El Paso herald. (El Paso, Tex.) 1901-1931, 1911-09-25

cent This business. moreover, showed
exceedingly heavy losses in 1902 and
1903. Here were severe competition and
low earnings.
has far exceeded that Of its cOmpe1-
tors. Its rate in 1906, a represent ative
year was about two and One-half times
the average rate for As Of the most i'm
portant Independent manufacturers Of
smoking and chewing tobacco and
snuff The earnings of those tndepen-
dents, moreover, fairly represent the
average rate in the tobacco business
before the formation Of the cOmbina-
Thoroughly speaking, the 'cOmpeti-
tive rate In other words, the COmbi-
age level of earnings on Its share Of the
business.
The results of the Spanish war tax
upon tobacco products especially illus
trate the monOpOlistic power Of the
combination When that tax was i'm
posed, in 1895 prices were generally
raised. In 1901 and 1902 the tax was
reduced to its former basis, but the
COMBINATION was powerLul enough %
keep its prices on the higher level. Tt
thus absorbed practically all the bene-
fit Of the reduction, adding millions
yearly TO its income. This episode shows
the unforeseen results Of fiscal leg1s-
lation affecting mOnOpOHst1c conditions
not fully recognized The tax reduction,
Of course, was intended to benefit the
consumer. As a matter o. fact, II bene-
fitted almost solely the controlling in
terest in the industry.
THE combination's capitalization lex
elusive of intercOmpany hOldings) is
much greater than its actual invest
ment. The difference lies in the value
attributed TO good viii The tangible
assets (plant and working capltal) have
usually been entered on It's books at
apprOXima tely their true valuations.
EUt the good wiz in its domestic bust
ness alone stood on the books in 1908
at roughly, $146,00O.doO, whereas the
bureau, after careful analysis. has
computed its actual cost mot present
value) at $4,000, 600, or So percent Of
the entire investment In this allowance
Of S64,000,OO the bureau clearly recog-
niZes the great value of good wiz
Chiefly brand valueJ in the tobacco
industry. over and above this, however,
ar almost every important step IN the
expansion OF the combination, there
have been issued against that good
will great blocks Of new securities rep
resenting nothing but generalization, or
capitalization or mOnOpoliStiC power.
Through adrOit and frequent ed1uSt-
ments Of the securities of the comDina-
ton, very large part Of its great
earnings have gone to small group OF
insiders, who have throughout retained
substantial voting control These IN
siders in 1901 induced the common
stockholders Of the old American and
Continental companies to surrender
new Consolidated Tobacco company
thus securing for the common stock Of
the consolidated (mOsz Of which the in
siders heidi the great increase in earn
ings, which they foresaw, from the re-
ductiOn fin the war revenue tax. This
increase the rank and file OF stock
holders Of the older concerns did not
foresee. In the reorganization in 1904, the
advantage Of the insiders was perpetu-
ated. Of the book profits Of the new
American Tobacco company in 1910 mot
the earnings as revised by the bu-
reau), namely S35,OO0,O 900, only about
So 300 900 went to the holders Of the
holders Of the SIS, 600, 600 preferred
stock, leaving no less than $25,000,000