appearing in the book values of the separate companies. That increase represented mainly increased values of the properties since they had been held by the constituent companies. For example, some coal land was put in at $500 an acre, of which some had been sold just before the time when he gave his testimony at $1,000 an acre; the Illinois Steel Company had one iron mine that cost about $75,000— they had just been offered $600,000 in cash for it-and similar matters of that kind. It will be seen that in this way a part of this actual valuation of $98,000,000 ($31,000,000) was in the form of mines, real estate, etc., part of which of course was not immediately productive, but which it was supposed at that time had an actual cash value of the amount named.

1

Mr. Gates, at that time chairman of the American Steel and Wire Company, 1 testified that of its capitalization of $90,000,000, probably $50,000,000 to $60,000,000 might be considered as value of plants, and $10,000,000 or $15,000,000 were issued as "good will.” As showing the increased and increasing value of such property he stated that the demand for steel cars, steel vessels, and steel frames for buildings and bridges constituted as large a demand in tonnage as the total tonnage of the United States in iron and steel 15 or 20 years ago.

From the testimony offered by these different witnesses it will be seen that in October, 1899, the actual cash values of most of the plants entering into the United States Steel Corporation (including the National Tube Company on the same basis as the American Tin Plate Company) were placed by the officers themselves of those companies at their very liberal estimate of $298,570,200, leaving $158,500,000 as “good will." From the table given above in the note it will be seen that that capitalization has been increased by $74,373,035, making a total of $232,873,035 for "good will,” in the broad sense, provided there had been no increase in the value of the tangible assets. On that question some considerations are given below.

A fairer basis of comparison between the separate companies than the above would be that made in substance by the United States Steel Corporation itself in purchasing the shares of the different companies. The shares of the Federal Steel Company, the American Steel and Wire Company, and the National Tube Company were all of them taken at somewhat lower rates than those of the National Steel Company or the American Tin Plate Company. From the testimony already cited it seems that in the case of those two companies all of the common stock at any rate, and probably considerably more was to be considered as issued for "good will"-i. e., expectation of earnings. On that basis, as has often been assumed without allowances for increase in values during the last two years, taking all the common stock of all the companies purchased by the United States Steel Corporation, with the exception of the Carnegie Company and the Lake Superior Consolidated Mines, neither of which had any preferred stock, it will be seen that the "good will" in the constituent companies amounts to $270,835,100. If we may also assume that the added common stock is to be considered as "good will," and add this to the sum mentioned above, it results that the "good will" of the consolidated companies amounts to $302,118,963, or, if one were even to include the added preferred also, it would amount to $389,918,111. If we were to take the price of the stock of the Lake Superior Consolidated Mines as a criterion of the value of that stock before it entered into the consolidation, it would appear that more should be added, but regarding that we have no definite basis for comparison and therefore omit it entirely, except as regards the increase. It should be kept in mind, however, that the testimony on which these statements are based refers to conditions of nearly two years ago.

It is, of course, true that there are increased values of the properties, because they have doubtless since the earlier date added materially to their plants and cash on hand, and there has doubtless been also some added value given to the plants by the prosperous conditions of the last two years. How much is to be so reckoned,

1 Vol. 1, p. 1021.

how much is to be credited to good will or actual earning capacity, of course is a matter for individual judgment; but, according to officers of the Steel Corporation itself, not less than $175,000,000 have been added in actual values since the testimony of the officers of the different plants referred to was given. It has been testified also that in certain cases good will alone in its narrower sense is of more value than all the tangible assets of an establishment.

There is no evidence before the commission and there has been no published statement showing the issue of stocks and bonds paid for the Carnegie properties. In a circular letter issued by J. P. Morgan & Co., March 2, 1901, it was stated that the "bonds of the United States Steel Corporation are to be used only to acquire bonds and 60 per cent of the stock of the Carnegie Company." It has been frequently stated, though not published on authority, that the bonds were exchanged at par, and that Mr. Carnegie received $1,500 in bonds for each $1,000 of his Carnegie stock. At those rates he would have received for

$160,000,000 bonds....

$96,000,000 stock at 150 in bonds..

Bonds of U. S. Steel Corporation.

$160,000,000 144,000,000

304,000,000

As this sum agrees exactly with the amount of bonds issued, it seems a reasonable interpretation.

It is generally supposed that most of the remainder of the Carnegie stock was taken at 150 preferred stock with an equal bonus of common, though some little was bought for $1,200 or $1,300 cash. Assuming all taken at the first rate, and that $25,000,000 cash was raised with $25,000,000 par of preferred with equal bonus of common, a generally accepted inference, the remainder of the Carnegie holdings and the cash would have cost as follows:

Taking these sums, which as will be seen are partly estimates, known to be not quite accurate, but probably too large, from $550,000,000 each of preferred and common, the total amount authorized, there is left for the pay of the syndicate and as treasury stock to be used in future:

Preferred
Common

PRICES.

