The Richmond Virginian. (Richmond, Va.) 1910-1920, 1911-09-25
many MILLIONS
Of water IN
TOBACCO TRUST
lContinued from First Page.l

Continued from First Page.)
( ing. the competitive rate" In other
words, the combination has more
than doubled the average level OF
earnings on its share of the business.
Spanish War Tax.
The results of the Spanish War tax
upon tobacco products especially IL
lustrate the monopolistic power of
the combination. When that tax was
imposed in 1898. prices We're gem
orally raised. In 1901 and 1902 the
tax was reduced to its former basis,
bur the combination was powerful
enough to keep its prices on the high
I er level 1t thus absorbed practi-
call all the benefit of the reduction.
adding millions yearly to It's lucors'.
This episode shows the unforeseen
results OF fiscal legislation a-ecting
monopolistic conditions not fully FEC
ognized The tax reduction. of course,
was intended to benefit the con-
sumner. As q matter of fact, it bene-
flied almost solely the controlly IN
terest In the industry.
Valuation of Assets.
The com binations capitalization
exclusive of intercompany holdings}
Is much greater than its actual in
vestment. The difference lies in the
value attributed to good will The
tangible assets tplant and wrking
capita) have usually been entered on
its books at approximately their true
valuations But the good will in
its domestic business alone stood on
the books in 1908 at. rugby, $l4s,-
600, 900 whereas the bureau, after
careful analysis. has computed It's ae-
tual cost mot present value) at s64.-
GOO. 900, or So per cent. Of the entire
investment. In this allowance OF $50
600, 900 the bureau clearly recognizes
the great value of good Will (chief-
ly brand valuel In the tobacco In
dustry. over and above this, how
ever, at almost every important step
in the expansion of the combination,
there have been issued against that
wood will great blocks of new Sc
curities representing nothing but
Generalization, or capitalization of mo-
nopolistie power.
Insiders Profits.
Through adroit and frequent ad-
justments of the securities OF the
combination. a very large part of its
great earnings have gone to a small
group of insiders, who have through
out retained substantial voting con-
troll. These insiders In 1901 induced
the common stockholders Of the old
American and Continental companies
to surrender their stocks for per
cent. bonds of the new Consolidated
Tobacco Company, thus securing for
the common stock of the ConsoH-
dated (most Of which the insiders
held) the great increase In earnings.
which they foresaw, from the reduc-
ton in the war revenue tax. This
increase the rank and file OF stock
holders OF the older concerns did not
foresee. In tho reorganization in 1904
the advantage of the insiders was
perpetuated. OF the book profits OF
the new American Tobacco Company
In 1910 mot the earnings" as re-
vised by the bureau), namely. s35.-
10000 only about $1,000, 900 went to
the holders OF the 100000. 900 bonds.
s4.70o. 600 to the holders OF the s-s,-
600, 900 preferred stock. leaving no
less than SIS. 100000 for the com
parattvely small number Of holders
OF the $40, 100000 common stock,
which alone has voting power. This
was over 60 per cent. on the COM
mon stock in ono year. not including
extra dividends OF subsidiary COM
panies. In short, the bulk Of the
earnings of this great combination.
increa sed by monopolfstic power, has
by clever arrangement Of capitalize
ton. been more and more conferred
in a very small group OF individ-
uals
There must also he considered here
the profits arising from the Initiation
Of the ombination's securities. For
example one OF the constituent busi-
nesses was valued in 1885, uncer COM
petition, at $4,000 Five years later.
at the organizat ton OF the old Amerl-
can Tobacco Company, Il formed the
basis for the issue of $500. 600 OF
stock BY 1908, due to various read
justin ents, the securities based on this
business had increased to s22. 900, 600.
Meantime, cash dividends and inter
est thereon had amounted to $4,000
000. Thus, the total par value Of
these securities (the combined mar
ket value being substantially the
same), plus the dividends and inter
est paid up to 1908, amounted to
nearly sac. 100000. or 10 times the
value OF this particular business In
1883.
The com binauon's history. there
fore. shows these foremost facts: The
earning power Of a mopolistic posi-
ton In great industry, excessive
capitalization, and remarkable CON
centration of the resulting wealth In
few hands. through control Of the
voting security issues.
Very respectfully.
HER BERT KNOX SMITH.
Commissioner.