From these royalties there should be deducted six-tenths of a cent per pair for men's Goodyear welts, forty-five onehundredths of a cent per pair for women's Goodyear welts, and seventy-five one-hundredths of a cent per pair for women's and children's Goodyear turns; the foregoing sums to be invested in stock of the company, and given to lessees.1 This profit-sharing plan, presumably designed to secure the adhesion of the shoe manufacturers, was subsequently abandoned (1912) becauseso it was alleged-of the government dissolution suit filed in December, 1911.

The foregoing royalties, according to the president, covered substantially everything that the company received for the use of its principal machines from those manufacturers who used its machines in making Goodyear welt, Goodyear turn or McKay sewed shoes. In return for the royalties and rentals which it received, the company assumed the cost of invention, development, manufacture, and depreciation of machines; the care of the machines through its force of over 500 experts, who devoted their entire time to the service; the purchase of patents; and the cost of administration. According to the president, the only important item of cost in the manufacture of shoes which did not increase during the first twelve years after the company was formed was the item of machinery.

The profits of the company have been very liberal. Up to 1905, 6 per cent dividends were regularly paid on the preferred stock and 8 per cent on the common stock. In that year a reorganization was effected. For reasons not clear, a new company-the United Shoe Machinery Corporation was organized in May to serve as a holding company. The Corporation offered to exchange its preferred stock at par plus 1 1/2 per cent cash for the preferred stock of the United Shoe Machinery Company, and 150 per cent of its common stock plus 3 per cent cash for the common stock of the Company. This offer was generally

1 Annual Report of the United Shoe Machinery Company, 1911, p. 7. 2 A number of auxiliary machines could be used by the shoe manufacturer without payment of royalty, but upon payment of a nominal annual rental to cover the depreciation of the machines.

accepted, and the Corporation by 1915 held 98 1/2 per cent of all the stock of the Company.1 Upon the preferred stock of the Corporation 6 per cent has regularly been paid, and upon the common stock, including the 50 per cent addition, 8 per cent as before. In addition, the common stockholders have received numerous stock and extra cash dividends. In 1907 they received a 25 per cent stock dividend; in 1909 a 10 per cent stock dividend, and 2 per cent extra in cash; and in 1910 a 10 per cent stock dividend, and 4 per cent extra in cash. The total in 1910 was thus 12 per cent in cash plus 10 per cent in stock. On the original common stock, which may have been heavily watered, this amounted to quite a high figure. To be exact, it amounted to $18.15 cash on every $100 of common stock issued by the United Shoe Machinery in 1899, and counting the extra dividend in 1910 to $22.15 in cash. These are dividends only; the profits were much greater, as is evident from the large surplus built up. For example, during the three years ending March 1, 1912, the net earnings aggregated $17,268,000; the dividends $9,344,000; and the surplus $7,924,000.

1 Moody's Manual, Industrial and Public Utility Section, 1916, p. 3690.

CHAPTER IX

THE UNITED STATES STEEL CORPORATION 1 1

With the early history of the iron and steel industry we are not concerned. Even as late as 1890 there were practically no combinations of the modern type in the steel industry. To be sure, the Illinois Steel Company, for example, had been organized in 1889 as a consolidation of three erstwhile competitive concerns, yet such combinations were unusual. During the early nineties, however, the situation changed. The individual plants not only continued to expand in size, as during the eighties, but they became united in combinations. In 1891 the Lackawanna Iron and Steel Company was incorporated, a consolidation of the Lackawanna Iron and Coal Company and the Scranton Steel Company. In 1892 the Colorado Fuel and Iron Company was organized to unite the Colorado Fuel Com

