The Evening Star: WITH WHICH ARE INCORPORATED. The Evening News and The Echo. THURSDAY, JUNE 26, 1902. THE DOOM OF THE TRUST.

Auckland Star, Volume XXXIII, Issue 150, 26 June 1902, Page 4

The Evening Star: WITH WHICH ARE INCORPORATED. The Evening News and The Echo.

THURSDAY, JUNE 26, 1902. THE DOOM OF THE TRUST.

For the cause that tacks assistance For the wroi)o that needs pesistunce For the future in the distance And the good that we can do. .

The interference of the American Courts in the affairs of the great steel combine was only to be anticipated. It is notorious that trusts are really Illegal associations in America, and it is dnly the elasticity of certain State Legislatures that enables Mr Pierpont Morgan and his friends to register and administer their gig-antic combinations with impunity. New Jersey enjoys a specially unwholesome reputation in connection with trusts, which are nearly -all registered under its laws. But the attempt made by the steel trust, with the help of the New Jersey Legislature, to victimise its preferential shareholders has been blocked, at least for the time. This is one of the many proofs lately afforded that, while the American Government is not prepared to light the Wall-street millionaires, the Courts are following the lead given by President Roosevelt in his inauguration address, and will insist upon full public knowledge of the complicated finances of these great porationsThe question of combines is, in principle, important everywhere; but America has had more practical experience of trusts than all the rest of the world put together. It is almost impossible to wear or,buy or eat anything in America that is not produced or distributed by some sort, of trust. The rapid expansion of these combines within the last five years has caused widespread. alarm throughout the Continent, aud the creation of the North Atlantic combine has brought home to England with unexpected force the danger that such vast and unrestricted •financial developments may conceal. In America, between 189S and the middle of 1900, 18:'. industrial combinations were registered, not including trusts connected with electricity, railways or shipping- These 18,1 com-, bines absorbed 2029 distinct companies, they employed 400,000 men, their authorised capital was £750,----000.000, and the nett annual value of the output was rated at over £300,000,000. Before 1597 only G3 trusts had been organised in America, and the comparative lull since 1900 in the financial circles usually occupied in these flotations, is ascribed to the fast that there are no American industries left to combine. In England the passion for "Morganeering" has not yet reached its height, hut between LSBS and .1900 at least seven important industries have been consolidated after the' American fashion—from the Salt Union (1SS8), with £41 millions capita], to the Imperial Tobacco Company (1901). with £15 millions. Throughout the. industrial and commercial world the trust. has grown to gigantic* proportions, and the general public is beginning to ask with ill-concealed anxiety what effect this new development is ultimately going to have upon the countless millions who now live at the mercy of a few irresponsible financiers. The advantages claimed for the trust system by its advocates are certainly well worth consideration. The reductions in management expenses, in commissions, and in cost of raw material are -supposed to be accompanied by increased general efficiency, and, on the whole, to result in largely augmented earnings for capital. These assumed benefits will, of course, fall almost entirely into the hands of the shareholders. But it is extremely doubtful if they can ever, for any length of time, be realised, even by the. promoters of the trusts. In the first place, combining is an expensive business, and the terms which it is necessary to offer most large concerns to "come in" with the trust makes it almost inevitable that the new trust shall be over-capitalised. According to the New York "Commercial and Financial Chronicle" the stock of the Morgan Steel Combine is "watered" to the extent of nearly ,£IOO millions. This, of course, means immediate depreciation in the scrip values, and, as a' matter of fact, the $100 shares of the Steel Trust's ordinary issue were lately quoted between 44 and 50. The interest on this fictitious capital, of course, swallows up all, and more than all, the problematic gain that might result from increased efficiency and reduced expenses, and to pay their dividends trusts are inevitably driven in the long run to raise prices. Since the great Steel Trust was formed the price of wire nails in America has risen 6S per cent., of cut nails 63 per cent., of bar' it-on 58 per cent., of tin plates 78 p_r cent., and so on. That ds where the consumer comes in; and we do not need our own little experience of the South Island Flour Trust to remind us how quickly a rise in the prices of certain articles a-ffects the comfort and prosperity of those, who cannot do without them. In this one fact —the subjection of the vast majority of the'people to the autocratic will of a few by no means disinterested or necessarily benevolent despots—there is to be found full excuse for the world-wide outcry against the tyranny of the trust.

However, we are at present concerned with the trust's own.financial prospects. We have seen that over-capitalisation

and depreciation render it difficult at the outset to pay reasonable interest. The costly method of organisation that the exigencies of "Morganeering'-' demand are a heavy strain upon the combine, and the founders of the great Steel Trust are already beginning to and out that they took a very momentous step in paying Mr Carnegie eighty million pounds for a fifty million pounds business. The necessity for caution and economy, if any returns are to he forthcoming, is at once apparent, and this phase of trust development is having a very curious effect in America at the present time.

The New York "Engineering and Mining Journal" warns American manufacturers that the inducement to put up with old plants and to avoid expensive improvements must be, under the trust system, extremely strong, and it already sees signs of "a conservatism .to which we have not been accustomed* and which may have results not altogether creditable to American industry.- 7 Such a result would go far to counterbalance the alleged advantages of combination. As to the only remedy that the trust can apply, a rise in prices may be for the time effective within the limits of a heavily protected country. But. though the high prices ruling in the United States enable American manufacturers to flood English and colonial markets with their goods, at a low figure, a serious advance in price to the foreign consumer would mean dangerous competition, which the trust must at all risks avoid. The conclusion is that it would seem very difficult for most trusts to continue paying reasonable returns on their capital for any length of time. As an illustration of this argument, we may take the returns of two of the oldest British trust companies, lately quoted in the "Fortnightly Review." The first of these in 1889 paid 10. per cent., and in 1890 it paid 7 per cent. But by 1893 its dividend dropped to 3 per cent,, by 189G to 1 per cent., and from 1897 to 1900 it paid no dividend at all. The second trust quoted paid 5 per centin 1893, and 2 per cent, in 1896, and since 1897 it. also has failed to pay a dividend. These figures show clearly that such a combination may establish a temporary monopoly with profit to itself, but that it is almost impossible for it to retain its advantages long. Last year the Sewing Cotton Combine and the Calico Printers' Company were practically unable to pay a dividend, and the great majority of these concerns are staggering helplessly along under an intolerable burden of watered stock. In America. trust returns are by no means easy to obtain or to understand, but the general opinion to-day is that the financial position of the great, combines is radically unsound. The

"Engineering and Mining' (Journal" for March, 1901, remarked that it was easy to judge of the prospect, or rather the kick of prospect for dividends that most of these concerns had to anticipate, .even in prosperous times. The "Commercial Intelligence" for January, 1902, warns the great steel trust that its success in paying dividends so far has been due solely to the phenomenal activity of the trade, and that when prices fail, as fall they must, Mr Pierpont, Morgan and his friends may have a very different tale to tell. But, we have perhaps said enough to suggest that the case for trusts is, from the financial standpoint, by no means firmly established, and that they may ultimately work their own cure on the most approved commercial lines by failing to pay.