the second in importance of all our exports. Our country has remained to this day the largest tobacco-growing coun- try in the world. We supply not only ourselves with the leaf, but European markets as well. No small part of ' Published as a dissertation in Johns Hopkins University Studies in Historical and Political Science, vol. xv, 1897. ^Tobacco Leaf, by J. B. Killibrew and Herbert Myrick, 1903, pub- lished by Orange Judd Company. It is a hand-book of methods of cul- tivation, curing, packing, etc. 267] 5 6 PREFACE [268 our national economic energy is employed in this indus- try. To trace its development from the earliest Virginia plantation to the modern gigantic Trust is one of the aims of this investigation and research. The writer, however, has not confined himself to a mere study in economic history. The continuity and evolutionary development of the industry are regarded only in so far as they do not sacrifice his second purpose, namely, to present, in an intensive way, an analysis of the interesting features of the organization of the industry as it exists to-day. In pursuing this second purpose, the study should appeal most to those economists who are interested in the actual structure and organization of our industrial society as we see it and live in it to-day. Looked at in this light, it is a study of a typical unit or atom of a larger system, and hence may serve as a con- crete contribution to an inductive economics. The author is indebted to Mr. G. W. Perkins, E. Lewis Evans, and H. W. Riley for kindly supplying him with information concerning labor unions in the tobacco industry. To Mr. M. W. Dififly he is grateful for the material furnished concerning the problems of the re- tailer. For some important data regarding the economic conditions of the Southern planter the- author is grate- fully indebted to Mr. L. S. Thomas, Martinsville, Va. But the writer is under special obligation to Professors E. R. A. Seligman, H. R. Seager and H. L. Moore for their valuable criticisms and suggestions while the dis- sertation was in progress, as well as for their assistance in revising the manuscript and the proof. Meyer Jacobstein. Columbia University, May, 1907. CONTENTS PART I-HISTORICAL SURVEY CHAPTER I The Colonial Period PAGE 1. Origin of the tobacco trade in i6th century II 2. External conditions favorable to tobacco cultivation in America : (a) England's fiscal, commercial and colonial policies 12 (i) Self-interest of King and colonizing companies 14 3. Internal conditions favorable to tobacco cultivation in the South : (a) Soil : its fertility, extensity and situation 16 (li) Labor : importance of slavery 17 4. Tobacco cultivation in Virginia : its importance and problems 20 (a) Over-production 21 ( j) Restrictions of home government 23 (^) Tobacco as currency 25 (rf) Tobacco cultivation and land tenure 26 (e) Relation of tobacco industry to social and political institutions . . 26 5. The tobacco industry in Maryland and North Carolina 27 6. Econoijiic importance of tobacco trade for American colonies 28 7. Summary : dependence of social institutions on economic conditions ■ ■ 30 CHAPTER II 1776-1860 1. Development of tobacco industry retarded up to 1850 by : [a) European wars and commercial policies 33 (d) Increased importance of cotton cultivation 36 2. Progress in industry from 1850 to i860: (3) Consumption and technical improvements 37 3. Statistics showing production and exportation of leaf tobacco 39 4. Manufacture of tobacco : exports 40 269] 7 8 CONTENTS [270 PAGE PART II-MODERN PERIOD (1860-1905) CHAPTER I Consumption 1. Problems considered 43 2. Heavy consumption in the United States 43 3. Comparison of rates of consumption in U. S. and European countries ■ ■ • 44 4. Special forms of consumption 45 5. Total money expended for tobacco 46 ^ 6. Effect of taxation and price-variations on consumption 48 CHAPTER II Cultivation: Agrarian Problems 1 . Technical processes in cultivation and types of leaf produced 53 2. Methods of cultivation and land tenure 5S 3. Importance of small farms and intensive cultivation 59 4. Economic value of various systems of land tenure 63 5. Statistics of production since i860 68 6. Marketing of Southern leaf : public warehouse 73 7. The Trust problem 75 8. Marketing of Northern leaf and its problems 78 ■y CHAPTER III Manufacture 1 . Methods of production in the cigar industry : importance of hand labor . . 82 2. Organization of production : domestic and factory systems 85 3. Concentration and localization in the cigar industry 88 4. Disorganized selling market in cigar industry 90 5. Methods of production in " manufactured tobacco " : importance of ma- chinery and unskilled labor 91 6. Large-scale production and concentration 94 CHAPTER IV _^ The Tobacco Trust 1. The genesis and development of the Trust 102 2. Methods of competition 117 3. Economic advantages of Trust form of organization 123 4. Monopoly features of the Tobacco Trust 128 5. Legal aspect of the Trust 130 6. Financial summary I7i 271 j C0NTEN7S g CHAPTER V y Labor Conditions in the Tobacco Industry 1. Technical processes and status of workers 140 2. General conditions in the manufacture of tobacco 141 3. Wages of the Tobacco Workers 143 4. The Trust and the Union 145 5. General conditions in the cigar industry 146 6. Wages in the cigar industry 149 7. Important role of the Cigar Makers International Union 150 8. Organization, methods, and strength of the Cigar Makers Union 153 9. The vital problems : Machinery and the Trust 162 CHAPTER VI Foreign Trade 1. Importance of our exportation of leaf tobacco 166 2. Conditions and problems of the market 167 3. Statistical survey of exports and their destination 168 4. Our import trade ; relation to the tariff 1 74 5. Statistics of imports : cigars and leaf tobacco 176 6. Incidence of the tariff duty 183 CHAPTER VII The Tobacco Tax 1. Fiscal attitude of government toward the industry 185 2. The Internal Revenue Tax : historical development 186 3. Principal features of present tax system 188 4. The tax-rate and net revenue 189 5. Incidence of the internal revenue tax 193 6. Relative merits of American excise system and foreign monopoly 197 CHAPTER VIII Summary and Conclusion 200 PART I.— HISTORICAL SURVEY CHAPTER I The Colonial Period Into the antiquities of tobacco, its origin and relig- ious significance, it is not our purpose to enter. Our story begins with its introduction into Europe as a com- mercial crop, about the middle of the sixteenth century.' Spanish merchants brought it into Europe from the West Indies. A European market for tobacco had therefore existed for about fifty years before permanent English settlements were made in America. At the opening of the seventeenth century its sale in England was large enough to arouse anxiety among the Bullion- ists, who hated to see the precious metals leaving the country in exchange for a "worthless weed." In order to check its consumption. Parliament increased the im- port tax on tobacco from two pence to six shillings ten pence per pound.° That the tobacco trade had gained some irnportance at this early date may be inferred from the fact that by 1601 some individuals thought it worth while to buy a monopoly on the manufacture and sale of tobacco pipes. 3 It remained for the American colonists ^ It is reported that tobacco was first brought into Europe via Portu- gal by Spanish merchants in the year 1558. Jean Nicot, the French minister at Lisbon, introduced the commodity into France. ' Hazard's Collection, pp. 49-50. ^Parliamentary History, 43 Ehsabeth, 1601. 273] II 12 TOBACCO INDUSTRY IN THE UNITED STATES [274 to take advantage of the existing market and develop it still further. Fortunately for the colonists, there were economic and political forces at work abroad cooperating with their own efforts to capture and develop the market. Eng- land's practical commercial policy laid emphasis on the necessity of having a favorable balance of trade, in order to prevent too much bullion from flowing out of the country. The House of Commons voted unanimously (1620) "that the importation of Spanish tobacco is one of the causes of want of money within the kingdom." ' Therefore, when it was learned that tobacco could be grown in the Anglo-American colonies, Parliament ° de- cided to cut ofif the importation of Spanish tobacco, which, in 1621, amounted to £60,000. In 162 1 Parlia- ment enacted a law practically prohibiting the importa- tion of foreign tobacco by levying discriminating duties in favor of colonial tobacco and against all foreign tobacco. This preferential tarifif remained in vogue dur- ing the entire colonial period, and was one important factor in the building up of the tobacco industry on this continent. A second cause operating in favor of the American colonies was the general English colonial policy, which had as one of its aims the development of colonial natural resources, while at the same time, creating a colonial market for the home manufactures in the colonies. ' 13th March, 18 James I. ^Parliamentary History, pp. 1196, 1197; 19 James I. Mr. Edwin Sandys, arguing the case of the BuUionists, figured that England really lost ;^i20,ooo through importation of Spanish tobacco. For, he argued, not only did ;^6o,aoo go out of the kingdom but that ;^6o,ooo would come into the kingdom, if the colonies raised the tobacco, from the sale of the latter in European markets. 275] ^^^ COLONIAL PERIOD 13 While closely akin to the Bullionist policy, the Colonial program was quite distinct, and operated long after the former was discarded. Speaking of the discriminating duty on foreign tobacco, Chalmers says, this is " the first instance of the modern policy of promoting the importa- tion of the commodities of the colonies in preference to the production of foreign nations."' This policy was further re-enforced by prohibiting the cultivation of tobacco in the home country and in Ireland." In 1652, for instance, we find the following significant passage : "Whereas divers great quantities of tobacco have been of late years and now are planted in divers parts of this nation tending to the decay of husbandry and tillage, the prejudice and hindrance of the English plantations abroad and the trading and commerce and navigation and shipping of this nation " and so forth.3 Therefore a penalty was laid upon home culti- vation of tobacco. The chief tobacco-growing counties of England, Gloucestershire and Worcester, offered re- sistance to this prohibition but finally gave in. Though no great sacrifice was entailed, since England's soil was not adapted to tobacco culture, the mere existence of the statutes indicates the consistency with which English statesmen pushed this colonial policy. Later develop- ments of the tobacco trade fully justified England's policy, for she not only was able to import from her American colonies sufficient tobacco for home consump- 'Chalmer's Annals, p. 51. '12 Chas. II, c. 34; also 22-23 Chas. II, c. 26. 'Prohibited by 12 Charles II, c. 34 and 15 Charles II, c. 7. Same prohibition extended to Ireland in 1660, and to Scotland by act of 22 Geo. Ill, c. 73. Ireland was again granted permission to grow tobacco in 1779, but lost that privilege again in 1831 (i and 2 William IV, c. 13) . There are still restrictions to-day on its cultivation in Ireland. 14 TOBACCO INDUSTRY IN THE UNITED STATES [276 tion, but profited greatly by supplying Europe with her surplus. Nor was the King himself disinterested in the expan- sion of the tobacco trade. For in spite of his " Counter- blaste" against the use of tobacco, King James I was not opposed to increasing his income by the sale of a mono- poly in the trading .of tobacco. Under the pretense that a. monopoly enjoyed by a few individuals would check the consumption of tobacco, the King was able to harmonize his moral repulsion to tobacco with personal financial gain. In 162 1 the patent yielded James I annually as much as £16,000.' Out of deference to a protest from Virginia planters against the abuse of the Tobacco Mono- poly, the patent was withdrawn in 1621, but again farmed out in 1625.° The farmers of the customs demanded a tax of one shilling on each pound of tobacco imported into England. The colonists denounced this as a viola- tion of their charter rights, which provided for a tax of only five per cent on all imported goods, and maintained that the monopoly granted to the " Farmers of Revenue " was equivalent to an additional and illegal tax. The Vir- ginia Company fought so stubbornly against the mono- poly that the King yielded and finally withdrew all mono- poly rights from the "Farmers of Revenue." 3. If it was to the King's interest to have the tobacco trade grow, since the value of the monopoly privilege varied directly with the extent of the business done, all the more- so was it to the interest of the Virginia Com- pany to encourage it. The financial success of these ' icf James I, 1621. ''Hazard's Collection, pp. 224-225; also Chalmers' Annals, p. 128. 'C/. Chalmer's Annals, p. 46, for struggle between the Virginia Company and the " Farmers of Revenue." 277] ^^^ COLONIAL PERIOD 15 colonizing companies depended upon the development of the natural resources. In the first charter of Virginia (1606) the London Company was allowed to impose a tax of two and one-half per cent, and five per cent, on all goods " trafficked bought or sold " by English citizens or foreigners respectively. It was by no mere coinci- dence that the Virginia Company was always back of legislation that shut out foreign goods from England's market whenever Virginia's products could be substi- tuted. Mr. Sandys, who was instrumental in pushing through this legislation, especially the prohibitory act of 1624, was the first treasurer of the Virginia Company. Economic self-interest reflected itself there as it does now in governmental policy. Prosperity in Virginia meant a greater demand for land, and a corresponding increase in quit-rents for the individual stockholders of the company. No small part of the company's profits came from trading, which in turn increased with the de- velopment of tobacco cultivation. Hence the Virginia Company was also a factor in the upbuilding of this industry in America. Thus far, we have spoken only of what might be termed the external conditions that favored the cultiva- tion of tobacco in the American colonies : first, the national financial policy, or BuUionist theory, desiring to check the exportation of bullion by prohibiting the im- portation of Spanish tobacco, thus creating a home market for colonial tobacco ; second, the general colonial policy of encouraging the importation of raw material from the colonies, and exporting to them finished pro- ducts, while at the same time, increasing the carrying trade for English ships ; third, the .increase in the King's revenues through the sale of tobacco monopolies; and fourth, the interest of the Virginia Company in booming l6 TOBACCO INDUSTRY IN THE UNITED STATES [2 land values, as well as in the direct profits resulting frc the trade that was formerly in the hands of Spanish tin chants who brought tobacco from the West Indies, j these forces combined to give the first impetus to tobac cultivation in the American colonies. We turn now to the more fundamental, internal caus without which the above encouragements would ha been in vain. First, and most essential, comes the sc Southern soil was rich, fertile and plentiful, and fav( ably situated for tobacco cultivation. Flat river la with its rich, black mould was just the kind needed i this crop. And the situation of vast stretches of tl fertile land along navigable streams in Virginia a: Maryland, eliminated the expenses of inland transport tion, which in those days were very heavy. Concernii the adaptability of the soil for tobacco, we have Captj John Smith's testimony before the Royal Commissio when asked why Virginia did not grow wheat instead tobacco, he replied that a man's labor in tobacco cul vation was worth six times that in raising wheat, his day wheat sold for two shillings six pence per bush tobacco for three shillings per pound, or, in terms labor value, £10 for grain, £60 for tobacco, a ratio I : 6 in favor of tobacco. One reason for the relati profitableness of tobacco culture was this : wheat w more of an extensive crop, requiring greater area th tobacco, which was always, relative to wheat, an intensi crop. To clear land in those days was an expensi undertaking, especially before slave labor was utilize Fresh and newly-cleared land was highly productive f tobacco, and so we find that only the abandoned tobac fields were given up to wheat or corn cultivation.' Cc ^American Husbandry, vol. i, chap. 15. 279] ^^^ COLONIAL PERIOD ly ton production was not resorted to until there was an overproduction of tobacco, in 1660. More than once the English Kings attempted to persuade the colonists to grow grain instead of tobacco. So also, colonial legislation sought the same end, but artificial barriers could not overcome nature's predilection for tobacco. Without this fertile soil, favorably situated, the external encouragements, above enumerated, would have been fruitless. It is commonly believed that the profits of tobacco cultivation were depended on slave labor. This was cer- tainly not true for the planters prior to 1619, since before that date there were no slaves in Virginia. The tobacco crop, however, in that year was a large one.' For the first fifty years or more white indented or apprentice labor was more important than slave labor. As late as 1 67 1 there were in Virginia three white indented ap- prentices to one negro slave, or six thousand of the former to two thousand of the latter, out of a total popu- lation of forty thousand.'' When, however, the white servant labor was cut off by the increasing demand for it in those mechanical trades requiring skill, both in England and in the colonies, then cheap negro labor was a boon to the tobacco planter. So it may be said that, while the cultivation of tobacco did not in the first in- stance depend upon slave labor, its expansion in the eighteenth centui^y did rest upon it. It was a fortunate coincidence for the American planter that as white labor became scarcer and dearer, negro slave labor became more plentiful and cheaper. ' Estimated at 20,000 lbs. 'According to census taken by Gov. Berkely, 1671 ; see Hening's Statutes of Virginia — Statutes at Large, vol. ii, p. SiS- l8 TOBACCO INDUSTRY IN THE UNITED STATES [ai We can not agree with those "abolitionists " ai economists who maintained that the Southern plant was working against his best economic interests by er ploying slave instead of free white labor. The relatr value, as a source of income to the large plantatic owner, was on the side of the negro slave. The folIo^ ing table represents, in brief, the profits derived from tl exploitation of slave labor : ' Annual Outlay. Annual Return. 1. Interest on capital in- i. Two hghds. tobacco / vested in slaves (;^5o) ;^2 los. 2. Interest on farm capital 2. Corn, etc. ^ required per slave ;^2 3. Living expense of slave ;^3 Total cost £7 IDS. Total / Net profit, ;^I2 los. per year per slave. The net cost per slave of seven pounds ten shillin| represented an investment of about one hundred pound The income of twenty pounds was, therefore, equ valent to twenty per cent, profit on the total capit investment, less the sum necessary to replace tl fund. Just prior to the Revolutionary War the co of maintaining a slave, seven pounds ten shilling was low compared with the cost of a free work per year, which was about twenty pounds (at tl rate of one shilling six pence per day). As the oppo tunities for white labor increased with the industri progress of the country the difiference became still greate We do not mean to maintain that the existence of tobac( cultivation was conditioned by slave labor for, as v pointed out above, cultivation had flourished befo slave labor was important, and it has certainly flourish( ^American Husbandry, vol. i, pp. 229, 233-234. 28 1 ] THE COLONIAL PERIOD 19 since the abolition of slavery. Slavery was merely a more lucrative means of exploiting the wealth of a rich and fertile soil. What cheap slave labor did do was to lower the cost of production and thereby cheapen the price of tobacco to the consumer, which in turn stimu- lated further consumption and cultivation. It may fairly be said that the consumer profited by this slave labor quite as much as, if not more than, the planter and landlord. The unscientific method of cultivating tobacco, under the one-crop system, did not require more skill than the negro possessed. The planter, moreover, could not always depend on hired labor during the busy season, so that the slave labor was again an advantage over the hired help. Permanent possession of slave labor made possible constant employment throughout the year, es- pecially where forests had to be cleared for fui^ther extension of arable land. In the manufacture of gar- ments and the preparation of foods for plantation con- sumption also, the slave was serviceable. After the tobacco crop was harvested and prepared for shipment, the labor power of the slave was directed and utilized in these secondary occupations. As the fertility of the Southern soil made the exploita- tion of slave labor profitable in the South, so the lack of it in the Northern colonies explains the slight develop- ment of slavery there. A number of attempts were made to grow tobacco in Massachusetts and Connecticut, as well as in New York and Pennsylvania, but they failed to produce a crop which could compete with the Southern leaf. As late as 1801 the entire New England crop was estimated at only twenty thousand pounds, or the amount which Virginia exported in 1620. Early Massa- chusetts records show that experiments were made to grow tobacco, but were soon abandoned as being unprofi- 20 TOBACCO INDUSTRY IN THE UNITED STATES [28 table. In 1629, for instance, occurs the following statf ment : " For we find here by late experiences that ; (tobacco) doth hardly produce the freight and custom duty." ' Along with poor soil came legal enactments, for mon reasons, against the production and consumption c tobacco in the New England colonies. Buying and sel! ing tobacco was prohibited by law, and in some place a high sumptuary tax was levied on tobacco. All thes regulations were only of secondary importance in pre venting the energies of the Northern colonists from be ing directed to the cultivation of tobacco. As early a 1646 New Amsterdam settlers turned their attention t tobacco cultivation, but soon gave it up on account c lack of fertile soil.' In 1689 Pennsylvania attempted t grow tobacco, but failed for the same reason. The recen development of the industry in the Northern states be gins about 1825, subsequent to the introduction of cigar and cigar leaf. But even in the cultivation of this ciga leaf, the Northern soil has to be nourished by a rich am expensive fertilizer. In the absence of the fertilizer ii colonial days. Northern soil was not fitted for th tobacco crop. We shall turn our attention next to the internal de velopment of the industry in those colonies where i flourished most, Virginia and Maryland. In Virgini the tobacco crop and its value were the barometer tha measured the material prosperity of the colony. Through out the whole colonial period, tobacco was the chief an( almost exclusive commercial crop of Virginia. In 167 ' Colonial Records of Massachusetts (compiled by N. B. Shurtleff) pp. loi, 180, 242, 388. Ibid., index, "Tobacco." * Cf. Long Island Historical Society Records, vol. j, 1679-1680; ci also American Husbandry, vol. i, chapters 8-12. 283] THE COLONIAL PERIOD 21 Governor Berkely wrote in his census concerning the production of commodities, " Commodities of the growth of our country we never had any but tobacco." ' Eighty ships came annually from England to carry tobacco to England and the continent. At this time the exporta- tion of tobacco amounted to about 1,500,000 pounds. Just prior to the French and Indian (Seven Years) War, in 1753, export figures reached 53,862,300 pounds. A large part of the laws enacted by the Assembly, as well as many of the proclamations of the governors, are con- cerned with the production and sale of tobacco. Over-production seems to have been a constant source of troubleTor the Virginia planters. To check this, as well as to prevent the fall in price, numerous acts were passed by the Assembly. Prices fell from three shillings per pound in 1620, to three pence per pound in 1640. During this period, not only did the Assembly fix the price of tobacco in terms of English money, but it also fixed the price of other commodities in terms of tobacco,' Finding that the fixing of prices failed to remedy matters, the government tried other means of state regulation. It attempted to limit the supply by fixing the maximum number of pounds each planter could produce per culti- vator employed.^ Another method resorted to in order to increase prices, was the destruction, by government inspectors, of the poor grades of leaf. Finally, the con- dition of the market was so bad, and the debts of planters so high, that the Virginia Assembly declared all debts could be legally cancelled upon payment of forty per ' Cf. Hening, Statutes of Virginia,, vol. ii, p. 514. ''Ibid., vol. i, pp. 162, 188. Cf. also Burk's History of Virginia, vol. ii, appendix, xxvii. ''Ibid., i, pp. 142, 152, 164, i88. 22 TOBACCO INDUSTRY IN THE UNITED STATES [2. cent (forty cents on the dollar) in terms of tobacco, t price of which was already fixed by law.' Having secured only temporary relief by enactmer directly regulating tobacco, indirect means were resort to. Colonial authorities, as well as Parliament, tried induce the colonists to substitute other crops for tobacc Flax, hemp, cotton and silk were tried but these yield an inadequate return.' Even shipbuilding and tradii were resorted to, but these also proved poor substitut( The trouble with all these artificial regulations was, the colonists themselves saw, that Maryland was able increase her output when Virginia attempted to curt her own. And when selling prices were fixed too hig English merchants would buy of Maryland. Besid( Spanish and Dutch traders were bringing tobacco frc the West Indies to the continent. Virginia plante tried to get Maryland planters to agree to some pi whereby prices could be controlled. It was suggest that in years following heavy crops all producti should cease in both colonies. Owing to mutual si picion this plan, tried in 1666-1667, fell through. T poor farmers of Maryland, said Lord Baltimore, cov not stand a year's cessation of corps, especially sin their farms were mortgaged.^ It should be added th; had the plan succeeded. Lord Baltimore would have si fered a loss in his revenues which came from tobacco e port duties and a tobacco poll tax. The statistics of production and prices for this colon period are not complete nor always reliable. From gc 'Hening, i, pp. 204, 205. ^Beverley's History of Virginia, pt. ii, c. 2, p. 233. ' Of. Archives of Maryland; Maryland Historical Society, pp. 5 15-20, 352 (years 1666-1668). 285] THE COLONIAL PERIOD 23 ernment figures as well as from the colonial statutes we have been able to compile the following table : Production. Price. Year. Pounds. Year. Per pound. 1619 20,000 1619 3S. 1620 40,000 1620 ■(not known) 1621 55,000 1621 (not known) 1622 60,000 1622 (not known) 1628 500,000 1628 3d. 1639 1,500,000 1631 6d. 1641 1,300,000 1640 i2d. 1688 18,157,000 164s i}iA. 174s 38,275,000 1665 Id. 1753 53,862,000 1690 2d. 1758 22,050,000 1722 Kd. ■ - 1753 2d. 1763 2d. During this period of unsteady crops and over-produc- tion, resulting in violent price fluctuations, the colonists charged the home government and English merchants with being partly responsible for the depression in trade. In 1732 the Virginia Assembly embodied the protests of the planters in a petition' which was published and sent to the King of England. Among other things, the gov- ernment is charged with imposing too high a tarifif on tobacco imported into England, and the merchant is ac- cused of charging too high commission rates. The planters also claimed that the great amount of smuggling of tobacco into England via Scotland depressed prices in England, and hence depressed the price at which it had to be sold in Virginia to English merchants. The col- onists were not permitted to export their tobacco direct • The Case of the Planters of Tobacco in Virginia as Represented by Themselves, President of the Council and Burgesses, etc. The Virginia planters laid stress upon the practice of smuggling, which was investi- gated by a Parliament commission. 24 TOBACCO INDUSTRY IN THE UNITED STATES [286 to Europe, for the Navigation acts ' required all ship- ments to be made in English vessels to England, where it was taxed before going to the continent.' As tobacco was among the "enumerated" articles, it had to be sold to English traders, who often agreed among themselves to depress prices. Had the^ entire .market been open to the American planter, there would have been some relief for him.- For according to Chalmer, about two-thirds of the entire crop was re-shipped from England to the continent.^ Adam Smith puts the figure still higher. According to Smith, "about ninety-six thousand hogs- heads of tobacco are annually purchased in Virginia and Maryland with a part of the surplus produce of British industry. The demand of Great Britain does not re- quire, perhaps, more than fourteen thousand hogsheads." * The American planter not only suffered from the low price at which he sold his tobacco, but from the corre- spondingly high prices he was forced to pay for the goods he received in exchange for tobacco. On the continent, furthermore, consumption was cut down by the high price of tobacco, fixed arbitrarily by the Farmers of Revenue. This was especially true in France,' where tobacco was subject to monopoly throughout the eighteenth century. The cutting down of general con- ' Navigation acts affecting tobacco were practically in force as early as 1621. In 1624 all goods had to be carried in English ships, but it was not until the Parliamentary acts of 1651 and f66o that this was effec- tively enforced. ^Drawbacks, however, were allowed on tobacco re-exported from England. 'Chalmer's ^»«a/i, p. 53. *Cf. Wealth of Nations, chapter on " Different Employment of Cap- ital." 'C/. Arthur Young's Present State of France, p. 89, letter iv; also Stourm's Le Budget, i, p. 361. 287] THE COLONIAL PERIOD 25 sumption by government regulations and monopoly was, and still is, a constant source of complaint on the part of the tobacco planter. Two special institutions, which were closely bound up with the colonial history of Virginia, the financial sys- tem and the system of land tenure, merit particular at- tention, inasmuch, as they rested upon, and were shaped by, the conditions of tobacco cultivation. First, as re- gards the financial system. Virginia did not originally and arbitrarily fix upon tobacco as a medium of exchange or as a basis of currency. Tobacco came later to hold this position, as a result of the frequent fixing of the price of tobacco. And since tobacco was the chief com- mercial crop, the commodities came to be reckoned in terms of tobacco. This led to the use of tobacco notes, both specific and general, which were given at the gov- ernment warehouse when tobacco was stored there. The specific note called for a certain number of pounds of tobacco, of a given quality and of a given crop ; whereas, the general note called for a number of pounds of tobacco of a certain grade of any crop.' Coin was scarce, but this entailed no great hardships, for in Virginia the plan- tation was usually self-sufficing and its economic life only called for few barter exchanges." When we recall, how- ever, the constant fluctuation in the price of tobacco, we can imagine what a clumsy and inefficient currency tobacco must have been. A tobacco note issued one year might lose half its value by a fall in the price of tobacco the following year. The close relation existing between social institutions ' See Ripley's Financial History of Virginia, pp. 1 19-124. ' A vivid description of this domestic plantation economy is found in the American Husbandry, vol. i, pp. 226 et seq. 26 TOBACCO INDUSTRY IN THE UNITED STATES [28 and the purely technical economic conditions, as illu; trated by the currency system of colonial Virginia, shown even more strikingly in the case of land tenure As already hinted, the method of cultivation in tl: South was a capitalistic one, based on the profitablenes of the plantation system, and later upon slave labo Large estates were necessary, for tobacco was then, i now, a very exhausting crop, and hence the planter ha to have an abundance of fresh land to which he coul extend his cultivation. The large estate was again foun profitable as a means of keeping slave labor continual! employed. Hence, attached to a tobacco plantation w; pasture land for cattle as well as strips of land set asic for other crops, such as grain, for plantation consumptioi In a word, the cultivation of tobacco was directly n sponsible for the large plantation system with the a* companying opportunity for the exploitation of sla: labor. A large plantation unscientifically and extensive! cultivated by cheap slave labor, was more profitable ths a small farm cultivated intensively by free but dear laboi Along river fronts, five thousand acre plantations wei quite common.' It was the desire to preserve inta< these large estates that accounts for the institution ^ primogeniture in the South throughout the coloni period. The direct and indirect efifect of the tobacco industi upon other social institutions must be passed by with brief notice. Politically, the large plantation is respoi sible for a representative rather than a democratic goveri ment in the southern colonies ; for it was inconvenient fi settlers widely scattered, as a result of the large plant ' Cf. American Husbandry, vol. i, pp. 230-231. ' Cf. Bruce's Economic History of Virginia, vol. ii, pp. 253-255. 289] TtiE COLONIAL PERIOD 27 tion system, to come together as was the case in the town meeting of the New England colonies. On the fiscal si^e, it might be shown how the particular methods of raising revenues were resorted to because of the ex- istence and importance of the tobacco industry.' The chief revenues came from an export duty and a poll tax; the export tax, besides being easily collected, was lucra- tive because so large a part of the chief crop of tobacco was exported. The ease with which it could be col- lected, and the difficulty of concealing the commodity in attempting to escape taxation, partly explains also the wide use of taxes on tobacco by the European govern- ment." The poll tax was used because it was simple in its operation, and because it seemed a fairly just method of distributing the tax burden, inasmuch as a man's wealth was usually in proportion to the number of slaves he owned. Amount of rents, official salaries, ministers' fees, et cetera, were always payable in terms of tobacco. The extensive method of cultivation forced the colonists to seek new lands, and hence the westward expansion. In a word, the social and political history of Virginia is unintelligible apart from its economic background, the center of which was the cultivation of tobacco. Next to Virginia in the cultivation of tobacco came Maryland. Into its detailed history we cannot enter, nor would it be profitable to do so, since in many important respects it merely repeats that of Virginia. As in Vir- ginia, so in Maryland, it was early discovered that the fertile soil was well adapted to the cultivation of tobacco, ' For the relation between the tobacco industry and taxation, cf. Hen- ing's Statutes of Virginia, vol. i, pp. 148, 226; also cf. Beverley's His- tory of Virginia, bk. iy, c. iv. ' Cf. Adam Smith's Wealth of Nations, bk. i, c. xi, on Rent of Land, passim. 28 TOBACCO INDUSTRY IN THE UNITED STATES [290 and it soon came to be the chief commercial crop. Gov- ernment regulation was resorted to, as in Virginia, to maintain prices; It was frequently used as a me.dium of exchange.' It was the fear lest Maryland should become a strong competitor that influenced the Virginia tobacco planters to oppose the granting of a charter by the King to Lord Baltimore. Although it never reached the di- mensions of Virginia's cultivation, Maryland's tobacco exports came to be about one-fourth of the total colonial export trade. North Carolina also took to raising tobacco at an early date. By 1775 its export trade amounted to eighty thousand dollars, or about twenty per cent of her total exports. It was not, however, until 1850 that tobacco assumed special significance in North Carolina, the ex- planation of which will be given in another chapter. At the outbreak of the American Revolution, tobacco was second on our list of exports in value, reaching in 1775 over one hundred million pounds, or about four million dollars. This product alone represented over seventy-five per cent, of the total value of goods exported from Virginia and Maryland.^ As a result of our inde- pendence, over seventy-five per cent, of this tobacco was carried dii'ectly to the continent, no longer exclusively in English vessels or by English merchants, but by Dutch and French ships as well. England's revenues from her impost on tobacco was a handsome one. The tariff rates were very high, averaging from two hundred per cent to four hundred per cent ad valorem duty. As early as 1686 with a duty of four and three quarter pence per pound, (the price of tobacco being about two pence) ' Of. Bozman's History of Maryland, vol. ii, pp. 78-79. ^ Cf. American Husbandty, i, pp. 256-347. 29 1 j THE COLONIAL PERIOD 29 she received from this source exclusively about two mil- lion dollars.' In 1764 the Crown of England thought it worth while to pay three hundred and fifty thousand dollars for the seignorial right over the Isle of Man to prevent smuggling into England via that place." In 1700 it reached three millions five hundred thousand dollars. So far as the revenue on tobacco consumed in England is concerned, England lost nothing by our independence. Social wealth, however, she did lose by the shifting of trade profits from the pockets of English merchants to Continental merchants. The tobacco trade of Glasgow, which had been the leading tobacco center of the world, was ruined.3 The reader will have observed that nothing has been said thus far concerning the manufacture of tobacco. Our trade in manufactured tobacco during colonial times was a negligible quantity. We exported the raw leaf, which was afterwards manufactured abroad, not only for foreign use, but often for re-exportation to our shores..'- Consumption, however, in our country was not very heavy, and the products used required very simple manu- facturing processes. Snuff and pipe tobacco were the principal forms of the finished product consumed. For this purpose the tobacco needed only to be ground up into a powder, or else cut up into small flakes, much as our present day pipe tobacco is prepared. There were two distinct types:-* a "sweet scented," more expensive tobacco grown in Virginia; and the "Oronoko," a ' Cf. Parliament document Accounts and Papers, 1898, Customs and Tariffs, p. 185. ^Ibid., p. 183. A historical sketch of the English tobacco tax is found in Stephen McDowell's History of Taxation and Taxes in England. 'McDowell's History of Taxation and Taxes in England, p. 256. * American Husbandry, i, pp. 224, 225. 