"Trusts" in the Light of Census Returns

THE discussion concerning industrial combinations has been so active during the last few years, not only through the ordinary channels of the newspaper press and the current monthly magazines, but also in lectures, political speeches, and public debates, that I should feel some hesitation in touching upon this topic were it not for the fact that the Manufactures Division of the Census Office has recently prepared some very interesting data concerning this much-agitated question.

It is a source of regret that many persons, when considering the effect upon society at large of the vast aggregations of capital so common in our day, are quite apt to discuss the subject from a sentimental standpoint and without an adequate knowledge of the facts. To become hysterical over imaginarydifficulties, rather than to approach an important social problem from a temperate and unbiased point of view, seems to be a common fault even with a people so practical as the Americans. The arguments advanced from either side of this controversy are entitled, however, to the fullest consideration.

Those immediately concerned in the formation of enormous corporations insist that they are simply the natural evolution of the ordinary commercial life of the nation; that they arise from perfectly natural causes; and are the logical outcome of machinery production, improved transportation facilities, plentiful capital, and of increased competition which has forced the managers of industrial enterprises to reduce the cost of production to the minimum. It is further contended that the expense of the distribution and sale of products is much less under the industrial combination plan than under the former system, a great saving being effected in the cost of administration and general plan of operation; that such combinations, conducted under a common oversight and control, make it possible to dispense at will with the active use of those plants which, because of their geographical situation, are not best adapted for the production of the articles to be sold. Another advantage arises from the fact that the several processes involved in the production of the article in question, instead of being carried on together in each of a number of independent establishments, may be localized in separate mills. This specialization introduces a uniformity in the operations of each mill which is conducive to economy. It is urgently maintained, in view of all these considerations, that under combinations the wants of the consumer are satisfied at a lower price than under the old competitive plan.

Those who oppose the formation of industrial combinations are very strenuous in their efforts to secure such legislation as will materially restrict the operation and management of these vast corporate enterprises. They maintain that the “captains of industry,” who, with their mighty power of concentrating wealth, are constantly extending the field of their operations, are a menace to society, not only in an industrial way, but also from a social standpoint. They declare that these enterprises are veritable monopolies, with the power of compelling the people to pay higher prices for the necessities of life than would obtain under the competitive system ; that they stretch out their mailed hands to reach the very sources of government itself, controlling legislatures, Congress, the courts, and great civic bodies; in short, that they are an incubus on the whole social structure, endangering the very existence of the republic.

There is no doubt that certain of the industrial combinations do control a large proportion of the output in their various lines of business, and that the conditions of production are such as to give them some advantage over their competitors. Their power of influencing prices is very great, and may at times be used to advance them arbitrarily, or, what is perhaps worse from an economic point of view, actually reduce them, temporarily, below the cost of production, with a view to driving competitors out of the field. This has been a powerful factor in the development of the industrial combination. Undoubtedly it is a distinct evil. As yet, no adequate remedy has been devised to meet it. In considering this argument, however, it must be remembered that the apparent rise in prices of many of the products controlled by these combinations is the result of increased demand, due to the prosperous condition of the country rather than to any particular advantage afforded by monopoly.

The ability to list upon the stock exchange of the country enormous amounts of securities for which there is an insufficient basis of value is another great evil. This invites the unwary and inexperienced to invest in stocks and bonds which have been issued upon a small proportion of actual invested capital.

With these lines of popular argument clearly before us, it is interesting to observe the facts which have been developed by census investigation ; for, after all, our conclusion regarding these industrial evolutions of our national life should be based upon an unprejudiced study of facts.

The officials of the Census Office, in order to prevent misconceptions and insure consistency in the plan and system of tabulation, formulated the following definition of the term “industrial combination : ” —

“ For the purpose of the Census, the rule has been adopted to consider no aggregation of mills an industrial combination, unless it consists of a number of formerly independent mills which have been brought together into one company under a charter obtained for that purpose. We therefore exclude from this category many large establishments comprising a number of mills, which have grown up, not by combination with other mills, but by the erection of new plants or the purchase of old ones.”

The word “trust,” although it has the sanction of popular usage, was avoided in this definition, because, technically, it applies to only one form of industrial combination; and while this form was at one time prevalent, it has been rendered illegal by act of Congress, so that the term has become a misnomer. The above definition is not perhaps broad enough, as it does not recognize a class of corporations known as “holding concerns,” which are organized for the purpose of acquiring the stock of other corporations, and do not directly operate plants. Several such corporations are, however, included in the data referred to later on. It may be said in passing that there are a considerable number of independent organizations, created for the purpose of selling goods at uniform prices, of which no cognizance has been taken in this article.