RAW MATERIAL.

$92, 418, 152 86, 432, 981

Comparatively little testimony was given regarding the effects of the combinations on the prices of raw material, but in a few special cases some effects appeared. At the time the National Cordage Company was founded there were 5 houses in Manila dealing in manila hemp. The Cordage company made an agreement with them by which they were bound not to sell hemp to any other concern in America, nor to any house in England unless that house agreed not to sell to any one in the United States, except at an advance of half a cent a pound above the price the National

Cordage Company was paying. In this way the company succeeded in obtaining a slight advantage for a brief time. The English houses later, thinking that the contract would be held illegal in the English courts, broke it and sold to the American manufacturers.1 The other prominent cordage manufacturers, like Mr. Fitler and Mr. Holmes, testified that they at no time had serious trouble in getting supplies, and they had supposed that they bought as cheaply as did the National Cordage Company. Mr. Taylor, formerly of the National Cordage Company, said, however, that at this time there was an understanding between the National Cordage Company and the Fitler and Plymouth companies.3

2

It has been thought by some of the competitors of the tobacco combinations that inasmuch as the number of purchasers of leaf tobacco has lessened since the formation of those companies the competition for leaf is less keen, and in consequence the price has been lowered. Mr. Campbell, president of the United States Tobacco Company, testified that since the American Tobacco Company controls the purchase of tobacco for Japan, this has had the effect of cutting down the prices of the grades that are exported to that country. He is also of the opinion that the American Tobacco Company has greatly reduced prices, especially of cutters, in Virginia and the Carolinas. In his judgment, the farmer does not now realize more than half as much as he did when the several companies composing the American Tobacco Company were competing on the warehouse floors. Numerous leaf dealers have been driven out of business because the companies for which they bought have been absorbed. Within two years the acreage of North and South Carolina has been reduced 30 to 40 per cent because prices were so low.5

On the other hand Mr. Duke, president of the American Tobacco Company and of the Continental Tobacco Company, believes that his companies are at a disadvantage in buying raw materials because of the large purchases which they must make. The smaller manufacturer can pick up bargains; the large one must buy openly in large quantities. Moreover, he urges that it is not to the interest of the manufacturer to put the price of tobacco very low. If that is done the farmer will grow poorer tobacco. Inasmuch as the price of the finished product is dependent upon that of the raw material, and a slight increase in price does not materially affect sales, there is no special gain to come from beating down the farmer. Even with no competition at all it would be wise to pay a good price for tobacco. He thinks, too, that the output of tobacco has increased very largely during the last ten years in the Carolinas and Tennessee. The increase has come to a considerable extent through the increased demand of the combinations for tobacco which they wished to use in manufacturing cigarettes for export.

A somewhat similar argument is made by Mr. Chapman' with reference to the prices paid for ore by the American Smelting and Refining Company. He urges that it would not be to the advantage of the company to reduce the price of ore. The more they pay, the more mines will be operated and the more raw material they will be able to get.

It is noticeable that since the organization of the United States Steel Corporation it has fixed the price of Lake Superior iron ore at $1.25 less per ton for the season of 1901 than was paid during the season of 1900.8 Of course, owning, as it does, something like 80 per cent of the ore, it is practically within its power to fix its price for the general market. Mr. Schwab in his testimony did not give the reasons for fixing the lower price beyond an intimation that this fact showed that there was no attempt at securing excessively high prices. Possibly one further element is to be found in the fact that the United States Steel Corporation is also a purchaser of crude iron, and that there may be in this a certain element of reciprocity.

1 Waterbury, pp. 131, 132.

2 Fitler, p. 147; Holmes, p. 139.

3 Taylor, p. 163.

4 P. 312.

5 Pp. 308, 313.

6 Pp. 326, 327.

7 P. 98.

Hopkins, pp. 511, 513, 516; King, pp. 499, 500; Schwab, pp. 471, 472.

In his testimony regarding the rubber combinations Mr. Flint states that the price of crude rubber has of late years decidedly increased, owing to the action of the law of supply and demand. While the combination of rubber interests has prevented any great speculative advance, it has not been able to keep down the price of the raw material in general.'

It is the very general belief in Europe, and the belief is one that seems to be spreading here also, that the larger industrial combinations will find it to their interest, and also within their power, to prevent to a considerable extent either speculative advances or reductions in the prices of raw materials. In many industries, as, for example, in cordage and sugar, the speculative element in the price of raw material is potent in determining profits and prices of the finished product.2 Any steadying effect in that direction would materially advance the general interests of manufacturers as well as of consumers. The experience of the cordage combinations seems to be distinctly on the other side, but that of the rubber manufacturers, of the sugar refiners, and possibly of some others in this country, as well as of the coal and iron manufacturers of Europe, seems to show that the combinations have at any rate the opportunity to perform this service for the public.