30 TOBACCO INDUSTRY IN THE UNITED STATES [292 strong and cheaper type grown in Maryland in the [XChesapeake Bay region. The more expensive type was Consumed in Great Britain and at home; while the cheaper type went to Continental Europe. This is prac- tically the distribution of our crop to-day. Before passing to the next chapter, let us summarize the preceding sketch of the colonial period and indicate its chief lines of development. The tobacco industry re- ceived its first stimulus from external forces, chiefly the general English colonial policy, which encouraged and assisted the development of the natural resources of the colonies, and, to a lesser degree, the Bullionist financial and commercial policy which saw in the substitution of American colonial tobacco for Spanish tobacco one means of checking the exportation of silver bullion. Both of these forces, together with the economic self- interest of the King and the Virginia Company, reserved for the American planters the English tobacco market by dififerential tariffs ; while at the same time the European markets were captured through the activity of Eng- lish merchants and traders. The internal conditions upon which the progress of the industry depended were, first, an abundance of fertile land favorably situated, and, secondly, cheap slave labor. In turn, the magnitude of the industry with its plantation system and extensive methods of cultivation, reacted upon, and helped in shap- ing, many of the important social institutions as, for in- stance, land tenure, slavery, methods of taxation and financial systems. So close was this interdependence of social institutions and the tobacco industry that Chalmer is led to believe that " the story of tobacco would con- tain almost all the politics of the southern colonies of that age."' It was the tobacco industry which first ' Chalmer's Annals, i, p. 129. 293] '^^'^^ COLONIAL PERIOD 31 helped to determine for the South its chief characteris- tics, an agricultural community with rich landlords on top and slave labor at the bottom. The social as well as economic structure of the South was fixed long be- fore cotton became king. The colonial period closed with the Southern colonies supplying the world with leaf tobacco, a position which the South still holds to this day. CHAPTER II ( I 776- I 860 j In the preceding chapter we have seen how tobacco came to be the chief, and almost exclusive, commercial crop of the leading Southern colonies. One-half of all the colonists in America secured their livelihood from the cultivation and sale of tobacco; and the earliest of the large fortunes in our country, namely those acquired by the landed aristocracy of the South, were founded on this exploitation of tobacco land and slave labor. One of the noteworthy incidents in this colonial period was the very rapid development that characterized the in- dustry. In the period from 1775 to i860 we shall see that forces came into play to check the rate of progress and to hold the production of tobacco almost stationary up to 1850 ; we shall learn how, in the decade from 1850 to i860, a revival took place, how tobacco relinquished its position to cotton as the staple crop of the South and how, in the course of development, the manufacture of tobacco took root in this country. During this period, the tobacco industry did not keep pace with the progress made by the other industries, for reasons which will ap- pear presently. Four distinct causes operated to check the cultivation of tobacco in this country ; war, the commercial policies of European countries, the revenue systems of foreign countries, and the increasing importance of cotton pro- duction. First came the disturbances occasioned by the 32 [294 295] i77(>-i8(>o 33 American Revolution, arising not only because our efforts were diverted from peaceful pursuits, but because our commerce with England, as with the rest of Europe, was crippled. It must be remembered that England was the chief buyer of' our products, and war with her meant a cessation of trade. Consequently the tobacco trade suf- fered. Prior to the war our annual tobacco exports amounted to one hundred million pounds, whereas the average during the war was only about fifteen million pounds. It was not until 1787 that our exports approxi- mated the pre-Revolution figures. This temporary loss of trade had a permanent effect, namely, in forcing Euro- pean countries to seek their tobacco supply elsewhere. This they effected in two ways, first by encouraging growth at home, and secondly by importing tobacco from the Spanish West Indies and the Dutch East Indies. Both have continued to be competitors for the market. A similar effect was produced by the War of 1812, dur- ing which our trade was almost annihilated. The normal annual exportation of eighty thousand hogsheads fell to five thousand in 1813, and to three thousand in 1814. It was too hazardous to ship a load of tobacco, since it might easily fall a prey to an English man-of-war. Here again, the important fact was not merely the temporary loss of a few crops, but the permanent effect in giving encouragement to other than American gi;'Owers of to- bacco. In the twenty year period following the war (1815-1835) our exports averaged about one hundred million pounds, which really implied a retrogression in view of the augmented consumption, arising from an in- creased population, at home and abroad. Cuba, Colom- bia (S. A.), and Sumatra became active competitors, as did also some European countries, Austria, Germany and Italy. 34 TOBACCO INDUSTRY IN THE UNITED STATES [296 Our foreign commerce, however, might not have suf- fered permanently from these war disturbances, had not the commercial policies of European countries operated in the same direction. The Napoleonic wars for a long time closed European markets to our products. The damage to our trade and commerce resulting from the Berlin and Milan Decrees, the Orders in Council and our own Embargo, is a matter of history. Our tobacco trade suffered along with the others. In 1808 our exports fell from 62,000,000 hogsheads to 9,576 hogsheads of leaf. Manufactured tobacco exports were similarly effected. ' Moreover, these Napoleonic wars burdened European governments, especially England and France, with heavy public debts. To wipe out these debts, import duties were greatly increased on all products partaking of the character of luxuries, including tobacco. The tobacco tax had always been considered a lucrative as well as a justifiable one. These increased duties raised the prices of tobacco to the consumer proportionately, thereby cutting down consumption, or at least checking its rate of increase. The falling off of our exports in the period subsequent to the Napoleonic wars was no doubt partly due to this factor." In England, for instance, the tax was raised in 181 5 on imported tobacco, from twenty- eight cents per pound to seventy-five cents per pound. This brought the duty up to nine hundred per cent ad valorem. England's consumption consequently fell from twenty-two million to fifteen million pounds.^ ' Cf. U. S. Census, 1880, special report on ' ' Manufactures of Tobacco, ' ' pp. 38, 46. 'Prior to 1815 our exports reached 110,000,000 hogsheads, whereas from 1815-1840 the average was about 85,000,000 hogsheads. Cf. U. S. Census, 1880, p. 38. ' See in English Parliamentary Documents , " Accounts and Papers," 2gy] 1776-1860 25 The English duties were so high that a special com- mittee was appointed by Parliament to investigate the disturbed conditions of trade resulting from the increased tax.' This committee reported that the prices of tobacco were so high that smuggling and adulteration of tobacco were made very profitable. The American Chamber of Commerce of Liverpool presented a petition to the com- mittee requesting a reduction of duties on tobacco, on the ground that consumption, and hence trade, would increase for England and the United States.' This Parliamentary investigation committee declared its belief that " the annals of taxation do not exhibit an instance of such a heavy impost in any country as the present duty on tobacco." (Nine hundred per cent ad valorem.) The like was true, though not to the same extent, in France, Austria, Spain and Italy, where the "Regie" was in vogue, and the government fixed prices arbi- trarily. In our own country the best snufif or manufac- tured tobacco could be bought at retail in 1840, for twenty-five cents per pound; whereas, the price in Eng- land was seventy-five cents per pound for snufif and forty- five for manufactured tobacco ; and in France the retail price was thirty-five cents per pound for the ordinary tobacco of both kinds used. These high duties not only checked per capita con- sumption, but stimulated further production in European countries, since the farmer was protected from American " Customs and Tariffs " (1898), p. 38. These figures, however, are in part vitiated by the great amount of smuggling which resulted di- rectly from the increased duty. ^"Report from a Select Committee on the Tobacco Trade," report 565, year 1844, Parliamentary Documents. ''Ibid., pp. 95-97- 36 TOBACCO INDUSTRY IN THE UNITED STATES [29S competition. At the close of the eighteenth century, tobacco cultivation was almost unknown in European countries. By 1841, however, the total production of Europe had reached 136,680,000 pounds, which was about sixty per cent of our own crop, 219,000,000 lbs., in 1840.' The competition in the leaf market from non- European markets came from Cuba, Colombia, Porto Rico and the East Indies.'' The general relation between taxation and consumption will be treated in detail in an- other connection. More important than any or all of the above checks and discouragements to our tobacco trade, was the rising importance of cotton culture in our Southern states. The low price of cotton goods, efifected by a cheapen- ing in the cost of producing the raw material as well as the finished products, through technical improvements, led to an increased demand for cotton and hence for cotton land. Not only was there a demand for land but for slave labor as well, for the profits of cotton culture were more alluring than those of tobacco cultivation. Cotton culture affected in this double way the cost of producing tobacco : for an increase in land values meant a rise in rents, and an increase in the value of slave labor meant a higher cost in wages necessary for tobacco pro- '^ European Production of Leaf in 1844: Germany 40,000,000 lbs. Austria 35,000,000 lbs. France 26,000,000 lbs. Russia 21,000,000 lbs. ''Imports into England in 1841: From United States , 34,628,000 From Colombia 785,000 From East Indies 223,347 From Cuba • 259,702 From Porto Rico 146,000 299] 1776-1S60 37 duction. Unless the price of tobacco rose, cultivation would cease on some lands. Not only were uncultivated fields, bought originally for tobacco production, given over to cotton culture, but tobacco plantations were converted into cotton fields. In 1790 cotton exports were valued at five hundred thousand dollars, in 1800 at eleven million dollars. From that year cotton estiva- tion has gone on rapidly and has displaced tobacco as the chief crop of the South. But while the industry itself sufifered from this grow- ing importance of the cotton crop, the owners of tobacco plantations and slave owners profited directly by the change. They suddenly found that the value of their land and slaves had doubled.' It should be remembered that the system of cultivation on plantations and by slave labor, originated and developed under tobacco cultiva- tion, was taken over by cotton growers. Since the profitableness of the system had been demonstrated in the one case, why should it not prove so in the other? Other forces, however, were at work counteracting the effect of these discouraging influences. Not only had population increased, and with it the demand for tobacco, but the general command over purchasing power in all commodities had risen during this period of prosperity. This was certainly true of our American society, if not of Europe. Moreover, consumption was directly stimulated 'According to W. B. Phillips the value of slaves was as follows: 1773-1790 $300 per capita. 1800 $4So per capita. 1809 $600 per capita. 1837 $1,300 per capita. i860 $1,800 per capita. ■C/. "The Economic Cost of Slave-Holding," in Political Science Quarterly, vol. xx, 1905. 38 TOBACCO INDUSTRY IN THE UNITED STATES [300 by improvement in the quality as well as in the outward appearance of tobacco. New methods of " curing " ' tobacco gave rise to a sweeter as well as a brighter and hence more attractive leaf. Prior to 1812 curing was done in the open air ; subsequent to that date a wood fire was employed. Later, in 1837, charcoal was used. These technical processes made possible the introduction of an entirely new leaf, the "Yellow Bright," which almost revolutionized the leaf market. In 1852 a lemon leaf was grown for the first time in North Carolina (Cas- wel County), which at once became popular in foreign as well as in home markets. It not only displaced some of the dairker types, but increased the consumption of tobacco in all forms and all types. Production increased in a single decade (1850-1860) about one hundred and fifteen per cent,'' or from 200,000,000 pounds in 1849 to 434,000,000 pounds in 1859. The immediate effect of the introduction and popu- larity of this new leaf, used for plug fillers and wrappers, was to send land values in North Carolina sky high. The loose porous soil of Person, Granville and Rocking- ham counties, though arid and unfertile for other crops, was well adapted to tobacco.' Mr. Killebrew, a tobacco expert, says that land values rose from fifty cents to fifty dollars per acre. The relative crop values in that decade were estimated per acre, eight dollars for corn, fifteen dollars for cotton, and fifty dollars for tobacco. From North Carolina the cultivation of this new leaf was extended to Kentucky, Ohio and Tennessee. The ' Curing is the process whereby the moist green leaf is forced through a process of fermentation in order to sweeten it and give it a rich brown or yellow color. ' Cf. United States Census, 1840, 1850 and 1880. •It contained plenty of sodium but little plant nutrition. 30i] 1776-1860 35 following table shows the progress made from 1850 to i860: ' PRODUCTION OF LEAF. 1849. 1859. Increase Pounds. Pounds. per cent. North Carolina 11,964,786 32,853,250 200 Ohio 10,454,449 25.092,581 150 Tennessee..... 20,148,932 43,488,097 115 Virginia 56,803,227 123,968,312 100 Kentucky SSi5oi,i96 108,126,840 97 Maryland 21,407,497 38,410,965 80 That this remarkable progress was partly due to a general increase in tobacco consumption may be inferred from the fact that a similar development took place in the growing of cigar leaf in the Northern states, as indi- cated in the following table : PRODUCTION OP NORTHiRN CIGAR LEAF. 1849. 1859. Increase Pounds. Pounds. per cent. Connecticut 1,267,624 6,000,000 400 Pennsylvania...; 912,651 3,181,000 245 Massachusetts 138,246 3,233,198 3000 New York 83,189 5,764,582 7000 During the entire period up to i860 no great change took place in the method of cultivation. It was still largely the unscientific and extensive system, that is, one crop and no rotation, which was fast impoverishing the soil. The ordinary natural fertilizer was too expensive, and commercial fertilizer did not come into the market until 1840. In that year guano was imported from South America. By i860 the United States was using oyer one thousand tons of guano, much of which went into tobacco fields. It was the use of artificial commercial fertilizer ' Based on Tenth and Twelfth Census. 40 TOBACCO INDUSTRY IN THE UNITED STATES [302 that made possible the production of a cigar leaf in Northern states. The South was still the tobacco pro- ducing section, not only of our country but of the world. In i860 five states produced seventy-five per cent of our entire crop. The following table gives by percentages the yield by states for three decades : ' Percentage of Tobacco Crop of the United States Grown by Principal States, 1839-1859. CENSUS year. 1839. 1849. 1859. Per cent. Per cent. Per cent. Virginia 34.4 28.4 28.6 Kentucky 24.4 27.8 24.9 Tennessee 13.5 lO.i lO.o Maryland 11. 3 10.7 8.g North Carolina 7.7 6.0 7.6 Ohio 2.7 5.3 5.8 Connecticut and Massachusetts 2 .7 2.2 New York .1 1.3 In i860 our total crop approximated four hundred million pounds, more than one-half of which was exported to Europe. We still maintained our position, acquired during the colonial period, as the largest tobacco supply- ing market of the world. In order to avoid paying the duty on the useless stems, which forms about ten per cent of the total weight of tobacco, leaf shipped to Eng- land was stripped of the mid-rib. Not only were we in control of the leaf market, but we were beginning to show signs of activity in the manu- facture of tobacco. During colonial times we imported finished products, snufif and pipe tobacco from England. But as early as 1825 we were sending manufactured pro- ducts to England. England aided us in securing a foot- ' Cf. Tobacco (trade journal) , May, 1906, anniversary edition, contain- ing a statistical survey. 303] m6-i86o 41 liold in continental markets by imposing a high duty on leaf which, because of a loss in weight when manu- factured, put English manufactures at a disadvantage ' Our exports of manufactured products prior to 1790 were nil ; since that year the movement has been a pro- gressively favorable one. The following table shows its progress from 1790 to i860: EXPORTS OF MANUFACTURES. 1790 81,000 lbs. 1830 3,199,000 lbs. 1800 4S7.000 lbs. 1840 6,787,943 lbs. 1810 495,000 lbs. 1850 7,010,000 lbs. 1820 593,000 lbs. i860 17,697,000 lbs. This is exclusive of snufif. The principal items of ex- port were smoking (pipe) tobacco and chewing tobacco. These were machine-made products, and because the labor-cost was not important, we were able to compete abroad. In the sale of cigars, wherein hand labor is im- portant, however, it was otherwise. German manufact- urers, with cheaper labor, easily undersold us. Prior to the enactment of the high tariff of 1862, which practically shut out foreign goods, we imported from Germany annually upward to five million dollars worth of cigars. The value of imported cigars was greater than the total value of our exported manufactured tobacco products. In the five year period (1855-1860) our annual imports were valued at four million dollars, while our exports were only about . two million dollars. Manufactured tobacco was made chiefly in Richmond, St. Louis, Lynch- burg, Petersburg, Louisville and New Orleans. The principal cigar centers were New York City and Phila- delphia. Cigars were made exclusively by hand, and • It took, for instance, 114 lbs. of raw leaf to make 100 lbs. of finished product. The duty was paid on 114 lbs., but the drawback on 100 lbs. With a 900 per cent ad valorem duty, this loss was very heavy. 42 TOBACCO INDUSTRY IN THE UNITED STATES [304 under the domestic system of production. Up to the Civil War the principal form of tobacco consumption was pipe tobacco. This was the cheapest form of indulgence, and hence popular among the poorer classes. Snuff and cigars were more expensive, the latter being used almost exclusively by the richer classes. Even to-day the cigar is the most expensive form of tobacco consumption. Owing to the uncertain character of statistics, the rate and volume of consumption cannot be accurately esti- mated for this period. In our chapter on "Consump- tion," however, we shall refer to this point. In the eighty-five years thus briefly sketched, we have seen how the rate of progress in the development of the industry was temporarily checked by the commercial dis- turbances of the Revolutionary War and the War of 181 2; how this temporary check reacted permanently by encouraging cultivation in Europe, Central and South America, and the East Indies ; how the blockading of European ports during the Napoleonic wars led to the same result ; how heavy import duties, to wipe out the debts occasioned by those wars, affected permanently the consumption, and thereby the production of tobacco ; and lastly, how the profitableness of cotton production relegated tobacco to the background. In the final de- cade of the period, the industry revived through the increased consumption stimulated by a more desirable and attractive tobacco, the "Yellow Bright" of North Carolina. Not only were we supplying raw leaf to the world but, in addition to supplying ourselves with all forms of manufactured tobacco, we entered foreign markets in the sale of finished products. It is, however, in the period since the Civil War that the industry has shown most rapid development in all its forms, in agri- culture as well as manufactures. PART II— MODERN PERIOD: 1860-1905 CHAPTER I Consumption It is not with the moral aspect of the problem that we are here concerned. Yet, from a social standpoint, the economist can not ignore the effect of consumption upon the working efficiency of the individual. The special problems, for which statistical data are available and which will receive consideration are : first, the ex- tent and tendency of consumption ; second, the consump- tion of tobacco compared with other commodities ; third, the social importance of tobacco from the point of view of national expenditure, as well as of that of the family budget ; fourth, the more important conditions upon which the rate and extent of consumption depend, such as general purchasing power, prices, taxation, and legis- lation. With the possible exception of Belgium, United States ^ is the heaviest consumer of tobacco among all the west- ern nations. Our consumption has kept pace with the growing material prosperity of the country. The use of tobacco has been further stimulated not only by a rela- tive decrease in price but also by the increasing superior quality of the finished products offered for sale. The mere superficial attractiveness of the cigar has, from a psychologicall standpoint, stimulated its consumption in 30s] 43 44 TOBACCO INDUSTRY IN THE UNITED STATES [306 recent years. Whatever the reasons may be, statistics for the last fifty years show a remarkable growth in per capita consumption in the United States, as seen in the following table:' ANNUAL PER CAPITA CONSUMPTION IN THE UNITED STATES. Years. Pounds. Years. Pounds. 1863-1865 1.6 1886-1890 4-6 1866-1870 1.8 1891-1895 5-1 1871-1875 3.2 1896-1900 5.3 1876-1880 3.2 1900-1905 5.5 1881-1885 4-3 This represents an increase of two hundred and forty per cent since the Civil War." In the same period con- sumption in European countries shows nothing like this rate of increase, as appears in the following table:' PERCENTAGE INCREASE PER CAPITA CONSUMPTION, l86o-igO'S. United States 240 per cent. France 24 per cent. England 56 per cent. Germany 23 per cent. The following table presents the comparative per capita consumption for these countries since i860, from which it appears that since 1880, our consumption has far ex- ceeded that of other countries: ■• ' Based on the annual reports of the Commissioner of Internal Rev- enue and the United States Statistical Abstract. ' In view of the shifting proportion of males and females to the entire population, the figures based on per capita consumption are not a strictly accurate basis, but the change has not been great enough seriously to aflfect the above average. ' Statistics for foreign countries have in each case been compiled from government documents of the respective countries. •/bid. 307] CONSUMPTION 45 ANNUAL PER CAPITA CONSUMPTION. i860 1866 187I 1876 1881 1886 189I 1896 I9OI to to to to to to to to to 1865. 1870. 1875. 1880. 1885. 1890. 1895. I9C0. 1905. lbs. lbs. lbs. lbs. lbs. lbs. lbs. lbs. lbs. United States . 1.6 1.8 3.2 3.2 4.3 4.6 S-i 5-3 S-5 Germany 2.8 2.8 3.9 3,.7 3.0 3.3 . 3.3 3.5 3.5 France 1.7 1.8 1.7 1.9 2.0 2.0 2.1 2.1 2.1 England 1.2 1.3 1.3 1.4 1.3 1.4 1.6 1.8 1.9 Consumption in Austria-Hungary is about three pounds per capita, in Russia one and two-tenths pounds, and in Italy only one pound per capita. For Belgium the rate is very high, about five and one-half pounds. The high consumption figure for our own country must be dis- counted not only because of our higher male population, but also because the particular form of consumption, chew- ing and smoking tobacco, so heavy in this country, is adulterated to the extent of about twenty per cent, of its weight with foreign ingredients, like sugar, flavors and licorice. The five and one-half pounds per capita for the total population, represents sixteen pounds per male above sixteen years of age. This, in turn, is equivalent to a weekly consumption of four cigars, two cigarettes and four ounces of smoking and chewing tobacco, with ' an average cost of thirty cents per week per capita. It may be interesting to note what particular forms this consumption assumes. Until 1870 cigars and cigar- ettes were only in slight demand compared with smoking and chewing tobacco. More recently, however, the tendency has been strongly in favor of cigars and cigar- ettes, and more especially of the former. From 1880 to 1897 cigarettes were very popular, but since then they have fallen in importance. The following tables show the development in the last twenty-five years: 46 TOBACCO INDUSTRY IN THE UNITED STATES [308 ANNUAL PER CAPITA CONSUMPTION OF VARIOUS FORMS OF TOBACCO. 1880-1885 1901-1905 Plug, smoking, chewing tobacco. Per cent. Lbs. increase. 3.80 200 Cigars. Lbs. •3 1-4 Per cent, increase. 300 Cigarettes. Lbs. .06 .18 Per cent, increase. In order to appreciate what this rate of consumption im- plies, we present in the following table the actual quan- tity of leaf consumed in plug, chewing and smoking tobacco, as well as the total number of cigars and cigar- ettes consumed in two five-year periods since 1890 : TOTAL ANNUAL QUANTITY CONSUMED. Plug, smoking, chewing tobacco. 1890-189S 266,400,000 igoo-igos 312,500,000 Cigars. 4,300,000,000 6,360,000,000 Cigarettes. 3,555,000,000 3,000,000,000 Inasmuch as the cigar is the most expensive form of tobacco consumed, the increased consumption as shown in the rate and the absolute quantity of cigars consumed is proof of the expansion and extension of the general purchasing power of the community. Our social wealth, or general purchasing power, seems to have been ex- tensively distributed, otherwise the point of satiety, for the individual, would have prevented the above increase, at least in the weight of the leaf consumed. Beyond a certain point, increased purchasing power does not mean, for the individual, more consumption, but consumption of a finer and higher quality. It is surprising to learn what a large part of our social income is spent annually for tobacco. According to the Census of Manufactures (Bulletin 57, 1905, U. S.), 309] CONSUMPTION 47 the wholesale value of the product manufactured is about $330,000,000, which when retailed would easily amount to $425,000,000. Add to this the value of imported goods ($12,000,000) and the product of small domestic factories not included in the census, and we have in round numbers nearly $500,000,000. On the basis of quantity consumed, and the retail price roughly esti- mated, this expenditure is distributed as follows : ANNUAL EXPENDITURE. ^ .^ T> ^ I • Total retail Quantity. Retail price „ . price. ^^^ "">*• Expenditure. Cigars (number) 7,000,000,000 $50 per M. $350,000,000 Mfg. tobacco (lbs.) 335,000,000 4octs. perlb. 135,000,000 Cigarettes (number) 3,000,000,000 $5 per M. 15,000,000 Total expenditure $500,000,000 If these figures based on the census reports are correct, there is more money spent annually for tobacco than for any one of the following commodities : men's clothing, boots and shoes, furniture, gas and petroleum, hosiery and knit goods. The significance of this tobacco expenditure is more easily grasped when we consider its part in the family budget. Of the 25,440 family budgets analyzed, 2,567 were selected for the purpose of showing expenditure for liquor, tobacco, et cetera, of which the following is a brief summary.' Percentage Average Percentage reporting expenditure of total consumption. per family. expenditure. Liquors 50.72 $24.53 3.1 per cent. Tobacco 79.20 13.80 1.8 per cent. Books — Newspapers 94.74 8.82 i.i per cent. ' Cf. Eighteenth Annual Report, Bureau of Labor (U. S.), 1903. ? 48 TOBACCO INDUSTRY IN THE UNITED STATES [310 If these figures are a criterion, then out of each dollar expended, five cents are for liquor and tobacco ; two cents going for tobacco alone. On the basis of this same report, other interesting de- ductions can be drawn. For instance, it appears that industrial families spend for tobacco much more than agricultural families, $11.63 i" western states and $18.19 in north central states. The farming classes, however, may consume cheaper goods and thus compensate in quantity for lack in quality. Or it may indicate that the purchasing power in industrial families is greater than in agricultural families. The character of city life in general stimulates tobacco consumption. It has been found that families having the heaviest consumption of liquor report the greatest amount of tobacco consumption.' All statistics seem to point to one conclusion, that tobacco has become a fixed charge in the budget of the tobacco consumer. Although not a necessary of life in the same sense that bread and clothes are, tobacco is no longer regarded as a luxury. In a period of thirty years the demand has not only not suffered a decline, but its rate per capita has augmented. This can not be said even of those commodities which are regarded as of greater necessity, such as wheat, cotton and coffee- Tobacco consumption suffers very slightly in periods of depression, while its rate of increase is gradual in periods of prosperity. The effect of a variation in price on the rate of con- sumption is difficult to trace. This is especially true in the tobacco industry where retail prices remain constant owing to the convenience of the customary price, five cents and multiples of five. When raw material (the leaf) 'C/. Eighteenth Annual Report, Bu-ieau of Labor (U. S.), 1903, p. 5. 31 1] CONSUMPTION 49 advances in price, or labor costs rise, the increase is not always reflected in the retail price, but in the quantity or quality of the goods offered for sale at the old price. Furthermore, when .the price variation is a slight one, it is often borne by the intermediate jobbers, whose profits admit of such fluctuation. For instance, in the last three years the price of cigar leaf has risen on an average about fifty per cent, increasing the net cost of- production at least ten per cent. Yet retail prices and often wholesale prices, have not changed in the least. It was the manu- facturer and jobber who shared the loss between them ; though frequently an inferior product was offered to the consumer, the substitution was too slight to affect the rate of consumption. When, however, the influence affecting price is a more permanent one, as a high tariff or internal revenue tax, then the reaction upon consumption is more noticeable. For instance, in the period from 1865 to 1868 when our internal revenue tax was increased from eleven cents to thirty cents per pound, consumption fell from one and three-tenths pounds to one pound per capita.' The in- crease in the tax, during the Spanish-American War, on " manufactured tobacco " from six to twelve cents per pound, was accompanied by a decrease in consumption from three and nine-tenths to three and three-tenths per capita. We have purposely selected cases where the in- crease in the tax was sufficiently high to affect prices, avoiding the question as to the incidence of the tax, a problem which will be discussed in another chapter. Here we are concerned only with the relation between consumption and prices. Assuming that a high tax does 'See B. W. Arnold's Tobacco Industry in Virginia. Mr. Arnold attributes the " slump" in the Southern tobacco industry to the rise in the tax. 50 TOBACCO INDUSTRY IN THE UNITED STATES [312 reflect itself in the net price, the difference in consump- tion among various countries having different tax rates is significant. The following table shows this relation : 1900-1905. Tax per pound. Consumption. Per capita. Belgium 38 cents 5.75 United States ' IS cents 5.30 Germany Scents 3.52 Austria 34 cents 3.02 Hungary 29 cents 2.45 France 76 cents 2.12 United Kingdom 76 cents 1.93 Russia 16 cents 1.20 Italy gi cents 1.02 That is to say, where the tax is low as in the United states, Belgium and Germany consumption is heaviest ; whereas, in countries where the tax is high, consumption is lowest, as in Italy, England, France. Taxation, there- fore, through its influence on price, is an effective means of regulating consumption. An important factor determining the consumption of tobacco, but one which can not be studied statistically, is the change in fashion. For instance, among the Ger- man students use of tobacco has partially displaced the use of liquors, not because of any alteration in the price or even in the quality of tobacco, but simply because of a whimsical change in the social attitude towards the use of tobacco. Similarly, a loosening of the prevaiHng moral code may often stimulate the consumption of tobacco. It is, however, beyond the scope of this chapter to examine all the forces that influence consumption. The problem of substitution, which is always active in affecting the demand for tobacco, is an interesting one. It has been observed that the cheapness and attractive- 313] CONSUMPTION 51 ness of other pleasures, somewhat akin to tobacco con- sumption, tends to curtail the latter where the purchas- ing ability of the consumer does not permit him to enjoy both; where, however, the general purchasing power admits both, the consumption of the one leads to, or en- •courages, the other. Again, national customs and tradi- tions have also affected the use of tobacco, and its intro- duction, once effected, supplants other commodities. The Tobacco Trust, for instance, is educating the Chinese people to the use of our western tobacco, with the pos- sibility of supplanting their own. In our ov/n country, legislative enactments have been resorted to in order to check the consumption of tobacco. There is scarcely a state or territory that has not, in one form or another, some prohibitory provision concerning the sale or consumption of tobacco either to minors or to adults. Anti-cigarette laws have been on the statute books of Indiana, Iowa, Nebraska, Tennessee, Wisconsin and other states, but to no avail. Just why this agita- tion should be aimed solely at cigarettes is not clear, for medical experts maintain that the most injurious form is pipe tobacco, which leaves in the bowl of the pipe both nicotine and paradine. Scientific investigations have not yet proven that cigarettes, when taken moderately, are physiologically injurious.' For good or for bad, United States leads the world in the consumption of tobacco, and the rate of increase in our country has been most rapid in thd last fifty years. Our annual expenditure approximates five hundred mil- lion dollars, which involves the continual employment of ' Cf. Cigarettes in Fact and Fancy, published by H. M. Caldwell Co., Boston. Cf. Lancet (Medical Journal), igo5. Cf. Killibrew and My- rick. Tobacco Leaf, chap. ii. 52 TOBACCO INDUSTRY IN THE UNITED STATES [314 about five hundred thousand men, women and children. In the budget of the family as of the individual, tobacco has come to occupy an increasingly important place, until indeed, it may be classed among the poor man's neces- saries. The chief cause f or the magnitude and rate of consumption isTIie growing material wealth of the coun- try, which, judged from the weight of tobacco consumed, has been extensive. Temporary price fluctuations do not register themselves in the rate of consumption ; but per- manent influences in prices, as a high tax, do affect con- sumption. For we observed that countries having the highest rate of taxation had also the lowest rate of con- sumption, those having the lowest rate of taxation had the highest rate of consumption. It is the cultivation of tobacco and its problems, that we shall discuss in the next chapter. CHAPTER II Cultivation of Tobacco — Agrarian Problems The peculiar character of the tobacco crop, the various methods of cultivating it and the dififerent "curing" processes by which it may be treated, are in no small de- gree responsible for the problems that beset the planter. While it is a crop that requires unusual skill and a rela- tively large capital investment, its returns are hazardous and uncertain. Its commercial value depends largely \iipon the success or failure of some seemingly simple process, such as preparing the seed-bed, setting, worm- ing, topping, or suckering the plant. Finally, after the crop is harvested it must be subjected to a process of leaf-fermentation, called " curing," which often determines its grade and selling value. In what follows we shall first describe briefly those steps in cultivation which must be understood in order to appreciate the broader economic problems which we shall next consider. Every tobacco-growing section, and each type of leaf, has its distinctive method of cultivation ; but we can do no more than treat of some typical processes common to all. First comes a very careful preparation of a seed-bed in which plants are raised, like hothouse vegetables, for " transplantation " later to the field. Though the seed- bed is small (about two square yards for each acre of cultivation) its preparation is both important and costly. The ground in the seed-bed must be weeded and often burned in order to destroy bacteria; and finally it must 315] 53 54 TOBACCO INDUSTRY IN THE UNITED STATES [316 be heavily fertilized. It is covered over, usually with g^lass, for protection against obnoxious insects and sudden climatic changes. The expense in the construction and operation of a seed-bed is estimated at about three per cent of the total cost of production per acre. In Cuba this raising of young plants has become a specialized form of agriculture, wrhich has resulted in the production of a finer plant at less expense. This seed-bed prepara- tion requires from six to eight weeks. In the meantime the ground is broken, ploughed and harrowed several times. The field is then marked ofif in parallel ridges about three feet apart, and in each row are heaped up, at uniform intervals (15 inches apart), small mounds of earth to receive the plants without danger of the latter being washed away by heavy rain. During the entire period from the setting of the plants until harvesting time, constant weeding is required. The production of a fine crop necessitates no less than six dififerent "cultivations" (in the technical sense). As soon as the stalk has reared its head high enough it must be " topped," a pinching oflf of the top buds in order to concentrate the strength of the stalk into fewer leaves. The lower or ground leaves are removed for the same purpose, as are also the subsidiary shoots growing out from the axis of the plant. The former is called "prim- ing," the latter " suckering." All these processes, to- gether with "worming," require plenty of labor em- ployed constantly, for about three months, up to harvesting time. As every stalk must be cut down singly by a hand knife, even harvesting is costly. The net labor-expense from the setting of the plants through harvesting, forms about fifty per cent of the total cost of production. When harvested, the leaf is green and odorless and is 317] CULTIVATION OP TOBACCO 55 not considered tobacco until " cured " by a sweating pro- cess which gives it its agreeable color and flavor. Though the methods of curing vary, the principle is the same ; natural or artificial heat is used to increase the activity of the bacilli, which, by some chemical process, expel from the leaf the disagreeable sap, leaving un- injured the juices that give flavor to the leaf. There are three distinct methods of curing. In several counties of Virginia north of the James River and northeast of Rich- mond, tobacco is " sun-cured." On the other hand " white Burley " of Kentucky, as well as the cigar leaf of the North, is cured by the "air-drying" process. For this purpose barns or tobacco houses are constructed wherein ventilation can be carefully regulated; the pur- pose being to keep the air as dry as possible during the curing season. The tobacco is suspended on poles in a position to take advantage of the incoming currents of air. Two to four months are required to cure the leaf by this "air" pro- cess. Artificial heat is resorted to only when the air seems too damp. A third method is that in which the curing depends solely on artificial heat, as in the " heavy shipping " districts of western Tennessee and Kentucky. This artificial heat may be applied in two ways : either by open fires or by flues. In the former case a wood fire is built directly under the tobacco stalks suspended on scafifolds. Three or four days' constant heating is suffi- cient to "cure" the leaf and prepare it for foreign ship- ments. By this "open-fire" process the pores of the leaf are surcharged with a carbonaceous substance which gives it a strong flavor and deprives it of its natural ab- sorptive capacity. The Europeans prefer this leaf. The "yellow" tobacco of North Carolina, used for cigarettes and smoking tobacco, is cured either by this " open-fire " 56 TOBACCO INDUSTRY IN THE UNITED STATES [318 method, charcoal being the usual fuel, or by " flues." In the latter case pipes are constructed around the inside walls of the barn and supplied with heat from a furnace located near the curing "house." Since each stage in the curing process requires varying degrees of heat, the merit of this flue system consists in the fact that the temperature can be scientifically regulated. As each mode of curing demands dififerent amounts and kinds of labor, as well as dissimilar capital investment for mechan- ical aid, the cost or expense of curing cannot be averaged. The wear and tear and the interest charges on the " barn" amount to ten dollars per acre. In the " sun-cured" pro- cess the cost is slight since little labor is needed and less capital than in the " air-cure " method which necessitates not only an original capital investment but also a greater quantity of labor. For whereas the former can be com- pleted in three or four days, the latter requires from two to four months. After the tobacco is cured it is sorted and graded, and often packed, by the grower, in prepara- tion for the market. Despite the obstacles that attend the raising of tobacco its cultivation in 1900 was reported in no less than forty- five states and territories. In eighteen states over 1,000,000 lbs. were harvested, and in several states — Kentucky, North Carolina, Tennessee, Virginia, Connec- ticut — it was one of the principal commercial crops. There were, in 1900, no less than 300,000 farms growing some tobacco for the market, and for 100,000 of these tobacco represented forty per cent of the entire income. In the census enumeration these latter are grouped as " tobacco farms." The leaf cultivated in this wide area can be broadly classed under either cigar leaf or " manu- facturing tobacco" leaf.' The former is almost ex- ' The term is ambiguous, but we use it because of its traditional con- 319] CULTIVATION OP TOBACCO 57 'clusively a product of the Northern States and is used for fillers, binders, or wrappers solely in the manufacture of ■cigars : the latter is a Southern product and used in the the manufacture of plug, chewing and smoking tobacco, snuff and cigarettes. While the cigar leaf can be utilized for the latter purposes, the manufacturing leaf can be used only in the production of the cheapest grade of <:igars and stogies. In the following table we present a classification of the leaf market as it appears to the man- ufacturer : Classification of Leaf Tobacco, cigar leaf. Class. Where cttlHvated. Fillers Connecticut, Ohio, New York, Pennsyl- vania (also to slight extent in Florida, Georgia, Texas). Binders Wisconsin, Pennsylvania, Connecticut. Wrappers Connecticut, Florida. PLUG. Fillers Kentucky, Ohio, Tennessee, Missouri, Illinois. (Known as Burley Leaf.) Wrappers Virginia, North Carolina, Kentucky. Chewing tobacco Burley Leaf. Pipe-smoking tobacco North Carolina, South Carolina, Eastern Virginia, Eastern Tennessee. Cigarette leaf Same as smoking tobacco above (North Carolina, Eastern Virginia, South Car- olina, Eastern Tennessee) . Snuff Blend or mixture of various types. All finished tobacco products are made more or less of blends or combinations of several kinds of leaf. Each manufacturer learns by experience what " blend " best suits his particular market. This is especially true of snuff ; every producer has some secret manufacturing notation. Manufacturing leaf is that used in machine-made products such as plug, chewing and smoking tobacco. 