load itself down with useless plants, sometimes at high prices when the owner holds out, but would consider only the best equipped and best located establishments. Better goods and lower prices would soon get the trade of the others for nothing. If additional capacity were needed, new plants of unequalled equipment would be built. A leader of an industry seldom wants to buy an established business and allow pay for its good will unless it is solidly prosperous. He prefers to make his own good will. Capital in old machines and scattered real estate, and in good will that often does not exist, is a dead weight to a concern that desires to render its best service.

To Cheapen Product, or to Get Promoters' Fees ?-With many a trust a position for good service seems not to have been thought of. The whole movement in some cases was evidently to get big fees for promoters, and inflated prices for plants sold, with little concern for the new trust's fate after payments from it had been obtained. In other cases the motive was a stronger and more permanent monopoly. There probably are few trusts that bought only first-class property at fair prices, to be consolidated for the one purpose of getting business by giving best values. And if cheapest production were attained, there would be no need to lower prices with a monopoly. Reduction of cost might only add to its profits.

Trusts Seldom Started by the Uniting Concerns.-With exceptions since 1897 so few as only to prove the rule, the movement to consolidate has started with the promoters, not with the producers, who alone would be moved by desire to stop cut-throat competition and to cheapen production.' Selecting a suitable industry, and 1 Nettleton, 56.

temptingly showing from the success of the sugar trust what can be done, promoters first get options on about three-fourths of the separate concerns, to obtain the monopoly necessary to sell watered stock, and then with these options secure the assistance of a group of bankers, called underwriters. At an agreed price, and by an agreed time, the latter contract to buy, if not sold to others, enough of the shares and bonds, left over from payment on plants, to provide working capital and to carry the organization to completion. About ten per cent of the securities subscribed for by the bankers they take and pay for at once, that amount of cash being sufficient for immediate payments. The pay of the bankers is usually understood to be a cash return of about five per cent on the total stock they subscribe for, of which, if it sells well, they may not be called on to take more than the original ten per cent (World's Work).1

1 The Profits to Underwriters of the Steel Corporation, as shown in its report issued in January, 1902, were more than five times five per cent. They contracted to pay $200,000,000 on demand at any time within fifteen months, but as the stock sold well, they were called on to pay only $25,000,000, advanced as working capital, and about $3,000,000 for expenses. Within ten months the transaction with them was closed. They received as compensation 649,987 shares of preferred stock and an equal amount of common stock. Taking $90 as recent market value for the preferred, and $40 for the common, they now have in their stock, if not previously sold, a value of $84,500,000; deducting the $28,000,000 advanced, leaves $56,500,000 as profit, besides their regular dividends. From this profit J. P. Morgan & Co. are understood to have charged twenty per cent for managing the underwriting syndicate, and besides they were its heaviest subscribers. Profits in this case were unprecedented, as was the whole enterprise. Underwriters have realized great gains in successful cases, because of the risk, and because few are prepared to advance and guarantee the enormous sums required. Above figures are taken from New York Post article in Public Opinion of Feb. 13, 1902. As to underwriting, see World's Work, Sept. 1901.

Who Bears the Loss?-After the trust has been organized and turned over to its officers, the promoters and bankers sell out the stock that has fallen to them, and are ready to form another trust. Not buying for themselves, they can afford to be reckless in offering high prices for plants, in issuing stock, and in taking great fees for their services. Uniting concerns are secured against loss by high prices received for plants. Buyers of stocks are secure also if monopoly prices can long be exacted for a full output of products. All the loss then falls on consumers. But very probably most of it eventually will fall on smaller investors, who bought stock trusting in the judgment of the underwriting bankers, many of whom, as cashiers and directors, are believed to have been influenced by large payments of stock, and even of cash, to themselves as individuals. Here there was serious risk to the solvency of the banks, and a deplorable lowering of morals in highest circles of business.1

Amount of Gain to Promoters.-In one of the whisky trusts, testimony seemed to show that for every $100,ooo of cash or property put in by a concern joining, it was issued preferred stock for that sum, and also the same amount of common stock as a bonus or premium. But the underwriting bankers got more, $100,000 in preferred and $150,000 in common. The promoters received only $150,000 of common, making in all, for each $100,000 of real capital, $600,000 of stock to pay dividends upon by means of monopoly power. Giving a share of common stock free, with every share of preferred stock paid for in cash or solid property, seems to have been the general custom. Judge W. H. Moore of 1 Jenks, 96.