CONTROL OF PRODUCT.

Several of the combinations which the Industrial Commission has been lately considering are able to control a very large portion of the entire output of the country, so that they have, perhaps, the power to effect prices. The National Cordage Company soon after its formation controlled probably from 60 to 70 per cent of the entire business, though at the present time the Standard Rope and Twine Company probably does not control more than 15 to 20 per cent of the output; the Fitler Company perhaps 18 per cent, and the Plymouth Cordage Company from 15 to 20 per cent, these largest three companies being not materially different in the amounts produced.3 The American Smelting and Refining Company before the union with the Guggenheimers controlled about 85 per cent of the entire smelting business of the country. Since that combination it has substantially all of the trade.*

The United States Rubber Company and the Rubber Goods Manufacturing Company handle from 55 to 60 per cent of the rubber trade of the United States.5 In the case of the Rubber Goods Manufacturing Company, some articles are protected by patents, so that the company has entire monopoly. In other cases its output does not cover more than 25 per cent. The United States Rubber Company probably has about 70 per cent of the output in boots and shoes.

The Pittsburg Coal Company controls the bulk of the lake trade in coal, although there is a little competition from southern Ohio and western Virginia. It is so situated that it can practically dictate the prices in its entire market."

The United States Steel Corporation is made up of companies engaged in various lines of business, from mining to finishing the higher grades of steel. It is probable that at the present time it controls between 65 and 75 per cent of the steel industry of the United States. In very prosperous times the percentage would probably be smaller; in very dull times it would be very much larger.'

The International Paper Company produces, probably, at the present time about 1,300 tons per day out of an entire output for the United States of over 2,000 tons per day of news print paper.8

At the time of its formation, in the judgment of Mr. Norris, business manager of the New York Times, it produced about 80 per cent of the American output, but the new mills of the Great Northern Paper Company have probably reduced the percentage somewhat. Mr. Chisholm, president of the International Paper Company, thinks that the company produces now about 70 per cent of all the paper of all kinds manufactured in the United States, although it is impossible to tell accurately just the percentage.1

The American Thread Company together with the Coats Company probably control two-thirds of the thread output of the United States. Although the Coats Company is counted as a competitor, it is still a prominent stockholder in the American Thread Company, so that there is not the same vigorous competition that there used to be before there was this community of interest."

The General Aristo Company has nearly a monopoly of certain grades of photographic paper made by foreign paper mills. This comes from the fact that this company had arranged with the German manufacturers to buy only their products for use in this country, provided that they might have the exclusive use of those products in this country. In this way they have succeeded in securing a monopoly so far as the direct purchase from the foreign manufacturers is concerned. It has been shown, however, by other witnesses that they are still able to buy this same grade of paper in Europe from other dealers, although not from the manufacturers.3

The National Salt Company apparently produces from 80 to 90 per cent of the output of fine salt east of the Rocky Mountains. In many localities, owing to the freight rates, the salt company has practically a monopoly, whereas in other cases for similar reasons it is compelled to cut its prices very low in order to have any control of the market at all. The freight rates from England by water to coast cities are considerably less than the railroad rates from the plants of the salt company; so that in order to meet this English competition the price obtained for salt at the wells has to be made less than that obtained by the English producer at the wells. In the case of the salt combination the element of freight is so important that its degree of control of the market depends to a very great extent upon the special locality that one has under consideration.*

At the time when the wall-paper combination was most effective it controlled at least 75 per cent of the business, and even when it was decided to dissolve it still controlled probably fully 60 per cent.5

Mr. Pitcairn, president of the Pittsburg Plate Glass Company, says that that combination produces about 72 per cent of the plate-glass product of this country. The American Chicle Company, through its brands and trade-marks, probably controls 65 per cent of the chewing gum consumed in the country. The American Caramel Company owns all the popular brands of caramels, although it does not control a few of the highest-priced products."

The National Starch Company has also a large percentage of control, amounting to probably more than 90 per cent of the box starch used and a very large percentage of starch of other kinds.8

In the case of certain local companies, such as the Pittsburg Brewing Company and the Cleveland and Sandusky Brewing Company, the control of the local market is, of course, very nearly complete so far as the ordinary consumption is concerned, although in the case of the larger hotels and restaurants naturally there is considerable outside beer brought into the market.

Certain local companies, such as the Brooklyn Union Gas Company, being natural monopolies, have absolute control of the markets, but their prices are determined to a considerable extent by legislation or by legislative power, even though no direct action is taken.

1 Chisholm, pp. 431 to 438.

Hopkins, pp. 348, 350, 356.

Dailey, pp. 183, 187; Hubbell, p. 191.
White, p. 247-249.

Burn, pp. 300, 303.

P. 239.

Flint, p. 65.

8 Flint, p. 66; Piel, p. 673.