So far as can be ascertained from the data in the Census Office, the number of these industrial consolidations is 183. They control 2203 separate plants, scattered throughout the United States, 2029 being active and 174 idle during the census year. For 56 of the idle plants no returns could be obtained, making the total number of reporting plants 2147. The 183 combinations extend to almost all lines of industry, producing articles of luxury, materials essential to the upbuilding and growth of the country, and even the very necessities of life. Fully 50 per cent of these combinations were chartered just prior to or during the census year; and it is noteworthy that the epidemic of industrial consolidation, as far as the so-called monopolies are concerned, has been practically confined to the past four years. It is evident, therefore, that the disease — if it be regarded as such — has spread very rapidly.

Naturally enough, iron and steel, with 69 combinations, heads the list. The number of reporting plants engaged in this industry is 469, and the capital invested, consisting of land, buildings, machinery, tools and implements, and cash and sundries, is valued at $348,000,000. Since the census reports were received last year, there has been a reorganization of certain corporations engaged in the manufacture of iron and steel products, by which a number of them have been merged into the United States Steel Corporation. The stock and bonds issued by the constituent combinations up to the time of reorganization are shown below, together with a statement of the securities issued by the United States Steel Corporation: —

It can readily be seen that the amount of securities issued by the Steel Corporation in return for the property acquired was quite liberal. Iron and steel can fairly be regarded as the predominant industry of the United States. The value of the output during the census year was something like $500,000,000. The steel concerns employed during the year 146, 000 wage earners including piece workers, and paid $81000,000 in wages, to which should be added about 6000 officials receiving $7,500,000 in salaries. Of the total number of wage earners in the employ of industrial combinations, more than one third were engaged in the production of iron and steel. From these figures the importance of this industry can be readily inferred.

It is a matter of vital interest to wage earners and the public generally to know that 23 combinations are engaged in producing articles of food, their total annual output, $282,000,000, being second in importance to that of the iron and steel industry. The list includes such corporations as the National Biscuit Company, the American Sugar Refining Company, and the California Fruit Canners’ Association. The number of reporting plants in this industry is 277, and the capital — by which is meant land, buildings, machinery, tools, implements, cash and sundries — is valued at $247,000,000.

There are 29 combinations engaged in the production of beer, liquors, and beverages. The total output is $93,000,000. These products cannot be considered as prime necessities of life. They are generally regarded, indeed, as mere luxuries. The number of reporting plants is 236, and the capital employed is valued at $120,000,000.

A division of combinations interesting to the general public is that of textiles. Seventy-two reporting plants engaged in this industry are controlled by 9 of these corporations, and their capital is valued at $92,000,000.

Lumber and its allied industries are represented by 18 combinations. There are 65 reporting plants, representing a capital of $25,000,000.

Six combinations relate to leather and its finished products. The number of reporting plants is 100, and the capital amounts to $63,000,000.

One hundred and nineteen papermaking plants were reported, which were under the control of 8 combinations, and represented a capital of $59,000,000.

In the line of chemicals and allied products there are 287 reporting plants, controlled by 19 combinations, and having a capital of $187,000,000.

The clay, glass, and stone industry, which includes cement and brick companies, and others of like character, comprises 201 reporting plants, controlled by 17 corporations. The capital is $49,000,000.

Under the division of metals and metal products, other than iron and steel, are included the Amalgamated Copper Company, a brass company, a shot and lead company, a smelting and refining company, a metal, a lead, and a zinc company, — 16 combinations, representing 94 reporting plants, with a capital of $120,000,000.

The tobacco industry, with 5 combinations, controls 41 reporting plants, with a capital of $16,000,000.

Six combinations are interested in the manufacture of vehicles for land transportation. They control 66 reporting plants, which represent a capital of $86,000,000. Their output during the census year was also valued at $86,000,000.

In this census classification, 30 combinations, organized for various purposes and operating a total of 120 reporting plants, have been grouped under the head of miscellaneous industries. They include a glue company with 6 plants; a hard rubber company with 3 plants; an ice company with 14 plants; a shipbuilding company with 11 plants; a soda-fountain company with 7 plants; a fireworks company with 6 plants; a roofing company with 6 plants; a railway, electric lighting and equipping company with 3 plants; one electricboat company with 3 plants; and 6 other combinations carrying on various industries, such as the manufacture of carbon, whips, rubber goods, etc. These corporations were reported as employing $45,000,000 of capital in the specified industries.

