FREDERIC F. CULVER NEW YORK. HE community association of elements of labor, of labor and capital, and of capital with capital, is one of the fundamental prin T ciples of commercial evolution. In the growth of commercial life there is an evolution of the partnership from the individual, the guild from the partnership, the corporation from the guild, and finally the aggregation known as the trust. Each step in this evolution denotes progress in commercial organization. The type of business machinery known as the trust is not of recent origin. Its growth along lines of natural development has not been sudden; it is the natural sequence of what has preceded. But the commercial creations of the past few years of high finance have, however, been hybrid productions not in consonance with and subversive of the commercial laws governing the creation of a real trust. In commercial life only those methods of transacting business survive which are best adapted to their environments, just as in the physical world only the types of life best suited to their environments survive. When agriculture was the principal occupation we find individuals associating together for the purpose of jointly accomplishing a piece of work and sharing among themselves the common product. The formation of guilds in most of the European countries dates from a very early period, when men associated together for protection against common enemies and for ecclesiastical and eleemosynary purposes; but with the extension of the commercial life of England, the need of a broader vehicle for the transaction of business became apparent, and adapting the machinery already created for another purpose, we find the Guilds-Mercatoria or Guilds-Merchant coming into existence. These guilds-merchant, recognizing the necessity of community association and advancing a step further, not only took advantage of the common labor of their members in the transaction of broadening channels of commerce, but availed themselves of their financial resources to a defined extent. Death of a member, however, terminated his membership, and this arrangement could not in the end meet the needs of a rapidly growing commercial life. There further developed the necessity of some vehicle which would permanently recognize labor performed and capital invested. Something which would not at the death of a member take from his estate a continuance of the benefits his labor or capital had helped to create, nor deprive the association of the capital invested. And here casting about for the means to accomplish the end desired, recourse was had Copyright, 1904, Frederick A. Richardson, all rights reserved. to a creation of the old Roman Law, and the law-making power of the body politic was evoked to bring into life the corporation. The corporation was crude and primitive in its early English inception, but step by step, as the necessities of commercial expansion demanded, and as the justice and fairness of such demands came to be recognized, we find the law-making powers yielding, until through successive generations and by re-enactment in our own States of statutes originating in England, we have our corporation as it exists to-day, uniform in its most essential features in all of the States. Commercial pursuits were originally limited to a few objects, but year after year the number of these objects increased and the number of individuals and corporations engaged in some specific line of industry assumed larger and larger proportions. Yet in these specific industrial or commercial pursuits the great portion of the business, concentrated in the hands of some few individuals, partnerships and corporations, by reason of superior business ability or some other potent factor; but all engaged in a deadly rivalry to survive. In such a contest for success and survival, the necessity for a true observance of the economies of production is of course at once apparent; but in such businesses there are expenditures, in most instances, of large sums of money, for the introduction of the merchandise and facilities of one concern, to the supplanting and exclusion of those of another, such as advertising, solicitation of trade,-which do not materially add any value to the product disposed of, and make the article, whether it be merchandise, transportation or creative ability, more costly to market and more costly to the consumer. An exclusion of such unnecessary items of expense therefore, from an economic point of view, seemed desirable. It was therefore necessary to create a vehicle in which should be concentrated and combined all the aggregations, be they corporations, partnerships or individuals representing the highest advance in any particular line of industry; and for this purpose the Trust was founded. This organization holds all that has been proven by the struggle for existence most fit to survive, and by the survival of these various elements the body politic is benefited. This combination of forces gives to the consumer a product of labor and capital at a cost less than existed before the combination was effected. At first sight, however, the good to the community is not so apparent, since it would appear that a huge monopoly had been created, which for a time at least would extort large tribute from the consumer. Here, however, the law of self-preservation asserts itself, since the establishment of unjust and unwholesome prices is the most direct method of creating competition, which invites the Trust to its own destruction or limits its growth and expansion. The establishment of a monopoly under a Trust has indeed, at the out set, the effect in most instances of holding or increasing the prices which existed before its inception; but we insist that if such Trust is to survive, the final result of its organization will be the gradual lowering of these prices. Notable instances of the truth of this statement will be found in the history of the Standard Oil Company and the American Sugar Refining