58 TOBACCO INDUSTRY IN THE UNITED STATES [320 process to which he attributes the superior quaHty of his particular brand. The pecuHar characteristic of nearly- all of the southern leaf is its absorptive capacity which enables the manufacturer to adulterate the raw material (leaf) to no less than twenty per cent of its original weight. Adulteration is here not used in a bad sense, since the admixture of foreign ingredients, licorice, sugar,, and flavors of various kinds, is considered an essential part of the manufacturing process. The cigar leaf de- pends almost entirely upon its natural taste and aroma. Some cigar manufacturers, however, do flavor their leaf. I The old extensive method of cultivation, yielding quick returns at the expense of the soil, is gradually being dis- placed by intensive cultivation. This tendency began with the abolition of slave labor. With a permanent supply of labor no longer available the landowner fre- quently found himself in possession of a vast estate often unused but always heavily taxed. This perplexity has made necessary the leasing or selling of small portions of the land. Since it is profitable to get as heavy a yield as possible from every acre put to cultivation, small hold- ings, whether tilled by tenants or by owners directly, tend naturally to an intensive working of the land> Under the plantation system with large estates operated by cheap slave labor, the owner was content with a large crop from soil worked superficially. This breaking-up of the large estates into small holdings has been accen- tuated by the existence of what might be termed " absentee landlordism." The industrial development of the South since the Civil War has stimulated a steady migration from the farm to the city on the part not only of laborers, but also of wealthy landowners in search of superior economic as well as social and educational opportunities which the city ofiers. The result is that 32l] CULTIVATION OF TOBACCO 59 the landlords continue to exercise, from a distance only, a loose supervision over their estates, which in due time leads to a loss of interest in farming. Gradually the old landed aristocracy is losing its position by surrender- ing at first only direct control, but finally possession of its estates to small owners. Prior to i860, in Vir- ginia, where tobacco was the chief crop, the average tobacco farm ranged from 100 to 500 acres; to-day in the same districts the average is from 20 to 50 acres.' In the leading tobacco states since the war, Kentucky, North Carolina, Virginia and Tennessee, the number of twenty-acre tobacco farms has greatly increased since i860. On small as well as on large fields, intensive farming has of course been hastened, as well as made possible, by improvements in methods of cultivation. The utiliza- tion of commercial fertilizers and a scientific rotation of crops have enabled the planter to increase enormously the yield per acre. The following table shows clearly the tendency towards intensive cultivation since 1880 in the leading tobacco states : PERCENTAGE INCREASE OF ACREAGE AND YIELD PEE ACRE, FROM 1880 TO 1900. Percentage acreage Percentage crop increase. increase. Kentucky 70 per cent. 84 per cent. North Carolina 250 per cent. 375 per cent. Virginia] 31 per cent. 53 per cent. ' Compare the acreage per farm in the following tobacco counties of Virginia in i860 and 1900: Charlotte, Albemarle, Prince Edward, Meck- lenberg, Louisa, Lunenberg, Pittsylvania, Augusta. Cf. U. S. Cev- sus, 1860, pp. 2i8-ig; U. S. Census, 1900, Part II, Agriculture, pp. S3. 125- 6o TOBACCO INDUSTRY IN THE UNITED STATES [322 The following table represents the increase in the ictual yield in several Southern States since 1880 : YIELD PER ACRE. 1880. 1905. Kentucky 757 lbs. 830 lbs. North Carolina 472 lbs. 608 lbs. Virginia 568 lbs. 675 lbs. Tennessee 707 lbs. 768 lbs. These figures indicate an increase in the yield of 90 pounds per acre (from 630 pounds to 720 pounds). Recent ex- periments conducted by the United States Bureau of Agriculture prove conclusively the profitableness of a judicious use of artificial fertilizers, especially in Virginia, where the soil has become exhausted from continued use. The results of one of these scientific investigations for the purpose of showing the utility of fertilizers are summarized in the following table : ' Cost of Cost of Selling fertilizer, production. price. Field A $5.00 $40.00 $45-50 i2>^ per cent. Field B 16.0D 60.00 , 81.09 34 per cent. Field C 32.00 80.00 111.29 39 percent. With an ever cheapening cost of fertilization, the im- poverished Virginia soil may some day be restored to its ancient standard of productivity. In the Northern States • this intensive cultivation has been carried on successfully for a number of years. The land of the Connecticut and Housatonic Valleys is yielding to-day, with the aid of fertilizers, twice as much per acre as the Southern land with which in Colonial days it could not compete. For instance in 1906 the yield per acre for Massachusetts and ' Cf. Year-Booh of the U. S. Dept. of Agriculture, 1905, pp. 222-224. 323] CULTIVATION OF TOBACCO 61 Connecticut was 1,750 pounds, as against 870 and 580 pounds respectively for Kentucky and Tennessee. Into the tobacco districts of the Connecticut and Housatonic Valleys are shipped annually a thousand car-loads of barn manure from Boston and New York. Ordinary barn manure is very valuable as a tobacco fertilizer because it contains some amount of nearly all the principal ingredi- ents, nitrogen, phosphoric acid, potash, lime and mag- nesia. The principal ingredient, nitrogen, is obtained from cotton seed meal, castor pomace, linseed meal, sul- phate of ammonia and nitrate of soda. The complaint is made that our commercial fei^tilizers do not contain the elements that are claimed for them ; they are deficient in nitrogen and potash and contain too much acid phos- phates. Commercial fertilizers are used more extensive^ in the North than in the South ; in the former about two tons per acre. The following figures show the relative importance of fertilizers for Northern and Southern tobacco farms : ' Fertilizers, cost per farm. Massachusetts '. $227.00 Connecticut 218.00 South Carolina 66.00 North Carolina 42.00 Virginia 34-00 Maryland 36.00 Tennessee 17.00 Kentucky 4.00 The actual difference in the amount of fertilizers used is even greater than appears from a comparison of the " cost per farm," since the farms in the North are smaller than in the South. The cultivation of cigar leaf in ' Cf. U. S. Census, 1900, Agriculture, Part II, p. 509. 62 TOBACCO INDUSTRY IN THE UNITED STATES [324 Northern States is often classed, not without reason, with truck-gardening rather than with ordinary farming. Along with the tendency toward intensive cultivation on small farms, has come a diversification of crops. This has been furthered by several factors : the hazardous character of the crop, over-production, and intensive cultivation which has made possible a larger crop on a smaller area. In the North, where the tobacco farms are situated near cities, truck-gardening is profitable as a by-industry. In the South the tenant usually raises food products — corn, wheat, vegetables, meat — for private consumption. As was stated previously, only 34 per cent of the 300,000 farms reporting tobacco derive more than 40 per cent of their income from this single crop.' What a small portion of each farm is devoted to tobacco cultivation may be seen from the following figures: ' FARM AREA DEVOTED TO THE CULTIVATION OF TOBACCO. Size of farms Acres per farm reporting tobacco. reporting tobacco. South Atlantic South Central Acres. Division. Division. 3 and under 10 1.3 2.2 10 and under 20 2.3 2.8 20 and under 50 2.9 2.9 so and under 100 3.3 3.0 100 and under 175 4.2 3.5 17s and under 260 S-3 4-9 260 and under 500 6.6 7.1 Soo and under 1000 8.5 11. 2 1000 and over 12.3 19.1 As has alreadj' been stated labor plays a very important Tole in the cultivation of tobacco. It is not only quantity but a superior quality of labor that is required in pro- ' Where tobacco farms are leased out on the crop-sharing system pro- vision is made usually for the cultivation of crops other than tobacco. - Cf. Twelfth Census, Agriculture, Part 11, p. 510. 325] CULTIVATION OF TOBACCO 63 ducing leaf tobacco. In the Northern States production is carried on usually by the farm owners who employ help during the summer months. Only about fifty per cent of the Southern leaf is produced directly by owners of land. Over thirty per cent of the farms are cultivated by share tenants. There are several forms of land tenure; the most common being that in which the owner leases to the tenant a specified area, supplies him with the necessary farm implements, work-animals, barns, one- half of the fertilizers, etc., and receives one-half of the crop harvested.' It is only where the owner advances most of the capital and land and the tenant contributes merely his own labor and one-half of the cost of fer- tilizers that the product is divided equally between the owner and the tenant. The tenant's share naturally in- creases in proportion as he contributes more capital in addition to his own labor ; in which instance the lease usually calls for a three-fourth share to the tenant and one-fourth to the owner. The lease also usually stipu- lates the conditions under which crops other than that of tobacco are to be cultivated ; the division of these secondai-y crops, between the tenant and the owner, is the same as that for tobacco. The question as to which system of tenure and labor yields the best results is complicated by the fact that a slight variation in the character of the soil, or in the capital improvements, afifects the final productivity. The product attributed to each of the several -factors is diffi- cult to single out. From figures compiled from the ' In Virginia the owner supplies not only the necessary land, dwelling and farm implements, but barns for curing, work animals, and feed for animals. He also pays taxes on the land, and contributes one-half the cost of fertilizers as well as one-half the cost of marketing the tobacco. The net return is divided equally. 64 TOBACCO INDUSTRY IN THE UNITED STATES [326 twelfth census, ' it appears that in the South the yield in quantity of leaf tobacco per acre under the crop-sharing- system is as high as under the system of direct owner- ship. Even in the Northern States, Connecticut, Penn- sylvania and Ohio, the same holds true, though the share-tenant system is less common. Where the cash- tenant system prevails the yield is often equally favor- able, for instance, in Maryland, Pennsylvania, and Ken- tucky. In other states, however, the cash-tenant system is not so productive.'' The table on the next page indi- cates the relation between the various forms of tenure, the extent to which each prevails, and their correspond- ing productivity in eight leading tobacco states. From this table it appears that only fifty per cent of the tobacco-raising farms in the South are oper- ated directly by the owners, and over thirty per cent by share-tenants. What is more surprising is that less than sixty per cent of the tobacco acreage in the North At- lantic and North Central States is cultivated by their owners directly, and fully thirty per cent of the acreage is operated by share-tenants. ' It is difficult to determine from a social standpoint, whether cultivation by tenants is less productive than under direct and partial ownership. The general con- sensus of opinion is that the quality of the leaf, as well as the final character of the land improvements, is apt to be better where the land is worked by its owner than by a tenant. The yield per acre of the former generally equals that of the latter. It is, however, not a conclu- ' i/. S. Census, 1900, Agriculture, Part II, pp. 530-531. '' In the South whenever the landlord loses all interest in farming but cannot dispose of his land he usually tries to rent his land on the " cash tenant " basis. 'C/. U. S. Census, Agriculture, Part II, pp. 530-531. 327] CULTIVATION OF TOBACCO 65 U3 •sq[ 3 JOB R ;? vO »0 CO R C4 s isd ppjA 00 00 t^ VO 00 t^ M 10 VO in •siujBj ib;o; CO 1/^ to or m VO VO o> JO }U33 jaa w " 5 m •sqj a JOB CO 00 10 10 TT VD t> in in M J3d ppi^ 00 00 10 «^ OV t^ l-t m §« 1^ •SUIJEJ lEJOl ui N M r^ CO X? R H « jsd ppiA t^ 00 VO vc 01 VO N VO 10 *o ^g •SUIJBJ JE}0; \o VO VO JO tx tv •^ « CO t^ a JO 1U30 jaj >3 CO ■sqi a JOE CO VO ^ ui 10 c M a a S, ^ ^ s, n J3d ppiA 00 VO vc oc VO VO VO tH s H •SUIJEJ ie;oj 00 \o t^ -* 00 Oi Ov m VO H JO }U30 J3J t> •sqfaJOE ^ 10 01 10 »o »o N (N M a ^ gg J3d PI3IA t^ 00 VO VO OV VO ::• *-l m IH M CO S M •SIUJB} IBIOJ 00 tx t^ cv m in •H »o 00 (3 P4 en H JO 1U30 J3i c a t3 W 1 1- = s 3 H ^ g IS c 3 66 TOBACCO INDUSTRY IN THE UNITED STATES [328 sive test to compare the quantity produced by all forms in general at any particular time and in a particular place. The relative productiveness of two systems of tenure can be measured absolutely only where the specific farm is cultivated by. the same kind of labor with- the same amount of capital, under the two different systems of tenure. It is, for instance, impossible to learn from the census data the difference in the natural fertility of the soil cultivated respectively by " owners " and " tenants." It is just this variation, however, in the natural fertility that may be responsible for the difiference in the yield per acre. Likewise with the other factors in production, labor and capital. Moreover the weight of the crop is no indi- cation of the net productivity since the quality of the leaf produced is a large factor in determining its price. So also the improvements on the land must be considered as an asset in measuring the relative merits of the two systems. A similar difficulty presents itself in attempting to cornpare the efficiency of "white" and "colored" labor. The figures, however, point too much in one direction for doubting the superiority of the former. For under no system of tenure and in no section of the country do the farms of the " colored " labor yield per acre as much as the farms of the " white " labor. The table ' on the next page has been compiled to show this apparent dif- ference in efficiency between the two kinds of labor. It is worth noting that the highest yield per acre is obtained by colored labor where "managers" are en- gaged, the inference being that the negro works best under the spur of a taskmaster. It is surprising to dis- cover that among colored laborers, "owners" produce ' Cf. U. S. Census, Agriculture, Part II, pp. 511-512. 329] CULTIVATION OF TOBACCO 67 « ui H tu < H aoi u Q M ,-] H 6 Q f, a < g X ^ 2 a H n t/i In D Id M nl -f* <> « p« M Q Q »: J D •O tn Vt 01 3 rt o (X, c 3 o Ph n C4 fO »^ 10 1^ M w o\ 00 00 00 00 00 t^ ^ U3 CD O C! O s S rt rj C u •i^ ii! « ^ u w o U <: l>! M Ok a 1 Ui 0) Farms Colored Farmers 0. . en a> u r) 0\ ■» ■* )- 1 M 00 % ^ CM tn a> o«S Ci< . arms Whit arme 1^ T r fO i-t ,_ « vo oc l>4 M <3 00 h dn £ .2 5 i CI en t/i '> 'vt •3 'm > 5 (5 4 ! fi 1 ■^ S c (/ t: ■4-* a U <: U 5 J3 ji ^ _-^ * 4-» +3 1— > IS s 1 ? TOBACCO INDUSTRY IN THE UNITED STATES [330 ss than "tenants." We should naturally expect the iverse to be true on the assumption that only the most ificient negroes become " owners " of land. The seem- g anomaly is partly explained by the fact that the :groes have been able to purchase only a poorer grade land, besides being embarrassed by a lack of capital jcessary for farm improvements.' Introductory to our discussion of some of the interest- g developments in the production of leaf since the Civil '^ar, we append statistics presenting the distribution of le tobacco crop with the percentage for each leading ate; while the table on the next page shows the actual eight of the crops." Percentage of Total Production for the Eleven Leading States (1860-1905). 1905. )tal for II States. entucky orth Carolina • • • rginia tiio ;nnessee isconsin innsylvania aryland luth Carolina- • . . )nnecticut assachusetts i860. . 1870. 1880. 1890. 1900. 88.1 87.2 91.9 93.0 95-7 24.9 40.0 36.2 45-4 36.2 Z-5 4.2 5-7 7-4 14.6 28.S 14.1 16.9 9.9 14.1 S-7 7-1 7-3 7-7 7.5 lO.O 8.1 6.2 7-4 5.6 0.02 0.3 2.0 3-9 5.2 0.2 1-3 7.8 S-9 4.8 8.8 6.0 .S.6 2.5 2.8 0.02 o.oi o.oi 0.04 2.2 1.6 3-5 3.1 1.8 2.0 .8 2.S I.O .6 ■7 99.2 36.2 13-1 12.6 7.9 S-o 8.5 3-3 3.1 1.5 3.7 1.3 The figures indicate a heavy diminution in the decade flowing the Civil War, particularly in States like Vir- 'The writer is indebted to Mr. L. S. Thomas, Martinsville, Va., for me of the information concerning the cultivation of tobacco and con- rning existing economic conditions in Virginia. 'Compiled from C/. S. Census, Agriculture, Part It, pp. 528-29, and rar-books of Department of Agriculture. 331] CULTIVATION OF TOBACCO 69 0* Q Q Q Q Q Q Q Q Q M en «>. q m 00 •0 a 10 m m VO « ■* to to •* IH m 00 n tx 10 m t^ to dv m IH ov IH o» g o_ Ov M Ov 00_ °°. to « o_ « Plh p? 00" to dv to di Ov to 00 IH ?? 00 f^ »o to in 10 00 ov M in in Ov If q -t in 1 •H PL, 00 Tj- tC N »o OV m ■«t dl vd' vd' to s m 0) N VO 4 Tf ■* N »H •%n VO « 00 VO to m VO IX 00 00 ^ vo to VO •y 10 m VO Ov VO ■>t to 10 t^ IN 10 VO in in (V| Jx 00 W ■^ 00 w m m 00 to to q to « 00 t^ ■< S ■a ci a 10 lO 0" in d r^ m T? 00 to ov tx to m ■. VO m « to tN. vo T3 is 1 'u T* CO C *>. a u u 3 to T 1 »- 3 3 :2 1 ■t 1 b .c 'i. C ) c 1 3 1 P 3 i 3 > 3 a 1 3 ( ( is I c U > 1 t i 'c 4 70 TOBACCO INDUSTRY IN THE UNITED STATES [332 ginia, North Carolina, Missouri, which suffered most from the economic disturbances and financial embarass- ments attending the rebellion. Since 1870, however, our production has kept pace with the increasing do- mestic and foreign consumption of tobacco. During the last decade (1895- 1905) o"'" annual production approx- imated 700,000,000 lbs., which is about thirty-five per cent of the entire crop of that part of the world for which there are reliable statistics.' Nearly one-half of our crop is exported. Of our entire crop, twenty per cent is cigar leaf and eighty per cent "manufacturing" leaf (used in plug, smoking and chewing tobacco, cigarettes and snufif.) As indicated above, the cigar leaf is produced in Wis- consin, Connecticut, Massachusetts, Pennsylvania, New York, Florida and part of Ohio. The "manufacturing" leaf (8o»per cent of our total crop) is confined to our Southern States, principally Kentucky, North Carolina, Virginia, Tennessee and Maryland. The combined pro- duct of the first three is alone sixty-two per cent of the total production and about ninety per cent of the entire Southern crop. Since the Civil War there have been some interesting^ movements in the shifting of the centres of production. Virginia, which for nearly two and a half centuries was the leading tobacco section in the country, surrendered its supremacy to Kentucky, and has since been surpassed by North Carolina. This is explained by several causes. First the collapse of slavery affected Virginia planters more severely than those of other states; there were in Virginia twice as many slaves as in Kentucky. A ' The world-crop is estimated at 2,333,000,000 lbs. Cf. Year-book of the Department of Agriculture, 1905, pp. 714-717. 333] CULTIVATION OF TOBACCO 71 comparison of the size of tobacco plantations and the number of slaves engaged in production, prior to the War in Virginia, North Carolina, and Kentucky reveals the relative extent to which the destruction of the old system of production affected the industry in these states. This is shown in the following table : Slave Labor in i860.' Number of slaves on Number of plantations holders in Slaves holding 10 10 leading per holder Total num- or more tobacco in id same States. ber of slaves. slaves. counties, counties. Virginia 490,865 280,190 1028 11 North Carolina 331,059 205,885 580 9 Kentucky 225,483 129,390 665 7 The inability to command the necessary labor, after the war, was aggravated by the loss of capital during the struggle, which left many of the Virginia planters in a helpless condition. In addition to these factors (the loss of slave labor and the destruction of capital) must be mentioned an equally important influence detrimental to Virginia's position as a tobacco producer, namely, the impoverishment of the soil. Both Washington and Jef- ferson had foreseen that Virginia's land was being worked too hard by tobacco planters. The full realization of this fact came with the opening up of the virgin soil of 'C/. U. S. Census, 1860, Agriculture. Compare, with respect to acreage per plantation and number of slaves per plantation, the principal tobacco counties in Virginia and Kentucky. In Virginia — Albemarle, Bedford, Dinwiddi, Halifax, Louisa, Lunenberg, Pittsylvania, Meck- lenberg, Brunswick and Buckingham. In Kentucky— Union, Warren, Todd, Trigg, Logan, Christian, Dorris, Graves, Henderson and Hop- kins. In North Carolina — Alamance, Granville, Warren, Caswell, Rockingham, Person, Orange, Stokes and Forsyth. 72 TOBACCO INDUSTRY IN THE UNITED STATES [334 Kentucky and Tennessee, as well as of a new region in North Carolina well adapted to the cultivation of tobacco. The fresh soil of Kentucky, Tennessee and North Caro- lina for some time enabled the planters in these states to undersell Virginia growers. Recently the introduction of cheap commercial fertilizers has enabled Virginia land- owners partially to rehabilitate the soil and to increase production. Another interesting movement has been the retrogres- sion in the cultivation of tobacco in Maryland, Missouri and Illinois. The rapid industrial growth in these states rendered the tobacco lands more valuable for residential purposes and urban truck-gardening. The process of substitution was especially active in Maryland (Anne, Arundel and Prince George counties). The combined product of these two counties in 186a was 20,000,000 pounds and in 1900 less than 10,000,000 pounds. The same development took place in Howard and Chariton counties, Missouri, and in Johnson, Saline and William- son counties, Illinois. The most striking example, how- ever, of crop substitution occurred in Kentucky, where large parts of the famous "blue-grass," stock-raising section has been transformed into tobacco farms. In the South there is frequently a mutual substitution of tobacco and cotton crops depending upon the prospective market price of each. This is notably true in North Carolina and in the Piedmont region generally. One important consequence of the rapid expansion of tobacco cultiva- tion in Kentucky, North Carolina and Tennessee has been the shifting of the manufacturing centres westward from Virginia towns to St. Louis, Louisville, Cincinnati, and Durham, North Carolina. We pass at this point to the consideration of a prob- lem which is at present of vital importance to the planter, 335] CULTIVATION OF TOBACCO 73 the marketing of leaf. As we shall see presently, the dis- content and unrest among Southern growers have their origin in the undue advantage possessed by the Tobacco Trust in purchasing its leaf. A complete appreciation of this situation depends upon an understanding of the external organization of the market ; the means whereby sellers and buyers are brought together. The method of marketing cigar leaf dififers from the marketing of Southern leaf. It is to the latter that we shall first direct our attention. Every important tobacco section has its public ware- house, situated in the nearest town or city. There, on appointed days, the grower conveys his crop, which, after being exhibited to the buyer for inspection, is pub- licly auctioned to the highest bidder. The leaf may be sold either "loose," as in the " heavy shipping " districts, or "inspected" (a method common to all districts). In the former case ("loose" marketing), the leaf is sold in the bulk without being sampled or inspected, as is the procedure in the latter case. The method of " inspection " is scientific; warehouse ofificials, under bond, draw samples from each lot or crop, grade and mark them. To each sample is attached a note or tag bearing the name of the warehouse, the seller, the warehouse num- ber, the gross weight of the crop or lot, the date of in- spection and the inspector's name. The warehouse is under supervision of the State law and is responsible for losses traceable to fraudulent practices of the warehouse ofificials. On the basis of these samples, the lots or crops they represent are auctioned ofif, by warehouse ofificials, to the highest bidder. In this case the buyer depends upon the accuracy and good judgment of the sampler in grading and prizing the leaf. If the price is not satis- factory the seller can withhold his wares. Each type of 74 TOBACCO INDUSTRY IN THE UNITED STATES [336 tobacco has its special market or markets ; for instance^ the "heavy shipping tobacco" of western Kentucky and Tennessee is sold largely at Louisville, Cincinnati and Clarksville. Almost the entire crop' of Maryland and eastern Ohio is sent to markets at Baltimore. Dur- ham and Winston are the large markets for the " yellow " tobacco of North Carolina; Richmond is the centre for all types of Virginia leaf. Burley leaf of Kentucky is shipped to points on the Ohio, principally Cincinnati. The expense or cost of distribution which this ware- house system entails is very high. When sold "loose" the gro\yer pays fifteen cents for having a load weighed,, twenty-five cents for. having it auctioned (each pile), be- sides paying a two and one-half per cent commission to the warehouse. Under the system of "inspection," there is first a storage charge ($1.50) per hogshead, an in- spection and sampling fee (about $1.00 per hogshead),, an insurance fee averaging one-half of one per cent of its value, an auction fee (twenty-five cents per sample) and a commission to the warehouse of about three per cent of selling value. The average marketing charges, including freight, drayage, warehouse inspection, auction fees, commission (three per cent), insurance (one-half of one per cent), are estimated at about ten per cent of the gross selling price. The charges traceable exclu- sively to the warehouse system of marketing, as such, that is, inspection fees, auction fees, commission fees, etc., are about five per cent of the selling price.' To confer upon the planter the advantages that accrue to the seller from open competition among the buyers I was the sole purpose and justification for this warehouse ' C/. " The Distribution of the Tobacco Crop " in the Jeeport of the^ Industrial Commission, 1500, vol. vi, pp. 307-321. 337] CULTIVATION OF TOBACCO 75 system. On the other hand the buyer was wilHng to pay a trifle more in return for the convenience and bene- fits derived from such a centralized public market. The original purpose of the plan, however, is vitiated and its advantages nullified just as soon as the buyers agree to pool their interests and depress prices by curtailing the very competition which the warehouse market sought to invite. It is to this condition that the Southern leaf market has come since the Tobacco Trust has secured control of from seventy-five to ninety per cent of the home market, especially in the sale of cigarettes, plug, and chewing tobacco. We must remember further that several large European countries (for instance France, Austria, Spain and Italy) exercise a monopoly over to- bacco, and their purchases are made through single government agents. The complaint is made, with some degree of plausibility, that the Trust and these " Regie " agents have come to some secret understanding and par- celled out the markets among themselves, agreeing not to compete with one another.' Where two parties buy in the same market, a certain maximum price is fixed arbitrarily. Such accusations are, of course, difficult to substan- tiate." One fact, however, has become more and more obvious, namely, that in proportion as the Trust has ex- tended its power over the market, prices of leaf have fallen. By 1896 the American Tobacco Company had succeeded in capturing the cigarette market. In that year leaf at Winston, N. C, the largest cigarette centre, ' Cf. Congressman Stanley's arraignment of the Trust in Congres- sional Record, June 2, 1906, p. 7923. ' Congressman Mudd of Maryland, in the interest of the growers of his State, recently introduced a bill calling for an investigation of " for- eign tobacco monopolies." <- 76 TOBACCO INDUSTRY IN THE UNITED STATES [338 brought six cents per lb., whereas in 1890 it sold for twelve cents, as shown in the following table : ' Price of Leap Tobacco, Winston, N. C. (1889-1896). Cents per Cents per pound. pound. 1889 12.3 1893 6.3 1890 II. 8 1894 7.0 )V 1891 9.1 189s 6.0 1892 8.6 1896 6.3 The crisis of 1893 was only partially responsible for this sharp decline in prices ; for notwithstanding the de- velopment in the cigarette industry since 1896, prices of leaf used in its manufacture have never been as high as they were prior to the culmination of the Trust control in the early nineties. Similarly, when the plug interests were combined and controlled by the Continental Tobacco Company and the American Tobacco Company in the later part of the nineties, burley leaf suffered a decline. In the period from 1899 to 1904 Burley leaf (used in the manufacture of plug) averaged at Louisville and Cincin- nati seven and one-half cents per lb., whereas it formerly marketed for ten cents. Since 1900 North Carolina "Brights" (used in smoking tobacco and cigarettes) brought only from six to eight cents per lb. at Winston, Durham and Danville markets compared with its former price of nine and ten cents. At Hopkinsville, Kentucky and Clarksville, Tennessee, large western markets, prices have dropped from eight and one-half cents in 1900 to seven cents in 1905. Nor must it be forgotten that dur- ing this period of declining prices of leaf, the planter was forced to pay increased prices not only for material and ' Cf. Report of Industrial Cornmission, 1900, vol. vi, p. 321. 339] CULTIVATION OP TOBACCO yj labor employed in cultivation but also for commodities for private consumption.' Despite all denials to the contrary, the blame for this price-depression has been placed by planters, with unani- mous accord, at the door of the Trust. As a counter- move, the growers have organized associations to force up - prices either by curtailing the supply of leaf or by ' fixing an arbitrary price below which no sales are to be made. The most important of these associations, at the present time, are the following: the "Dark Tobacco Growers Association of Kentucky," the "Dark Tobacco Growers Association of Tennessee," the " Burley Tobacco Growers Association of Kentucky," the " Mutual Protec- tive Association of Bright Tobacco Growers of Virginia and North Carolina," and the " Maryland Tobacco Grow- ers Association." This mere enumeration indicates the extent to which, geographically at least, the Trust in- fluence has made itself felt. Two obstacle s stand in the way of an eiificient concerted action among the farmers : one, the mere number and wide geographical distribution of planters with a lack of easy communication between them ; the other, more important, difficulty is the finan- cial inability to guarantee the small farmer the final dis- posal of his crop at a profitable price. Without this latter assurance the small farmer is reluctant to pledge or bind himself legally to the rules and action of the asso- ciation ; and without a legally enforceable contract there is nothing to prevent the individual farmer from selling his crop at a lower price in anticipation of a great slump, thus breaking the sellers' pool. One thing is certain, 'The prices quoted above (i8g6-igo6) are taken from The Western Tobacco Journal and The Tobacco Leaf. For prices prior to 1896, C{. Killebrew and Myrick, The Tobacco Leaf, pp. 487, 492, which prices are based on quotations of The Western Tobacco Journal. 78 TOBACCO INDUSTRY IN THE UNITED STATES [340 namely, that the combination or union of over 200,000 planters must necessarily be less efficient than the cen- tralized power of a Trust purchasing alone from seventy- five to ninety per cent of the entire crop consumed in ~ihis country. As a partial escape from the clutches of ^me Trust the growers are demanding a reform in the -^laws of the Internal Revenue system which would per- mit them to sell their leaf directly to consumers without paying the tax imposed at present on all forms of tobacco sold to consumers.' We have thus far confined our discussion to the market- ing of Southern leaf, its method and its problems. In the North there are no public warehouses where buyers and sellers can be brought together in open competition. In the first place, the leaf is not purchased, as is the Southern leaf, directly by the manufacturer, but by " packers." The latter, or their agents, visit the indi- vidual grower and bargain on the basis of the rough knowledge of the general market that each may happen to possess. The buyer usually has the advantage since his knowledge of the market is apt to be based on broader and more opportune insight into the conditions of the market in general. It is a wasteful system because it necessitates traveling expenses on the part of several buyers in search often of a doubtful seller. A saner method is the Southern warehouse system. In order to take advantage of the chaotic market, "packers" engage buyers residing in the tobacco-growing region. The "packer" often buys the entire crop, sometimes before it is ever harvested ; he grades, sorts and " sweats" it in his own warehouse. The leaf jobber and large cigar 'C/. House Bill, no. 14972, "An Act for the relief of Tobacco Farmers." There is little hope of this measure becoming a law. 341 ] CULTIVATION OF TOBACCO 79 manufacturer purchase from the packer ; the leaf jobber in turn sells to the small manufacturer. The fact that strikes one in the organization of the distributing agencies is the existence of these many middlemen through whom leaf passes before it reaches the small, and often the large, cigar manufacturer. The price to the manufacturer, in case the leaf passes through the hands of packer and the jobber, is from forty to eighty per cent in advance of the original farm price paid to the grower. This margin of profit is altogether out of proportion to the services rendered, and exists only because of the vast number of small manufacturers who have not sufificient capital to buy directly from the grower. Once the Tobacco Trust is in possession of the cigar market (and the time is not far ofif) ,' both the packer and jobber will be forced to the wall. The present high price of all classes of cigar leaf is partly the result of the Trust movement to eliminate the small manufacturer by making it unprofitable for him to continue in business. With an increase in the price of raw material the independent manufacturer is compelled to raise prices on the finished product. But the Trust continues to market its cigars at the old price in order to capture the trade, which is equivalent to underselling. In »the meantime the farmer is enjoying high prices. Another factor, however, should not be overlooked in explaining the present high price of cigar leaf, namely, the tremendous growth of the cigar industry in the last ten years, which necessitated a supply of leaf not antici- • Even as we write, the New York Times reports the absorption, by the Trust of the largest producers of domestic cigars, namely, the United Cigar Manufacturers' Co., having an annual output of 400,000,- 000 cigars or about six per cent of the total output of the United States. The report has, however, been denied by the independent company. 8o TOBACCO INDUSTRY IN THE UNITED STATES [342 pated by the grower. As a consequence we have had under-production for several years. Although " aver- age" prices of cigar leaf are not always a safe guide, the following table does represent fairly the general tendency of the leaf market since 1900 : Average Farm Price of Cigar Leaf (1900-1905).' 1900. igoi. igo2. 1903. 1904. 