No statement has here been made of the capital stock issued upon the property represented in the plants and other assets employed in these several classes of industry. The reason for this is that, owing to different methods of tabulation, the capitalization statistics presented by the Census Office are not comparable, by classes of industry, with the statistics of property. In a number of instances combinations operate plants engaged in different industries. In the tabulation of the statistics of property and other assets, all plants engaged in a given industry are gathered together without regard to the nature of the combinations controlling them, while in tabulating the capitalization statistics each combination has been placed in the group of industries to which it would be assigned according to its product of chief value, and with it have been gathered all the plants over which it exercises control, without regard to the nature of the work carried on by them. The method of treating property involves considerable duplication in the number of combinations, and this the reader may have noticed, as the sum of the combinations enumerated considerably exceeds 183, the actual total number. The capitalization of the industrial combinations — that is, the par value of stocks and bonds actually issued — is shown below by classes of industry: —

Attention has already been called to the lack of comparability, by industries, between these figures and those for property holdings. The totals for all industries, however, are entirely comparable, and an idea of the relation of capitalization to the property of the combinations may be obtained by a consideration of these totals.

The total property of the 2147 reporting plants controlled by the various combinations, including land, buildings, machinery, tools and implements, cash, bills receivable, etc., is valued at $1,458,522,573, of which $24,717,653 represents the property of the reporting idle plants. The entire capital issued by the 183 combinations which operate these plants is as follows: —

Bonds.$216,412,759

Preferred stock . . . 1,066,525,963

Common stock . . . 1,802,262,146

Total .... $3,085,200,868

To this should be added the capital stock issued by the United States Steel Company over and above the capital stock of those of its constituent companies which were included in the census statistics. This additional sum is $484,414,940, comprising $298,189, - 000 of bonds, $93,112,970 of preferred stock, and the same amount of common stock. This makes a total capitalization of $3,569,615,808. The valuation of the land, buildings, and other assets, upon which this capitalization is based is $1,458,522,573. This figure does not include the value of the property owned by two combinations in the United States Steel Company which do not receive consideration in the census statistics, but the fact will have to be ignored. It will be noted that the total property value lacks $216,000,000 of equaling the value of the bonds and preferred stock, so that this sum, plus the value of the common stock, a total of $2,018,000,000, seems to represent good will, franchises, and other intangible assets. Probably a good deal of this is what is known as “pure water.” The public will be expected to pay more or less interest on this watered stock, but to what extent time alone will determine. In many cases there never will be any interest. In other instances a fair dividend undoubtedly will be paid. The Census Office did not make any estimate of the value of certain property incidental and necessary to the carrying on of the various industries noted above ; for example, there was no way to ascertain the value of mines, steamboats, and railroads owned by some of the larger corporations. Such necessary adjuncts of business should be set off at full value against the common stock.

The real value of the various plants seems to be about 41 per cent of the amount of stocks and bonds issued.

While it is within the power of the promoters of consolidation to set their own valuation upon the face of securities, the market value is ultimately determined by the public. It is especially interesting, therefore, to observe the attitude of the public toward the huge volume of securities which has been placed upon the market with all the advantages of exceedingly skillful manipulation. Exclusive of the Standard Oil Company and the Pullman Car Company, which should be regarded as exceptional, the par value of the preferred and common stocks of 50 “industrials ” listed among active or inactive securities on the New York Stock Exchange is $2,463,553,708. The market value of these stocks, computed at the prices current December 7,1901, was $1,506, - 743,990. It appears, therefore, that the public has promptly discounted the face value of the promises of these leading industrials by the enormous figure of $956,809,718, and that it purchases this class of securities (par $100) at the average price of 61.8. This significant fact indicates that, with the lapse of time and increase of knowledge due to increasing publicity, that part of the problem of industrial combinations which relates to overcapitalization is likely to become less important by reason of the caution of investors. This will have an important bearing on the consolidation of industrial interests in the future. Already so much publicity has been given to the subject of industrial combinations that investors who plunge into this class of securities without due investigation and caution are entitled to little sympathy.

