The sun. [volume] (New York [N.Y.]) 1833-1916, 1903-05-24

to reorGAnise the leading industries OF
the United States along lines OF consolida-
toni In three years, isos-io0o, lls large
combinations, with total capitalization
Of - ,l2S $4,000. we're formed. Hardly
an industry has escaped consolidation.
Coal mining, iron and steel, copper, lead.
zinc. and silver; paper, leather. rubber.
salt, starch. chemicals, cordage. Ice. glass,
paving and roofing. practically all Of the
great industries whose output 10 used In
further production. have been In large part
consolidated. Such is the situation 1t
Ia the laundering and financial conduct
Of these industrial combinations which We
are invited to inspect. The process by which
such conglomerations are formed. will be
found explained in four chapters, two OF
which deal with the promotion OF trusts
and the other two with the sale OF their
stocks
After leaving the finanoiers enga ged in
tho business OF realizing their profits In the
stock market. our author turns his attention
to the new corporation now formally
launched. and proceeds to consider the fol-
lowing questions: What will it do with its
profts2 How will It raise new capital?
And how may It's capitalization be legiti-
mated7 Mr.. Meade holds that the accumu-
lation Of large surplus reserve is per-
culiarly important for a corporation which
has undertaken a now form OF industry,
or has been organized on new model.
A new enterprise OF this character has
reputation to establish with the investor
certain amount OF speculative promo
ton has usually attended its foundation,
and its shares have been sold TO speculators
at low prices. Conservative investors hold
aloof from purcha sing. and await the de-
vtlopment OF it's policy. They desire to
see how the predictions Of the promoter
| viii be borne out by the result. They also
scrutinize the management OF the company
and inquire whether the business 10 to be
mana ged for the stockholders or for the
stock ma rket. and II the controlling interest
designs to stand by tho corporation. or to
sell out to the public at the first oppor-
tunity.
Investors are particularly solicitous con-
corning the disposition Of profits. They
demand as q condition precedent to their
| taking an interest In the company not
! only that It should demonstrate It's ability
! to make large profits during the prosper
! GUS times in which speculative enterprises
are usually started, and when any manu-
featuring consolidation. even II reckloesly
managed. Is likely to make some money.
but also that the large profits Of this initial
prosperity should be invested In the business
and thus he used to build UP . surplus
reserve which shall make future dividends
safe. II these requirements are compiled
with and the new company Is successful,
the investor will gradually buy It's property.
whose original holders will profit by the
increase in the value Of their property.
In no other way can q corporation the
| permanence Of whose earning power Is
In any way doubtful 80 certainly reach
an investment position as by q resolute
adherence to the policy Of reserve aocumu-
lations and a refusal to pay dividends
until it's ability to continue paying dividends
Is unquestioned. This process Of saliva
ton may be tedious, but 1t is certain. No
| matter how inflated the capitalization OF
a new company. no matter how threatening
the danger Of competition, no matter how
irregular the demand for the product. the
ste ady investment Of profits In surplus
earning power will In time build . solid
foundation Of productive assets upon
which, surely. though II may be slowly
conservative management will rear struct-
ure Of investment value.
In view Of the visible proofs Of advsn-
F.! tage to Be gained. and Of danger to be
avoided by the reservation Of profits Tor
! investment in earning power 1t might
have been presumed that q conservative
policy would be adopted by the directors
OF the trusts. Apparently. 1t was not TO
be expected that intelligent men would
embark upon a course Of paying out profits
to owners which would condemn the stocks
Of corporations whose regulations were
intrusted to their care to the precarious
position Of speculative securities and
would 50 weaken these companies that
| a recurrence of such a period Of depres-
sion as that from which the United States
had but recently emerged would plunge
many OF them into bankruptcy. The
adoption OF policy Of paying out profits
before the new companies had thoroughly
established themselves was 30 foolishly
dangerous that 1t Ia impossible to believe
that experienced business men would OF
their own accord and In the absence OF
circumstances and conditions compelling
them to act against their better Judgment
sin away their day Of grace, cast aside the
me ans of financial salvation which good
fortune had placed in their hands, and
plunge recklessly into q course OF dividend
payment which was certain. on the basis
Of past experience. TO land many OF the
new companies upon the rocks. Yet this
is precisely the course which the directors
OF the trusts, with hardly an exception.
adopted. The industrial combinations have
paid out their large profits to their stock
holders almost from the beginning OF their
existence. We must infer that the direc-
tors did not thus act Of their own accord.
but were compelled by circumstances and
conditions to act against their better judg-
ment.
What were those circumstances and con-
ditions? Mr. Meade answers that. In the
: nrst place. the trusts could not have been
or sanixed At all without the provision
of,larse amounts Of cash 70 purchase oer-
tain plants 'whose owners wero unwilling
to'reoeive stock In payment and also to
replace the cash capital which was gen
orally reserved by the original owners
In their contracts Of transfer. This cash
had to be Furnished BY underwriters. who
acted az middlemen: that Is to say. who
bought & portion Of It's stock from the
TRUST, with . view Of selling this pres
ehtly to the public Promoters. also. and
eventually. certain owners, would have
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