Chicago, the promoter who organized the tin-plate trust, buying the plants as cheaply as he could, and paying all bonuses, "divvies," and legal fees, is believed to have received the round sum of $10,000,000 in common stock for his services and expenses. At the market price then ruling for the common stock, this $10,000,000 was estimated to be worth $4,000,000 in cash. For the $46,000,000 of stock issued by the tin-plate trust, it is believed to have received $4,000,000 in cash for running capital, and plants on which the option prices were understood to aggregate $18,000,000. In a later combination of four whisky trusts into one, the stock falling to promoters and underwriters, if sold quickly, would have given them for their services a net sum of from $3,000,000 to $4,000,000. But large sales of stock would have lowered price, which in some cases fell in six months to a point so low as barely to have sufficed to carry out promoters' contracts. To dispose of large quantities of stock, it was therefore necessary to offer it gradually in small lots. A leading promoter was believed to have received, within three years, from $30,000,000 to $40,000,000 in stocks, realizing for them in cash about $10,000,000. A St. Louis man sued for $1,875,000 as his half of the profits in a case of promotion claimed to have been taken from him and entrusted to others.2

Natural Safeguards Against Monopoly.-There are some natural safeguards against the evils of trusts. If these safeguards are sufficient, the evils need not cause

concern.

Hard Times Squeeze Out the Water.-Those trusts that have most water in their capital-the least amount of

1 Jenks, 90, 94.

2 Collier, 211.

solid property in proportion to their total stock-will scarcely hold their monopoly power through a period of hard times, which are nature's cure for fever in the business body, allaying extravagance in hope and effort, and bringing back a sober realization of the limitations of this mortal life. If a trust's net earnings then are not sufficient to pay interest on bonds issued, the mortgage will be foreclosed and the plants sold, leading perhaps to separation into competitive concerns as before. If interest on bonds leaves too little for dividends on stock, with no prospect of raising earnings to a fair dividend rate, the stock will fall in value, credit to borrow will sink, repairs to equipment will fall behind, and new competitors not burdened with old debts may soon become the leaders of the industry. The rope trust, in the summer of 1901, was said to be doing very little more business than each of two or three rivals, and in the early fall it failed, losing $487,000 in the past year.1

'Uncertain Value of Trust Stocks.-The high dividends paid by trusts in the spring of 1901, an average for 47 trusts, not including the Standard Oil Company, of 7.44 per cent on par value and 13.6 per cent on market value, indicates that their present earning power is considered temporary, which is also shown by the fact that higher interest on loans must be paid when industrials are deposited as collateral security. With more reliable railroad stocks the dividend rate on market value (which buyers are not afraid to raise) ranges from 4 to 8 per cent, averaging 4.85 per cent in the spring of 1901 with 37 roads, including the best. The extent of present monopoly gains is indicated by these figures, taken from Charles R. Flint's article in the North American Review for May, 1901. Despite over-capitalization for ordinary times without monopoly, these trusts are under-capitalized in relation to the dividends mentioned. Investors, considering these temporary, do not raise market value accordingly. Over-capitalization is corrected by falling market value as soon as regular earning power is learned by investors from experience. Henry Clews, in recommending railroad stocks instead of industrials, says that by bankruptcy and reorganization railroad earning power has been brought down to a solid basis, while most trusts, started under best chances, have not thus been