A.—s

4

Mr. Dill, the attorney organizing the United States Steel Company, when being examined before the Industrial Commission, said, — I have declined many organizations. Now, without calling names at all, a corporation was brought to my attention—l will say two months ago, so as not to bring it too near—concerning which, after a careful examination of the assets, the conclusion was reached in our office that $500,000 would be a maximum fair valuation. We declined to organize that corporation for $8,000,000 and float it. I should not want to be brought into any unpleasant position by having you ask the name, but it is advertised before the public to-day at $8,000,000. Well, I do not know from reading the prospectus that any man could be indicted for making false representations, but I do know that it lacks dreadfully in the statement of material facts —facts the public ought to know. It is interesting to notice that this, the frank evidence of the attorney of the Steel Trust, contrasts strangely with statements made concerning the " watering" of the stock of that same corporation, the United States Steel Company, showing that three shares of stock in the new organization were given for each share in the old, thus converting every million dollars into three millions. The history of this famous trust may be concisely told as follows : On the 30th December, 1901 (see " Census Bulletin " No. 122), there were in existence forty combinations organized to control iron, steel, and their products, and these controlled 447 plants. The actual value of their property was assessed by the census officers at $341,779,954. During the time these figures were being gathered Mr. J. P. Morgan organized the most valuable of the corporations into a new corporation, including the Carnegie Company, the Lake Superior Consolidated Iron-mines, and nine other companies. At this time the stock stood as follows: Carnegie Company, stock to amount of $156,800,000; Lake Superior, stock to amount of $29,425,940; nine other companies, stock to amount of $528,465,300; National Steel Company, bonds to amount of $2,811,000: total, $717,502,240. This nominal value represented, even at that time, twice the actual value of the assets, but, "water" and all, it was carried into the trust, the United States Steel Corporation, with the exception of $13,150,000, which was the price paid for the property of the Shirley Tube Company. The trust then added $301,000,000 in bonds, which brought the total capitalisation up to $1,005,351,740, and which "Moody's Manual" (official tables) since states to have been increased to $1,322,432,900. Not more than one-third of this represents tangible property. The annual report of this trust for the year ending the 31st December, 1902, was as follows : Gross receipts, $569,065,902 ; expenses, $435,757,138; net earnings, $133,308,764. These expense-figures include nearly $9,000,000 set down as -" commercial discounts, miscellaneous interests, &c," which may really be considered as further gain for capitalists. The expenses also include $21,000,000 maintenance and repairs, for keeping the stockholders' property " as good as new." The average number of employees was 168,127, and they received $120,528,343 —that is to say, some $13,000,000 less than the direct payments to capital—although included in these earnings of employees are the enormous salaries of highly paid officers, who are also stockholders and bondholders. Nor does the financial influence of the trust end here. It controls, through ownership of stock and "community of interest," many other important iron and steel industries, such as the Bethlehem Steel Company, the Cambria Steel Company, the American Bicycle Company, and the American Can Company, which added about $100,000,000 to the capital. By its "pools" and agreements with competing firms dealing in steel, steel plates, steel sheets, steel billets, wire rope, &c, about $200,000,000 more is under control. This makes the Steel Trust master of nearly $2,000,000,000. Another illustrative instance of over-capitalisation is that of the Virginia-Carolina Chemical Company, which owns a controlling interest in the Southern Cotton Oil Company. The capital invested in fertiliser factories is, in round numbers, $25,000,000, and this represents the actual value of the properties. The company's stock issued up the Ist January, 1903, was $38,000,000, which, with $12,000,000 of preferred stock, forms a total of $50,000,000. This practically means that the farmers of the south pay dividends of 100 per cent, more capital than the properties are worth. Senator Littlefield, on 6th February, 1903, speaking in Committee of the Whole on his Bill, said (Note, C.E., 16th Feb., 1903, p. 2399) :— It is doubtful if any of the large over-capitalised combinations now in existence would have been financed if the facts as to value involved in their organization had been fully known to the public. In a great many instances the bonds negotiated represent all of the actual investment in the corporation, the stock being largely speculative. It is certainly doubtful if the public would buy a bond when it knew that the only cash capital invested in the enterprise was the proceeds of the bonds in which it was invited to invest. If upon a public statement it appeared that the bondholders were the only parties assuming any real hazard, and that the only hazard undergone by the promoters was the ability to so control and manipulate the market as to be able to declare a dividend on a fictitious capitalisation in order simply to give it a market value, and thus unload upon the public, fewer combinations would be floated, or be successful if floated. Mr. Carnegie himself, in an article in the North American Beview, fourteen years ago, said:— The entire capital stock of railways in the West, as a rule, has cost little or nothing, the proceeds of the bonds having been sufficient to build them. The promoters and others who " water " stock contend that they are capitalising not only present available values, but those not yet realised and the expectations of the future ; but the effect is to unload upon the public a quantity of counters or "chips " to be used in the game of speculation, and to furnish a wide area over which dividends may be spread without having the appearance of inordinate profits. If capital employed in a particular industry is by any device of organization or inflated securities getting more than its share, it is at the expense of others, and tends to the development of deceptive and fraudulent schemes—in fact, to what has been well named "predatory competition." If a corporation is allowed to feel the stress only of the ordinary vicissitudes of business it will probably weather a financial or industrial storm which it would be powerless to resist should its hold be full of " water " and its officers mere commercial spielers.