1 On the United States Steel Corporation see: Report of the Commissioner of Corporations on the Steel Industry, part I, Organization, Investment, Profits, and Position of United States Steel Corporation (July 1, 1911), part II, Cost of Production, Preliminary Report (January 22, 1912), and part III, Cost of Production, Full Report (May 6, 1913); Brief for the United States, in two parts, in United States v. United States Steel Corporation (no. 6214); Brief for the United States, in two volumes, in United States v. United States Steel Corporation (no. 481); Brief for the United States Steel Corporation (no. 481); 223 Fed. Rep. 55-179; 251 U. S. 417–466; House Report no. 1127, 62nd Cong., 2nd sess. (Stanley Committee Report); Report of the Senate Committee on Interstate Commerce on the Control of Corporations, 1913; Industrial Commission, vol. I, pp.849–1039, and vol. XIII, pp. 448-516; Berglund, The United States Steel Corporation; Wilgus, A Study of the United States Steel Corporation in its Industrial and Legal Aspects; Willoughby, Quarterly Journal of Economics, 16, pp. 94-115; Meade, Trust Finance, ch. 11; McVey, Yale Review, 7, pp. 302-318, and 8, pp. 156-172; Walker, Quarterly Journal of Economics, 20, pp. 353-398; Taussig, Some Aspects of the Tariff Question, chs. 9-10, 12-13; Dunbar, The Tin-Plate Industry.

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pany and the Colorado Coal and Iron Company. In the same 57 year the Carnegie Steel Company (Ltd.), a partnership, was formed with a capital stock of $25,000,000. This concern, with all its plants concentrated at Pittsburg, was then the largest in the industry. Yet it could hardly be considered a real combination, since it represented for the most part simply a more binding union of interests long affiliated. Other important concerns in the iron and steel industry in the early nineties were Jones and Laughlin; the Pennsylvania Steel Company, with its subsidiary, the Maryland Steel Company; the Tennessee Coal, Iron and Railroad Company; the Cambria Iron Company; and the Bethlehem Iron Company.

Most of the above enumerated concerns were engaged chiefly in the production of semi-finished steel (billets, blooms and slabs), and of the simpler and heavier forms of rolled steel products, such as rails, plates, and beams. The manufacture of the heavier steel products was concentrated to a considerable extent, even in the early nineties, in the hands of a comparatively few producers. Thus the Carnegie Steel Company, the Illinois Steel Company, the Jones and Laughlin interests, the Lackawanna Iron and Steel Company, the Pennsylvania Steel Company, the Cambria Iron Company, and the Bethlehem Iron Company together turned out nearly half of the steel ingots produced in this country (steel ingots are the raw material from which nearly all steel products are made, but they are generally put through a further process of manufacture before being sold). But these companies were entirely separate with respect to ownership, and in spite of the existence of pools of one kind or another were quite active competitors.2

Save these companies producing the heavier steel products, there were comparatively few concerns of any considerable size in the iron and steel industry in the early nineties, and very few

The Colorado Fuel and Iron Company at this time, however, had a greater interest in the coal trade than in the iron and steel business.

2 Report of the Commissioner of Corporations on the Steel Industry, part I, p. 65. Referred to hereafter as Report of the Commissioner of Corporations.

combinations. The Consolidated Steel and Wire Company, to be sure, was an important combination in the wire and nail business (1892), yet for the most part the manufacture of such products as nails, tin plate, and sheets was carried on by numerous concerns, many of them producing on a small scale. Competition in these lines was quite vigorous, except when restrained on occasion by pooling agreements.

The situation was the same in the iron mining_industry. While there were a few large concerns, such as the Minnesota Iron Company and the Lake Superior Consolidated Iron Mines, organized in 1882 and 1893, respectively, yet in general the ownership of the iron ore mines was widely scattered; and though there were iron ore pools, competition was the characteristic feature of the industry.

In another respect the steel industry of the early nineties presented a marked contrast with the industry of to-day. This was in the comparative absence of integration,-the practice of uniting under one control the successive stages in the manufacture of the finished products. There was some integration, to be sure. The Carnegie Steel Company, for example, through the Frick Coke Company held large deposits of coking coal, and by the purchase in 1892 of a half-interest in the Oliver Iron Mining Company had provided itself with a supply of iron ore. But the production of the Oliver concern was quite inadequate to the needs of the Carnegie Company, and, moreover, Mr. Carnegie was understood to be opposed to the ownership of ore mines.1 The business of mining iron ore, like the production of crude oil, was largely speculative; and Mr. Carnegie, like Mr. Rockefeller, was willing that the risks be borne by those more speculatively inclined. Other companies had integrated their business slightly, yet generally speaking it was true that the manufacturers of finished products bought the semi-finished steel which constituted their raw material; the manufacturers of steel in turn bought their pig iron; and comparatively few iron and steel manufacturers possessed large iron ore deposits or iron ore railroads. The separate stages in the process of production Report of the Commissioner of Corporations, part I, p. 68.

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