CHAPTER I.

ORIGIN AND PURPOSES.

The First and Greatest.—The purpose for which most of the trusts have been organized is some degree of monopoly. The advantage of being practically alone in a business, and able to raise price without losing customers, can easily be imagined by a business man. Both the name and the purpose were learned from the first and greatest of all the trusts-the Standard Oil Company, worth $842,000,000 at the highest market price of $842 a share (May, 1901) and paying $48,000,000 in dividends in the year 1900. Here market value rose, as usual with corporations, until the dividend rate was about 6 per cent.1 The name trust was derived from the organization by the leaders of the Standard, in 1882, of a number of petroleum refiners in Pennsylvania, Ohio, and adjacent states, into one consolidated concern, managed by trustees for all the separate refining corporations, of each of whose stock the trustees were given a majority to hold and vote. During the preceding eleven years the separate corporations had

Of course, the total is not a selling value when the property of a corporation is based on market prices of its shares. Offering many of them for sale causes prices to decline. As the Standard paid $48,000,000 again in 1901, while the price of its shares has lately ranged as low as $645, it is to be presumed that investors do not expect a continuance of the large annual dividends. At par value the Standard's capital is $100,000,000, in shares of $100 each.

been united by simpler agreement, and more or less from the start had acted together, charging the same price for oil, and dividing territory in which to sell. They gradually monopolized the oil refining business, driving out independent refiners by selling oil for awhile in their localities below a living profit, and by getting from the railroad companies, as the principal shippers of oil, freight rates materially lower than those charged to competitive refiners.

Public Opposition Aroused.-The Standard trust from the first was rich and powerful. By 1885 definite information of its secret agreements with railroads began to arouse public fear of monopolistic combination; though several years before the alarming extent of discrimination by railroads was revealed by state investigations. Before 1890, the American Sugar Refining Company and various other trusts having appeared in the meantime, anti-trust legislation began to be agitated. The building up of one shipper and the pulling down of his competitors, by means of discrimination in freight rates, led to the enactment by Congress of the Inter-State Commerce Law of 1887, designed to secure for all shippers impartial railway service. The Sherman Anti-Trust Law was passed by Congress in 1890, and similar laws have been made by the legislatures of thirty-one states. But these laws have had little or no effect to prevent the formation of trusts. From lack of clear understanding on the part of their framers, and of definite purpose, the laws have in most cases not even checked the evil practices. With some of the laws the main object perhaps was to gain party advantage by meeting a demand of the people, without much concern as to effective results. In a few cases these laws have been declared unconstitutional, for excepting

from penalty combinations of workingmen or farmers.1 Trusts could not be lightly brushed aside. They rested on economic causes too strong.

The Trust Craze.-Previous to the panic of 1893 many trusts were organized; including the American Tobacco Co. (cigarettes), the American Book Co. (school books), the American Cereal Co. (oatmeal), the United States Baking Co. (crackers), the Diamond Match Co., and the National Lead Co. But after 1898 the trust craze reached its high-water mark. About two hundred trusts now exist, occupying some division of the field in nearly every general line of business. Large demand for products at high prices, increasing dividends and rising market value of shares, with the consequent eagerness of people to invest money that hard times had kept idle, then enabled the promoters of a new trust to obtain from its shares and bonds the means to buy out at enormous prices the separate concerns to be

1 Collier, 152. A decision of the United States Supreme Court in March, 1902, setting aside the Illinois law for excepting farmers, will have the result of setting aside laws with the same defect in twelve other states.

2 The Number of Trusts.-Nettleton, page 295, gave at the beginning of 1900 a list of 130 trusts, having each a capital stock of over $10,000,000, aggregating in all $5,000,000,000. A long list, compiled by Byron W. Holt, appeared in the Review of Reviews of June, 1899; and another list of 163, corrected by him up to Dec. 1, 1901, and giving facts in some detail, is published in the World Almanac for 1902. Perhaps the most accurate count of industrial trusts is that of the national census of 1900, from which pools and loose combinations are excluded. A summary of its figures is given by Superintendent Merriam in the Atlantic for March, 1902. The total is 183, with 2,203 plants, and with a capital of $3,569,615,808. Their total output for the census year, $1,661,000,000, shows that they absorb less of the industrial field than is commonly supposed. The total output of all manufacturing (not yet computed) is expected to reach about $13,000,000,000. In iron and steel products there are 69 trusts, with 469 plants; in food products 23, with 277 plants.

united, and to reserve for themselves great fortunes in trust stocks readily convertible into cash. Trusts sprang up like mushrooms, people buying everything offered in stocks, without being particular to investigate the promises of earnings.

Millions in It. Such opportunities for a shrewd financier or business solicitor to make money quickly, the world never knew before. There have been millions in trust making for these promoters, for bankers advancing capital, and for the separate concerns selling out. The men of the latter have generally remained in control of their plants sold, sometimes without change of the concern's name; and payment for plants has been made chiefly in preferred stock or mortgage bonds of the new trust. The selling price has usually been so high that whatever becomes of the trust, the important concerns selling to it have been richly rewarded for their part in its formation. Some estimates in figures of promoters' profits are given in Chapter II.

Large Capitalization.—To provide money from buyers of the new shares, and plenty of common stock for promoters, and to throw in extra to sellers of plants, the total capital stock of a trust is made very large, from two to five times the actual cost to reproduce the physical property it buys, but perhaps not larger than as a monopoly it might pay five or six per cent dividends upon in the present flood tide of vast business and high prices. for products. The capital stock of an ordinary trust ranges from ten to seventy-five millions of dollars. The largest of all the trusts is one of the latest. This is the United States Steel Corporation, organized in March, 1901, under the leadership of J. Pierpont Morgan, by

consolidating the Carnegie Steel Company with nine other great concerns, most of which had previously been formed by combination of smaller ones. Other concerns were absorbed afterward.1

Sale of Stocks and Bonds.-The bonds issued by a trust, bearing a fixed rate of five or six per cent interest, and secured by mortgage on property, are applied on the purchase price of plants bought, and are sold for cash, at about face value, to investors of large sums. The shares of preferred stock, on which a fixed dividend of five to eight per cent is paid first from net earnings, come next in value to the bonds, being based on substantial property, and are disposed of in a similar way. There have been cases, it is said, in which bonds and preferred stock exceeded the cash value of a business when fairly computed. The shares of common stock, on which a dividend of some percentage is paid if any balance is left after paying the fixed dividend on the preferred stock,

'The World's Greatest Corporation.-The total of the Steel Corporation's shares, nearly all issued to stockholders, is $1,100,000,000, divided equally in preferred and common stock; and besides, it issued $304,000,ooo in 5 per cent bonds, all of which are believed to have been paid Mr. Carnegie for his 60 per cent interest in the steel company bearing his name. (Indus. Commission, Vol. XIII.) The Steel Corporation's total capitalization is therefore $1,404,000,000. Its net earnings for its first nine months, ending November 30, were $84,779,298, exceeding 10 per cent on its stock. In August it was said to be negotiating for absorption of the trust comprising the great iron companies of Tennessee and Alabama; and lately it was reported to have bought iron mines in Sweden. The Steel Corporation supports a million people, counting families of employees, controls two-thirds of the American steel industry, owns 115 lake ships, 6 railroads, 80 per cent of the known deposits of Lake Superior iron, 105,000 acres of land in Pennsylvania, and leases 98,000 acres of gas land. To this list must be added 50,000 acres of coal land recently leased in West Virginia. See article in McClure's Magazine, Nov. 1901, and the corporation's full report in New York Financial Chronicle, Feb. I, 1902.