1905. Connecticut 15 15 16 15 22 17 Massachusetts 15 12 15 12 18 i6 New York 8 7 8 8 10 10 Pennsylvania 6 6 6 7 8 10 Ohio 777788 Wisconsin 7 8 7 6 7 10 This abnormally high price of leaf in the last few years has encouraged the free-trade agitators in their demands for a reduction of the high protective duties on cigar leaf. The home growers, however, were able to exercise sufficient political influence to prevent the passage of the "Payne Bill" which would have admitted the Philippine leaf, a cigar filler, at twenty-five per cent of the present tariff rate.'' Owing to the variety as well as the nature of the problems discussed, it is difficult to summarize the con- tents of this chapter. For the purpose of showing the hazardous character of the crop, as well as some of the lai ^er problems in production, we began with a general description of some of the principal processes in jjie^cul- $i\'ation_of_ tobacco. Since the abolition of slavery, the South has been confronted with a scar^tyijn_tll£_su.pLply pf efficient labor. With the collapse of slavery and the 'Cy. Yearbook of Agricultural Dept. U. S., 1905, pp. 714-717. 'The bill passed the House, but has never been reported by the Senate Committee in charge of the bill. 343] CULTIVATION OF TOBACCO gl plantation system, the large estates were soon broken up intQ_smaH-~farms, and though the process of disintegra- tion is not yet completed, it is being hastened by an ever increasing " absentee landlordism." In the absence of sufficient supply of wage labor, a large portion of the Southern land is leased to tenants who work under the crop-sharing system. After making allowances for dif- ferences in the fertility of soil, and farm improvements, we concluded that negro labor on the whole was not as efficient as " white labor." It is not, however, produc- tion but the marketing of goods that is bringing sleep- less nights to the Southern -planter. The Trust has forced prices down to a no-profit level. Controlling as it does from seventy-five to ninety per cent of the market (with exception of cigar goods), the Trust is in a posi- tion to dictate prices to the growers. The Northern grower of cigar leaf is temporarily enjoying high prices and large profits; but for him also is rapidly approach- ing the day of reckoning with the Trust. Unless our National Government should -take decisive action, or some unforseen event occur, to check the onward march of the Trust, we shall, in all likelihood, witness presently among the Northern growers a depression in the price of cigar leaf similar in efifect to that experienced during the last decade by Southern growers. CHAPTER III The Manufacture of Tobacco The life history of any industry is largely. determined ' by twpiorces, the technical conditions of_{Lroducti6n and the 'character of the selling market. Every transforma- tion in the organization of an industry can be traced ultimately to some change either in the methods of pro- duction or in the methods of marketing the product. It is in this light that we interpret and explain the de- velopment of our present capitalistic system, in the pro- gress of which competition has been the driving force. Intensified competition has in each instance been the re- sult of, or necessitated by, some technical improvement 1 within the industry, or some alteration in the world \ market. That the tobacco industry is no exception to this general rule will become apparent as we attempt to explain its development in terms of these two factors, conditions of production and the selling market. With respect to conditions of production, we must distinguish between the manufacture of cigars and the manufacture of all other products — chewing and smok- ing tobacco, plug, snuff and cigarettes ; the latter being machine-made, while the former are largely hand pro- ducts. To this primary differentiation are due the many points of variation in the development of each branch of the industry. Simple as are the steps, "bunch-making" and "roll- ing," in the making of a cigar, they have up to the pres- 82 [344 345] ^^^ MANUFACTURE OF TOBACCO 83 ent time, baffled the inventor seeking to reduce them to automatic machine processes. "Bunch-making" con- sists in the selection of " filler " leaf, placing it into a "binder" leaf and shaping it into the desired form. "Rolling" involves merely a cutting of the "wrapper" leaf and rolling it around the " bunch." Upon the skill, or lack of it, in " bunch-making " depends the smoking value of the cigar. The difficulty sometimes experienced by the smoker in " drawing " the smoke is often due to some imperfect twist in the filler ; a common defect in cigars made by beginners. To the art of rolling is due the external appearance of the cigar, which is no small factor in determining its sale. This brief description will enable the reader to understand why this skill, involving as it does accurate judgment and artful manipulation in bunching and rolling, has been only partially displaced by the machine and the unskilled worker. Up to 1870 labor, and not capital, was the all-import- ant factor in the cigar industry. The only tools em- ployed were a small hand-knife for cutting the wrapper, an inexpensive board upon which the wrapper could be cut and the cigar rolled, and a block of wood with a stationary knife attached, known as a " tuck-cutter," for measuring and cutting the finished cigar to the required size. -In 1869 a wooden "mold" was introduced, which aided the bunch-makers in shaping the cigar (the "bunch"). Except in all hand-made cigars, the mold is still universally used. It is a very simple device : a wooden block (about 18 inches by 6 inches by 3 inches), comprised of an upper and lower half ; to the lower half is attached a row of matrices, into which the fresh bunches are placed ; to the upper half is attached a similar number of " cups," shaped to fit tightly over the corresponding matrices. The "block" or "mold," 84 TOBACCO INDUSTRY IN THE UNITED STATES [346 filled with cigars, is then put into an ordinary hand-lever press. The mold is not a machine, but simply a too! which facilitates the making of bunches. It made pos- sible, however, a division of labor into bunch-makers and rollers. Prior to the introduction of the mold each cigarmaker did his own bunch-making and his own roll- ing as he still does to-day in all hand-made work. The introduction of the mold, however, did not revo- lutionize the organization of production. It was too in- expensive to embarrass the small producer with little capital, and, besides, it did not make large-scale produc- tion more economical than before. The use of the mold, however, has made possible the employment of a less skilled grade of labor, since a cigar made by hand re- quires several years of practice, whereas a beginner can be taught to make mold cigars in one year, and less. The substitution of a less skilled grade of labor was, however, open to small and large producers alike. A more radical improvement in production has come within the last decade, with the introduction of bunch- making machinery, by which a short scrap filler bunch is made entirely by automatic machinery. The scrap filler is placed into a hopper, which apportions the quan- tity necessary for each cigar, rolls the bunch, places it into a mold and presses it. Human labor being neces- sary only in feeding the machine and in spreading " binders," which can be performed by unskilled opera- tors, usually young boys and girls. This invention has made possible a saving not only in the quantity but in the quality of human labor. The machine, representing an investment of $350, with an operator receiving $5.00 a week, can produce 25,000 bunches per week, which, if done with molds (non-machine) would cost $75. Here is a tremendous saving in the 347] THE MANUFACTURE OF TOBACCO 85 cost of production by machine as compared with hand and mold labor. These bunching machines, how- ever, are employed only in the production of cheap, short-filler cigars, in which the filler is first cut up into small flakes or " scraps." In the manufacture of these cigars no selection of filler, leaf is necessary, as is the case in the ordinary long-filler cigar. As the largest propor- tion of our domestic cigars retailing at five cents and upward are made of long filler, most of our cigars are still made by a combination of hand and mold work ; and a smaller proportion, scrap goods, are made by machine. In addition to the bunching machine there is the suc- tion tool (not a machine), which enables the roller to cut the wrappers with greater accuracy. By means of air pressure the wrapper leaf is drawn tightly over a perfo- rated plate of the desired shape for rolling purposes ; a small, circular knife is then guided by hand around a fixed track or groove on the plate. As this tool does not dispense with the skill and judgment necessary in placing the leaf, ready for cutting and rolling, its eco- nomic utility is still doubtful. To take advantage of the slight gain made in cutting after a pattern, large factories resort to a division of labor between cutters and rollers, since inexperienced and cheap labor can be employed in cutting the leaf. Machine production is, however, fast gaining ground and is responsible for the increased rate of concentration within the last ten years (1895-1905). As a result of these methods of production, wherein hand labor has played a more important role than capi- tal, the industry has been organized largely on the domestic (household) plan,. and in large cities under the small sweat-shop system. The skilled worker, with a mere pittance of capital, can engage in business as an in- dependent producer, relying on a local patronage for the 86 TOBACCO INDUSTRY IN THE UNITED STATES [348 sale of his goods. As a consequence, the personal equa- tion has been an active influence in determining the character of the industry. The entire market of, a city or town is divided among many producers, each capital- izing, as it were, the trade dependent on his direct ac- quaintance and personal influence either with the retailer or with the consumer, and often with both. This local character of the selling market is further intensified by the opportunity offered to various petty retail stands — in barber shops, grocery stores, hotels, saloons — to profit by transient patronage, or a traffic of convenience. Although originally a resultant of the conditions of pro- duction, this local market reacts in turn to impede any movement toward concentration, the latter, depending upon an impersonal extensive market. The Tobacco Trust, seeing in this traditional character of the market an obstacle in its path, is attempting to break down the local market or to overcome it by organizing its own re- tail agencies — the United Cigar Stores. J Turning to statistics, we are not surprised to find that ^ the cigar industry is still in many hands. As late as 189s, twenty years after the introduction of the mold, there were no signs of a decided breaking down of the domestic system of production. It is only in the last decade (1895-1905) that there has been a marked ten- dency toward concentration in the large factories and a disappearance of the smaller ones. The following table represents the number of establishments and output since 1875 : ' Based on annual Reports of Ccmnt-issioner of Internal Revenue. 349] THE MANUFACTURE OF TOBACCO 8/ Average Output of Cigars per Establishment. Total output Percent 'J^ Number of per factory increase per establishments. per year. establishment. 187s 15,005 130,000 189s 30,000 145,000 10 1905 a6,7oo 290,000 100 As the maximum number of cigar makers in the coun- try in 1895 was probably about 120,000, the average shop or factory would then be employing only four workers. Putting the maximum in 1905 at 150,000, the average would still be only six. Averages here are mis- leading. The actual situation presents on the one hand shops of one or two employees (including the owner), and on the other hand, large factories employing as many as one thousand workers. In order to present more accurately the real cliaracter of the organization on the side of production, we give in the following table statistics for Pennsylvania, the leading cigar manufacturing state in the Union : Organization of the Cigar Industry in Pennsylvania. Number of Capital Value of establishments, invested. Employees. product. 1890 1967 $9,471,276 17.385 $19,978,000 1900 2664 13,836,368 25,045 31,483,141 1905 2774 22,082,487 30,320 39,079,566 Notwithstanding the fact that the above census figures include all factories having an output of $500 or more, the total (2774) is only fifty per cent of the entire num- ber reported by the Commissioner of Internal Revenue.' Even of those reported in the U. S. Census" (as given above) the average number of employees per establish- ' Of. Report of Commissioner of Internal Revenue ending June, igo6. ' Census of Manufactures, Bulletin 60. 88 TOBACCO INDUSTRY IN THE UNITED STATES [350 ment in 1890 was nine; in igoo, less than 10; and in 1905, only II. The output per factory was only $10,- 000 in 1890; $11,000 in 1900, and $15,000 in 1905. The movement toward concentration, stimulated by machine production, was greatest in the last five years. In Pennsylvania, for instance, where the domestic system has persisted with greatest vigor, seventy-eight estab- lishments, less than three per cent of the total number (2774) produced fifty-four per cent of the entire product in 1905,' whereas, sixty-eight per cent of the establish- ments (1908) produced less than ten per cent of the entire product. In the following table is shown the dis- tribution of output in sm.all shops and large factories : Summary of Establishments fob Pennsylvania Cigars and Cigarettes.'! Establishments. Wage earners. Value of product. Producing No. fc No. % Amount. fe Less than $5,000.... 1908 68.8 2,600 8.6 $3,589,682 9.2 $5,000-20,000 588 21.2 5, 018 16.5 5,615,226 14.4 $20,000-100,000 200 7.2 6,886 22.7 8,761,972 22.4 $100,000 and more. 78 2.8 15,816 52.2 21,112,242 54.0 From this it appears that only nine per cent of the total number employed work in factories of two men or less ; and over 62 per cent are engaged in establishments averaging 200. What is true of Pennsylvania is true generally of the other states. In New York State, for instance, 72 per cent of all the cigar and cigarette es- tablishments ^ manufacture only eight per cent of the product. In Ohio 75 per cent of the establishments produced, in 1905, only 14 per cent of the product, whereas 6.8 per cent produced 67 per cent of the pro- ' Census of Manufactures Bulletin, 60, p. 40. 'As Pennsylvania produces scarcely any cigarettes, the figures are practically for cigars. 'C/. Census of Manufactures , 1905, N. Y. Bulletin, 59. 351] THE MANUFACTURE OF TOBACCO 89 duct. In Massachusetts 60 per cent of the factories produced 6.6 per cent, and 12 per cent of the factories produced 80 per cent of the total product. Making allowance for the output in the many small shops not reported in the census, it is safe to assume that less than twenty-five per cent of the total product of the country is manufactured in small shops of two or three workers, which were almost universal up to 1880, and very ex- tensive up to 1890. Gradually but surely the large fac- tory is crowding out the small shop. Machine production is not the only factor making for concentration in the cigar industry. To this must be added the desire to economize by purchasing raw material on a large scale, not only the leaf, but boxes and labels. Furthermore, there is the decided gain in advertising and marketing expenses which, in the cigar trade, is no small item, since the value of a cigar depends so largely on a supposed reputation created by such advertisement. The many large factories existing prior to the introduction of machinery owe their position to their economies in the purchase of raw material, the cost of advertising and the expense of selling agents. It was these large factories that first encroached upon the market of the local producers, since the former found it necessary, as well as profitable, to extend their markets. The largest cigar factories are located either near the tobacco fields or in proximity to a world labor market and are found in New York, Philadelphia, Boston, Chicago and Cincinnati. The important factories at Tampa and Key West are located there to be near the source of supply of raw material,' Cuba and Florida, and ' It has been charged that many of the manufacturers moved to Florida because of the possible advantage in buying cheap leaf tobacco smuggled from Cuba. 50 TOBACCO INDUSTRY IN THE UNITED STATES [352 ilso to take advantage of Spanish-Cuban labor, which :an be more easily induced to settle in those cities. The following table gives the distribution of cigar manufactures among the leading states in this country: Production of Cigars since 1880. Largest manu- 1880. 1885. 1850. 1855. 15CO. 1505. factoring f= fo % % % % center. Pennsylvania 19 23 27 28 26 28 Philadelphia. New York 32 33 27 23 21 20 New York. Ohio g 7 7 10 10 8.8 Cincinnati. Illinois 545644 Chicago. Maryland 6 6 Baltimore. Virginia 5 8 Richmond. Florida 4 3 4 4 Tampa.. The lead taken by Pennsylvania has been due to the profitable exploitation of child and female labor under the household system of production. A large quantity of cheap cigars and stogies is still made in this way in the homes of farmers during the winter months, and in the homes of the mine workers throughout the entire year. Cigars are thus produced at fifty per cent below the average non-union wage. As a result of the economic waste involved in the disorganized character of the retail trade, the rate of profit on each unit sold must necessarily be high. When a business is apportioned among so many hands as is the cigar trade, large profits must be ofifered to the re- tailer as an inducement to carry in stock that particular line of goods. The cigar that is ordinarily retailed for five cents ($50 per M.) is bought from the manufacturer or jobber for $25 and $30 per thousand, the cost of production approximating $20 per thousand ; so that the manufacturer's profit is 20 per cent and the retailer's 100 per cent. It is the elimination of this unusually 353] THE MANUFACTURE OF TOBACCO 91 high rate of middleman's profit that the Trust aims to accompHsh through the organization of its chain of up- to-date retail stores. By this development the Tobacco Trust is rendered complete in its organization from the purchase of the raw leaf to the sale of the finished pro- duct direct to the consumer. In our opinion, there is a distinct gain to the general consuming public through the concentrated organization of the cigar industry, pro- vided the Trust is not in a position to enjoy a monopoly profit as a result of its position. A successful control of the selling market will mean a forward step in the direc- tion of concentration on the side of production. For it is the trade of the small store and the small manufacturer that is being captured, and this will hence involve merely an addition to the working capacity of the large stores and larger factories. Thus both factors seem to react upon each other in shaping the character of the industry: on the one side, every important change in methods of production has led to concentration, which, in turn, has made possible, be- cause profitable, an extension of the market ; and, on the other hand, every successful expansion of the retail market has signified a concentration in production. In the manufacture of plug, smoking and chewing to- bacco, snuff and cigarettes, the course of development has been similar to that of the cigar industry only more rapid. The production of " manufactured tobacco," ' cigarettes and snufif, however, was nej^er carried on to the same extent, under the domestic system nor was its sale restricted, as was that of cigars, to so limited a local ' " Manufactured tobacco" includes plug, chewing and pipe smoking tobacco, and fine cut. We have followed here the classification used in the reports of the Internal Revenue Commissioner — manufactured tobacco, snufif, cigars and cigarettes. 92 TOBACCO INDUSTRY IN THE UNITED STATES [354 and personal market. In these branches of the industry machinery at an early date became more important than skilled labor, and later, even crude labor was largely dis- placed by improved machinery. To-day only five per cent of the total cost of production is attributable to labor, whereas in the cigar industry labor still represents about twenty per cent. The reason for the adaptability of machinery to the production of manufactured tobacco, snufif, and cigarettes, is obvious enough when we consider the nature of the products. In the manufacture of plug, chewing tobacco, or cigarettes, no selection and shaping of the leaf is re- quired. The leaf, before it enters into the finished pro- duct, is cut up into flakes or shreds, or, as in the manu- facture of snufif, is pulverized by power machines. The finishing of the product consists merely in shaping the raw material into the desired form, which can also be easily performed by machinery. Perhaps a detailed de- scription of some of the important processes in the man- ufacture of a single product, like plug, will make clear the general technical conditions of the entire industry. The leaf must first be stripped ; that is, the tough midrib removed. For this a machine has been introduced. As the leaf in one bundle varies in quality, a selection and classification is necessary for the dififerent purposes. This is done by unskilled female labor. The leaf is then subjected to adulteration. Large vats of " sauces " and "flavors," the principal ingredients in which are sugar, licorice and alcohol, are prepared, into which the leaf is dipped. After it is saturated with this flavoring sauce, the leaf is passed through rollers or wringers, which squeeze out the surplus liquid. The sweetened leaf is next taken to a "lumping" room, where a machine cuts, presses and shapes it into the conventional form. 355] THE MANUFACTURE OF TOBACCO 93 Finally the sweetened cakes are wrapped in carefully selected and attractive leaf. There remains further only the pressing and packing into cases. In all these pro- cesses it will be observed that where human labor is necessary, it is of a low and unskilled grade, the heavy work being performed by machinery. What is said of the manufacture of plug, is likewise true of the other products — smoking and chewing tobacco, snuff and cigarettes — in connection with all of which ma- chinery is more important than skilled labor. It is worth noting that in the manufacture of cigars, machinery has been successfully introduced only in the production of that class of goods which is not unlike cigarettes, that is, " scrap " or short filler cigars. It is necessary for the machine merely to measure the quantity of leaf and to roll it, but not to select and shape the leaf, as in the manufacture of long filler cigars. The possibility of employing machinery and crude labor was not the only factor which led to large scale produc- tion. An important jj^em_in the market value of manu-^ factured tobacco, snuff and cigarettes, is the element of uniformity. Once the customer is accustomed to a brand he will continue to use it, provided the quahty can be, sustained from year to year. Now, in order-to-maint^in this uniformity, the manufacturer must be in a position to purchase from year to year the same quality of raw leaf. The large producer, rather than the small one, possesses this power, the choice of the latter being usu- ally limited to that part of the crop which has not been selected by the large producer. As a result of this, the small manufacturer may often pay less than the large manufacturer, but his goods lack uniformity. Another condition of the trade which favors the large rather than the small producer, is the importance of 94 TOBACCO INDUSTRY IN THE UNITED STATES [356 advertising a brand. Notwithstanding the fact that each manufacturer uses a secret formula in the adulteration process, the products of one manufacturer are hot funda- mentally dififerent in character or quality from those of his competitors. The sale of the finished commodity must accordingly be made on the basis of a created or ficti- •^ tious reputation. Hence t he value of advertisingjbrands, J which are always more economical when operated on a large scale. Under such conditfons the industry soon became organ- ized on the basis of large-scale production. Improved and costly machinery, economy in the purchase of raw material in bulk, not only leaf, but adulterating ingredi- ents, as well as labels and packing material, economy in advertising brands and in marketing goods, all have co- operated in favor of the large manufacturer as opposed to the small producer. \ Although the output of manufactured tobacco in 1875 I was far greater than that of cigars, there were only 980 tobacco manufacturers as compared with 15,000 cigar manufacturers. Subsequently each technical improve- ment enabled the large producer to increase his output at a less cost per unit, while he could easily dispose of his goods in the market which he had already organized and controlled. In i860 and 1870 the average capital investment of a cigar factory was less than $3,000, (chiefly circulating capital), whereas the investment in a manufactured tobacco factory averaged $15,000 in i860 and $25,000 in 1870. Concentration in production since the Civil War is shown in the following table, based on census figures : ' ' The Census omitted smaller factories. The figures of the Internal Revenue reports show no such decline in the establishments as would appear from the Census data. 357] •'^^^^ MANUFACTURE OF TOBACCO 95 Concentration in the Manufacture of Tobacco. i860. 1870. 1880. 1890. 1500. 1905. Number of es- tablishments. 626 573 477 395 437 433 Capital invested per establish- ments $15,000 $25,000 $40,000 $75,000 $100,000 $400,000 Employees per establishment. 30 40 70 78 75 55 Output per es- ^^_^' tablishment .. $35,000 $70,000 $110,000 $165,000 $235,000 $270,000 Judged from the standpoint of capital investment as well as output per factory,' the above figures indicate a rapid concentration since 1890. A second inference from these data is the increasing importance of machinery in production. Although the value of the output from 1880 to 1903 increased from $52,000,000 to $116,000,000, (120 per cent increase) , the number of workers engaged in the industry fell from thirty-two thousand to twenty-three thousand, (a decrease of 40 per cent). Anticipating here the Trust development, discussed in our following chapter, we desire to point out, in passing the extent to which large-scale production and concentration had been realized prior to the control of the industry by the Am- erican Tobacco Company in the nineties. Parallel v/ith the movement toward large-scale produc- tion has been a corresponding concentration in the locali- zation of the industry. In 1905 more than 68 per cent of the total output came from eight cities — St. Louis, Durham and Winston (N. C), Louisville, Richmond, Cincinnati, New York, Petersburg (Va.). The combined output of fifty factories in St.. Louis, Louisville, Winston and Durham, was $63,000,000, or more than fifty per cent of the total product manufactured in the United > We do not refer to concentration of control or ownership. 96 TOBACCO INDUSTRY IN THE UNITED STATES [358 States. This geographical concentration has been has- tened by the Trust ownership and control of seventy-five ^ per cent of the entire industry. ' The location of these large factories has been deter- mined by two factors : nearness to supply of raw material and proximity to the labor market. In general, the -South, which produces the leaf used in manufacturing, has the largest output. The large plug and smoking tobacco factories of St. Louis. Louisville and Cincinnati are supplied with_Burley leaf from Kentucky, Tennes see and Ohio. Winston and Durham are located in the regions of North Carolina that grow the leaf used in the manufacture of cigarette and smoking tobacco. These locations are favorable also for the employment of cheap labor — very large industrial centers and poor farming communities offering cheap labor, including women and children. In order to exploit the supply of cheap city )labor, large snuff, smokmg tobacco ami. cigarette fac- tories are located in Jersey City, New York, Philadelphia and Chicago. Although the raw leaf for cigarettes is grown in North Carolina and Virginia, about fifty per cent of the entire output is made in New York City where machine operators can be engaged cheaply. In the tables on the next page is presented the geographical distribution of manufactures of tobacco and snuff and cigarettes. In consequence of the importance of machinery and mechanical inventions in the manufacture of cigarettes thij_mdustry_was_tlxe_£rst_branch of the trade to dis play a marked concentration in localizat ion as well as i n o wnership . Hence it will not surprise us to learn that the American Tobacco Company began its activities in the direction of combination in the manufacture of cigar- ettes where a combination seemed feasible and practi- cable. 359] THE MANUFACTURE OF TOBACCO 97 h h D m a < o u u CO n I? 3 •O O J3 O 2S Mrt ■= O JO- 2 M E c bo o 81 o £3 •is 132 Eg- bo o PhCO •o S o 60 .O .S 2 •a n> O u u o bo a o E (O . E c bo " . j2 .3 bo boo bpS .^ o c "S. § S 3 ° CO o •O lO lO 8> ^ ^:? N t^ 00 vo (^ CO ■* w ^ «°- «00 « t^vo ■<1- to "? I 00 tN. Oi CO O 'i- Ov'O ro lo ^ lOOO 00 tH lo mm hVO -^ tJ- CO •m tJ5 ■^^ OJ3 ai-» m ■M (O U) c& Siz: Ml? bo a 5 :§ H ie b 1 11 u S •^•o S 'C *? ^^ 55tiiQ:z: t^ v8^"2 H l« ^ M U In o 1^ HI M M 0\" in M « D H g ''S^.2 & wifa u.b o o ^ > :z al C)8 TOBACCO INDUSTRY IN THE UNITED STATES [360 Along with the integration and concentration of pro- duction came a more scientifically organized selling market. The extremely high profits enjoyed by the re- tailer in the sale of cigars is in striking contrast with the rate of profits in the sale of manufactured tobacco. In the former, as we learned above, the rate averaged from 75 to 100 per cent of the selling price; whereas in the latter it approximates 25 per cent. Where the Trust control is strongest and competition least active, profits are lowest, as in cigarettes, in the sale of which gross profits for the retailer are only 20 per cent. The predominating influence of machinery in the pro- duction of plug, chewing tobacco and cigarettes has en- abled our manufacturers to compete abroad, which is im- possible in the cigar industry because of the relative cheapness of foreign labor. Our exported manufactured tobacco products, in 1905, of $5,000,000 are practically restricted to plug, chewing tobacco and cigarettes. A detailed study of our foreign trade will be attempted in a later chapter. We refer to our foreign trade here merely as an illustration of the close relation between the particular character of the organization of an industry, with respect to capital and labor, and the marketing of goods in general. In this chapter it has been our aim to interpret the development of the manufacture of tobacco in the light of technical improvements and of changes in the character of the selling market : the former working internally and the latter externally to transform the organization of the industry. The dependence of a cigar industry upon skilled labor and little fixed capital gave rise to a do- mestic system of production, which in turn resulted in the organization of a selling market along local and per- sonal lines. Large-scale production, which originally 361 J THE MANUFACTURE OF TOBACCO 99 resulted from economies in the purchasing of raw material, is moving rapidly toward further concentration under the stimulus of machine production. The giant factory of one thousand workers has not yet succeeded, however, in dislodging completely the small shop employing no more than five men. The vast number of the latter, as many as 20,000 scattered throughout the country, still produce about 25 per cent of the entire output, and employ an even larger proportion of the entire number of workers. In the manufacturing of all other forms of tobacco, machinery and fixed capital have been more important than labor and hence the small producer has been entirely crowded out of the market. The economy of large scale production led to concentration of ownership, which finally, culminated in the Tobacco Trust. The conditions of production in the cigar industry made possible a labor organization which has been able to protect the interests of the worker. In the other branches of the industry, however, where only unskilled labor is required, the position of the worker must neces- sarily be dififerent. We have purposely avoided a thorough discussion of these last two problems — the Trust movement and the labor problem — since both are reserved for more ex- tended study in the two succeeding chapters. APPENDIX Comparative Summary of Manufactures of Tobacco Showing Capital Investment, Number of Wage- Earners AND Value of Product For all Products Combined— Plug, Chewing Tobacco, Snuff, Smoking Tobacco, Cigars, Cigarettes, etc. 1880. i8go. 1900. 1905. Capital' $38,905,950 $90,359,234 $111,527,318 $324,082,501 Wage-earners 86,053 116,790 142,526 159,408 Valueof product'. 125,773,631 195,563,862 263,713,173 330,117,681 The above table is based on Census of Manufactures, 1905, United States. 'Capital excludes stocks, etc., of corporation. It represents assets of the factory in operation. ' Product is valued at the factory and corresponds to cost of produc- tion. 100 [362 CHAPTER IV The Tobacco Trust Unlike many of our large industrial combinations, the Tobacco Trust does not owe its success to discrimi- natory transportation rates or monopolistic control of the supplyof raw material, which have been predominating influences in the development of the Standard Oil Com- pany, the United States Steel Corporation and other large trusts. Neither can its achievements be attributed primarily to the monopolistic possession of any superior method of production protected by patent rights. Sim- ilarly with respect to the marketing and sale of goods, it has enjoyed no resources denied, legally or politically, to its competitors. In a word, the Tobacco Trust stands ' forth as a conspicuous example of that type of industrial combination which owes merely to the magnitude of its j working capital those advantages in production and dis- tribution which enable it to crush competitors until it is in possession of a large part of the entire market. To discover what these specific advantages are and how they have been utilized in overcoming competition, is the main Tjurden of this chapter. We have singled but for extended analysis only those features of the Trust which serve to ■characterize and explain its development. These are conveniently presented under the following heads: (i) genesis and history; (2) methods of competition; (3J economic advantages; (4) monopolistic features; (5) legal aspect; (6) financial operations and organization. 363] 101 I02 TOBACCO INDUSTRY IN THE UNITED STATES [364 T/ie genesis of the trust. Up to the middle of the nineties, cigar production, as we learned in the preced- ing chapter, was — as it is still to some extent — carried on under the household or domestic system. Machinery had not yet found its way into the industry. As a con- sequence, production as well as distribution, lay in many hands. The small producer, with his shop of three em- ployees and a working capital of $1500, supplied the local retailer in his particular neighborhood. In 1890 there were no less than 23,000 of these small producers, with an average annual output of $5000. An industry so decentralized was not prepared for any large concen- tration of interests, much less was it susceptible to a trust form of organization. In the manufacture and sale of plug, chewing tobacco, smoking tobacco, and snuff, conditions were more favor- able for an amalgamation of interests. Improved machine production and modern methods of marketing goods led gradually to the extinction of the petty and local manufacturer and to the rise of large producers, catering to an extensive world market. In 1890 an outpvit valued at $65,000,000 was produced in only 395 establishments, employing on the average from fifty to one thousand workers. The smaller factories had each an annual out- put of $100,000. Some leading brands, like " Duke's Mixture " and " Seal Skin," had a demand extending over several states. Notwithstanding this, there was no sign of a combination of interests in this branch of the in- dustry until the American Tobacco Company began in the middle of the nineties to absorb and annex it to its successfully centralized cigarette business. ;;, It was in the cigarette industry that the germ of the modern trust was planted. From the outset cigarettes were a machine product, and the business always lay in 365] THE TOBACCO TRUST 103 few hands." Subsequent to the introduction of several efficient machines, about 1890, principally the "Bon- sack" and the "Eliot," came a war of destructive com- petition among the large producers in their struggle for the market. During this wasteful contest it occurred to Mr. J. B. Duke, the owner of the "Bonsack" machine, to attempt an organization of the largest manufacturers. At that time (1890) ninety-five per cent of the entire output was produced in four cities; New York City, Rochester, (N. Y.), Durham and Richmond. The five constituent companies'" that formed the original American Tobacco Company controlled probably eighty- > five per cent of the cigarette trade.^ Combination in the cigarette industry was furthermore relatively easier since the entire output was valued at $9,000,000 compared with $60,000,000 for manufactured tobacco, and $100,- 000,000 for cigars.'' In explaining the origin of the Tobacco Trust in the cigarette industry, the above three factors must be considered together : (i) Technical conditions of production, requiring a large capital investment, and making for large-scale pro- duction and concentration ; (2) Invention of machinery, leading to keen and wasteful competition to escape from which a combina- tion of interests was a natural remedy; ' Of. pp. 97, 98. ^W. Duke and Sons (N. Y. City and Durham), Allen and Ginter (Richmond), W. S. Kimball (Rochester, N. Y.), Goodwin and Co. (N. Y. City), Kinney Tob. Co. (N. Y. City and Richmond). ^ Mr. Duke estimated the original control at 80 to go per cent. Of. N. Y. State Legislative Investigation of Trusts, 1897, p. 865. * The entire output of cigarettes (annually) was 2,230,000,000; estimat- ing it at $4.00 per M. (which was high in 1890), the entire value would approximate $9,000,000. I04 TOBACCO INDUSTRY IN THE UNITED STATES [366 (3) The size and extent of the industry offered no serious obstacle. The five constituent' cigarette companies were organ- ized, in 1890, into, a single corporation, The American Tobacco Company, with a capital stock of $25,000,000. There were now under a single control the largest cigarette factories, favorably located, equipped with the most effi- cient machinery, possessing the leading brands, and hav- ing about 85 per cent of the entire output of the country. Still it exercised then no monopolistic control. When the Eliot machine was released by the courts from the injunction imposed upon it, independent manufacturers were able to produce and compete on equal terms with the American Tobacco Company. (Since it was impossi- ble to control the supply of raw material, as its cultiva- tion could easily be extended, direct competition in the selling market was the only weapon open to the Trust in its efforts to control the market. As far as we are able to learn, railroad rate discrimination was not enjoyed by .the Trust in its contest with adversaries. Besides, trans- portation charges constitute so small a part of the total cost of production that it could not have been a decisive factor, even if it were practiced. It was by a long-drawn battle of cut-throat competition that independent producers were forced to surrender. The most dangerous foe of the Trust was the National Cigarette and Tobacco Company, which was able to retail a package of "Admiral " cigarettes (twenty) for five cents, in direct competition with the famous Trust brand "Sweet Caporal," retailing ten for five cents. The Trust immediately be- gan to offer to jobbers its leading and popular brands at cost price. The National Cigarette and Tobacco Com- ' Supra, p. 103, footnote 2. 