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overestimated and much overvalued. Therefore recurring lapses and setbacks, interspersed with rapid upward movements, became a distinct characteristic of the times. Finally the capitalists themselves began to recognize that this new capitalism, which represented the current and future earning power of corporate activity generally, must be bolstered up and insured by some artificial process. It was all well enough to be satisfied with the normal growth of labor power and the normal increases in wealth-producing population, as long as corporate capital had not over-appraised these things; it was fairly satisfactory to absorb through the creation of stocks and bonds the apparent probabilities in labor power of the coming decade or generation; but when industrial crises appeared or crop failures and other accidents took place, it would not do to have earning power fall to such a basis as would seriously jeopardize the continuance of this new system of reaping the fruits of industry.

So this situation naturally led to a widespread demand among capitalists, large and small, for legislation that would protect the integrity of the values which had already been capitalized and would continue to be capitalized for generations to come. To prevent foreign competition from entering the field tariffs were made more rigid than before; legislation in State and Nation was advocated


for preserving the status quo of this new dispensation. Thus the railroads, which in the decade after the Civil War were the most conspicuous beneficiaries of the new process, were given enormous grants of land; their rights of way were guaranteed to them in many ways; terminal sites were encouraged and treated with great leniency in the matter of taxation, etc.; natural resources were in every possible way surrendered by the people and given to the railroads for development.

Of course the railroads profited enormously by these special privileges and quickly capitalized their growing values, just as they had previously capitalized their ordinary rights of way, the industrial results of the population to whom they catered, and the definitely growing tendency of population along their lines.

But the tendency did not stop here. As new inventions came in, such as the telephone, the electric light, and electric traction, the profits from the operation of these undertakings were likewise capitalized. And, as in the case of the railroads, it was promptly discovered that not only current but future earning power could very easily be capitalized in this new field of public" utilities." Here the franchise value was made the basis of capitalization, and in the 20 years from 1890 to 1910 the total capitalization of public service corporations grew from less than $200,000,000 to nearly $20,000,000,000.

Thus has this marvelous structure of trust control and capitalization in the United States been built up. But it is obvious that no such "above ground growth" could ever have taken place, or could exist to-day, unless it had its roots spread correspondingly under the ground, which an examination of the industrial tree shows to have been the case. Such class legislation as the enactment of high protective tariffs and the passing of laws in the interest of business. groups, can be likened to the cultivation and nursing of the plant. But its real basis of strength and life is, as always, in the roots.

Exactly analogous is the case of the trusts and their capitalized values. To the extent to which the "trusts" have been capitalized in the modern fashion beyond the physical cost of their machinery, their cash and their tangible assets, such capitalization reflects the approximate or average values of their control of some monopoly or element of monopoly. Trust capitalization is for the most part the capitalization of monopoly. It is not the capitalization of machinery nor of the results of the working of machinery. While it is, as already stated, the capitalization of earning power, this earning power itself is concentrated in the hands of those who become, through the monopolies they possess, the direct beneficiaries of this earning power.

Thus, the anthracite coal railroads

carry capitalizations based on earning power. But how is this earning power created? In but one waythrough the monopolized possession of the coal fields by a limited group of men. These men, through the maintenance of their position, are the beneficiaries of two processes. The development of modern productive methods, reducing costs, gives them a steadily enlarging margin of profit for each unit of productive effort; and the monopoly of the sources of supply in coal enables them to exact" all the traffic will bear" in the sale of the product. So, just as fast as new inventions are developed and machine processes perfected, naturally increasing the earning power per unit, the value of the monopoly increases and profits grow, so to speak, at both ends of the process. In common parlance, it is " working both ends against the middle."

It is this power to monopolize earning possibilities; this power, existing through the more or less exclusive possession of original sources of supply, which is being reflected through the steady capitalization, in corporate forms, of the general producing activities of industry; that gives us a trust problem and makes the trusts wax strong and great.

This movement of trust capitalization, so different from the old type of "capital," is the most vital subject for study in America to-day. In the aggregate it represents a valuation of over $45,000,000,000 in a


Nation whose entire annual wealth is estimated at $120,000,000,000. When it is remembered that in 1890 the wealth of the Nation was estimated at only $65,000,000,000, and the corporate capital of every kind (including that outside of the "trusts") was only about $20,000,000,000, the significance of the trend will be appreciated.

In the foregoing the development of this new form of capitalism since the Civil War has been briefly outlined. But there is another side of the matter which has been but briefly touched upon. This is the control of this capitalization. When it is realized that all these years there has been a double process at work; first, steady growth of the new system of capitalizing working and wealth producing forces; and second, a steady trend towards the concentrated control of this capitalization in the hands of a small group of men, all located in one section of the country, the matter takes on tremendous signifi


Space will not permit the presentation of statistics to show the whole trust growth of the country since the movement started nearly half a century ago, but the following facts show the development of the purely industrial phase of the movement within the past 15 years. Prior to 1897 there were comparatively few industrial trusts of large capital in the United States. The Sugar Trust, the Standard Oil Trust, and the so


called Whiskey Trust were the only ones of very large capital which were in the public eye. But with the opening of 1897 industrial trusts began to increase and multiply, and at the end of a few years the number of separate plants which had been absorbed into great combinations ran into the thousands. At the same time the capitalization created by these combinations rose by leaps and bounds. At the beginning of 1898 there were in all, only 38 real industrial trusts in the United States, representing a combination of 672 plants, and carrying a total capitalization of but $1,419,428,500.

