On this day in economic and financial history…
Two American economic bellwethers began their tenure on the Dow Jones Industrial Average 2 Minute (Dow Jones Indices:.DJI) on March 12, 1987. That day, The Coca-Cola Company (NYSE:KO) and The Boeing Company (NYSE:BA) both became part of the Dow, replacing glassmaker Owens-Illinois Inc (NYSE:OI) and Inco, a nickel-focused miner. A spokesman for the Dow Jones company noted that Inco’s removal was intended to make the index more representative of the market — the Dow had counted four metals companies (including two steelmakers) on its roster of 30 prior to the change. Owens-Illinois was removed in preparation for a pending leveraged buyout from KKR & Co. L.P. (NYSE:KKR).
It was the second time around on the index for both companies. Coke had been part of the Dow from 1932 to 1935. The Boeing Company (NYSE:BA) had been a member from 1930 to 1932 after founder William The Boeing Company (NYSE:BA) brought his company together with other leading aviation concerns to create the United Aircraft and Transport Company, a de facto American aviation trust. This time, the addition proved more durable — and plenty valuable, to boot. In the 25 years following The Coca-Cola Company (NYSE:KO) and The Boeing Company (NYSE:BA)’s addition, the Dow grew 470%, but Boeing put up a total return of 900%, while The Coca-Cola Company (NYSE:KO) thrashed the index with a massive 3,000% total gain.
You can’t keep these gains bottled up
The Coca-Cola Company (NYSE:KO) had another important milestone on March 12, nearly a century before it joined the Dow. The legendary soft drink, in most popular accounts, was first sold in bottles on March 12, 1894, eight years after it was invented by an Atlanta pharmacist. In its earliest years, The Coca-Cola Company (NYSE:KO) was sold as a patent medicine (owing to its pharmacy origins), but once the formula passed into the hands of Asa G. Candler, it began to take on the business model of a modern soft drink. There is some debate as to the exact date of the first sale of bottled The Coca-Cola Company (NYSE:KO), but the use of bottles helped Coke expand nationally before refrigeration entered widespread use. The contour bottle, which is still used today with some modern variation, was introduced in 1916, shortly before Candler sold the business.
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Dow on the rise
The Dow also saw another milestone on March 12. The index first broke through the 500-point barrier on March 12, 1956 to close at 500.24 near the end of one of the longest and strongest bull markets in its history. President Dwight Eisenhower’s re-election seemed relatively assured, and a streak of strong earnings reports and high dividend payouts also contributed to investor enthusiasm, although The Washington Post reported that “the many losers scattered throughout the list, and the moderateness of the advance as a whole, indicated to brokers that profit-taking was beginning to brake the rise.”
The Dow had then been in existence for 60 years, and its annual gain during that time was a rather mediocre 4.3%. However, the 500-point barrier marked a period of greater upward momentum for the index, which went on to gain 6.4% per year for the following five decades.
The problem of trust-busting
United States v. Alcoa Inc (NYSE:AA), a landmark antitrust case first filed by the administration of President Franklin D. Roosevelt, was decided in the U.S. Court of Appeals for the Second Circuit on March 12, 1945. The decision brought to a close one of the more convoluted antitrust suits filed under provisions of the Sherman Antitrust Act, and yet it left many questions unanswered. Alcoa Inc (NYSE:AA), while found to be a monopoly, continues to exist today in much the same shape that it held in 1945. What happened in this case, and what precedents did it set?
The government’s argument was that Alcoa Inc (NYSE:AA) had created and protected an aluminum monopoly through the holding of overseas plants, cartel agreements with foreign producers, and anticompetitive domestic tactics. Judge Learned Hand (who surely had one of the best names for a justice in the history of the profession) held that Alcoa was indeed a monopoly when considered within the scope of the market for virgin aluminum. Alcoa Inc (NYSE:AA) had argued that it competed against scrap aluminum providers, but this argument was rejected.
The decision reframed the very definition of monopoly, as Hand’s decision hinged almost exclusively on size within the market and not on the methods used to attain market share. Earlier decisions — most notably that of United States v. United States Steel Corporation (NYSE:X) — had ruled against the government’s antitrust crusade by finding that methods mattered more than mere size. Without proof of deliberately anticompetitive tactics — the lynchpin in the government’s successful breakup of Standard Oil — there had been no monopoly. Now, size alone was enough — and with a 90% share of the American virgin aluminum market, Alcoa clearly ran afoul of this antitrust size restriction.
However, Hand did not order the breakup of the aluminum monopoly. Instead, he remanded the case to trial court to determine what punishment, if any, it might face. Alcoa Inc (NYSE:AA) successfully argued before the trial court that new competitors Reynolds Metals and Kaiser Aluminum had successfully eroded its control of the market and thus made its breakup unnecessary. Alcoa was allowed to continue on intact — and it even wound up acquiring Reynolds in 2000. Alcoa Inc (NYSE:AA) remains one of the world’s leading aluminum-producers, but it was only the third-largest in the world as of 2011, behind Russia’s United Company Rusal and England-based Rio Tinto.