367] THE TOBACCO TRUST 105 pany could not hold out very long against the Trust with its immense capital. One by one the independent producers felt the deadly effect of competitive methods which we shall presently describe in detail. As early as 1896 the American Tobacco Company was practically in control of the greatest part of the entire cigarette market. The largest independent companies were finally absorbed, among which were the National Tobacco Works of Louisville, the T. H. Hall Cigarette Company of New York, and the Consolidated Cigarette Company, New York. In 1897 the American Tobacco Company was one of the several Trusts investigated by a committee of the New York State Legislature, as a result of which the directors were later indicted.' But legislative investigations and legal indictments did not check the growth of the Trust. By 1898 its capital stock had increased to $70,000,000, much of which had been invested in the manufacture and sale of other pro- ducts — plug, chewing tobacco, smoking tobacco and snuff. This brings us to the second stage in the development of the Tobacco Trust — the concentration of the tobacco manufactures.' This step seemed as inevitable as it was feasible. In the first place, most of the large cigarette factories that were absorbed by the American Tobacco Company also produced, to some extent, these other products — plug and smoking tobacco, etc. Further- more, it was apparent that the control of the sale of cigarettes to retailers was an entering wedge for the control of other products. By offering special rebates ' Investigation of Trusts, by New York State Legislature, 1897. ' Used here in the technical sense — manufactures of plug, smoking tobacco, chewing tobacco and snuff. lo6 TOBACCO INDUSTRY IN THE UNITED STATES [368 on leading cigarette brands, the Trust induced the re- tailer to push its new brands of plug and smoking to- bacco. In 1 89 1 the American Tobacco Company pur- chased three large producers of manufactured tobacco^ the National Tobacco Works, Marburg Bros,, and Gail and Ax Company. In 1895 it absorbed the very large firms of James G. Butler Tobacco Works (St. Louis) and the P. Lorilard Company of New Jersey. Many less important manufacturers also came into the Trust fold.' f After purchasing the large plug interests of The Drummond Tobacco Company and the Brown Tobacco Company of St. Louis, the movement culminated in October, 1898, in the organization of the " Continental Tobacco Company," with a capital stock of $75,000,000. This was confessedly a creature of the American Tobacco Company, having for its avowed purpose the concentra- tion and control of the plug interests of the country. The capital which the American Tobacco Company had invested in the manufacture of plug was transferred to the Continental Company in exchange for $30,000,000 of common stock of this new company. Mr. J. B. Duke was president of both companies — The American To- bacco Company and the Continental Tobacco Company. In its official announcement the Continental stated that it owned " the properties, rights, trade-marks, names, and assets, etc.," of the following concerns : John Finzer & Bros., Louisville, Ky.; P. H. Mayo & Co., Richmond,. Va.; Daniel Scotty & Co., Detroit, Mich.; P. T. Sorg Co., Middletown, O.; Drummond Tobacco Co., St. Louis, Mo.; J. Wright Co., Richmond, Va.; Wright ' Among others were P. Whitlock Co., Richmond; Heinshein & Co., New Orleans; Ellis & Co., Baltimore; A. H. Motley & Co., Relds- ville, N. C. Cf. N. Y. State Legislative Investigation of Trusts, 1897,. p. 863. 369] THE TOBACCO TRUST 107 Bros. Tobacco Co., St. Charles, Mo.; P. Lorillard Com- pany, New Jersey ($3,000,000 stock); American Tobacco Company's plug interests. The largest single plug pro- ducers, Liggett and Myers, of St. Louis, controlling no less than fifteen per cent of the entire trade, refused to amalgamate with the Trust, except upon terms more favorable to itself than the Trust offered. The Trust be- gan immediately to encroach upon the markets of this firm, by selling the finished product ten per cent below the standard price, besides offering premiums to sales- men.' Liggett and Myers retaliated with a similar cut in prices. This competitive war was carried on for sev- eral months, when the Trust finally bought out its com- petitor (April, 1899) at a figure that seems abnormally inflated. The Trust paid $12,500,000 for the entire plant, which was equivalent to $1366 for each $100 share of stock of the absorbed company." To raise the sum necessary for this purchase, as well as to facilitate the absorption of two more companies, ^ the Continental issued $25,000,000 new stock. The stock issued seems often to have been out of proportion to the value of the properties absorbed by the Trust. According to the first annual report of the Continental Tobacco Company, its capital stock was $100,000,000, and its combined output of plug annually was 130,000,- 000 pounds.* This implied that seventy-five per cent of the entire plug production was now in control of the Tobacco Trust, which, for several years past, also con- trolled a similar proportion of the cigarette trade. The ' Cf. Commercial and Financial Chronicle, vol. 67, p. 841 (1898). "•md., Oct. 2, 1898. 'The Union Tobacco Co., of Albany, ^nd The Buchanan and Lyall Co., Brooklyn. ' C/. Commercial and Financial Chronicle, vol. 70 (1900), p. 738. I08 TOBACPO INDUSTRY IN THE UNITED STATES [370 Continental was launched with the aid of the Standard Oil influence. Messrs. O. H. Payne and Thomas F. Ryan remained actively interested in the future promo- tions of the Tobacco Trust, the latter being a director until his resignation in 1906. In 1901 the two companies — the American Tobacco Company and the Continental — were amalgamated into a holding company of New Jersey, known as the Consoli- ' dated Tobacco Company. Although the avowed purpose of this new organization was to harmonize the interests of the two companies, it so happened that in the process of amalgamation the insiders^ incidentally pocketed a large part of the surplus funds, by methods which have long since come to be associated with "high finance." The operations of the Trust did not cease with the control of the markets for cigarettes, plug, smoking tobacco and chewing tobacco. In March, 1900, came a consolidation of the snufif business through the launch- ing of a new concern, the American Snufif Company, with a capital stock of $23,000,000. As in the formation of the plug Trust, so here, the nucleus was the property and the factories of the American Tobacco Company. The latter sold its interests for $4,500,000 to the Ameri- can Snuff Company, which was from the first a subsidiary organ of the Trust. The first official statement of the American Snuff Company showed that it owned in fee simple, or held the majority stock of the following snuff concerns: Atlantic Snuff Company, Philadelphia, Pa.; George W. Helme Co., Helmetta, N. J.; Southern Snuff Company, Memphis, Tenn.; Bruton & Condon, Nashville, Tenn.; Steward Snuff Company, Clarksville, Tenn.; W. E. Geret & Sons, Philadelphia, Pa.; Steward Ralph Snuff Company, Philadelphia, Pa.; Dental Snuff Company, Lynchburg, Va.; Helmetta Mercantile Co,, Helmetta. N. 371 ] THE TOBACCO TRUST 109 J.; Bowers Snuff Co. (American Tob. Co. Plant), Changewater, N. J.; P. Lorillard Company's plant at Jersey City. Their total output in 1900 approximated fifteen million pounds, which was practically the entire snuff production of the country. The total output to- day is twenty-two million pounds, of which the Trust controls probably ninety per cent. In 1901 began the Trust movement for the assimila- tion of the cigar industry. In that year was organized the American Cigar Company, with a capital stock of $10,- 000,000 with which to buy up independent manufacturers. An auspicious beginning was made in the purchase of one of the largest and best known producers of domestic cigars, — Smith, Powell and Company. This was followed in the same year by the absorption of the Hummel- Vogt Company of Louisville, and the P. Whitlock Cheroot Factory of Richmond, Va. Shortly afterwards the inde- pendents were startled by the report, which later proved to be authentic, announcing the purchase by the Trust of two very large independent producers, — the Brown Brothers Company of Detroit, having a capacity of 40,- 000,000 cigars annually, and the Roth, Bruner & Feist Company of Cincinnati. To keep pace with, as well as to hasten, the process of absorption, the capital stock of the American Cigar Company had been increased from $10,- 000,000 in 1901 to $40,000,000 in 1906. Negotiations are now pending (March, 1907) for the absorption by the Trust of the largest independent concern manufactur- ing domestic cigars, namely, the United Cigar Manu- facturers Company, having a capital stock of $20,000,000, and controlling seven per cent of the entire output of the country.' ' The United Cigar Manufacturers Company comprises the three larg- no TOBACCO INDUSTRY IN THE UNITED STATES [372 It is difficult to ascertain what proportion of the domestic cigar industry is now in the hands of the Trust ; but it probably does not exceed twenty-five per cent. Several reasons may be assigned for the slow headway made by the Trust in this branch of the industry. As we pointed out in the preceding chapter, the cigar industry has been organized on a petty basis, on the side of production as well as of distribution. We learned, in that connection, how, until the introduction of bunch-making machines, the Trust had no decisive advantages over the small producer. Even to-day, the large independent manufacturer can produce cigars as cheaply as the Trust. To secure a monopoly of further inventions of cigar machinery, the Trust bought control of the International Machine Company, which held patent-rights on some recent inventions.' Turning to distribution, the Trust discovered that the selling market was not susceptible to easy control. In the sale of manufactured tobacco, a single retailer usually markets all products ; so that once the Trust has secured a foothold with the retailer in any particular product, say cigarettes, it is relatively simpler to extend control over the sale of the other commodities — plug, chewing and smoking tobacco and snufif — than it is to gain control over many retailers who carry in stock only cigars. In the latter case the undertaking is equivalent to gaining control over a new industry. The Trust is further handi- est single establishments in the country — Kerbs, Wertheim and Schiffer; Hirshorn, Mack and Co.; Straiten & Storm Company. Their net earnings in 190S were $1,262,787. ' It was reported recently in the Tobacco Trade Journal, Feb. 19, 1907, that the Trust had installed in its factories at Kingston, N. Y., some new cigar machines which perform automatically all the pro- cesses from making of the bunch to wrapping the cigar and cutting off the "tuck." 373] THE TOBACCO TRUST m capped by the fact jthat its goods are non-union. The Union laber is an important factor" in the retail cigar trade. Over twenty per cent of the entire output bears the label. With no decisive advantages in production over the large independent producers and with the retail market organized on a petty, local, and personal basis, the Trust found it necessary to invent new instruments with which it could overcome some of the initial obstacles in its path. It decided upon the organization of its own retail agencies as the most effective means of capturing the cigar market. Here was a direct method of placing the Trust goods in the hands of the consumer without the aid of a middleman, either wholesaler or retailer. The chain system of the United Cigar stores has been remarkably successful. The Trust has to-day something like one thousand stores, located in every large city in the United States. It is said to have over three hundred in New York City. Every advance in the control of the retail market means an added step in the direction of concen- tration in production. A further extension of the chain system of retail agencies is the recent organization of the National Cigar Stands Company, which aims to control the cigar trade of drug stores. This subsidiary company of the Trust already controls the retail cigar stands in the leading drug stores of the country. The National Cigar Stands Company supplies the outfit, show-case, all advertisements, and window display, on condition that the proprietor of the drug store, besides paying a small rental fee for the use of the outfit, consent to carry only such goods as are permitted by the National Cigar Stands Company. Although the United Cigar Store Company has declared a seven per cent dividend annually for three years, the American Cigar Company, 112 TOBACCO INDUSTRY IN THE UNITED STATES [374 through which the Trust conducts its cigar manufactur- ing business, has not yet declared any dividends on its common stock.' The Trust controls the stogie trade through the American Stogie Company, which produces practically the entire output of the country. It has a capital stock of $12,000,000. The most profitable branch of the cigar industry is the manufacture and sale of Havana goods, domestic and Cuban made. In 1902 the Trust began operations to absorb this trade. The Cuban manufacturers were already largely concentrated in three companies, the Henry Clay and Bock Company (an English concern). The Havana Commercial Company (an American Com- pany), and the Cubanas Company. In 1902 the Con- solidated Tobacco Company, which was then the Trust holding Company, secured control of each of these three companies, which were ultimately (1902) merged into the present Havana Tobacco Company." Although the Trust controls about fifty per cent of the Cuban-made cigar trade, the Havana Tobacco Company has never succeeded in earning dividends for its common stock, which has generally been, quoted below thirty on the market and in 1906 went down to ten. It is said that the reputation which the Cuban cigar once possessed in America and in Germany is now being impaired under the Trust control, as a result of a deterioration both in the quality of leaf and in the workmanship employed in its manufacture. The largest American importers of Havana goods are Park and Tilford, and the Waldorf Segar Company, both handling, almost exclusively, goods of independent (non-Trust) manufacturers. ' It has outstanding to-day $20,000,000 four per cent gold bonds, $10,- 000,000 six per cent preferred, $10,000,000 common stock. * Cf. Commercial and Financial Chronicle, vol. 74, p. 1142 (1902). 375] THE TOBACCO TRUST 113 An interesting chapter in the development of the Trust is its movement in foreign markets that were open to competition.' The American Tobacco Company was so successful in Japan that the government was forced to take over the industry; the profits which seemed on the verge of passing into the coffers of the Trust, now go to the government treasury/ In 1901 the Trust caused consternation among the German manufacturers by ob- taining control of the Jasmatzi cigarette works of Dres- den, and purchasing later some minor concerns. The outcome of the struggle for the German market is still undecided. In 1902 the Mexican tobacco interests passed into the hands of the Trust at a cost of $9,000,000. The most interesting phase, however, of the Trust movement abroad came in Great Britain. The story is a long one and filled with many exciting incidents, of which, here, only the important can be mentioned. In 1901 the Ogdens Limited, a large company of Liverpool, was bought up by the British Tobacco Company, a crea- ture of the American Trust. The Ogdens Company immediately began to cut prices on cigarettes to English jobbers. This led the independent manufacturers and wholesalers to combine their interests, and they organ- ized the Imperial Tobacco Company ^ to fight the Amer- ican Trust. The competitive struggle between the two ^The governments of France, Italy, Austria, Spain and some minor European countries exercise a monopoly (Regie) over the tobacco trade. 'Japan's complete monopoly of tobacco went into effect in 1904. It now not only exercises control over the sale of leaf as formerly (1896- 1904) , but also directs the sale of the manufactured product, from which it derives a large revenue. 'The Imperial Tobacco Company was comprised of the thirteen larg- est manufacturers of Great Britain, and had a capital stock of one hun- dred million dollars. 114 TOBACCO INDUSTRY IN THE UNITED STATES [376 giant companies was intense and wasteful to both parties. The Imperial offered to distribute annually $750,000 to those dealers who agreed not to handle, for a period of years, goods of the American Company. Ogdens Limited retaliated by offering to dealers who agreed to handle their goods (not exlusively) for four years, a participa- tion in the net profits of the Ogdens Company besides a bonus of $1,000,000 annually. About 4,500 English dealers were induced to accept the enticing offer of the Ogdens Limited, in which it promised to distribute pro rata annually, $1,200,000 ($1,000,000 bonus and $200,- 000 net profits.) Such a procedure meant a losing game for the American and the English manufacturers, and consequently something had to be done to remedy the situation. The natural owtcome resulted: the two com- panies came to an understanding. The Imperial Com- pany paid Mr. Duke, head of the American Trust, $7,500,000, as a bonus for withdrawing from the markets of Great Britain. The American interests, moreover, were given an option on one- third of the $100,000,000 stock of the Imperial Company. To prevent a repetition of wasteful competition in neutral foreign markets, the British-American Tobacco Company was organized to control the trade. The Imperial (English) Company was given a one-third share of the $30,000,000 stock of the British-American Company, the American interests reserving two-thirds. The former has six and the latter twelve representatives on the board of directors, of which Mr. Duke is President. But what about the agreement which the Ogdens Limited had made with the 4500 English tobacco deal- ers? The latter claimed that when the Imperial pur- chased the Ogdens Company, it assumed legal responsi- bility for all its contracts, including the one which 2^y-^-\ THE TOBACCO TRUST 115 entailed a distribution of about $11,500,000 to the deal- ers in return for their agreement to handle the goods of the Ogdens Limited.' The case was carried into court, finally reached the Court of Appeals, which decided in favor of the British dealers, and against Mr. Duke and the Imperial Company. A settlement was finally made, favorable to the dealers." The important point to re- member is that the American Trust displayed its real fighting force as a competitor in the English market and that it brought about an understanding between the largest English and American producers. In 1904 a reorganization of the Trust occurred, whereby the three"~cornpanies — the original American Tobacco Company, the Continental Tobacco Company, and the Consolidated Tobacco Company (a holding company) were merged into one. By this merger all the property, plants, capital stock, etc., of the parent and subsidiary companies passed into the control of a single corporation — the American Tobacco Company of New Jersey, with an authorized capital of $300,000,000, but with an actual issue of $251,710,000. Besides controlling about seventy-five per cent of the entire American trade in cigarettes, plug, chewing and smoking tobacco, and snufif, and about twenty-five per cent of the cigar indus- 'The dealers were promised an annual bonus, for four years, of $1,- 000,000. But they also demanded their share of the $7,500,000, which Mr. Duke received as bonus for withdrawing from the field, claiming that this was part of the proJits of the Ogdens Limited, which profits were, by contract, to be distributed to them. Mr. Duke, on the other hand, maintained that, when he received the bonus from the Imperial he was acting in his personal, not official, capacity, and consequently the bonus was not part of the profits of the Ogdens Limited. ^For detailed information concerning the Trust movement in Eng- land, cf. Commercial and Financial Chronicle, vol. 74, p. 632; vol. 75, P- 735. Il6 TOBACCO INDUSTRY IN THE UNITED STATES [378 try, it also possesses its own licorice plant, tin-foil factory, pipe manufacturing company, machine company and retail as well as wholesale agencies and controls directly some tobacco land in Cuba and in the United States. Since 1904, its activities have expanded. The real magnitude of this $450,000,000 Trust will be more fully appreciated when we consider, in another connec- tion, its financial operations. The circle of the Trust organization is now practically complete from the owner- ship or control of tobacco lands to the manufacture of .products and the marketing of goods. In no other in- dustry has there been developed so complete and so splendid an organization as the Tobacco Trust. So much for its genesis and history. The question which naturally suggests itself is, how did it attain its present power? As we stated at the outset, its develop- ment has not depended upon any railroad-rate discrimina- tion or legal franchise denied to its competitors, nor upon the ownership of the supply of raw material. Nor has its success been the result of any advantages or economies in production such as are usually claimed for the trust form of organization. In our opinion very little economy in production is achieved by extending the size of a tobacco establishment beyond the point already attained by large independent manufacturers. Such economies as the Tobacco Trust has enjoyed, may or may not re- dound ultimately to its advantage. That its present position has been due to these economies, cannot be maintained. It is our belief that its supremacy has been gained by, and still rests upon, the employment of methods of competition which are ordinarily considered unfair ; and that these methods are made possible and practicable by the mere size of its working capital. It is to a detailed consideration of some of these methods of competition that we will now direct our attention. 379] THE TOBACCO TRUST ny Methods of Competition. The most familiar as well as the most effective method has been that of " local com^ petition "^^underselling a single competitor in his own limited market, while sustaining prices elsewhere. JThis device is feasible only for large companies that can make temporary sacrifices for the possibility of greater returns in the future. Its efficiency has been so often demon- strated, particularly by the Standard Oil Company, that we need not multiply instances in the case of the To- bacco Trust. In the early nineties to check the sale of "Admiral" cigarettes manufactured by an independent concern (The National Cigarette Company), the Ameri- can Tobacco Company offered its leading brand, " Sweet Caporal " cigarettes, at cost price exclusively in regions where the Admiral was being successfully marketed. The National Company surrendered soon afterward. In 1901, the American Tobacco Company was selling " American Beauty" cigarettes for $1.50 per thousand, less two per cent discount for cash, when the Revenue Tax alone was $1.50 per thousand. This was done, however, only where the Wells-Whitehead Company had succeeded in market- ing its most popular brand, the " North Carolina Bright " cigarette.' New York jobbers found that by purchas- ing their cigarettes from North Carolina jobbers, after paying a slight premium in addition to freight charges, they would pay less for them than by buying direct from the Trust in New York City. Again, in 1906 the Ware- Kramer Tobacco Company of Norfolk, Va., entered a complaint with the Bureau of Corporations, charging the Trust "with maintaining onej)rice on their products in the North and another in South." In the North the Trust price for cigarettes was from $3.90 to $4.00 per ■ Cf. Report of Industrial Commission, vol. 13, pp. 337-338. Il8 TOBACCO INDUSTRY IN THE UNITED STATES [380 thousand, whereas in the South, where the Ware-Kramer Company was marketing its goods, the price on the same brand was reduced to $3.15 and $3.25 per thousand. This local competition which helped to build up the Cigarette Trust, was practiced in the sale of other products. During the struggle for the plug market between the Continental and the large independent producers, Liggett and Myers, the former was ofifering its " Battle Ax " brand for thirteen cents per pound, which was below the cost of production since the tax was six cents and the raw leaf seven cents per pound. After Liggett and Myers was absorbed, " Battle Ax " rose to thirty cents per pound.' To what extent local competition can be carried on may be judged from the success achieved by the Trust in England and Japan. An instrument frequently employed in making this local competition efifective, is that known as the " factors' Agreement," or the "Consignment Agreement," whereby the jobber is ofTered special rebates for agreeing to handle Trust goods exclusively, or to boycott independent brands. While a two and one-half per cent commission was allowed jobbers who did not discriminate against Trust goods, seven and one-half per cent was given to those who handled Trust goods exclusively. There is published in the " Investigation of Trusts " ' a long list of jobbers whose orders for Trust goods were not filled because they carried in stock independent goods. To injure the marketing of goods manufactured by the United States Tobacco Company, the Trust altered its price list whereby the jobber was to receive 'Cf. Report oi Industrial Commission, p. 339. ' Cf. Investigation of Trusts by N. Y. State Legislature, 1897, PP- 913-921; also Report of Ind. Com., vol. 13, pp. 333-335. 381] THE TOBACCO TRUST ng not as formerly, a uniform profit of two cents per pound, but one cent profit outright, and a five and one-half per cent special discount, provided he handled only Trust goods." Although Mr. Duke in his testimony before the Industrial Commission in 1901 stated that the Trust no longer employed this Factors' Agreement, it was shown in court only recently (1906) that it was still in vogue in Massachusetts, since it was proved conclusively that special rebates were given to jobbers who agreed not to handle certain independent brands.^ The large jobbing concern of E. Locker Company of Brooklyn, was recently unable to have its orders filled by the Trust, the Courts holding that the Trust had the legal right to refuse to sell to whomsoever it saw fit.^ This Factors' Agreement \ is especially potent in crushing any new competition in markets already controlled by the Trust, for the jobber is loath to risk his assured profits, derived from the sale of established Trust brands, in exchange for the. doubtful income from new, independent goods. Under such con- ditions potential as well as actual competition is reduced to a minimum. In a recent speech, Mr. H. D. Mills, President of the Independent Tobacco Manufacturers Association, said, " that the Trust had the jobbers, who are the distributing agencies of manufactured goods, in such a position that it was almost impossible in some sections of the country for independent manufacturers, ^ Report of Industrial Commission, vol. 13, p. 306. ' Cf. Case of Commonwealth (Mass.) vs. Strauss, 1906. While the Trust won its case on some technicality, the courts upheld the constitu- tionality of the State Law forbidding this practice. ' The Trust was interested in building up its own wholesale agency in Greater New York, and hence refused to supply independent jobbers with their established brands. The Metropolitan Tob. Co., a Trust concern, is now in control of the N. Y. jobbing market. C/.E. Locker & Co. vs. The American Tobacco Co. (N. Y., 1906). I20 TOBACCO INDUSTRY IN THE UNITED STATES [382 even though they had an established trade on their goods (elsewhere), to get them distributed;" that is, in terri- tories controlled by the Trust.' Closely allied to the methods of local competition and the Factors' Agreement, is that known as "Brand Imita- tion." This is a most direct form of destructive com- petition: it consists in selling at reduced prices brands which are apparently imitations of popular brands of in- dependent manufacturers. A recent instance of this is the marketing at a low figure by the Trust of the " Central Union " smoking tobacco in direct competition with the " Union Leader " of the United States Tobacco Company." The Trust distributed its " Central Union " free of charge to jobbers, in order to ruin the " Union Leader." It was not until the reputation of the inde- pendent brand had been seriously damaged, that the courts enjoined the Trust from further free distribution, where the intent to injure the property of another was so apparent. Similarly the Trust marketed at a low price a brand in imitation of the " Qboid " tobacco manu- factured by Larus and Brothers, Richmond, Va. The •1 Trust is also charged with having purchased large quan- tities of popular brands and having offered them to the public at a ridiculously low price in order to bias the public against its real merit and quality, the assumption being that a brand, a cigar, for instance, that sells below price, say two for five cents, must be of an inferior grade. •^i^°" the value of a brand is one of the important assets in the tobacco trade, these methods are very ruinous to inde- ffendent manufacturers who cannot withstand a persistent attack from the Trust. ' C/. Tobacco, trade journal (weekly), N. Y., Oct. 25, 1905. 'C/. U. S. Tobacco Co. vs. The American Tobacco Co., and McGreeny and Maning, 1925 Mass. 383] THE TOBACCO TRUST 121 Another means of underselling competitors is the use of the coupon system, whereby the consumer receives a premium certificate equivalent to a ten per cent rebate. The coupon system is especially valuable in the tobacco trade because it serves as a substitute for the cutting of prices ; the latter being difificult, owing to the existence of conventional and convenient prices, five cents and multiples of five. It is more feasible to give coupons than to reduce a five-cent cigar to four cents. Since much of the tobacco trade is transient, the successful operation of the "premium " plan depends upon a wide distribution of stores that offer the coupons, as through a chain of retail agencies like the United Cigar Stores. Recognizing the impracticality of this system for indi- vidual producers catering to a limited market, the inde- pendent manufacturers have adopted a general stamp or trade-mark for all independent brands.' We have already spoken of the operation of the Trust retail stores as an added source of direct income through the elimination of the middleman's profits. Equally im- portant are the incidental advantages derived from this organization of the retail agencies. It is often employed as a weapon in driving out of business those retailers who incur the disfavor of the Trust. The installation of a United Cigar Store is a signal for the independent re- tailer to beat a retreat. Nor must we overlook its value as an advertising medium for Trust brands. When the consumer has been educated by the United Cigar Stores to the use of Trust goods he is likely to continue his de- mand for them in independent as well as Trust stores. The Tobacco Trust has developed a unique method of ' The leading independent manufacturers are in this association. Cf. Tobacco (trade journal), N. Y., Oct. 28, 1905. 122 TOBACCO INDUSTRY IN THE UNITED STATES [384 competition in its efforts to curtail the sale of any particular line of goods which it desires to keep off the market.' In order to check the growing popularity of "scrap" goods, the Trust has made its sale unprofitable for manu- facturers by increasing the price of raw material. To compete with'~plug an"d~chewittg"-t©baeetJ7TTie^scrap leaf must be bought for no higher than ten cents, which was the maximum price for a number of years. When the Trust decided, however, that scrap goods must not come into competition with their products, it forced up the mar- ket for scrap-cuttings until its price reached twenty-five cents per pound. This necessitated an increase in the sell- ing price to retailers, who found it unprofitable to market their goods. Where the retailers did continue to carry it in stock, the Trust sold their scrap goods at the old price, which, of course, the independent manufacturers could not do without loss. (The result) was that some of the large independent manufacturers of scrap goods were driven out of business or absorbed by the Trust. These have been, and are still, some of the methods, employed by the Trust in obtaining control of the market and in crushing all dangerous rivals. Its policy has been to balk at no temporary expenditure for the sake of ultimately capturing the market. Large independent manufacturers maintain that with the selling agencies open to them on fair terms, they can compete success- fully with the Trust ; the implication being that the latter has no decisive advantageson over its rivals in producti. /The present contest may be likened to a struggle be- tween two conten3Tng armies, possessing equal skill, and differing only in numerical size; the larger one by tem- '" Scrap" smoking and chewing tobacco was being substituted for plug and standard chewing tobacco, over which products the Trust ex- ercises'alarge control. 385] THE TOBACCO TRUST 123 porarily sacrificing greater numbers can ultimately over- come the smaller foe. It seems like the victory of sheer brute force, which in the case of the Tobacco Trust takes the form of the large working capital fund, which enables it : ( I ) to undersell in local markets for a considerable length of time, while sustaining prices elsewhere ; (2) to offer special rebates and discounts to jobbers who discriminate against independent manufacturers ; (3) to distribute free, or sell below the market price, imitation brands in order to injure competitors, which it can do for some time even at the risk of incurring damages for legal in- fringement; (4) to establish a premium coupon system as well as the organization of its own retail agencies, which are employed incidentally to drive out of business those retailers who refuse to obey the Trust orders; (5) and to render business in a certain branch of the industry unprofitable by increasing abnormally the price of raw material. The Trust has at one time or another em- ployed successfully these methods of competition in get- ting control of the market. Economic Advantages — There are those, however, who maintain that the Trust owes its position to advantages and economies in production and distribution which ac- crue only to a Trust form of organization. What these advantages are we now proceed to investigate. In i-e- ply to a question concerning these advantages, Mr. J. B. Duke, the President of the Tobacco Trust, stated : " I think the main advantage is in the combination of talent." Though Mr. Duke did not proceed to explain, his idea was probably that the Trust form of organization fur- nishes the capital necessary for the bringing together of exceptionally able men, as well as supplying the material, so to speak, by which economies can be effected. These economies will be considered from the standpoint, first, of production, and secondly, of distribution. 124 TOBACCO INDUSTRY IN THE UNITED STATES [386 When the Trust was first organized, in i8go, it had control of the most efficient machine, the Bonsack. Shortly afterwards it secured control of the "Allison,"' a competing machine. The efficiency of the best organized factory was immediately transferred to all its cigarette plants, and in some cases the less efficient plants were en- tirely dismantled. The producing capacity, for instance, of the Goodwin & Company (New York) factory was transferred to a more efficient factory, the W. S. Kimball & Company, Rochester, N. Y. Recently the manufactur- ing capacity of the Kimball company was removed to the Durham factory (N. C). The Hall Cigarette Company and the Consolidated Cigarette Company, each employing about four hundred hands, were com- bined into a new and single factory in New York City.' This process of concentration has gone on constantly. When the Continental Company was organized in 1898 and acquired control of the plug interests of St. Louis, the output of the six leading factories was turned over to the two largest and most efficient ones, the Liggett & Myers Company and the Drummond Tobacco Co. Where the Trust is in possession of some supe- rior and patented machinery there is some economy in concentration, but where it enjoys no such monopolistic right, then the Trust merely hastens the introduction of improved methods of production throughout that part of the industry over which it exercises control. Technical efficiency on the side of production becomes the common property of all the large independent competitors in any industry. A proof of this is the fact that there still exist ' Mr. Duke organized the Allison Machine Co. in order to control the Allison Machine. Cf. N. Y. State Investigation of Trusts, pp. 894, 895. ^IHd., pp. 860, 87s. 387] THE TOBACCO TRUST 125 active competitors in the manufacture and sale of plug, chewing and smoking tobacco, who must surely produce as cheaply as the Trust, since otherwise they could not withstand the advantages which the latter enjoys in mar- keting its goods. In two ways the Trust enjoys a slight advantage in the employment of labor. First7T5y'its~extensive operations the Trust can shift its productive capacity to those fac- tories where labor is cheapest. The independent pro- ducer might also ultimately establish his factory in the locality where labor is cheapest, but he cannot do so with the ease and rapidity possible under a Trust organ- ization, which has many factories located throughout the country. For instance, when it was discovered that cheap child and female labor was available in the South, the Trust dismantled some of its northern factories, and transferred their capacity to Clarksville, Tennessee, and Durham and Winston, North Carolina, where some of its other factories are located. When the Trust was in need of cheap labor for making cigars, it located a factory in the heart of the Italian quarter in New York City where cheap, immigrant labor was available. A greater saving in labor-costs arises from the em- ployment of non-union workers. The Tobacco Workers Union has not been able to cope with the gigantic Trust. In 1895 the former was so disrupted that it found a re- organization necessary, and to-day it is still very weak both in membership and in actual power. When the plug factories of St. Louis were absorbed by the Trust in 1898, wages declined twenty-five per cent in the Drummond factory." The Trust refuses to bargain col- 'C/. Report of Industrial Commission, vol. 8, pp. 399-405; testimony of the President of the Tobacco Workers' Union. 126 TOBACCO INDUSTRY IN THE UNITED STATES [388 lectively with its workers. On the other hand, the inde- pendent manufacturer is not in a position to antagonize the Union. To take advantage of the consumers' anti- Trust sentiment, the independent manufacturer generally unionizes his goods in competition with the non-union goods of the Trust. The difference in wages between union and non-union labor is from ten to twenty per cent. It must be remembered however that wages of labor constitute less than ten per cent of the total cost of production. In the purchase of leaf, the independent manufacturer stands on the same footing with the Trust. Where the latter has forced prices down, the independent manufac- turer has profited equally. Some economy is probably effected by the Trust in being able to use its leaf to the best advantage, since the extent of its manufactures makes possible a finer grading and selection of leaf for each product. As independent factories are located side by side with Trust factories, there is no saving in the transportation of leaf to the factories. There is however some economy for the Trust in the elimination of cross- freighting, since it can fill its orders for finished products from many factories instead of from a single one. As transportation charges form, however, only two per cent of the entire value of the finished product, this economy, though appreciable, cannot be very important as a de- s termining factor in competition for the market." ;- In the marketing of goods, the Trust does effect some important economies. We have already pointed out the value of advertising and popularizing certain brands. ' Cf. Report of Industrial Commission, vol. 6, pp. 207-321, for discus- sion of transportation charges in the distribution of tobacco. Cf. also Twelfth Census, Manufactures, special report on "Tobacco," pp. 650, 660. 