The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1899-05-19
THE EVIL OF OvERCAPITALIZATION
ILLUSTRATED.

The evil of overcapitalization by indus
trial combinations called trusts is illus
trated in the so-called flour trust. which
than 10 per cent. of the flour mills of the
country. For that reason it can scarcely
be called a trust. So limited a combination
cannot become a monopoly, except as a
combination to take advantage of all the
economies in producing and selling -four.
In regard to capitalization the so-called
trust has made up in water what~it lacks
in the number of plants. The real value
of the property which has been put into
the trust is estimated at $4,000, 900, but it
has been capitalized at sixteen millions.
This is a case which fairly illustrates the
dangers Of the trust as most of
them are being organized as set
forth by Rev. Washington GLADDEN. In an
article noticed in Thursdays Journal. If
those who own the property In the trust
and those who have promoted 1t can sell the
four millions for sixteen millions they will
make a large amount of money, even If
they cannot mak the plants earn enough
money to pay dividends on the stock, which
cost them only the printing Of the certifi-
Gates. But the combination cannot mon
opolize the fiour-manufacturing industry be-
cause 1t owns but 10 per cent. Of the -four
ing mills, with a capacity of $1,000 barrels
a day. The managers can earn a good
dividend on the actual value of the cost,
bat when the earnings are distributed to a
capital Of four times as much the percent
age will be very small. The preferred stock
will be taken care of, but the common stock
will receive small returns if the promoters
of the trust shall be able to find enough in
considerate persons TO purchase it at par
or anything approaching par. Such pur-
chasers will not be long in learning that
they have bought water which they cannot
sell and that they have lost their money.
II the managers should undertake TO put
a price upon the flour they produce which
will enable them to pay dividends on the
fictitious values In stock. they will fail, for
the simple reason that with only one-tenth
of the mills in the country they cannot
| establish and maintain prices. If they could
1t would be only for a short season. because
a profit of 4 or 5 per cent on a capital three
parts fictitious would incite the holders of
capital 10 build new mills that would make
an immense profit and ~inaugurate a COM
| petition which would be ruinous TO the COM
bination paying dividends on property three
fourths Of which Is fictitious.
The promoters who attempt to dispose of
this stock are represented as claiming that
1t will require a saving Of but 4 cents on a
barrel over present methods to earn the
money TO pay O 5-per-cent. dividend on all
the stock. -Four cents a barrel seems In
significant or the cost OF a barrel of flour.
but when 1t Is understood that 5 cents net
a barrel on -four is a good profit for large
mills. the impossibility of nearly doubling
that profit in the face OF competition must
be apparent. II the owners of the mills in
the flour trust should base their combi-
nation on a liberal value OF their property
and the good viii of their trade. they could
introduce the best methods In production
and take such advantage of the methods
OF distribution as would make their business
much more profitable than It, Is possible TO,
It to be with each mill running independent
: ~. BY such combination no injury woult