The total industrial combinations employed 23,000 managers, superintendents, clerks, etc., and 399,000 wage earners, including piece workers. They paid out during the census year, in salaries, $195,000,000, and the value of their entire output was $1,661,000,000. Contrary to the general impression, these great combinations do not control a very large proportion of the industrial output of the country. In 1890 the entire output of manufacturing industry was about $9,000,000,000. The total product of the manufacturing industry for the year 1900 has not yet been compiled, but it is safe to say that the total will be in the neighborhood of $13,000,000,000 or $14,000,000,000, so that the output of these combinations, although it seems enormous, does not represent much more than one tenth of the total industrial product of the United States.

It is interesting to note the different localities which seem to afford the most advantageous abiding places for these various combinations. There are certain states which apparently offer special attractions as the normal homes of these combinations. We find that 358 plants are located in Pennsylvania, 227 in New York, 225 in Ohio, 163 in Illinois, 123 in Massachusetts, 100 in Indiana, while the rest are scattered through other states. I think it may be safely stated that nearly all are organized under the beneficent laws of the state of New Jersey.

Such an array of statistics as I have presented may be somewhat dry, but there seems to be no better way of giving a clear idea of the real condition of these industrial enterprises. Unquestionably they constitute a difficult problem in civic control. If they are enabled, by the advantages coming from the concentration of immense wealth and the existence of liberal laws in different states of the Union, to secure and maintain a monopolistic control of prices, there can be no doubt that they are harmful, and deserve the attention of the legislative branch of the government. It is clear, however, that these industrial concerns have not been in operation long enough to demonstrate just how far they will prove to be monopolies. Their growth is an evolution in our commercial life, and a few years must elapse before experience will enable us to determine whether they are dangerous, and if so, what the proper remedy will be.

I think it is undeniable that great wealth in the hands of a few men and especially in the hands of bright and able men, such as these leaders in industry have shown themselves to be, is always more or less dangerous to the state. Even though they may be men of high character and personal integrity, they will probably hold that efforts to influence by improper inducements the action of legislators and assessors and of men in authority who may, under certain circumstances, have the power to do things adverse to their interests, are permissible, on the principle that the end justifies the means. The political influence of these large aggregations of capital is the chief danger, and the one which will be the hardest to eradicate. It may safely be predicted that there will be some sort of supervision over them sooner or later. This supervision ought not to be such as to interfere with the pursuit of the business for which they were incorporated ; but it ought to give their transactions such publicity as will not only protect the investors who buy their securities, but also convey to the great mass of consumers some conception of the profits which arise from the existence of industrial combinations. There can be no doubt that many of the thoughtful men of the country look with much suspicion and anxiety upon the influence being exerted by these vast corporations in the United States. The heads of these institutions are men of experience and wide influence, who stop at hardly anything which is to their own advantage. Upwards of thirty years ago, the late Senator Cushman K. Davis, then a rising young lawyer in St. Paul, delivered a very interesting address to the students of the University of Minnesota, entitled Modern Feudalism. The lecture attracted a great deal of attention, and led to his entering public life as a candidate for governor of the state shortly thereafter. At the present time, Senator Davis’s address reads like prophecy. The concluding paragraphs were as follows : — “Feudalism, with its domains, its untaxed lords, their retainers, its exemptions and privileges, made war upon the aspiring spirit of humanity and fell centuries ago with all its feudal grandeur. But its spirit walks the earth to-day and haunts our institutions, in the great corporations with their control of the national highways, their occupation of great domain, their power to tax and to escape taxation, their sorcery to debase most gifted men to the capacity of most splendid slaves, their pollution of the ermine of the judge and the robe of the senator, their aggregation in one man of wealth so enormous as to make Crœsus seem a pauper.

“The poor fisherman, told of in the Arabian Nights, threw his net into the sea, and drew up a casket covered with rust and slime and closed down with the seal of Solomon. He took it in his hands, and, holding it to his ear, he heard the voice of a spirit imprisoned within, telling in tones of enchanting sweetness how he, the poor, miserable fisherman, if he would release the prisoner, might sway the sceptre of power, might revel in all sensuous delights, might command all the riches hidden by earth or sea. The foolish fisherman broke the seal by which the wisest of men had confined the enemy of mankind, and lo! there rose from the casket a cloud unformed, which towered to heaven, and which, at last, condensed into an awful malignant demon, who stood dilated to the skies. The fisherman lured the devil into his prison, closed the seal upon him, and threw him back into the depths. A similar task is laid upon the present generation.”

William R. Merriam.