The Industrial Conflict in the Light of Revelation.
By Geo. W. Rine
“HIGH FINANCE,” “WATER,” AND FRAUD.
In a previous article it was shown that this age is the age par excellence of industrial combination, of capitalistic monopoly, of the trust. There are, doubtless, some trusts that are legitimate business enterprises. But, however unwelcome the truth may be, it is a fact that the majority of these “combines” are unscrupulous and essentially speculative in their plans and tendencies. Trust Prices, Extortionate.
It is well known that the yearly profits of the Standard Oil Company are scores of millions of dollars. The company was becoming fabulously rich when it sold its refined oil at sixteen cents a gallon. But greed knows no moderation. By increasing the retail price from sixteen to twenty-three and twenty-four cents a gallon, it deliberately compelled the people of the United States—mostly the poorer classes—to pay an additional fifty million dollars annually into its overflowing treasury. The heartlessness and inhumanity of some of the trust monopolies is strikingly illustrated by the course pursued in the summer of 1901, by the American Ice Company. It is a complete monopoly in its business, in Greater New York and adjacent territory. Taking advantage of its exclusive docking facilities in the ports of the North Atlantic cities and of its possession of all the important ice-making establishments, it doubled the price of ice—an extortionate increase, yielding to the trust inordinate profits. Of all the trusts there is none more merciless. It is upon the poor, the sick, and the helpless children that it lays its burdens most heavily. “The fever-stricken patient is dealt the heaviest blow, but even the strong and well find health and life in the hot summer days, endangered by food and drink that are tainted because of a lack of ice to preserve its wholesomeness. Trusts have often been characterized as ‘octopi,’ but the American Ice Company is the most vampire-like sucker of human blood that has ever been incorporated.” It is freely charged, and to this day it has never been denied, that many of the New York City officials are stockholders, and that it is the exceptional privileges which their influence has given to the trust that, with other powers, makes it a heartless, crushing monopoly. The poor were unable to buy ice at the monopoly’s prices, and, as a result, thousands of disease-stricken children and aged persons, of the families of poor, died of fevers that might have been reduced with ice. The trust stubbornly refused to relax its grip on the pockets of the people until it found itself overwhelmed by a tide of public indignation. “Within the last six months,” writes the editor of a leading San Francisco daily paper, “the gas companies of this city have consolidated, with an enormous increase of capitalization. At once the gas has become so poor that it has lost twenty-five per cent. to fifty per cent. of its lighting power, and for many consumers the price has doubled. Three burners will not give as much light as was given by two before the consolidation, and the monthly bills have more than doubled. The same deficiency is seen in the street lights.” Like so many other syndicates, this trust finds itself obliged to make vast profits in order to pay dividends on millions of watered stock, and to pay the princely salaries that their own officers vote themselves. According to the testimony of a Congressional Committee, appointed to investigate the affairs of the leviathan coal trust octopus, that “combine” has mulcted the people of this country since 1873, to the extent of $40,000,000 annually. This means that the people have paid the coal trust $40,000,000 more every year than they would have paid if they had not been obliged to pay more than a fair, honest price for coal. About three years ago the beef trust arbitrarily raised the price of meat so high that the common people are actually debarred from eating any meat except the poorest qualities. The price of steak meats is really prohibitive to all classes except the rich. Yet the men who raise the cattle on the western plains are paid less than ever before. That means that their helpers must be paid less. The cattle raisers are so completely at the mercy of this trust that they must sell to the trust or not sell at all. Hence, they simply must sell for whatever price the trust is willing to pay. The trust, having an absolute monopoly of the meat supply of the whole country, the people can buy meat from no other source, and, hence, are obliged to pay whatever the trust is pleased to charge. These prohibitive prices are not owing to a natural scarcity of meat, for in Chicago, packed away in cold storage, are 5,000,000 pounds of meat, waiting until the consumers are willing to pay the price asked. Millions of pounds more are in cold storage in Kansas City, Omaha, and other cities. (I beg to say, parenthetically, that the meat trust is, by its extortionate charges, proving to be a blessing in disguise to the people. If it succeeds in converting the people to vegetarianism, it will, unwittingly and unwillingly, become a public benefactor.) These instances of monopolistic extortion are sufficient to show that whenever the trusts have the power they will exact of the public the utmost penny that “the traffic will bear.” “Water,” or Inflated Capitalization.