Company, and such instances may be multiplied. The statistics compiled from time to time show that since the organization of these corporations the prices of oil and sugar have, with slight fluctuations, steadily decreased. Illustrative of the point that the real Trust is of economic benefit to the consumer, which is the community at large, we give below statistics, covering the cost to consumers, during a period of years, of staple commodities produced by some of the leading Trusts: U. S STEEL ATION. Cents. It may be claimed that the position of the Standard Oil Company is unique, and that its steady growth has not been along the lines of natural development. But the mental qualities of those who manage and develop this property exemplify the doctrine of selection. In the combination effected in this Trust there has been selected. and kept the talent which could turn so many waste by-products into salable commercial articles, create markets for such by-products, and thereby from time to time reduce the price of its fundamental product. The Trusts have persistently acquired the best in their line of physical properties, and the best mental abilities to manage them. Whenever a factor not of permanent use and a source of temporary annoyance or injury to the organization, has been found, it has been ruthlessly destroyed, and the community at large has in the end been permanently benefited. Within the last few years promoters and bankers, combining together to obtain riches quickly, have sought to foist upon an uneducated investing public a hybrid creation, in imitation of the real Trust. There suddenly grew up all over the United States, almost in a night, a host of combinations of every conceivable kind of industry. No field was left unscoured. The gold of the public was open to promoters, bankers and the owners of businesses, and all hastened to get their share of unexpected wealth. They were created mainly for the purpose of benefiting and enriching their promoters, with little regard for the future existence of the business. Their creator was usually restless to accomplish his main purpose and leave the enterprise for another. In other words, these Trusts were not a natural growth; they were created not for the best good of the industry, but for the best good of the promoter. It is, of course, needless to say that most of them were grossly over-capitalized, even with securities upon which there was no escape from fixed annual charges. In these malformed simulated Trusts, the postulate seemed to be, "Combine all, or nearly all, of the properties carrying on any particular line of business, if they be large enough to attract attention." Along with such a combination comes a greedy horde, who must needs be reckoned with, and satisfied, at heavy cost, if the combination is to be effected. Promoters, assistants to promoters, go-betweens of promoter and capital, favored underwriters, favored owners of plants, and officeseekers. Once the rapacity of the owners of plants has been determined, there must be provided, regardless of the burden entailed, a sufficient fund to satisfy all who assisted in the promotion of the enterprise, and from small beginnings it is increased over night into fabulous sums. The combination is usually thus accomplished: A hungry promoter picks out some particular line of industry, and learns who are the principal exponents of that industry; options to buy the properties are then procured from these parties, usually for cash, and also the securities of a proposed new corporation, which shall represent all of the principal elements of that industry. The price fixed in cash is far in excess of the real value of the plant and business. The next step is the "Underwriting." In this engine of future torture a glowing description of the proposed new business is usually set forth, based upon audits and appraisals made sometimes carelessly and inefficiently, sometimes deliberately and grossly exaggerated, by so-called Auditors and Appraisers. To raise the funds needed in cash to satisfy the purchase price of the properties and the demands of the promoters, the public is invited to subscribe for the securities of the proposed new corporation, at what seems an attractive price, some alleged good securities are offered as bait, and by arrangement with banking houses, loans on the names of the underwriters and the securities underwritten are procured for a period of some months, in some cases with no margin and in others with only a very small margin. Into the underwriting agreement there is speciously thrown a right for a fixed period on the part of the promoter to sell the principal securities underwritten, at a price higher than the subscription price, whereby, if exercised, the underwriter would be enabled to pay his loan, make a cash profit and retain as velvet some additional securities. The underwriter is by inference or representation led to believe that such sale will unquestionably take place. Fateful dream. He awakes too late, when the underwriting loan matures, and learns that he must pay his loan, and become the unhappy possessor of a lot of securities, daily diminishing in value, which will bring him no return. We furnish on the next page a table showing some recent capitalizations taken at random. We have no means of determining the actual market values of the properties, at the time of their acquisition, for which these securities were issued, but the present market values of these aggregate securities ought to be a fairly true estimate; the difference is also shown. It is not claimed that all of the corporations stated below are failures or illustrate the extreme views here presented, but it is claimed that all are capitalized on a valuation much higher than an investing public places upon them. The quotations of bond and stock values upon which the following table is based are from daily newspapers or from brokers familiar with prices which cannot be obtained from daily newspapers: |