389] THE TOBACCO TRUST 127 There is a double saving for the Trust in the cost of ad- vertising : first, because of the large quantity of material and labor required, the cost per unit of advertising is less ; second, its advertising is concentrated on fewer brands, not only reducing the cost per unit, but also getting better returns from this form of advertising.' More important, however, is the reduction or elimina- ^') tion of the jobbers' profit in marketing the finished pro- ducts to the retailer. In proportion as competition among manufacturers is curtailed, the jobbers and re- tailers must necessarily sell at a lower margin. Once the Trust is in control of seventy-five per cent of the market for any particular kind of merchandise, it can dictate the conditions under which such goods are to be sold. Jobbers sell to-day on a basis of two per cent gross profit. Where the Trust fails to control the re- tailer indirectly through the jobber, it can fall back on its own retail agencies, as has already been pointed out. It must be remembered, however, that the economy re- sulting from a reduction of the jobber's and retailer's profit is the result of an efifective control of the market, and is not an original factor in determining the initial success of the Trust. Another source of economy is the power to demand prompt settlement of all outstanding accounts. The - petty manufacturer must frequently wait from two to four months for payment, whereas the Trust's merchan- dise is paid for within thirty days. Closely akin to this is the economy resulting from the employment of fewer commercial agents not merely in the collection of ac- counts but in the sale of goods. With the concentration ' According to the figures given in the annual reports of the American Tobacco Co., the advertising fund has averaged about $500,000 in the last five years. 128 TOBACCO INDUSTRY IN THE UNITED STATES [390 of the Tobacco manufacturers in 1898, not only was there a reduction in the number of salesmen, but less expensive men were employed. In the sale of certain long estab- lished Trust brands, in cigarettes, plug and smoking tobacco, agents are not required; orders for such being sent by mail. It must be admitted that some of these advantages imply a social economy, a releasing, so to speak, of social energy. To the extent that the Trust makes possible the operation of its business by fewer men, it is a social economy, and deserves to enjoy the profits arising from it. To the extent that a large quantity of goods can be manufactured by the most efificient machinery, the Trust is likewise socially useful. It is a mistake, however, to believe that it is to these economies that the Tobacco Trust owes its position. These are important, but inci- dental, advantages which have been made possible only after the Trust has attained success. This success, how- ever, is attributable to the methods of competition, which have already been described. Monopoly features — In the light of what has been said, are we justified in calling the Tobacco Trust a monopoly? If by this is implied the complete absence of competition, then we are not justified, for in every branch of the tobacco industry, from the purchase of leaf to the sale of the manufactured product, there is at least some competition.' But although it has not completely annihilated competition, it has succeeded in preventing it from rising above a certain point.. 'There is at least one exception; in the manufacture and sale of licor- ice, it was shown that the Trust did exercise a virtual monopoly. Cf. N. Y. State vs. MacAndrews, Forbes & Co., 1906. This Trust con- cern was found guilty of being a conspiracy in restraint of trade. Since this conviction, the price of licorice has fallen considerably. 391 ] THE TOBACCO TRUST 139 So long as leaf tobacco can be grown and purchased freely, as is the case ; and so long as in the manufacture of tobacco the Trust enjoys no monopolistic privileges entailing the use of superior methods of production ; through the possession of patents, etc., and so long as the selling market is organized as at present, preventing absolute control by the Trust ; under such conditions there must always be some degree of actual and potential competition. The competitor, however, cannot extend his activity very far without coming into deadly conflict with a foe that is equipped with greater engines of war ; for mere size, as shown above, enables the Trust to employ methods of competition denied to any ordinary single competitor. Equal competition can exist now only for an adversary that is armed with as great a capital fund as the Tobacco Trust, and is equally willing and able to make present sacrifices for the sake of larger rewards in the future. This power of the Trust has been used in two ways : , to depress the price of leaf, and to curtail the profits of the middlemen. The fact that the consumer may not suffer from this does not make the Trust less of a monopoly. This monopoly power may consist, not only in reducing the profits of the farmer and jobber, but also in reserving for itself a certain area of industrial activi- ties. It is as if the Trust had put a fence around a sec- tion of the industry and warned off competitors with a " no trespassing allowed " sign. In most discussions of the problem this latter function of the Trust is too fre- quently lost sight of. , For the ability to retain and enjoy the ordinary profits of a business which under other, freer conditions, might be lost to competitors is equivalent to a monopoly power. Whether we call it a monopoly or not, that power exists and operates. 130 TOBACCO INDUSTRY IN THE UNITED STATES [392 Legal aspect — The courts, however, have for the most part not entertained this view. In the case of E. Locker & Company vs. the American Tobacco Com- pany, a State Supreme Court held that the mere size of a business, however large, does not make it a monopoly, though it was shown, in this instance, that the Trust controlled eighty per cent of the business. The attorney for the Trust contended that it may be necessary and proper in the course of business " to kill a competitor financially," as was proven to have been done in this case. The plaintifif tried to collect damages from the Trust for the latter's refusal to supply the former with goods. To the plaintiff Judge Marean replied : " you start with the proposition that nine-tenths of the tobacco in the United States is owned by one concern — the American Tobacco Company. It appears to me that you are suffering from the lawful powers that go with such an ownership. I do not understand that they can be compelled to sell you." In New Jersey the courts held that the Tobacco Trust had the legal right to impose upon the jobber as a condition of sale that the latter should not traffic the goods of independent jobbers. While in Massachusetts the Trust is restrained from this practice, it is permitted by law to make "exclusive" sales to jobbers who carry only its goods. In effect there is no practical difference.' In Missouri the merger of the tobacco companies was declared to be within the law.' In a word, our State courts legalize the methods of competition which have enabled the Trust to attain its present position and control of about seventy-five per cent of the tobacco trade. Under our present system of 1- 'Commonwealth vs. Strauss, Supreme Court of Mass., {1906). '{ ' State vs. Continental Tobacco Company, 1903. 393] THE TOBACCO TRUST 131 State laws there is little hope therefore of securing satis- factory regulation of Trusts. Federal regulation through the operation of the inter- state commerce act is equally ineffectual, since the Supreme Court of the United States declared that manu- facturing is not in itself inter-state commerce.' A com- pulsory Federal licensing act, like that recommended by President Roosevelt and the recent Commissioner of Cor- porations, J. A. Garfield, might provide some remedy for existing evils.' Should the courts reverse their de- cisions and declare manufacturing to be an act of inter- state commerce, even then this proposed law might be nullified by an arrangement on the part of the Trust whereby its selling and marketing of goods would be confined within state boundaries. So long as there exists this distinction between State and inter-state commerce, the spirit of remedial legislation is apt to be defeated. Plainly what is needed is a thorough-going Federal code regulating commerce and industry, such as Germany en- joys to-day. With respect to some of our largest enter- prises the artificial distinction between state and inter- state commerce has long since outlived its usefulness. Financial operations. In the limited space at our ■disposal, we can treat only briefly the important features of the financial operations of the Tobacco Trust. From its inception to the present time centralized control has been achieved through direct ownership, either of the tan- gible property of the absorbed concerns or of its voting stocks. The five original concerns of the American To- bacco Company received pro-rata, in return for the prop- erty they surrendered, stocks of the new company. In ' C/. U. S. vs. E. C. Knight Co., 158 W. S., i. ' Report of Commissioner of Corporations, Dec, 1904, pp. 46-47. 132 TOBACCO INDUSTRY IN THE UNITED STATES [394 the subsequent process of assimilation each plant was pur- chased outright and paid for partly in cash and partly with newly issued stock of the purchasing Company. Fre- quently, however, the Trust purchased merely a majority share of the voting stock of the particular company which it desired to control. Up to 1898 all the property of the Trust was owned and controlled by a single corporation, the American Tobacco Company. In that year was or- ganized the Continental Tobacco Company, which owned and controlled all the plug interests formerly held by the American Tobacco Company as well as the new plants absorbed. The two companies were united by a common president, Mr. J. B. Duke, and by the American Tobacco Company holding $30,000,000 common stock of the Con- tinental issue. In igoi these companies were combined through the organization of a security-holding company of New Jersey, The Consolidated Tobacco Company, which issued $157,844,600 bonds in exchange for all the stocks and bonds of the two united corporations. Mr. Duke was president of the new holding corporation. Under this arrangement the former owners of property in either of the two companies now held instead certificates (bonds) of a holding corporation, which bonds were secured by the property of the individual companies. In 1904 a re- organization occurred transforming the holding company into the present American Tobacco Company, an ordi- nary corporation, which owns or controls directly the property of all the concerns that at one time or another passed into the control of the Trust. While its history has been comparatively free from the more conspicuous features of high finance, the insiders of the Tobacco Trust, as we shall presently see, have more than once played the game unfairly. For instance, in igoi, when the American Tobacco 395] THE TOBACCO TRUST 133 Company and the Continental were taken over by the Consolidated, the stockholders in the former companies were persuaded to exchange their stock for four per cent bonds of the holding company. The exchange of stocks for bonds was made on the assumption that the real earning power of the American stock was eight per cent and the Continental four per cent. Immediately after the consolidation took place, the common stock in these companies, which were now in the hands of the Consoli- dated, paid respectively ten and thirteen per cent in 1902 and twelve and sixteen per cent in 1903. This made possible a twenty per cent dividend in 1902 and 1903 on the $30,000,000 common stock of the Consolidated, which, of course, was held by the shrewd insiders who man- ouvered the game. The holders of common stock were fleeced by a concealment of the real earning power of the American and Continental companies. In 1904, when a reorganization again occurred, the voting power of the new American Tobacco Company was restricted to hold- ers of common stock, of which only $40,000,000 was issued; the entire issue of capital stock and bonds being , at that time $251,710,000. This common stock, which ( was not offered to the general investing public, has been paying at the rate of twenty per cent per annum. Frequent manipulation of tob acco stock for specula- tive purposes confirms the opinion that the earnings of the Trust magnates are by no means confined to actual business profits. During the struggle of 1893, with the National Cigarette and Tobacco Company for the control of the cigarette market, common stock dropped from 127 in January to 43 in July ; preferred stock falling in the same ratio. In anticipation, however, of the absorption of the "National," the insiders of the American bought up its stock when it was very low and profited by its 134 TOBACCO INDUSTRY IN THE UNITED STATES [396 subsequent rise. In December of 1895, with a large sur- plus on hand, the directors of the American Tobacco Company announced that quarterly dividends on common stock would be passed, which caused stocks to tumble from 91 to 63. The entire dividend would have amounted to only $537,000, whereas the reported surplus was $8,600,000. That there was something "shady" behind I this was confirmed by certain doubtful stock manipula- tions which followed.' When stock was down to 71 in March it was bought up again by insiders who antici- pated the rise occasioned by a two per cent dividend in April, 1896 which brought the stock up to 91. With stock as low as 130 in December, 1898, the Standard Oil interests entered the field and bought a large voting share. In April of 1899 a one hundred per cent stock dividend was declared and stock rose in May to 229. These are but a few of the many instances where the in- terests of the general investing public have been sacrificed by those in control of the Trust. In many instances greater publicity of accounts would have made such questionable financiering, if not impossible, at least more difficult. Judged by the rate of dividends paid, the Tobacco Trust has been eminently successful. (See Appendix Table I.) On its preferred stock the American Tobacco Com- pany paid eight per cent from 1890 to 1901. Dur- ing the same period the common stock averaged nine per cent. From 1898 to 1901 the Continental paid seven per cent on its preferred stock, although it paid nothing on its common. From 1902 to 1904 dividends on American and Continental common averaged re- spectively eleven and fourteen and one-half per cent ' Cf. Commercial and Financial Chronicle, vol. 61, 1063 (Dec. 14^ 189s). Cf. also N. Y. Tribune, Dec. 8, 1895. 397] ^^^ TOBACCO TRUST 135 annually. Since the organization of the new American Tobacco Company in 1904, preferred stock has paid six per cent and common stock twenty per cent (including the ten per cent extra dividend declared annually; the regular dividend is two and one-half per cent quarterly) . This represents the earnings derived for the most part from the manufacture and sale of plug, chewing and smoking tobacco, cigarettes and snuff. All of the Trust enterprises have not been equally successful. The Havana Tobacco Company,' for in- stance, has never paid any dividends on its common stock of $30,000,000, pointing to a heavy over-capitalization. The American Cigar Company, through which the Trust directs its domestic cigar trade, has likewise failed to pay any dividend on its common stock of $10,000,000, of which about $7,000,000 is held by the American Tobacco Com- pany.'' It is not unlikely that the common stock in each of these companies represents some of the inflated, watered, value of these corporations. The United Cigar Stores Company has paid on the average annually seven per cent on its stock. The American Snufif Company has earned ten per cent on its common stock, which is quoted regularly above 200. In Table "IV" (Appendix) is presented a summary of the financial situation of the present American Tobacco Company. At the close of 1905 the outstanding stock and bonds were $238,070,750, of which only $40,000,000 ' The total earnings for the year ending igo6, after paying deficiencies of previous years, were only $477,243, a little over one per cent on cap- ital investment. This stock has been quoted as lovir as 10 and only rarely at 30. "The net earnings, however, in 1906 amounted to $2,332,379, or 100 per cent more than the earnings of 1905. The earnings in IQ06 were equivalent to a five per cent income on total stock and bonds ($40,- 000,000) . 136 TOBACCO INDUSTRY IN THE UNITED STATES [398 was common stock. The fixed interest charges on bonds and preferred stock were $10,593,323, whereas the earn- ings for the year were $25,212,285, of which $8,048,480 was devoted to the dividends on common stock, which received twenty per cent for the year. From this it appears that from the point of view of earnings the Tobacco Trust is under-capitalized. If its earnings were capitalized on a six per cent basis, the value of the stock, that is, the real capitalization, would approximate $400,- 000,000. This includes the value of the property of sub- sidiary companies to the extent that the latter are con- trolled by, and contribute earnings to, the American Tobacco Company (the Trust). If we add to the above $400,000,000 that part of the property of the subsidiary companies not owned but controlled by the Trust, the total approximates $450,000,000. The entire capitaliza- tion of the subsidiary companies is in round figures about $200,000,000, of which about seventy-five per cent is owned directly by the Trust, leaving only $50,000,000 in the hands of outside interests, but not beyond the control of the Trust. In 1904 the issued and floating capitaliza- tion of the parent and subsidiary companies was estimated by Mr. Moody at $500,000,000.' This estimate is par- tially vitiated by the fact that no allowance was made for duplication of values arising from the relation between the parent and subsidiary companies. If we assume that this allowance has been offset by the increased ownership of property by the Trust since 1904, then $500,000,000 capitalization may not to-day be far from the mark. The meagreness of the financial reports issued by the Trust prevents any positive prediction regarding its future. Barring serious industrial depressions and legal difK- ' Cf. The Truth About the Trusts, pp. 96, 97. 399] THE TOBACCO TRUST 137 culties, the Trust seems likely to expand rather than contract its activities. That the cigar industry will in the near future come as completely under the control of the Trust as are the other branches of the tobacco indus- try seems very probable. Before that is realized, how- ever, is it too rash to hope for some effective control and regulation of the Trust by federal law? Until now the agitation and protest against the Trust has come mainly from those engaged within and directly affected by the industry, as growers of leaf, manufacturers, job- bers, the retailers and the investing public. Presently we may hear from the consumer. In our study of the Tobacco Trust it has been our aim to point out the following facts : first, that the Trust has been most successful in those branches of the in- dustry in which concentration in manufacturing had been carried to the point of relative maximum efficiency in production; second, that the economies in production and distribution affected by the Trust, although appreci- able, were not the predominant or decisive factors in its successful development ; third, that it is to superior methods of competition in the marketing of goods that it owes its present position, which methods have been efficient because ruinous to small individual competitors ; fourth, that its monopoly power consists not merely in raising prices of finished products arbitrarily and in de- pressing the price of raw material, but in its ability to reserve for itself a large portion of the tobacco trade by making it very difficult for competitors to enter the field; fifth, that those most directly interested in the promotion and regulation of the Trust affairs have fre- quently profited by using their inside information in stock manipulation and speculation. in 00 ?! t 1 8i "^ f, O »n« &ft « h> S S" "S iC m S tN. ~g' «o «* i 8S ^1 ♦ UT9- O.P. f S S*^ "2 ^ *■ :; 1 o * s. M 0«H \o ^" *l CO 1 S* 75 " " i -" ^^- ft d M •o O* t^ 00\O fe^ «. o ro 000 ■■* m oiON Ot M •<-■* o_ i R ?? """■ oo" ■5 ■5'? id M t^ t^ OOVO 1 ? g,<3- + "~b CO ", -oq; (ii ■? ts oo « 00 ■*■ "^"^ n £ vD fO 0000 « «■ " m- :s 8 to O O <> fO OVO * O « o ■* oo •^ y i oi .^o; " « »c 3 EQ oo o* t^ • ■ iM lo w a ft ta o M «" m •* 00 CO tC ^ u ■< ^ ."^ «T ^ S §? .t 1 3 1 S SK do. 1 tn fT fn fo 00 O^ O •«*• M f: ^ a «• « < s s « 6 tn . . t^ oo 1 ii dd 8 D M d" ro 00 o» OO y- (Tl C Vi- .J «■ ■* «J OvD ~o < 0» O M Ch mo-* • - N 4 s o o-cS "" 00 55 8: 5'^ dd C7> 00 dlio 00 ct tC S " » •^ O ts. « NO « o ■* o 00 CO- « ^ " w CO "S cffS ftft ^B iC cS^ CO « ^ a 8s ~Si ro o CO . . 00^ 1 H .;; d; " " cC t^ CO -o ■ ■ H^ CO *^ 0.ft o VO* cS-^ oo M 1 ?! ss; . . en Ot i S ISR "" IT) M 00 to dd f M A 8^-^ "S S »• n g V : s : B It fe 3 ■ S C M-O • B i ■"1111 i. rasiis^s n < U wa oi. 88-:"a too'ji E E 00 O t> O O n l-I ^g -si. o o- . « S S*8S-S wcfi fig 9 o r" « §- •0'° 9" 2Ji °. - > g=3 _■«• . V o > o." gi=J5-|8 ^e" g|: •^ ta Oft 3 8 S-g S " " -Is (iToig 8 8.; ii fo ■^^ :^ g o * t> rto - o ?, iS E'ft^Si •Is fecS .^-u 2;h .Sri"-?;! 2". jdcj S • . w * *-(X,0 Sis u o o p. !^ "OSS » K W g o 2 H 00 ^ (1 (1 "1 o; CO CO • • o* * t*o Z! ft"** O^00 w ^ 2 ^■^. " Of o g u) B V e .^'=•2 K"3, « 2 rty? o 3 S" I ! mi's •ggS-oUg. - be"! gg U V U U rt 14 ^ C.3 o "O 3 S °-B.c 9 II " ■a o ^ J3 *o ♦* a OES S O « NP « V u :) h O e . M of c: c u « to.S ^J 5^ «•= P-S O ft ^co-o g"S.S 8js>. ."2 13 8=-° b O o u c a °.3 " 8-§S fA . o M ^ « a W3 O ■2 ?J o *;oo*«cj S SI - j2 o B v;S 40iJ THE TOBACCO TRUST 139 TABLE IV. FINANCIAL SUMMARY OF NEW AMERICAN TOBACCO COMPANY (1904-1506). Assets' Stocks 'and bonds Earnings ' Dividends on 6 pet cent bonds . On 4 per cent bonds Preferred stock Earnings Common stock Earnings Surplus 1904. 1905. $293,620,115 78,689,100 B4 56,090,400 B6 78,689,100 P6 40,242,400 C $274,361,060 63,489,100 B4 55,650,150 B6 78,689,100 P6 40,242,400 C $251,710,000 22,304,696 '841,356 786,891 6 p. c. *i,i8o,337 '0 $238,070,750 25,212,285 3,332,413 2,539,564 6 p. c. 4,721,346 '20 p. c. 8,048,480 25,685,961 ^29,518,879 ' Assets in 1904 represented by the following: Real estate, machinery, trade-mark, good will, etc $139,604,437 Leaf tobacco, and other stock on hand z^,^osA5^ Stoc153z>S9o Cash ••••• 8,028,236 Commissions prepaid • 600,964 Bills and accounts received 41, 522,716 Total $293,620,1x5 'Stocks — Authorized issue of common stock was $100,000,000. Authorized issue of preferred stock was $80,000,000. Four per cent bonds are payable 1944. Six per cent bonds are payable 1951. Bonds and preferred stock of new A, T. C. issued in exchange for bonds and preferred shares of " Consolidated " and old A. T. C. and " Continental." Common stock issued in exchange for "Common" of Consolidated, which were held by in- siders. ^ Earnings — The $22,304,696 represented the total earnings for the calendar year, of all the constituent, merged companies. * From October 1 to December 31, 1904 inclusive. " Total surplus taken over from merged companies. In 1905, $9,988,990 was taken from sur- plus to retire $15,200,000 4 per cent bonds when the market price of the latter stood at 65. * Dividend on common — 2j^ per cent is regular quarterly dividend, but a to per cent yearly extra was paid in 1905. In 1906 a iz}^ per cent extra dividend was paid besides the regular 10 per cent dividend for the year. CHAPTER V Labor Conditions in the Tobacco Industry Because of the heterogeneous elements in the organi- zation of the tobacco industry it is impossible to make any broad generalizations concerning the conditions of the workers as a whole. The rate of wages, hours of labor and general conditions of employment in the man- ufacture of plug, chewing tobacco, smoking tobacco, snuflf and machine-made cigarettes, are very different from those conditions that obtain in the cigar industry. In the manufacture of the former products, machinery, operated by unskilled labor, has played the important role, whereas, in the cigar industry, skilled hand labor has been, and is yet, the determining factor in produc- tion. This fundamental difference in the technical pro- cesses of production results in the division of the workers, as respects their condition, into two classes. Moreover, within the cigar industry itself, which is in a transition stage between the handicraft and the machine system of production, there is a diversity of conditions and prob- lems. One of the interesting aspects of the labor prob- lem in the industry is the proof afforded of this vital relation between the status of the workers and the character of the technical processes that they are called upon to perform. The successful application of comparatively automatic machinery in the manufacture of plug, chewing and smoking tobacco, snuff and cigarettes has made possible 140 [402 403] LABOR CONDITIONS 141 the ex^IoHation, not merely of unskilled male labor, but of female and child labor as welTr" The greater part of the^work corisrsts~in tending^'d feeding the machines. Where skill is required, as in wrapping and in making twists and spun rolls, only few hands are employed. Fully one half of the entire working force are women and children, receivings as we shall see later, wretchedly low wages. It is in order to take advantage of the constant and large supply of low-grade city labor, that the tobacco factories have been located" in large industrial centers.' As competition among this class of laborers is very in- tense, wages and hours of labor are decidedly unsatis- factory. The situation of the tobacco workers has been further aggravated by the concentration of the manufacturing interests in the hands of the Ti'ust. In its relation to its employees, this gigantic corporation has acted without a soul ; but more than that, it has denied the workers even a body. For by refusing to bargain with organized labor collectively, and by adopting a generally hostile attitude toward organizations, the Trust disrupted the labor union in 1895, and since its reorganization has been suc- cessful in keeping it weak and inefficient. When the Trust has not antagonized the union directly, it has done so indirectly by taking advantage of its position as a large individual purchaser of labor, in a market of many unorganized laborers. In this situation, where the parties concerned have such unequal power, the terms of the labor contract are bound to be unfair to the weaker party, that is the laborer. Before considering in detail the actual economic status of the tobacco workers, let us first analyze briefly their ^ Supra, p. 97. 142 TOBACCO INDUSTRY IN THE UNITED STATES [404 composition. Since 1880 the general tendency has been toward the displacement of child by adult female labor, the proportion of adult male laborers remaining almost stationary. Of the entire working force, the percentage of children under sixteen has declined since 1880 from twenty-one to nine per cent, while adult female labor in- creased in the same period from thirty-two to thirty- eight per cent. Women and children together com- prised, in 1905, forty-seven per cent.' In connection with these figures it should be borne in mind that, even under modern sanitary conditions, which do not always ") obtain, the tobacco trade is dangerous to the health of the workers, many of whom die fromtuberculosis. With respect to the employment of child labor. North Carolina is the chief ofifender, having engaged in her factories, in 1905, no less than 1,134 children under six- teen years of age, which is almost twenty per cent of the total number of workers employed in her tobacco fac- tories." A society mindful of the welfare of its individ- uals would forbid the employment in tobacco factories, not only of children but also of females under twenty- one years of age. In the following table is presented the number of tobacco workers distinguished according to sex and age, since 1860:^ Number of Tobacco Workers Employed, by Sex and Age Groups, Since i860 in the United States. Per cent i8£o. 1870. 1880. 1890. 1900. 1505 f""Dt of increase ' ^ i' 5 -^ lor 1905. or decrease since i860. Total 18,859 21,799 32.756 29,790 29,161 23,990 100 — 28 Males 13,869 19,588 14,886 14,942 14,124 12,721 53 — 9 Females 2,990 5,179 10,776 10,564 11,590 9,127 38 +105 Children underi6. * 6,032 7,094 4,284 3,447 3,447 9 — 42* ' Cf. Census of Manufactures, 1905, United States, Bulletin 37, p. 91. ' Cf. Census of Manufactures , 1905, North Carolina, Bulletin 39, p. 18. '£/. S. Census Bulletin, No. 197 (1902), Manufactures of Tobacco, p. 24; also Census of Manufactures, 1905, United States, p. 91. * Not reported separately until 1870. 405] LABOR CONDITIONS 143 Wages in the industry are incredibly low.' In an ordinary tobacco factory wages range from forty cents per day for strippers or stemmers, up to one dollar and twenty-five cents per day for lump-makers, nip-wrappers, potters and shipping clerks. Pickers (those selecting the leaf) earn about eighty cents per day, and machine operators one dollar per day. In a typical Virginia fac- tory, employing one hundred and forty hands, the average wage per day is ninety cents, making an annual income of $247.50 for two hundred and seventy-five days of labor.' In Northern factories, where indus- trial opportunities are greater, wages are, in general, twenty-five per cent higher. On the basis of the data presented in the reports of the state bureaus of labor, and using whenever possible a weighted average, the annual income of a tobacco worker in ten different states is given in the following table : Annual Wage of Tobacco Workers, Men, Women, Children. Adult Adult Children Principal Manufac- Male. Female. under 16. turing Centers. North Carolina S240 $154 $123 Durham & Winston. Virginia 255 180 113 Richmond. Kentucky 320 215 120 Louisville. Ohio 375 255 135 Cincinnati. Maryland 408 24a 116 Baltimore. Missouri 428 370 370 St. Louis. New Jersey 450 350 200 Jersey City. Michigan 475 263 190 Detroit. Illinois 500 270 160 Chicago. New York 528 324 169 New York. ' We refer here to all branches except cigars, hand-made cigarettes, and hand-made stogies. ''Cf. Fifth Annual Report of the Bureau of Labor Statistics of Vir- ginia, igo2, pp. 73-81. 144 TOBACCO INDUSTRY IN THE UNITED STATES [406 In the first six states, of which all except Ohio are Southern, and which manufacture about seventy-five per cent of the entire output of the country, the average annual wage for adult males is $330, for females $236, for children $162. In the four Northern states, which pro- duce less than twenty-five per cent of the entire product, the average wage is $488 for adult males, $300 for women, (and $180 for children. This low income has been con- /stant, or nearly so, for over a decade. For this small reward the tobacco worker toils from nine to ten hours per day, for only in exceptional in- stances, where the labor union is strong, does the eight- hour day prevail. The general average for the week is from fifty-four to sixty hours. Although the work does not require much intense physical exertion, it is monoto- nous and very confining. The sickly, yellow complexion of the average tobacco worker is the most convincing evidence of the devitalizing character of the work. Where the tobacco workers have been able to effect a strong organization, their conditions have been slightly improved, not only with respect to the hoiirs of labor, but also with respect to wages. The Tobacco Workers' International Union has not, however, been successTul in ; extending its activities to factories operated by the Trust, which employs over seyenty-five per cent of the entire labor force in the industry. In that part of the industry still uncontrolled by the Trust the Union owes no small degree of its present power and position to a willingness and desire of the independent manufacturers to utilize the Union label in their fight against the Trust. To the extent that he pays higher wages, the independent man- ufacturer looks upon the Union label as an investment. For him it is one form of advertisement, the value of which he capitalizes to offset the relatively higher wage. 407] LABOR CONDITIONS 145 Depending, as it does, not entirely upon its own innate strength, but partly upon the peculiar and probably tem- porary support of the independent manufacturer, the Union's position is therefore a precarious one. Apart from the hostile opposition of the Trust' the Union must face other serious obstacles in the way of an efficient and complete organization. There is, first of all, a large number of women and children to deal with, almost fifty per cent of the workers in the trade. This has always been one of the serious drawbacks to organi- zation among the workers. Moreover, the low standard of wages and working conditions in the industry is not likely to attract a very intelligent class of workers. To these obstacles must be added the problem of negro labor, which is employed extensively in Southern factories. The present Tobacco Workers' International Union was organized in 1895 and is affiliated with the American Federation of Labor. Although it enrolled, in the period from 1895 to 1900, no less than twenty- five thousand members, the Union had, in 1901, only four thousand members.' The large falling ofif was due to the absorption of independent factories by the Trust. In the face of these many obstacles, the Union deserves much credit for organizing, as it has, from ten to fifteen per cent of the workers. In spite of the small member- ship fee, (ten cents weekly), the Union is able to pay both sick and death benefits. Provision is also made for a strike fund ; those on strike receiving three dollars per week. We pass by the details of its organization, since we shall consider at length in this chapter the cigar 'Cf. Report of the Industrial Commission, vol. vii, pp. 399, 405. 'C/. Report of Industrial Commission, vol. xvii; cf. also Tobacco Workers' Journal, Oct., 1900, pp. 17-18. 146 TOBACCO INDUSTRY IN THE UNITED STATES [408 makers' union, after which it is modelled.' In some of the largest independent factories in the country the To- bacco Workers' Union has succeeded in establishing a minimum wage and the eight-hour day.° ) TAe Cigar Industry. To understand the labor condi- tions in the cigar trade, we must have in mind the gen- eral character of the industry. In the manufacture of cigars, except in the production of cheap scrap-filler goods, the " bunches " of which are shaped by machinery, the amount of hand skill required is sufficient to check the supply of labor, thus influencing the rate of wages favorably to the workers.^ The Cigar Makers' Union imposes, as a condition of membership, a three years' apprenticeship which though considered by many too long a period, is some indication of the character of the work. One year apprenticeship may be safely regarded as the minimum required in the manufacture of a mold cigar, and five years for a hand-made cigar. Another factor favorable to the skilled worker is the ready opportunity of becoming an independent employer. This alternative is made possible by two reasons : first, ncrt only is little or no fixed capital needed, but such circulating capital as is necessary can easily be secured on credit ; moreover, the circulating capital, consisting of leaf on hand and outstanding stock, 'The headquarters of the Tobacco Workers' International Union are located at Louisville, Kentucky, corner of Third and Main Streets. Mr. Henry Fischer is President of the Union, and E. Lewis Evans-, S ecretary-Treasurer . 'Among others, the following factories have been unionized: The U. S. Tobacco Co., Richmond, Va.; the Globe Tobacco Co., Detroit, Mich.; Larus Bros., Richmond, Va.; the Monarch Tobacco Works, Louisville, Ky.; Leopold Miller & Sons, N. Y. City. ' For a description of the technical processes in production of cigars, Cf. supra, pp. 82, 83. 409] LABOR CONDITIONS 147 is equivalent to only about five hundred dollars per em- ployee ; and secondly, the organization of the retail trade on a petty and personal basis affords a market to the small manufacturer for the disposal of his goods. That these conditions of production and distribution, discussed at length in our chapter on manufactures, are not hy- pothetical may be seen from the situation that obtains in New York state at the present time. Out of 1,412 factories inspected, over fifty-eight per cent of the em- ployers, besides working themselves, engaged only one apprentice and one journeyman ; sixty-six worked with- out any hired help whatsoever. In 1905 about eighteen per cent of the entire number of cigar makers were en- gaged in factories having an annual output of only twenty thousand dollars or less, which is equivalent to the pro- duct of four skilful workmen.' Both of these conditions, the skill required in making cigars and the general character of production and dis- tribution in the industry, have made possible a third fac- tor, which likewise operates in the interest of the workers, namely, effective organization among the employees. The Cigar Makers' Union has been, in fact, one of the remark- ably strong labor organizations in this country in the last fifty years, and is very largely responsible for the present standard of wages and hours of labor enjoyed by the workers. Of its history, organization and achieve- ments we shall have more to say later. We wish here merely to refer to it as one of the several factors which have helped to maintain living conditions among the workers. In spite of what has been said, the wages of the cigar makers are comparatively low. Except in rare instances, 'C/. C. S. Census of Manufactures, 1905, New York, p. 45. 148 TOBACCO INDUSTRY IN THE UNITED STATES [410 as in the case of apprentices, strippers and machine operators, the piece-wage system prevails. In non-union and open shops the rate of wages varies from five to seven dollars a thousand cigars, (bunching and rolling) ; in union shops the scale ranges from eight to ten dollars per thous- and cigars complete.' This is the rate for mold-made cigars ; the rate for hand-made cigars is about twenty- five per cent higher. Of mold cigars, the average cigar maker can produce about forty per hour, bunching and rolling, or roughly speaking, three hundred per day for eight hours' labor, (the period in union shops) and four hundred in a ten hour day, which obtains in non-union shops. In both cases the wages approximate twelve dollars per week, the union man working forty-five hours and the non-union man from fifty-four to sixty hours. This is the wage for the man of average speed. Of course, the more adept the worker, the higher are his wages. It is not uncommon for a union man to earn from fifteen to twenty dollars per week on mold cigars, but this is the exception rather than the rule. More- over, the work is unsteady and consequently the annual income is to that extent reduced. In most shops, and especially in small ones, the period of unemployment averages two months in the year. The total number en- gaged in the trade, including packers and strippers, ap- proximates 125,000.' ' The rate in any single shop varies according to the size and shape and style of the cigar. A five-inch cigar pays more than a fcur-and-a- half-inch. A perfecto shape pays more than a straight cigar, a long- filler more than a scrap cigar. 'According to the Census of Manufactures, 1905, U. S., the number employed in the cigar and cigarette industry combined was reported as 137,000. The number of cigarette makers could not have exceeded 12,000, plus the number of cigar makers of whom the census took no cognizance. Of the 125,000 engaged in the cigar trade about loo.oca are bona-fide cigar makers. 