TeachMeFinance.com - explain trust
trust -- a legal entity created to manage property for the benefit of a specific person or persons. A trust is funded when the owner (the grantor) transfers ownership of property to another (the trustee) for the immediate or eventual benefit of a third person, (the beneficiary). The person who creates a trust is called a grantor, settlor or trustor. The person designated to receive assets at the end of the trust term is called a remainderman.
Trust -- The term trust means credit; that is, confidence that payment, especially voluntary payment, will be made at a 'future time for goods or other property purchased. The word trust also signifies custodianship and care of property. The term trust is commonly applied to a combination of separate concerns or interests by an actual consolidation when the purpose is to control a particular industry or a business. For example, by a consolidation or amalgamation of steel producing companies the "Steel Trust," so called, was created; likewise, by a combination of sugar refining companies the "Sugar Trust," so called, was created. Probably the most remarkable economic and industrial development of the closing years of the nineteenth century and the opening of the twentieth has been the rise and growth of what have come to be popularly known as trusts, As applied to a great combination of capital brought together for the purpose of controlling or dominating an industry the term found its origin in the manner in which the original combinations were formed. Rival producers of, for example, oil entered into an agreement to work harmoniously together, eliminate disastrous competition, and take advantage of the economies possible from centralized management. In order to make the agreement binding and avoid any possibility of its being broken the plan was devised of turning the stock of the various concerns involved over to trustees, who in turn issued to the original stockholders their receipts or certificates. The management of the properties then devolved upon the trustees and harmony and centralization of authority were assured. The properties being thus held in trust it was not long before the aggregation became known as a "trust." Although this particular form of combination was soon found to be unsatisfactory and impracticable and eventually was superseded by the more simple and direct method of outright purchase of the combining interests by huge corporations organized for the purpose the name "trust" is still applied to all such combinations. Trusts have given rise to the most violent controversies, economic, legal and political. In the view of those who approve and believe in trusts they are but a natural evolution demanded by economic laws and beneficial to the body politic. Their existence and growth is explained as merely another step in the process by which individual effort has been replaced by combined effort in all branches of human activity. The time was when primitive man individually worked out his own existence. He raised his own food or obtained it by hunting, he built his own hut, made his own clothes, and hewed his own dugout which he propelled by his own strength. Now, his labor is specialized and by the fruits of it and the co-operation of his fellow-men he obtains his food and his clothing from the far corners of the earth, he lives in a house built by many hands, and speeds across the Atlantic in five days in a steamship which required the united labor of thousands to assemble and build and hundreds to operate. All this has been made possible by the relinquishment of individual independence and the growth of mutual confidence and interdependence among men. Just as machinery on a vaster and vaster scale has displaced manual labor and made possible the wonderful physical development of the earth to-day, so, the advocates of trusts believe, has cooperation in its political, industrial and commercial forms been the economic machinery by which civilization has been advanced. First came individual enterprise. Then, undertakings became larger and copartnerships involving two or three or perhaps half a dozen individuals were resorted to. Later, as the fields of enterprise still widened and the burdens of expense and management continued to grow, corporations sprang into being, combining the resources and energies of hundreds. And now, -finally, -great corporations have combined their strength in still huger proportions in what are known as trusts, carrying on the commercial and industrial activities of the world on a scale hitherto undreamed of. These successive steps in development are explained as not only a perfectly natural, but a necessary growth, if. the best economic results are to be obtained. By concentration of interests better organization is obtained and the utilization of the best brains and broadest experience is made possible. Some of the other advantages, briefly summarized, are : Economy in production, resulting from the purchase of raw materials on a large scale, the use of the best machinery and processes, specialization of plant, and the utilization of by-products ; economy in distribution, resulting from direct control of deliveries from the nearest point of manufacture and the benefit derived in rates from large shipments; economy in sale, resulting from the elimination of competitive expenses for advertising, agents, offices, etc.,; economy in handling and storage, resulting from the adjustment of supply to demand by means of general oversight of the whole field, thus avoiding overproduction ; enlargement of the market, resulting from cheapened production and lower prices, thus making possible larger profits from smaller margins ; finally, better business conditions in general, resulting from stability of prices and the avoidance of rate-cutting and ruinous competition. On the other hand, opponents of the trusts see in them an unmixed evil. From this point of view trusts stifle competition by improper methods, tyrannize over their employes and over the public, arbitrarily raise prices and curtail production, corrupt legislators, foster speculation through overcapitalization, and exercise generally a power thought by many to be fraught with possible danger to the public good. In addition it is urged that they crush individual effort and shut off the avenues of independent enterprise and advancement. Trusts have been fought fiercely since their first inception, in the courts, in the legislatures, and in the public prints. In their original forms, whether as alliances, as agreements or as trusteeships, they were all declared illegal in this country by the courts. At the present time none exists here except in the form of full-fledged corporations owning either in full the stocks of the constituent companies or a controlling interest in each. In this form they have been able to withstand the attacks made on them and the opposition to them has very generally resolved itself into efforts to devise methods for governmental supervision and oversight of their operations. In England and Germany, however, where the trust movement has been equally as marked as in this country, alliances and contracts are still a frequent form, having been protected by the courts. In other cases absolute fusion of competing businesses has been effected as in this country. The Standard Oil Company is generally considered the parent of all trusts. It was organized in the trustee form in 1882. It was followed in this country by many others, notably the Sugar Trust and the Whiskey Trust. These trusteeships having been declared illegal by the courts reorganization into the corporation form was resorted to. Then came for several years a perfect avalanche of consolidations, culminating in the organization of the United States Steel Corporation in 1901 with a total capitalization of more than $1,500,000,000. Merely to catalogue the list of such consolidations would occupy pages of this book. In England the pioneer trusts were the Salt Union and the United Alkali Company, followed in 1896 by J. & P. Coats, Limited, and scores of combinations in nearly every branch connected with the textile industries, also in iron, steel, shipbuilding, armor and gunwork, coal, borax, cement, fireclay, oil, dynamite, tobacco and many other commodities. In Germany perhaps the best known combination is the Rhenish Westphalian Coal Syndicate, which controls 94 per cent of the West German mines, exclusive of those owned by the government. Every branch of the iron and steel industries is under control of a syndicate and similar organizations hold sway in sugar, salt, paper, alcohol, plush, dyes, cotton and other industries. The trust idea assumed international importance with "the formation of the British American Tobacco Company, Limited, a union of English and American tobacco trusts, and of the International Mercantile Marine Company (commonly called the Atlantic Ship Trust), a union of some of the largest English and American shipping interests. The name trust is sometimes applied to a combination of separate concerns or interests by an understanding or a compact, as a pool, but not by an actual consolidation. To such a combination the term combination or combine properly applies. The term ring also is sometimes mistakenly used in place of the term combination or combine ; specificially the term ring applies to a clique or coterie of individuals and not to a combination of concerns or interests.
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