But within two years from the opening of 1898 — that is, at the close of 1899 the number of "trusts" had more than doubled and the capital represented had increased to $3,027,910,561. The following three years, however, proved to be the halcyon period. of industrial trust formation. Between the opening of 1899 and the close of 1902 the trust forming movement expanded to an astonishing extent. It was in this period that the various independent steel interests of the country were converted into nearly a dozen mammoth trusts and then finally absorbed, en masse, into the great United States Steel Corporation, with its capital of a billion and a half. During the same period the woolen trust was formed and the tobacco trust was enlarged from a minor combination covering only one or two branches of the industry to a

vast consolidation covering complete production and distribution. At the close of 1902, therefore, trust capitalization had leaped to $5,723,741,660, represented by 136 industrial trusts which embraced no less than 3,264 plants.

At the end of 1902 there was a widely held theory that the trend toward industrial consolidation had reached its limit. Subsequent events, however, have proven the unsoundness of this idea. For steadily, throughout every year of the past decade, trust capitalization has continued to increase. By the end of 1905, the year in which Theodore Roosevelt began his second administration, the figure had risen to $6,843,891,760, and in the year when Mr. Taft entered the White House a further expansion to $7,506,004,000 was shown. And now, with the close of Mr. Taft's term, we note that, notwithstanding the so-called trust prosecutions and the enforcement of the Sherman law, the total industrial trust capitalization has reached the astounding total of $8,066,290,861.

This, moreover, does not include industrial concerns which are not trusts. There are thousands of manufacturing concerns enjoying the benefits of the tariff which cannot be included, strictly speaking, in any list of" trusts." The Government's Federal corporation tax report for 1911 shows that the total capitalization represented by industrial concerns was about $26,000,000,000. This includes

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It is a noteworthy fact that the capital represented by industrial trusts in this country does not reflect, except to a partial extent, the investment of money or property. While no exact figures on the subject are obtainable, it is reliably estimated that not more than 25 per cent. of the eight billions of capitalization represents original investment. The remaining 75 per cent. is what is commonly called "water," but which is more definitely described as the "capitalization of earning power." For during the past generation industrial trusts, like franchise trusts, railroad trusts, etc., have all adopted the method of capitalizing, not only the original and current investment in the plants and property, but also the net profits which can be shown. Thus


it is apparent that in the case of those trusts which have been built up chiefly on tariff benefits, a large part of the net profits shown, and in some cases, two-thirds or three-fourths of the profits, are the direct result of the protective legislation which they have received.

Industrial combinations, in the great majority of cases, have been formed primarily for the purpose of controlling or advancing prices to the consumer. While the theory has been persistently urged for many years that the main purpose of combination was to reduce producing and operating costs, and thus increase profits without the advancement of prices, yet the records shown during the entire trust era go to prove that such has not been the case. The great enlargement in profits has for the most part been accomplished by price advances and not by cost curtailment.

Never in our history, except perhaps in war periods, has the price level risen faster than it rose during the first few years after the passage of the Dingley Tariff Act in 1897, and during the period when trusts were forming most rapidly. From July 1, 1897, to January 1, 1900, the cost of living advanced 31 per cent. From July 1, 1897, to May 1, 1902, the cost of living advanced 41


per cent. That the trusts were largely responsible for this great advance is clear from the fact that from July 1, 1897, to January 1, 1900, the prices of foodstuffs (in which there are but few trusts) advanced but 25 per cent. while the prices of metals, clothing and miscellaneous products (in which there are most trusts) advanced 37 per cent. Notable advances occurred in Steel Trust productions, some of which more than doubled within one or two years.

If this process had not taken place, the Steel Trust to-day would doubtless be able to show substantial profits on its original and current investment, but no profit whatever on its "water.'"*

* E. L. Bogart, The Economic History of the United States (New York, 1907), chap. xxvii.; J. H. Bridge, Inside History of the Carnegie Steel Company (New York, 1903); J. B. Clark, The Control of Trusts (New York, 1912); S. C. T. Dodd, Combinations: their Uses and Abuses, with a History of the Standard Oil Trust (New York, 1894); Chas. R. Flint, Industrial Combinations (New York, 1899); E. Von Halle, Trusts, or Industrial Combinations and Coalitions in the United States (New York, 1895); J. Moody, The Truth About the Trusts (New York, 1904); The Masters of Capital (New York, 1911); and Moody's Analyses of Investments (New York, annual); E. R. A. Seligman, Principles of Economics, (New York, 1909), chap. xxii.; F. C. Howe, Privi lege and Democracy in America (New York, 1910); T. Veblen, The Theory of Business Enterprise (New York, 1904); L. F. Post, Social Service (New York, 1911); T. E. Burton, Financial Crises (New York, 1911); F. W. Taussig, Tariff History of United States (New York, 1908).

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