41 1 ] LABOR CONDITIONS 149 According to the most recent figures of the United States Bureau of Labor reports,' wages in the cigar industry for 1905 for bunchers and rollers were $11.44 per week for fifty-two hours' labor, the avera;je wage per hour being $0.22. The annual income for forty-four weeks would be five hundred dollars. This was the wage for mold work in 1905, when wages were higher than they have been for some years. This same bulletin puts the wages in New York, Boston, Chicago, Cleveland, Detroit, and Philadelphia at fifteen dollars per week, or six hundred dollars for the year. According to the data in the reports of the state bureaus of labor the wages in the three leading cigar states are as follows : Annual Wages in Cigar Trade (For Males). New Yor!i State $$92 In union shops only (five year average). Ohio 517 In union and non anion shops (four yeat average). Pennsylvania 400 In union and non-union shops (for single year). For these three states the weighted average annual wage was five hundred dollars. The low wage in Penn- sylvania is due to the exploitation of labor under the domestic or household system of production. In Tampa and Key West, Florida, where most of our Havana hand- made cigars are produced, wages average six hundred and thirty dollars per year. On the other hand, female operators of bunch-breaking machines receive from five to seven dollars per week, averaging three hundred dol- lars per year for forty-three weeks' work. Under the piece-wage system these operators earn thirteen cents per 'C7. U. S. Bureau of Labor, Bulletin 65, p. 57- 150 TOBACCO INDUSTRY IN THE UNITED STATES [412 hour, and their work extends through fifty-four hours per week.' The difference in wages paid in Northern and Southern factories is very marked. In the South Atlantic division, excepting Florida, males on mold work receive seven- teen cents per hour, and female operators nine cents per hour; whereas, in the North Atlantic division males re- ceive twenty-three cents on mold work, and female oper- ators thirteen cents per hour." This variation in income is attributable not alone to the quality of the work pro- duced, nor to the difference in the standard of living, but partly to the lack of organization among the workers. The efifect of organization upon the rate of wages is also noticeable in comparing the income of cigar makers in dififerent localities where unionism is strong and weak. In Boston, which is the recognized leading union city in the country, the average rate of wage is forty-two cents per hour, as compared with thirty-two cents for New York City, where unionism is confessedly weaker than in Boston. Contrast also the yearly income of union cigar makers in New York State, where organization is rela- tively strong and union men receive $592, with Pennsyl- vania where the union is very weak and the annual in- come is only $397; in New York City the rate for bunching and rolling is thirty-two cents per hour, com- pared with twenty-four cents in Philadelphia. In Bing- hampton. New York, where many non-union shops are located, the scale is seven dollars per thousand cigars, whereas, in Rochester, New York, for the same grade of work the wage is ten dollars per thousand. In large in- dustrial centers where, owing to the influx of a large 'C/. 17. S. Bureau of Labor, Bulletin 65, p. 57 (1906). ^Ibid., pp. SS-61. 413] LABOR CONDITIONS 151 supply of foreign labor, we naturally expect to find wages lower than in inland towns and villages, the reverse is usually the case wherever unionism is strong. Take, for instance, Massachusetts in which the average yearly income, in 1905, was $660; in Boston where the union is exceptionally efficient, the income is $825 ; whereas, for eighteen towns in the rest of the state (including such places as Springfield, Lowell, Lynn, Fall River and Worcester) where the workers are less powerfully organ- ized, the average was only $640.' This is not due to a difference in the cost of living, for in New York, where the cost of living is as high as in any part of the country, but where the union is not very strongly organized, wages are lower than in Boston and smaller cities, where labor is well organized. In fact, the union, in poorly organized centers, is forced to permit its members to work below the regular union scale that obtains in other more strongly unionized cities. This double standard of wages, one for union and the other for non-union shops, prevails within the confines of any single city ; usually ten dollars per TEousand' in the former, and seven or eight dollars in the latter. In general, it may be said that the wages in union shops are from ten to twenty per cent in advance of non-union shops : or, putting it in another, more realistic way, the non-union worker must toil fifty- five hours per week to earn what the union man receives for forty-five hours' labor. Why, then, it may be asked, do not all workers seek jobs in union shops ? For two reasons : first, they have frequently learned the trade in less time than is required by the union for apprenticeship, and conse- T/. Census of Manufactures, 1906, Massachusetts, Bulletin 53, pp. 54-S8. 152 TOBACCO INDUSTRY IN THE UNITED STATES [414 quently are ineligible to membership; secondly, some workers by remaining outside the union and working below the union scale of wages, or by working overtime, more than eight hours per day, can earn a larger net income than by submitting to union regulations. Society is indebted to the Cigar Makers' Union for having been the first organization in America success- fully to enforce the eight-hour day, which is especially important in the cigar industry because of the unhealth- ful character of the work. The number of deaths due to tuberculosis has been shockingly high, but is being con- stantly reduced through the Union's efforts to improve sanitary conditions and by providing "benefits" for its sick members.' In spite of all efforts on the part of the Union and the general public, child labor has not been eradicated from this dangerous trade. On the contrary, it has greatly increased since 1890. According to the latest census figures^ the number of children under sixteen employed in cigar and cigarette factories in 1890 was 3,334; in 1900 there were 3,587, and in 1905 there were 5,274, an increase since 1890 of nearly sixty per cent. While it is impossible to ascertain accurately whether this increase has occurred in cigar or cigarette factories (since the two are reported jointly in this cen- sus report), it is more than likely that it came in the cigar trade, since this industry has flourished with won- ' The Union's vital statistics show the following deaths from consump- tion and lung trouble of one kind or another: In 1890, 60 per cent; in i?95. 43 per cent; in 1900, 35 per cent. Longevity among union mem- bers in the same years was as follows: 1890, 37 years; 1895, 39 years; 1900, 43 years. Cf. Report of the President of the International Ci^ar Makers' Union, 1901. 'C/. Census of Manufactures, 1905, United States, Bulletin ST, p. 91. 415] LABOR CONDITIONS 153 ■derful rapidity in the last decade. The Cigar Makers' Union is conducting a crusade against goods made by child labor in Trust factories, where boys and girls are employed not only in "stripping" (removing the tough midrib from leaf) , but also in operating cigar machinery. The number of women engaged in that part of the cigar and cigarette industry reported in the 1905 census ' was 57,174, of which probably 15,000 are in the cigar in- dustry. From what has already- been said, it must be apparent that the conditions of the working class in the cigar industry have been largely influenced, if not shaped, by the Cigar Makers' Union. This is all the more remark- able in view of the fact that at no time were more than one-half of the entire labor force enrolled in the Union. In April, 1906, union membership was 45,784, which is approximately about thirty-five per cent of the entire trade. ° It is one of the oldest labor organizations in the country, and in many important aspects is modelled after the English type of trade union. A local organization existed in Cincinnati as far back as 1841 ; a state (New York) convention of locals was held in 1854, and the first national convention, at which the present union had its birth, met in 1864. Into its historical development, however, it is not our purpose to enter.' We shall con- fine our study to a description and analysis of a few of ^Census of Manufactures, 1905, United States, p. gi. 'C/. Cigar Makers' Official Journal, Apr. 15, 1906. ' For a historical account of the rise of the Cigar Makers' Union, cf. Adolph Strasser's sketch in The Labor Movement, by Geo. E. Mc- Neill; cf. also Report of the Industrial Commission, vol. xvii, but espe- cially an article by T. A. Glocker on the "Structure of the Cigar Makers' Union," pub. in Studies in American Trade Unions, edited by Hollander & Barnett, 1906. 154 TOBACCO INDUSTRY IN THE UNITED STATES [416 its important features only in so far as they shed some light on the present and future problems of unionism. After forty years' experience the Cigar Makers' Inter- national Union has developed one of the most democratic and efficient labor organizations in our country. It is a federation of five hundred comparatively autonomous local unions. Each local organization is thoroughly democratic and self-governing in afifairs which concern merely its own interests. Its administration is guided by an elective and salaried secretary-treasurer, and a non- salaried but elective executive board. The secretary has the supervision over membership rolls, payment of dues, assessments, fines, etc., and the dispensation of "bene- fits " to members. The secretary is assisted in minor matters by shop collectors, invested by the local union with the power of collecting dues and fines and report- ing conditions in their respective shops. The secretary reports monthly to the international president at Chicago., The executive board acts in an advisory and judicial capa- city over matters relating to the local. The powers and duties of the locals will be discussed later. Each local is governed by its own by-laws and rules, besides that of the constitution of the international union. At the head of the international organization stands a president-secretary, elected every five years by a refer- endum vote of all the members of all locals. As secre- tary he conducts all correspondence between locals and the international. As president he is the executive organ for the enforcement of all national legislation. He au- thorizes payments of " benefits," equalizes the funds of the various locals, levies fines, suspends and expels mem- bers. He also appoints label agitators and financial and strike agents, who report regularly to him. In jurisdic- tion disputes, involving an interpretation of the constitu- tion, the president acts as a judicial arbiter. 417] LABOR CONDITIONS 1 55 Above and along with the president, however, stands an executive board consisting of seven vice-presidents, in addition to the president, and a treasurer, all of whom, like the president, are elected by a referendum vote every five years. To the executive board all members and locals can appeal from the decisions of the president. The executive board authorizes the levying of assess- ments for replenishing funds, grants charters to locals, passes upon executive appointments, and exercises final jurisdiction over strikes involving less than twenty-five members. The final authority, however, not only in judicial matters, but also in legislation, rests in the entire membership acting through the locals. As a last resort, any de- cision of consequence can be carried to the entire membership, through a referendum vote. Likewise, all national legislation is effected by the direct vote of the locals, through a referendum vote. In matters of legis- lation, the power of initiation also resides with the local body, and in some cases is vested in the members acting individually. The constitution of the international union is amended, when occasion demands, by this process of the initiative and referendum. Having discovered that this was economically the cheaper method of making laws, no international convention has been held since 1896. A fine is imposed on all members who do not avail themselves of the opportunity to vote for inter- national officials. In the last election, igc6, seventy-five per cent of the entire membership voted ; on ordinary legislation, however, less than one-half cast their ballots. As regards the form of organization, therefore, the Cigar Makers' Union is highly democratic. Very little final or arbitrary power is vested in the hands of the in- ternational officers. On all important questions, the 156 TOBACCO INDUSTRY IN THE UNITED STATES [418 members or locals have at their disposal the power of agitating, initiating and legislating all measures. The central body is merely a convenient and expeditious means through which the members express their will freely and democratically. It is in the best sense, there- fore, a self-governing body. An efficient federation, however, always implies a sur- render of some powers by the local units to the central governing body of the federation, in this instance, a majority of the local unions or members acting through locals. This leads us to a consideration of the division of powers between the locals and the international, which we shall discuss under three heads : regulation of finances, trade regulations, and strikes. Members pay local dues weekly and international as- sessments at irregular intervals.' Local unions do not participate in the enjoyment of the assessments which go directly to the central headquarters, and out of which are paid the expenses of the International administration. Of the moneys collected from weekly dues, the locals are entitled to expend, on the average, about twenty per cent for their own administration expenses, etc." The remaining surplus, eighty per cent, is held by the local union but is the property of the International, to be used as a fund in paying benefits to the individual members, provided for under the constitution. The local therefore acts as a financial distributing agency for the Interna- tional. Should the fund of any particular local become 'The constitution provides for 15, 20 and 30 cent members, depending upon the amount of benefits in which they desire to participate. Of the 45,000 members, over 40,000 are 30 cent members, receiving the maxi- mum benefits. ' The percentage to which they are entitled depends on the size of the membership of any particular local. 419] LABOR CONDITIONS 157 exhausted through legitimate payments, it is replenished or equalized, as it is called, from the funds of other locals that may have expended less than their pro rata amount allowed by the constitution. The sinking fund of the International, though held by the locals, is always to be at least ten dollars per capita. To-day, with a member- ship of forty-five thousand, the fund approximates seven hundred thousand dollars. Concerning this financial system, Mr. G. W. Perkins, president of the union, wrote, " Under this system no man could steal the funds if he wanted to, and the remarkable and gratifying feature is that we do not lose on an average two hundred dollars a year through defalcations ; and the money transactions,- including the balance on hand, amount to about $1,- 300,000 annually." As in fiscal affairs and policies, so also in matters per- taining to trade regulations, the locals have conferred upon the International a stringent control. The Inter- national has prescribed for the union shops everywhere the following: (i) a uniform apprenticeship law, which requires three years' experience as one of the qualifica- tions for admission into the union ; ' (2) a uniform minimum wage — seven dollars per thousand for the United States and six dollars for Canada;'' (3) an eight hour working day ; (4) a minimum price list for all manufacturers who use the union label ; goods sold be- 'The International Constitution provides that an apprentice can be employed only where the manufacturer engages also a jovrneyman. It is left to the local, with the approval of the International, to regulate the ratio between the number of apprentices to journeymen, usually ten journeymen must be employed to permit two apprentices; fifteen for three, but never more than three. ' Locals are permitted to enforce a wage scale of their own above this^ minimum, the average being $10 per thousand. 158 TOBACCO INDUSTRY IN THE UNITED STATES [420 low twenty dollars per thousand can not be labelled; (5) conditions upon which the label can be granted includ- ing the above regulations. Owing to competition between localities, these questions could not advisably be left to local unions. Without a centralized control there would be no concerted action among the workers. With few exceptions, the union enforces the '"closed" shop by refusing to permit their members to work in non-union shops. An exception to this rule is made in the case of New York City factories. The power to strike is also vested in the entire Inter- national membership rather than in the local. Should a local enter on a strike without consulting, or in defiance of, the will of the International, it can claim no financial assistance from the International organization. Practic- ally all strikes, therefore, must be sanctioned either by the executive board or by a majority of all locals through a referendum vote. When trouble arises between em- ployees and employers, an official statement of difficulties involved must be transmitted directly to the International president and the executive board. When less than twenty-five employees are involved, the decision of the executive board is final. Where more than twenty-five are involved, the proposition, if approved by the execu- tive board, must be submitted to a vote of all the local unions, a majority of all the locals and two-thirds of the votes cast being necessary for final approval.' Should the executive board refuse in the first instance to give its approval, the particular local union or unions involved ' The locals vote as units, but each local has a voting power propor- tionate to its membership: one vote for 50 members and less, two for 50 to 100 members, three from lOO to 200, and one additional vote for every 100 additional members. A secret vote is required on all questions in- volving a strike. 42 1 J LABOR CONDITIONS 159 can appeal from their decision to a vote of all the locals. The strike having been sanctioned by the International body, the men on strike receive from the International fund a benefit equivalent to five dollars per week for the first sixteen weeks and three dollars per week thereafter until the strike is terminated. With respect, therefore, to the division of power between locals and the inter- national it may be said that the decision of questions concerning the welfare of members beyond any particular union's power is vested in the entire international mem- bership as a whole. This cautious and conservative procedure has been amply justified by the net results of strikes entered upon. The following table of figures indicates the final outcome of strikes for the five-year period from 1896 to 1901 : ' Strikes and Their Outcome. Number of Union Members Number Entitled Non-unionists Difficulties. Involved. to Benefit. Involved. Successful 300 12,794 ".587 10,363 Compromised 27 652 625 946 Ended by members obtaining employ- ment elsewhere ■ • 61 428 421 220 Lost 79 1,738 1,440 3,024 In progress or pend- ing final report . . 27 2,618 2,115 1,381 Pending approval. • I 14 12 Total 495 18,244 i6,2c6 15,934 Disapproved 36 463 451 321 Grand total 531 18,707 16,657 16,255 About sixty per cent of the number of strikes, involving ' These figures are taken from the Report of President of Cigar Makers' International Union, Sept., igoi. While it is true generally that such figures are apt to be distorted by personal bias and the desire of the Union to make a favorable showing, it must be stated that the statistical data of this particular Union are unusually accurate and complete. l6o TOBACCO INDUSTRY IN THE UNITED STATES [422- sixty-eight per cent of the workers, were successful. Even more significant is the fact that for the strikes aris- ing from a demand for an increase of wages, one hun- dred and two out of one hundred and twenty-four were successful, benefiting 9,855 workers (union and non- union). Of those strikes arising from an opposition to the reduction of wages, ninety-two out of one hundred and thirty-nine were successful, benefiting thereby 7,- 451 workers. The income, therefore, of over 17,000 workers was affected favorably by means of the strike. Moreover, as the growing power of the union has often made strikes unnecessary, the potential strike must be considered an asset in estimating what the union has ac- complished for its members through its striking power. Judging from the amount of strike benefits paid, there has been a diminution in the number, as well as in the duration of strikes.' In the recent large strike of the Boston cigar makers for an increase in wages the union won a decisive victory for the 2,100 workers involved. Because of the skill required in the trade, it is no easy matter to fill the places of the striking workmen. More- over, we must not overlook another factor, namely, the power which the union label confers upon the organized workers, in enabling them to force concessions from manufacturers whose trade depends upon that label. For twenty years fully twenty per cent of all our domestic cigars has borne the union label." No labor organization has made such splendid use of the label as has the Cigar Makers' Union of its "Blue Label." It is valuable enough to be counterfeited. Cigars bearing the union 'C/. infra, p. 162, Table. 'Cf. Eleventh Special Report of U. S. Bureau of Laior en "Regula- tion and Restriction of Output," p. 584 (1904). 423] LABOR CONDITIONS 161 label are worth from three to five dollars per thousand more than non-labeled goods. The stability, as well as the strength of the Cigar Makers' Union depends in no small degree upon its splendid system of benefits. It was Mr. Adolph Strasser who recognized, so far back as the seventies, that an efficient union looked after the welfare of its members in time of peace as well as in war. To-day this union has the most complete system of benefits of all unions in the country.' The following table indicates the different kinds of benefits provided for, as well as their amounts, in any single year: System of Benefits in Cigar Makers' Union. Kinds. Amount Paid. Traveling loans Jizo at one time. After finding employment bor- rower must pay his debt at the rate of 10 per cent of his wages. Out of employment $3 per week — 18 weeks (maximum) in one year — Total $54. Sick benefit J5 per week — 13 weeks (maximum) in one year — Total $6^. Strike benefit $5 per week — 1 6 weeks ; $$ after sixteenth week — Total for year j! 1 88. Death benefit and permanent disability $50 to $£00 Varying with length of membership. In such a system of benefits the worker finds an induce- ment not only to join, but to remain in, the union. To participate in all possible benefits, each member con- tributed per year, from 1900 to 1905, only $8.93, or seventeen cents per week. It is a significant fact, that in periods of depression, when union membership usually declines, the Cigar Makers' Union more than held its 'There is a detailed analysis of the "Benefit System of the Cigar Makers' Union," by Helen H. Sumner, in Trades Unions and Labor Problems, edited by J. R. Commons, 1905. l62 TOBACCO INDUSTRY IN THE UNITED STATES [424 own. This was notably true during the crisis of 1893.' In the following table is summarized the total amount of benefits paid out, the sum paid under each form, and the relative importance of each benefit:" Total Benefits and Relative Importance of Each Form. Annual Average (1900-1905). Amount. Per cent. Sick benefit $144,278 34 Death benefit 136,456 33 Strike benefit 65,316 15 Traveling loans 48,291 11 Out of employment 25,424 6 Total 419.765 100 Average cost per member S8.93. It is noteworthy that the strike payments form a small percentage of the entire distribution of benefits, disprov- ing the general belief that a union is merely a striking organization. The policy of strong unions, as with powerful nations, is one of armed peace. The Cigar Makers' Union is equipped with a fund approximating seven hundred thousand dollars. The interesting as well as vital problem that presents itself, and which is causing no little apprehension among the union leaders, is, how long the union can maintain its position and influence in the face of two antagonistic forces, the trust and machinery. If, as seems not un- likely, efficient machinery should be introduced for the ' Those Unions that had strong benefit systems, like the Cigar Makers, Railroad Conductors, German American Typophria, suffered least. Cf. . Heport of Ind. Com., vol. xvii, pp. 826, 280, 104. Whereas the Brick- layers', Plasterers', Woodcarvers'' Unions, which had no such benefit system, suffered a great decline in union membership. Cf. ibid., pp. 118, 154, 202. ' A very complete and detailed tabulation of these benefits for 26 years was published in the Cigar Makers' Official Journal, April isth, igo6. d>-// 425] LABOR CONDITIONS 163 rolling and wrapping of cigars, as has been the case in the making of bunches, then the present supply of skilled labor will be supplanted by an unskilled grade of work- ers. This, of course, will affect only the manufacture of "1^^-^ cheap scrap filler cigars, for no machine has yet been '^^[^ invented for the manufacture of long filler, high grade -. cigars. To the extent that machinery has been success- •- — ^-. fully introduced, women and children have taken the positions of skilled laborers, and the union has become ? f,: to that extent acttially, as well as potentially, weaker. The Union is offering stubborn resistance to the intro- duction of machinery, but its fight has been futile wher- ever the machine has been practical. In proportion as skill is made unnecessary, the union loses its hold on one of the means namely, its apprentice laws, whereby it controls the supply of labor. Moreover, the kind of laborers it must deal with — unskilled workers, women and children — becomes more difficult to organize. Should fortune favor the Union, and no revolutioniz- ing machinery be introduced, there would still be the Trust to cope with. The latter is rapidly extending its business in the cigar industry, and to that extent is de- priving the Union of another weapon. At present the Union and the Trust are in open hostility, the Union taking sides with the independent manufacturers. So long as the Union can retain its hold over consumers — through the use of the Union label — it will be able to maintain its position against the Trust. But this is be- -^j-'^T^^ coming daily more difficult, for with the organization of j •/'' its United Cigar Stores the. Trust is capturing a large portion of that retail trade which formerly went to small dealers whom the Union can more easily and effectively boycott than it can the Trust. If both forces — machinery and the Trust — conquer. 164 TOBACCO INDUSTRY IN THE UNITED STATES [426 the Union must inevitably lose some of its present power and prestige. Although machinery and the Trust ire gaining ground, it is too early to venture a prediction concerning the ultimate outcome of the conflict. Should these anti-union forces win, the conditions in the cigar ndustry will become similar to those now prevailing in the manufacture of plug, chewing and smoking tobacco, snuff and cigarettes, conditions which, as we saw above, ire so wretched that the status of the cigar makers ;o-day seems, by comparison, ideal. Before concluding this chapter we wish to call attention jriefly to the conditions in a specialized branch of the ndustry, the stogie trade. There are employed in Pitts- 3urg and Wheeling, West Virginia, about ten thousand jf these workers, some of whom are machine operators md receive low wages. A large proportion of stogies, lowever, are made by hand, like ordinary scrap or filler ;igars. The hand-workers earn about five hundred dol- arsper year, which in general approximates the wage of ;he cigar makers. Because of trade disputes with re- ipect to the wage scale, attitude towards machinery and ninimum selling-price to jobbers and retailers the stogie nakers are not aflSliated with the Cigar Makers' Union, 3Ut have an independent organization known as the National Stogie Makers' League,' with a present mem- jership of one thousand, or about ten per cent of the :ntire number of workers. Our wonderful economic prosperity seems not to have mproved the conditions of the laborers in the tobacco ndustry. Where machinery has displaced skilled by un- ikilled labor, as in the manufacture of plug, smoking 'It was organized in i8g6 by its present president, W. H. Riley. The Jnion's headquarters are at Wheeling, W. Va. 427] LABOR CONDITIONS 165 and chewing tobacco, machine cigarettes and machine cigars and stogies, the hours of labor are from nine to ten hours per day, and the yearly income averages but three hundred dollars, w Where much skill is still required, as in the manufacture of mold and hand-made cigars, the workers, with the aid of an efficient organization, earn from five hundred to six hundred dollars per year. Even for the more favorably situated laborers, therefore, wages are not far above the level of bare subsistence. CHAPTER VI Foreign Trade section i. exports For almost three centuries we have been not only the argest producer, but also the leading exporter of tobacco n the world. Except during periods of temporary dis- :urbance our cultivation and exportation of leaf tobacco lave kept pace with the general increase in consumption. 3f our entire crop (approximately 700,000,000 pounds) learly one-half is destined annually for European markets. [t is only in the production of the highest grade of cigar eaf, supplied by Cuba and Sumatra, that we are unable :o compete in the world market. The entire interna- ;ional trade in unmanufactured tobacco exceeds 600,000,- DOO pounds, and of this over fifty per cent is exported by :he United States.' It is no mere accident that we have been able to retain 3ur supremacy in the tobacco market, for the extent and latural fertility of our lands have enabled us to produce :he leaf used in ordinary consumption at a lower cost :han is possible in other countries. Crops of inferior juality are grown and exported by Brazil, Hungary, [ndia and the Dutch East Indies, but only to the extent }f 100,000,000 pounds. Were it not for the high tarififs that protect the leaf grown in Russia, Hungary and Ger- nany, practically the entire European market for leaf 'C/. Yearbook of the U. S. Department of Agriculture, 1905, p. 715. 166 [428 429] FOREIGN TRADE 167 used in the manufacture of plug, chewing tobacco, pipe smoking tobacco, snuff and cigarettes, and a medium grade of cigar leaf would be supplied by our farmers. The peculiar phenomenon in the leaf market is the element of monopoly enjoyed by producers whose leaf has once won popular favor among the consumers. Since there is no absolute objective standard for measur- ing the respective merits of leaf tobacco, it is difficult for the producers of a new leaf to dislodge the competitor I already in control of the market. The cultivated taste 1 and traditional preference of European consumers for American leaf have to that extent conferred upon our producers a semi-monopoly advantage. The American farmer is striving now to overcome the traditional bias of the American public for Sumatra wrapper leaf, just as Porto Rico is attempting, not as yet with very much success, to persuade us that the quality of her cigar leaf is equal to that grown in Cuba. This lack of standard- ization and of uniformity in quality, is one of the peculi- arities of the tobacco leaf market. To appreciate the conditions and problems in the foreign markets, we must bear in mind two factors. First, most governments still continue to view tobacco as a source of revenue. This explains the unusually high tariff duty on tobacco in European countries, which, while it puts us on an equal footing with foreign pro- ducers, gives the farmers of those particular high-tariff countries an advantage over our own. Secondly, the governments of several large European countries — France, Austria, Spain, Italy — exercise a monopoly over the sale of tobacco. These " Regie " countries make all their purchases of leaf througBTgovefnment agents, who can buy from domestic or foreign producers. The gov- ernment's revenue consists in the net surplus of the sell- [68 TOBACCO INDUSTRY IN THE UNITED STATES [430 ng price over the purchasing price. The disadvantage )f this system — to the producers — arises not only from ;he tendency to fix the selling price as high as possible, ;hus diminishing consumption and the demand for the inished product, but also from the fact that all competi- :ion for raw material is eliminated on the side of the juyers. Whether burdened directly by import duties, or in- directly through the " Regie," the tax on tobacco is ex- :eedingly high. England's minimum duty on imported ;obacco is seventy-seven cents per pound which in the case Df American leaf, marketing at ten cents, is equivalent to I seven hundred per cent ad valorem duty.' Germany's :arifif on tobacco is eighty-five marks per one hundred kilograms, or about eight cents per pound, which is equivalent to a one hundred per cent ad valorem duty an our leaf." In "Regie" countries the tax on our leaf, ivhich wholesales at eight cents per pound, is as follows : in Italy ninety-one cents per pound, in France eighty :ents, in Austria thirty-five cents and in Hungary thirty :ents per pound. The price of leaf tobacco in these :ountries is fixed arbitrarily by the government. With this general character of the foreign market in mind, let us measure our foreign leaf trade statistically. 3ur exports, since the Civil War, have more than doubled in quantity: in the ten year period prior to i860 they ivere annually 145,000,000 pounds whereas from 1895 to 1905 the figures exceeded 313,000,000 pounds annually.^ ' England's import duty is TJ cents per pound on tobacco containing more than 10 per cent, moisture, otherwise 85 cents per pound. 'Under the new law which went into effect July i, igo6, the import luty on cigarettes and cigarette leaf tobacco is 76 cents per pound. ' Based on statistics of Yearbook of U. S. Department of Agriculture ind Annual Reports of Commerce and Navigation. 43 1 ] FOREIGN TRADE 1 69 As our total annual production in the last decade averaged 660,000,000 pounds, our exports were approx- imately forty-seven per cent of our entire crop, and were valued roughly at twenty-five million dollars annually. In the following table is represented the distribution of our exports, and their proportion of the entire tobacco trade of those several European countries which are the largest importers of our leaf : ' Foreign Tobacco Trade of the United States. Percentage of the Percentage of total total United States importation imported Name of Country. ^^^^ exported from United States (quantity). (quantity). England 31 83 Germany 16 17' France 10 65 Italy 10 90 Netherlands 6 50 Spain 5 40 Of the total quantity consumed (600,000,000 pounds) in these six countries, over fifty per cent is American tobacco, about twenty-five per cent is home-grown, and the re- mainder is imported from the Dutch East Indies, Brazil, Cuba and the Philippine Islands. Russia and Hungary are the only countries which produce for exportation as well as for their own consumption, and consequently our trade with these nations is nil. Japan also produces her own leaf tobacco, under a governmental monopoly. Canada, on the other hand, imports almost her total supply of 10,000,000 pounds annually from the United States. ' In this table the percentage of our crop exported is a ten-year aver- age ; the percentage of foreign imports is a five-year average. ' Germany imports thirty-five per cent of her tobacco from the East India islands, twenty per cent from Brazil, and nine per cent from Cuba. 170 TOBACCO INDUSTRY IN THE UNITED STATES [432 Our export leaf, which is destined almost exclusively for the manufacture of plug, chewing and smoking to- bacco, snufif and cigarettes, is largely confined to two general types. One is the " Heavy Shipping " tobacco, grown along the Mississippi River, in western Kentucky and Tennessee and in the famous Clarksville region which lies between the Cumberland and Tennessee rivers. The second type is the Burley leaf, raised chiefly in central and northern Kentucky and in several counties in Kentucky and Ohio bordering on the Ohio River. It is grown to some extent in Maryland, Missouri and Illinois. Virginia's shipping crop comprises both the Heavy Shipping and Burley leaf besides some superior wrapper leaf. North Carolina produces the cigarette filler and plug wrapper. The Burley leaf is the better of the two types, and is shipped most heavily to Great Britain, the lower grades going to continental countries. None of our genuine cigar leaf is exported, although Italy and Spain use these cheaper Southern leaves in the manufac- ture of cigars and cheroots. As domestic manufacturers and foreign buyers purchase an equal amount of our leaf, prices are fixed, theoreti- cally, by a combination of both demands, domestic and foreign. In fact, however, prices have been, to some extent, arbitrarily regulated by the Trust in agreement with the "Regie" agents, both together using about seventy per cent of the entire crop. As a rule, domestic manufacturers use the higher grade of leaf, and foreign buyers, with the exception of Great Britain take a lower grade. When prices rise, either through a greater de- j mand at home or a shortage in the crop, foreign buyers substitute a lower grade of leaf for the one they have been previously using. This circumstance makes it very difficult to study the relation of prices and foreign ship- 433] FOREIGN TRADE lyi ments. Prices of export leaf since 1875 have remained very steady, as shown in the following table : Exportation of Unmanufactured Tobacco — Quantity, Value and Price. (1860-1905.) Annual Average. Total Quantity. Total Value. Price per Pound. 1859-1861 1 75,000,000 lbs. $16,000,000 9.2 cents. 1 862-1 865 110,000,000 19,000,000 18.0 " 1866-1870 190,000,000 22,723,000 1 1.9 " 1871-187S 240,000,000 24,474,000 lO.I " 1876-1880 264,000,000 23,560,000 8.9 " 1 881-1885 225,000,000 19,400,000 8.4 " 1886-1890 268,000,000 23,084,000 8.8 " 1891-1895 272,000,000 22,895,090 8.8 " _i896-i9oq^ 300,000,000 25,268,000 8.6 " 1901-1905 325,000,000 29,558,000 8.6 " Since i860 our exports have increased eighty-five per cent in quantity and eighty per cent in value, which, at the present time, comprises about three per cent of our total agricultural export trade. Our leading internal markets for the sale of this tobacco leaf are Louisville, Cincinnati, Clarksville CTennessee), Hopkinsville and Paducah. From these tobacco centers most of the leaf is sent by rail to New York, Baltimore and New Orleans ; these three ports ship abroad ninety per cent of our leaf exports. The freight rates from these inland markets to the shipping ports average about thirty cents per one hundred pounds, which is equivalent to a three per cent ad valorem transportation rate. Though steadily increasing, our exportation of manu- factured products is still slight as compared with our leaf exports. To begin with, the markets of France, Italy, Spain and other "Regie" countries, including Japan, are closed to us, since the governments in these countries exercise a monopoly over the manufacture and sale of tobacco products: England's market is largely non- competitive, as the result of an agreement with English 172 TOBACCO INDUSTRY IN THE UNITED STATES [434 manufacturers,' whereby the Trust is not to compete in Great Britain. Germany is closed to us because of her high tariff rates : thirty cents per pound on manufactured goods and only nine cents on raw leaf.'' In countries that do not discriminate against our manufactured pro- ducts we can not compete because of the difiference in the cost of labor, especially in cigars, where hand labor is so essential. In the manufacture of products other than cigars, in which machinery is more important than labor, we enjoy no technical advantages sufficient to off- set the difference in general labor costs and foreign tariff duties. Consequently our exports to Europe are very insignificant, amounting all told, in 1905, to $635,000, which comprises only eleven per cent of our total ex- ports of manufactured tobacco products, and of this one- half is shipped to the United Kingdom, partly for trans- shipment. Our largest foreign markets are Asia and Oceanica, as shown in the following table : ^ Summary of Foreign Trade in Manufactured Tobacco: Annual Average 1900-1904. Chewing and Plug. Cigarettes. Smoking Tobacco, Cigars Snuff. Total $2,240,000 $2,200,000 $930,000 $49,000 Asia I fo 54 % 14 % 4 % Chinese Empire. British India. Oceanica 41 % 19 % 30 % 28 % B. Australia, etc. Europe 33 ^ 16 % 30 % 14 % United Kingdom. Germany. Africa 1% 10% 1% 1% North America .. . 12% 1% ly % 32% Canada. West Indies. 'Supra, p. 114. "Supra, p. 168, note 2. " Cf. Commerce and Navigation of the U. S. , Annual Report Treas- ury Dept., 1904, vol. ii, pp. 728 et seq. 435] FOREIGN TRADE 173 Our tobacco manufacturers, especially the Trust, are energetically developing the markets in the Orient and Australia/ It is this extension of trade in these non- European regions that is responsible for the steady and constant increase in our recent export trade. The three million dollar mark of i860 was not exceeded until 189a ($3,876,045); since 1890 the trade has grown ^to_$5v- 690,2q3_in^i905. Our combined export trade of leaf and manufactured products reached $35,000,000 in 1905. Summarizing the account of our export tobacco trade, we supply Europe with one-half or more of the entire amount of leaf used in the manufacture of plug, chewing and smoking tobacco, snuff and cigarettes; but our growers have no natural monopoly, for besides produc- ing large quantities, Europe can substitute leaf from Java, Brazil and the Philippines. In the production of the higher grades of cigarette and cigar leaf, we can not compete with Turkey and Algeria, in the former, and with Cuba and Sumatra, in the latter. For a combina- tion of reasons, — the existence of government (" Regie ") monopolies in European countries, discriminating tariff duties, the Trust's agreement not to market its goods in Great Britain, and the difference in the wages of labor, — our finished products have thus far found very little sale in European countries. The chief markets for our man- ufactures, principally cigarettes and plug, are respectively Asia (Chinese Empire and British India) and Oceanica (Australia) . 'Just as soon as the Japanese government had declared Dalny (Man- churia) an open port, the British-American Tobacco Company, con- trolled by the American Trust, was on the spot offering tobacco pro- ducts at greatly reduced rates, in competition with the Japanese goods.. 174 TOBACCO INDUSTRY IN THE UNITED STATES [436 SECTION II. IMPORTS AND THE TARIFF. In as much as we export not only the raw material, but also the finished products of manufactured tobacco, (plug, smoking and chewing tobacco, snufif and cigar- ettes), it is obvious that our problems with respect to our import trade must be confined almost exclusively to cigar leaf and cigars. It is our purpose, in this section, to measure the real significance of our import trade, and to observe how our domestic growers and manufacturers have faced the problems arising therefrom. Our leaf tobacco imports, prior to 1846, were too in- significant to merit our attention. In the decade, how- ever, from 1850 to i860, coincident with the expansion of our home market for cigars, our importation of leaf sprang into prominence. In the five year period, prior to the Civil War, it amounted annually to $1,184,916, imported principally from Cuba. The import movement in manufactured products (plug, chewing and smoking tobacco and snuff) was even more insignificant, for in the entire period, from 1790 to i860, the imports were less than three-quarters of a million dollars, comprising chiefly a fine grade of snuff and smoking tobacco imported from England. Cigars alone occupied a prominent place among our imports, reaching in 1836 one million dollars annually, in 1 851 two million dollars, and finally, in i860 $4,586,742. These cigars were imported from Germany and Cuba, the very cheap grade from the former, and the highest grade from the latter country. The largest por- tion came from Germany, where they were made by very cheap labor under the household system of production. In i860 the value of our imports was distributed as fol- lows : 437] FOREIGN TRADE 175 Tobacco Imports in i860. Value. Per cent. Total f 6,077,901 100 Cigars 4.S8i.S5i 75-3 Unmanufactured leaf • • • 1,365,625 22.4 Manufactured tobacco 132,725 2.3 With the introduction of a high war tariff in 1862 came a sudden and permanent diminution in the importation of cigars. In July of 1862 the duty was increased from twenty cents to thirty-five cents per pound, or from two dollars to three dollars and a half per thousand cigars, which were valued, when imported, at only six dollars per thousand. This was an advance of nearly one hun- dred per cent in the ad valorem duty. The tariff was further increased during the war, finally reaching, in 1866 to 1868, three dollars per pound in addition to a fifty per cent ad valorem duty. From 1867 to 1890 it remained unchanged, a combination of a specific duty, at two dollars and fifty cents per pound, and an ad valorem duty of twenty-five per cent. The McKinley Tariff of 1890 raised it still higher to four dollars and fifty cents per pound, plus the twenty-five per cent ad valorem duty, which, except for the temporary reduction under the Wilson Act of 1894, and a special reduction of twenty per cent on Cuban goods, ' has remained intact to the present day. Concretely what this tariff has meant is this : that from 1867 to 1890 (at $2.50 per pound plus twenty-five per cent ad valorem') a duty of at least five cents was levied on each cigar imported, and from 1890 to the present time ($4.50 per pound plus twenty-five per cent 'By the terms of the reciprocity treaty of 1902 between the U. S. and Cuba, the latter's products are admitted into our country at a 20 per cent reduction of the rate provided for under the Dingley tariff. 176 TOBACCO INDUSTRY IN THE UNITED STATES [438 ad valorem less twenty per cent on Cuban goods) each cigar imported has been burdened with a tax of at least six cents. The consequence has been that only_the finest and^i^est^priced cigars can be imported. The tariff to-day is equivalent to a one hundred per cent ad valorem duty on all but the most expensive cigars, which is ample protection to home manufacturers of cigars of the cheaper grades. Our manufacturers sell to retailers clear Havana cigars, which retail at ten cents, for sixty dollars per thousand, whereas the minimum tariff is at least that amount. A comparison of the quantity and value of cigars im- ported, prior and subsequent to these high tariff sched- ules, will indicate what the effect has been. This can best be seen in a table like the following : Importation of Cigars.' Annual Average. Quantity. Value. 1855-1859 8,000,000 lbs. 2S4,02l,30O 1865-1869 667,380 1,479,000 1875-1879 658,000 2,399,459 1885-1889 1,000,000 3,329,186 1895-1899 418,000 1,984,099 1900-1904 515.0°° 2,687,307 Taking the entire period, the decline in quantity has been about ninety-two per cent, and in value only fifty per cent. Prior to the war our imported cigars consti- tuted over fifty per cent of the entire home consumption, whereas they to-day form less than one-half of one per cent. It should be observed that the decline in imports was very heavy subsequent to the sudden and large in- crease in the tariff of 1890, the rate advancing from one hundred to one hundred and twenty per cent ad valorem. ^ Cf. "Statistics of Manufactures of Tobacco," in Tenth Census of U. S., p. 48. 439] FOREIGN TRADE 177 With the twenty per cent reduction in the duty, as a result of the Cuban reciprocity of 1902, our imports rose appreciably. In the three-year period, from 1900 to 1902 (inclusive) we received eighteen per cent of Cuba's total cigar exports, whereas from 1903 to 1905 (inclu- sive) we took twenty-five per cent. Of her total cigar output, Cuba sends to England forty per cent, compared with twenty-five per cent to the United States, thirteen per cent to Germany and four per cent to France. Prac- tically all our cigar imports come from Cuba. During the development and expansion of the cigar industry, our producers of raw material were likewise taking advantage of the high tariff, which originated in, and continued in operation since, the Civil War. In 1862 the duty was raised from twenty-five per cent ad valorem • to thirty-five cents per pound, which was equivalent to seventy-five per cent ad valorem. As our ordinary cigar domestic filler leaf sells to the manufacturer for about twelve to fifteen cents per pound, this tariff practically excluded all but the finest Cuban filler, just as the tariff on cigars had operated to keep out all but the most ex- pensive grades of cigars. Consequently the production of filler leaf was greatly stimulated in Connecticut, Ohio, Pennsylvania and New York. These growers, who have enjoyed undisturbed protection since 1862' are beginning to show some anxiety over the proposed reduction of the tariff on Philippine cigar leaf, which would compete with their own products, especially cigar fillers and binders.'' ' By the Cuban . reciprocity treaty of 1902, a 20 per cent reduction is allowed on Cuban leaf, making the duty 28 cents instead of 35 cents per - pound. \ \ "The Payiie Bill, which passed the House and is now in the hands of 1 1 the Ways and Means Committee of the Senate, provides for a 75 per cent reduction of the tarifif rate under the Dingley Act. 178 TOBACCO INDUSTRY IN THE UNITED STATES [440 They have reasons to feel worried, for the present out- put of this Philippine leaf is over twenty million pounds, or fifteen per cent of our entire cigar leaf crop, and it can be produced at five cents per pound, or about two cents per pound lower than our own leaf. With an im- provement in the methods of cultivation, and an exten- sion of its production, this leaf, which is now shipped to Spain and Austria-Hungary, may easily become, under a lower tariff, a competitor of our domestic product. The high tariff has not, however, been able to exclude the Cuban cigar filler, which is universally regarded as superior in quality to any grown in the world. All efforts to transplant it to our soil, or even to produce a fair substitute, have thus far been fruitless. While our I domestic grown filler of Connecticut, Ohio and New ' York has doubtless been improved as a result of these efforts, it is still used almost exclusively in five-cent cigars ; whereas, the Cuban filler is destined, invariably, only for the higher priced cigars. After much experi- mentation, and only with the aid of a higher protective tariff, Florida filler may be said to be the sole direct competitor of the Cuban leaf. The semi-monopoly, which the latter enjoys in the market, is due to a combi- nation of a peculiar soil and a favorable climate. Besides these natural advantages, its production requires a large amount of skilled human industry. Its cost of cultiva- tion is averaged at forty cents per pound, and it has been marketed, in a twenty year period, at forty-eight cents per pound. Cultivation in Cuba is largely confined to three western provinces, Pinar del Rio (70 per cent), Habana (13 per cent), Santa Clara (13 per cent). In the first is located the most famous tobacco district of Cuba, the Vuelto Abajo. Though our import movement of Cuban leaf may have 44 1 ] FOREIGN TRADE 1 79 been retarded, it has not suffered any diminution under the operation of our high tariff since the Civil War, as indicated in the following table : Importation of Cuban Filler — 1855-1905. Per cent of Annual Average for Five Year Pounds Domestic Cigars Period. Made of Cuban Filler. 1855-1860 7,014,485 Uncertain " 1861-1865 5,666,464 Uncertain ' 1866-1870 .... i 4,ri6,595 13 4871-1875 8,985,465 21 1876-1880 71255.663 14 1881-1885 I'.536.374 20 1886-1890 iS'S32.975 27 1891-1895 15,344,466 23 1896-igoo 10,811,173' 14" 1901-1905 24,048,837 24 These figures show an increase of sixty-six per cent in the quantity of leaf imported since 1855-1860. This off- sets the large diminution in imported Cuban cigars in the same period. Clearly what has happened is this, the Cuban cigar industry has, to a very large extent, been transferred to the United States. Instead of importing the finished product, we have encouraged the importa- tion of the raw material and have caused the cigars to be manufactured here. In the period from 1900 to 1905, we purchased over seventy per cent of Cuba's total crop. And our proportion is gradually increasing both in quan- tity and in value. In 1900 we received only fifty-six per 'There are no reliable statistics of domestic production for this period. ' Owing to the great amount of cigars that escaped the revenue in- spector during the Civil War, it is impossible to estimate our domestic production. 'Cultivation in Cuba was checked by the disturbances of the Spanish- Cuban-American War. l8o TOBACCO INDUSTRY IN THE UNITED STATES [442 cent and in 1904- 1905 seventy-seven per cent of her entire supply. The value of these imports has advanced from $8,478,251 in 1900, to $13,348,000 in 1905. Florida has profited most by this movement of part of the Cuban cigar industry to our country. Tampa and Key West have taken away from Cuba not only the raw material, but also many of the skilled laborers. In the twenty-year period, from 1886 to 1906, Florida's output of cigars increased from 92,000,000 to 331,000,000, an advance of two hundred and sixty per cent. The capital invested in the cigar factories, reported by the United States Census, rose from $1,686,396 in 1890, to $5,349,- 907 in 1900 and $7,383,963 in 1905. The product in- creased in value from eight to sixteen million dollars. In fact, Florida alone manufactures fifty per cent more Havana cigars than are made in Cuba. The latter's out- put is about two hundred million, whereas, the former's is over three hundred million cigars. About seventy-five per cent of the leaf grown in Cuba is consumed in the United States. A second problem with respect to the importation of leaf tobacco is concerned with the substitution of the foreign-grown Sumatra leaf for our domestic cigar wrap- per. This silky, elastic, yellow-spotted, Sumatra cigar wrapper has grown in popularity since its introduction into this country in the seventies. It was to check its importation that an alteration in the tariff schedules in 1883 was made, whereby the general duty of thirty-five /cents per pound was retained for filler and a seventy-five cent duty was levied on all wrapper leaf. The McKinley i Tariff increased the rate to two dollars per pound, but the Dingley schedule put it at one dollar and eighty-five cents per pound, which, except for the twenty per cent reduction|allowed on Cuban wrappers, is still in opera- 443] FOREIGN TRADE l8l tion to-day. As Sumatra sells at the general market, Amsterdam and Hamburg, for fifty cents per pound, the present tax is equivalent to a three hundred per cent ad valorem duty, causing the price in our home market to range from three dollars per pound upwards. In spite, however, of this extraordinarily high tariflf, we have con- tinued to increase our consumption of this wrapper leaf. The following table presents both the quantity imported and the relative proportion of cigars wrapped with this leaf: Importation and Consumption of Sumatra Leaf — 1880-1905. Annual Sumatra Leaf Cigars Wrapped Total Produc- tion of Per cent of Sumatra Cigars Average. Imported. Lbs. with Imported Sumatra. Domestic Cigars. of Total Pro- duction in U. S. 1881-1885 •■ ■- 194,857 34,951,000 3,153,215.366 01 I 886-1 890 .. .. 1,123,214 374,404,000 3,819,841,450 10 1891-1895 .. ■• 3,38i,ooo 1,127,000,000 4,413,755,834 25 J 896-1900 .. .. 4,789,606 1.566,535.000 4,850,464,121 32 1901-1905 .. •■ 6,431,392 ■ \ n 2.143.794,000 • . . 1 6,649,390,864 32 From which figures it appears that our consumers are increasingly preferring this Sumatra on their cigars. The total value of our imported wrapper leaf from 1896 to 1900 has averaged annually over five million dollars. It is not at all unlikely that if it were not burdened with so high a tariff duty it would completely supplant our two domestic competitors, the Connecticut seed wrapper and the Florida imitation-Sumatra wrapper. Although our seed wrapper costs the manufacturer only from forty-iive to sixty cents per pound, and the Sumatra leaf from eighty to ninety cents per pound in bond (in American markets), the former affords a poorer return; whereas six pounds of seed wrapper are required for covering one thousand cigars, only three pounds, or less, of Sumatra l82 TOBACCO INDUSTRY IN THE UNITED STATES [444. are needed. Under free trade, or only a light tariff duty,, the two would stand on the same footing so far as rela- tive costs to the manufacturer are concerned. The Florida wrapper, which is inferior in quality to the genu- ine Sumatra, sells for about two dollars per pound, and could never compete with the latter except under a very high protective tariff. We have, by our tariff, encour- aged the production in Florida of leaf under extremely costly processes. Realizing the value of this Sumatra leaf, our United States Department of Agriculture has been carrying on experiments for ten years, with the view of raising this leaf on our soil (in Connecticut, Georgia, Florida) but its efforts, thus far, have been futile. In the sale of their tobacco, the growers of Sumatra,, like the producers of Cuban leaf, enjoy a semi-monopoly to the extent that they possess the peculiarly favorable soil, in the supply of which nature seems to have been niggardly. Most of this choice and limited supply of tobacco land in the island of Sumatra is in the control of Dutch syndicates, the most famous of which is the " Deli Maatschappy," which produces about one-third of the total crop. This single company, with a capital stock of over a million and a half dollars, has been declaring one hundred per cent dividends annually for over twenty years. The tariff problem in the tobacco industry is compli- cated by the traditional fiscal policy adopted with respect to it. There seems to prevail a tacit belief that a gov- ernment ought to derive from this particular industry as much revenue as possible. Judged by this latter crite- rion, our own government is very successful, for in the nine-year period, from 1897 to 1905, it has derived annu- ally, in the form of tariff duties on tobacco, no less than $17,500,000 on imported goods valued at $15,500,000,. 445] FOREIGN TRADE 1 83 which made the tariff rate one hundred and thirteen per cent ad valorem: two and one-half million from cigars on a one hundred per cent duty, five million from filler leaf on a seventy-five per cent duty, and ten million from wrappers on a two hundred per cent basis. When distributed among the various elements and classes in the industry and among consumers, the burden occasioned by this high duty is borne without any com- plaint or great hardship. In the case of imported cigars, the consumers, by the very fact of their being able to purchase so expensive a grade of goods, are able to bear the incidence of the tax, which does undoubtedly fall upon them. The tax on Sumatra is, in effect, five dollars per thousand cigars, which is equivalent to a burden of one-half of one cent on each cigar consumed. The tax on Cuban filler is even less than this amount, approxi- mately, four dollars per thousand, or four-tenths of one cent on each cigar. Because of the insignificance of the burden, a reduction in the tariff might not in the least redound to the benefit of the consumer, but in all likeli- hood, would confer a larger element of profit upon the retailer. Nor must it be forgotten, that the imported unmanufactured leaf is, in some respects, non-reproduci- ble, since the cultivation can not easily be extended. A reduction of the tariff might conceivably, therefore, merely confer an added advantage upon these Cuban and Sumatra land owners. To the extent, however, that these producers enjoy only a partial monopoly, and that the cultivation of these import types could be further ex- tended, even under increasing costs, the price of this leaf would be lower, and the consumer might then receive a slightly better quality of cigar than he is at present ob- taining without any increase in price. With the duty on Sumatra and Cuban filler greatly reduced, our domestic 184 TOBACCO INDUSTRY IN THE UNITED STATES [446 manufacturer could always afford to use the former on five cent cigars, and some quantity of the latter. In our opinion, a reduction of the tariff would be followed, not by any single one of these alternatives, but by a combi- nation of them. The revenues relinquished by the gov- ernment would go, in part, to the consumer in the form of an improved quality of his cigar ; partly to the retailer, since the latter would be able to buy cheaper from the manufacturers; and partly to foreign landowners, who would profit by an increase in the demand for their par- ticular crops. In conclusion, it ought to be said, that the interests of American farmers and manufacturers are not identical. The farmer has been clamoring for high duty on raw material — Cuban filler and Sumatra wrapper; whereas the manufacturer has been equally desirous of obtaining, not only high duties on manufactured products, but low rates on raw material. Our high tariffs on raw material and manufactured cigars have artificially stimulated the production of both ; as, for instance, the Florida-Sumatra leaf and the transplanting of the Cuban cigar industry to Tampa and Key West. In both instances economic waste is involved. It is also worth noting, in conclu- sion, that over three hundred million pounds of exported leaf are valued at only twenty-five million dollars, com- pared with fifteen million dollars for thirty million pounds of imported leaf. This means that we export an inferior grade and import a superior grade of leaf. CHAPTER VII The Tobacco Tax It is possible for a government to adopt one of at least four different attitudes or policies toward an industry: rs it may assume a purely negative or laissez-faire attitude ; ''^^ it may, for social reasons, supervise and regulate certain features of the industry, as when it attempts to regulate 'y exercising complete control over the entire industry ,^, an prevent all smuggling and frauds. Moreover the 'Regie" has the advantage of being able to apply suc- essfully, as our system cannot, an ad valorem tax, since he government monopoly fixes the values and prices of .11 goods. While both systems of taxation are flexible^ he "Regie" possesses the added merit of preventing an vasion of the increased tax when a change is made in he schedule.' Because of the volume of consumption of ' Many tobacco and whiskey manufacturers and merchants are said to^ 46l] THE TOBACCO TAX 199 tobacco in our country, a comparatively low tax makes possible a government revenue as large as, and in most cases larger than, in most European countries where the tax rate is usually higher. have gotten rich during the Civil War, at the government's expense, by increasing their output in anticipation of an increase in the tax rate. CHAPTER VIII Summary and Conclusion To weave together the threads of a treatise that em- braces the development of an industry through three centuries of change is no easy task. The diversity of the material and the variety of problems do not admit of a complete synthesis. The most that we can do is to note briefly some of the significant phases in the progress of the industry — in agriculture, manufacture, the labor problem, distribution, and consumption. § I. Agriculture. — The cultivation of tobacco for gain has been extended from the narrow limits of the earliest Virginia settlement at Jamestown to more than forty states in the Union. For ten states it ranks to-^ay among their principal commercial crops. With the ex- haustion of the soil from excessive use, the destruction of agricultural capital during the Civil War, and the open- ing up of virgin soil in the middle west and south, the center of leaf tobacco production shifted from Virginia and Maryland to Kentucky, Tennessee, Ohio and North Carolina. With the development of the cigar industry, the production of cigar leaf, protected by a high tariff since the Civil War, has expanded enormously in Ohio, Connecticut, Wisconsin, Pennsylvania, New York, and Florida. The primary difference in the chemical composition of the soil of the South and the North has made their leaf tobacco non-competitive products ; the Northern leaf is 200 [46a 463] SUMMARY AND CONCLUSION 201 used almost exclusively in the manufacture of cigars, while the Southern leaf, with the exception of Florida tobacco, is destined for all tobacco products other than cigars. The vast area of fertile soil has enabled America to maintain its hold on the world market in the supply of leaf used in " manufactured tobacco." For over two hundred years the development of the Southern tobacco production was bound up with the in- stitution of slavery and the plantation system of cultiva- tion. With the collapse of slavery and the destruction of agricultural capital during the Civil War, came a dis- integration of the large estates and an ever increasing number of small farms. The inability of the large land owners to command an adequate supply of labor has made necessary the leasing out of small holdings to poor tenants under the crop-sharing system. The latter has supplanted the plantation system. Simultaneously with the rise of small holdings, inten- sive cultivation was being hastened by the introduction of more scientific methods of cultivation. For since the Civil War a more extensive application has been m.ade of the rotation of crops, commercial fertilizers, and im- proved methods of "curing" tobacco. Moreover, this intensive cultivation has been partly engendered by the growing demand of consumers for a better quality of tobacco. With the movement toward small holdings, intensive cultivation, and the emphasis on quality, the need in the South is not for land but for more labor and capital. The problems of the planter are many: regulation of the crop, so as to avoid over-production as well as un- der-production ; the inadequacy of the labor supply, especially in the South; the capricious forces of nature to which tobacco is very sensitive. The one problem, 202 TOBACCO INDUSTRY IN THE UNITED STATES [464 however, that has overshadowed all in the last ten years, and which to-day is more ominous than ever, is the Trust. By its strategic power as a buyer it has been able to de- press prices on all tobacco except the cigar leaf. The demand for the latter is still largely from the independent manufacturer and not the Trust. Over seventy-five per cent of the entire Southern supply is purchased by the Trust and the " Regie " agents. With the power of the buyers concentrated in a few hands and the great num- ber of sellers poorly organized and competing among themselves, prices are naturally low. United efiforts and attacks of the growers upon the Trust have thus far been -Hutile, and the problem is still as acute as ever. In their , despair the Southern growers are looking anxiously to the government for a remedy or a mitigation of the Trust evil. § 2. Manufacture. — In manufacture, also, the industry has undergone momentous changes. Differences in the technical processes of production distinguish the manu- facture of plug, chewing, smoking tobacco, snulif and cigarettes from the manufacture of cigars. As the former were more easily adapted to machine production, it was there that the domestic system was first displaced by large-scale factory production, and there also that the Trust arose and perfected its organization. The import- ance of machinery and large fund of circulating capital early led to a concentration of production of " manu- factured tobacco," long before the Trust had entered the field. In the manufacture of cigars skilled hand-labor has remained to this day the most important factor, machin- ery and unskilled labor having been introduced only in the production of the very cheapest cigars. This has prolonged the life of small-shop domestic production.. 465] SUMMARY AND CONCLUSION 203 The large factory, however, is beginning to supplant the small producer. The advantages on the side of the former in the sale of the goods as well as in the purchas- ing of the raw material, are thus far the only decisive factors. The small producer has profited by the dis- organized character of the retail market. The personal element, in the sale of goods, has been capitalized by the small producer, and this explains in part the slow head- way made in the cigar industry by the Trust. The Trust first appeared, in 1890, in the cigarette in- dustry where concentration and machine production had ( reached the highest point of development. The immedi- ate cause of the Trust organization was the endeavor of the large producers to escape from the intense and ruin- ous competition which resulted from the invention and introduction of new cigarette machines. The conditions which favored the extension of the Trust activities from the cigarette industry to other branches of the trade were : first, a disorganized wholesale and retail market which occasioned too high profits ; wasteful competition among the host of manufacturers in attempting to create markets for their brands ; and intense competition among the manufacturers in the purchase of raw material. The success of the Trust has been due, however, not to superior economy in production and distribution, which the temporary condition of the industry made pos- sible, but to the practice of destructive methods of com- petition. The principal weapon of the Tobacco Trust, and one employed so effectively by the Standard Oil Company, is__local_co mpetition — under selling a com^* petitor in a restricted field, while sustaining prices else- where. Temporary losses suffered in such competitive struggles are compensated for either by increasing prices to the consumer or by reducing the profits of the jobber and retailer after the market is controlled by the Trust. 204 TOBACCO INDUSTRY IN THE UNITED STATES [466 The Trust first achieved success in the manufacture and sale of cigarettes, then in smoking and chewing tobacco, and finally in snuff and stogies. The cigar in- dustry has alone remained to this day for the most part in the hands of independents. But even here the Trust is making headway through the organization of its retail agencies, the United Cigar Stores. The success of the latter means the extinction of the independent retailer, and with his extinction the markets will be closed to the independent manufacturers. From present indications it would not be too rash to predict the absorption of the cigar industry by the Trust quite as completely as the other branches have been absorbed. § 3. The Labor Prdblem. — The two forces that have revolutionized the organization of the the tobacco in- dustry, namely, the introduction of machinery and con- centration of ownership of the means of production, have reacted detrimentally upon the condition of labor in the tobacco industry. The introduction of machinery has meant initially for the skilled worker a reduction of wages and ultimately his displacement by a less skilled and a lower paid grade of labor. From a social standpoint it has involved the production of goods by a less intelligent and less skilled grade of labor. Since efifective organization among the laborers is rendered more difficult because of the influx of women and unskilled male labor, made possible by the intro- duction of machinery, the possibility of securing better conditions from their employers is thereby minimized. ' Concentration of ownership and control by the Trust has tended to place the laborers at a disadvantage in bar- gaining collectively with employers. The Trust has not only exercised its privilege in refusing to recognize the Union of Tobacco Workers, but has taken advantage of 467] SUMMARY AND CONCLUSION 205 the disorganized condition of labor by refusing to bar- gain collectively with its employees. These conditions are especially applicable to the tobacco workers, where machinery has introduced a low grade of labor, women and children, and where the Trust has been most successful in controlling the industry. Wages of the tobacco workers are therefore very low. Conditions in the cigar trade are more favorable. On the one hand the existence of a skilled body of workers makes possible a strong and efficient labor union which can insist upon fair terms through collective bargaining. On the other hand, skill is so important that the supply of labor cannot be easily replaced in time of strike- Moreover, in the absence of a complete control of the industry by the Trust, the terms of the labor contract are apt to be in favor of the laborers since the latter are very efficiently organized. To no small degree has the welfare of the cigarmakers been protected by their powerful organization — the Cigar Makers International Union. In strengthening- its internal organization this Union has made splendid use of a system of " benefits " for the protection of its members when on strike, unemployed, or in need of traveling expenses. In its contest with non-union man- ufacturers it has utilized to the fullest extent the Union label. § 4. Distribution. — Concentration in production and control of the industry by the Trust have made possible a more systematic organization of the wholesale and retail markets. This is especially true when the Trust has been most successful, namely, in the sale of "manu- factured tobacco." Here the profits of the middleman have been reduced to a minimum, and are consequently low compared with the rate of profits in the cigar in- 2o6 TOBACCO INDUSTRY IN THE UNITED STATES [468 dustry. The elimination of the jobber and the reduction of the retailer's profits are the most tangible allurements to the Trust. Where the Trust is strongly organized and exercises most effective control, the problem of the jobber is : How to take advantage of the larger profits offered through the sale of independent goods without being denied the privilege of selling the goods made by t]ie Trust ? For the independent retailer the problem is : How to compete with such attractive and so efficient distributing agencies of the Trust as the United Cigar Store and the National Cigar Stand? Consumption. — The rapid development undergone by the tobacco industry in the last half century has had for its basis the expansion of tobacco consumption, especially in our own country. Most remarkable in recent years has been the expansion of the consumption of cigars : due in part to the improved quality of cigar leaf, and in part to the increased purchasing power of the general consuming public. Because of the importance of skilled hand labor and the use of a superior grade of leaf in pro- duction, the cigar is still the most expensive form of to- bacco consumption. The total annual expenditure for tobacco is $500,000,000, two-thirds of which is for cigars. Since the Civil War the rate of per capita consumption of all tobacco has increased over 200 per cent. For the consumers, as such, the problem of the Trust is nbt yet a pressing one. Where the Trust control has been most thoroughly effected in the manufacture and sale of plug, cigarette, chewing, smoking tobacco and snuff — prices of the finished product have not been materially increased. For this two reasons may be as- signed : first, there has always been enough actual and potential competition from independents to prevent too high an increase in price by the Trust ; second, because 469] SUMMARY AND CONCLUSION 207 of the convenience of the traditional retail price, on the , scale of five, a small increase in price is not always prac- \ ticable. Moreover, because of the great importance of brands and the necessity of sustaining their quality, it is very dangerous to substitute an inferior grade of leaf in the finished product. The sudden loss of trade in the sale of Havana goods by the Trust is a case in point. It is because the Trust is still in a militant state and still fighting for complete monopoly that it has been unable to raise retail prices to the consumer. Bearing in mind, however, the bitter experiences of consumers of com- modities whose sale has been completely monopolized by Trusts, it is to the interest of the tobacco consumer to prevent, if possible, a similar monopoly in the tobacco industry. For the planter, the independent manufacturer, jobber and retailer, the laborer and the consumer, the vital problem to-day is: How to prevent a repetition of the pernicious methods of competition already practiced by the Trust and how to forestall the more disastrous effects f that are certain to ensue upon the attainment of a com- plete monopoly. Above all, the method of local compe- tition — underselling in a restricted market — must be prohibited if competition is to survive. Remembering, however, that there are certain distinctly social econo- mies introduced and maintained by the Trust form of organization and which it would be folly to abandon, the problem from a social standpoint in the tobacco industry, as in other industries, is — How to keep alive competiti- tion without the wastes of competition? How to pre- serve the economies of large-scale production and dis- tribution without entailing the evils of monopoly? The history of the futile struggle of the voluntary as- sociations among planters, independent manufacturers. 2o8 TOBACCO INDUSTRY IN THE UNITED STATES [470 jobbers, retailers and laborers, against the Trust, onlj confirms the general lesson learned from other industries that nothing short of a second Trust with an equally great capital fund can successfully cope with the Trust already in control of the market. But we have also learned that a competitive war between two such giants, besides being socially undesirable, usually culminates in an even greater Trust. The interests within the industry must join with the public in looking to the government for a solution of the problem. The history of anti- Trust legislation teaches us at least one thing : that no effective control or regu- lation of Trusts can be expected from state legislatures. The power of the regulating body must be co-extensive with the field of activities of the organization it seeks to regulate, which, in the case of the Tobacco Trust, is national. Disregarding the alternative of a complete government ownership and operation of the industry, such as is now exercised successfully in Japan,' immediate and urgent reform calls for regulation of the Tobacco Trust by our Federal Government. 'C/. "A Short Account of the Tobacco Monopoly Law in Japan," by Y. Sakatani, Vice-minister of Finace, 1905, pp. 7-9. 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By Joseph Harding Underwood. (In press.) 3. The Development of the liCglslature of Colonial Virginia. £y E. I. Miller. {Ingress.) VOLUME XXIX, 1907-08. 1. The Enforcement of the Statute of Liaborers. ' By Bertha Haven Putnam, (/n press.) The price for each volume is for the set of monographs in paper. Each volume, as well as the separate monographs marked*, can be supplied in ehtk-bound copies, for SOe. additional. The set of twenty -seven volumes (except that Vol. II can be supplied only In unbound nos. 2 and 3) is offered bound tor $86. Volumes I, III and IV can now be supplied only In connection with complete setSi For {orther information, apply to Prof. EDWIN R. A. SELIGMAN, Columbia University, or to the MACMILLAN COMPANY, New York. London: P. 5. KINO & 50N, Orchard House, Westminster. DATE DUE ■^l^^^T'g^n^rTo-Tg- Apgii^' J .M . iiY --«rt»g "=W¥^ !f=f=?^-H'31? PRtNTED rN U.S A. HD9135.J2"™""""'"'"'"-""''^ The tobacco industry in the United State 3 1924 002 654 808