In the summer of 1897 the farmers of this and other agricultural countries reaped the most bountiful harvest that they had known in a decade. Each of the six subsequent years came with its barns filled with plenty, its presses bursting out with new wine, its high prices, and its consequent flush times. Not for centuries had the tide of industrial and financial prosperity run so high as during those six memorable years. Early in 1903, however, the tide reached its acme, and since then it has been slowly but ceaselessly ebbing. To-day merchants and manufacturers are looking gloomy, the volume of business is rapidly declining; many mills and factories are closed or are running on half-time, and scores of thousands of workmen are laid off or have been put on reduced wages. That such conditions should prevail, in spite of the fact that crops are still good and prices fairly high, seems at first thought passing strange. But there are causes. Can we find them? During seven merry years the “wizard financiers” of Wall Street have been changing “water” into cash. We have all read in our school histories how the medieval mountebanks, called alchemists, imposed upon the ignorant masses by pretending to be able to transmute the base metals into precious metals. Of course they were never able to perform their promised miracles. But the alchemists of the Stock Exchange of our day go a step further in both profession and performance, and actually transmute “wind” and “water” into gold—gold for their own pockets. More than two thousand years ago Lucretius laid down the dictum, “Out of nothing comes nothing.” But in the operations of the modern wizards of finance, the “nothing” which comes from nothing is always the portion that goes to the “lambs”—the investing public. During the last two years countless thousands have been gnashing their teeth as they saw their hard-earned wealth slipping from their pockets into the pockets of the millionaire gamblers of the stock market. Few readers need to be told that by “water” is meant, in the parlance of the stock exchange, inflated capitalization; that is, capital which exists only on paper—capital which represents nothing. The Work of the “Promoter.”
The creation of a trust nearly always involves serious evils. Competitors are ruined; employees are dismissed. When the sugar trust was formed, eight refineries were closed, throwing out of employment about six thousand men. Among other evils are the methods used by unscrupulous “promoters,” which are calculated to deceive the public, to betray and defraud the minority stockholders, to impair public confidence, and to lead to the enacting of extortionate prices. Whenever it is proposed to combine several firms or corporations into one comprehensive trust, some individual who has no connection whatever with the firms involved must undertake the task of carrying on the negotiations among the several firms, of providing a plan of organization, and of persuading the different individual owners that it is to their advantage to enter into the combination on the terms suggested. This individual is the “promoter.” The fees of the promoter are in many cases almost fabulous. The promoters of the American Steel and Wire Company received $15,000,000 in stock for their services in organizing that company. One of the most successful of the trust promoters has, within the last few years, received $40,000,000 in stocks for his services, and out of these stocks he realized at least $20,000,000 in cold cash. Instances of this kind could be given indefinitely. Trust promotion of this kind is made possible only by inflated or “watered” capitalization. “Abolish over-capitalization,” says a great statistician, “and the promoting business would fall flat. Put an end to the possibility of making great fortunes through the sale of watered stock, and not one-half as many trusts would be formed.” It is usually by giving to the owners of the several plants their actual value, either in cash or in bonds secured by mortgage, and then by giving them in addition large amounts of common stock as a bonus, and thus paying them twice over, as it were, for their plants, that the promoter can induce the various owners of the plants to part with their property. Hence the promoter and those associated with him can make profits only by selling the stock to the public at exorbitant prices.5“Concealment of the truth and misrepresentation thus become necessary to the success of their plans.” Freezing Water into Cash.
To give the watered stock an apparent value they either have to make it earn dividends which are based on extortionate prices, or else to declare dividends which are never earned. Mr. Collier, a member of the New York Civil Service Commission, writes that the total nominal capitalization of the various trusts in the United States, exclusive of the railway trusts, is about $7,500,000,000, but the best estimate shows the actual capital to be much less than one-half that amount. This shows the amazing amount of over-capitalization in the aggregate. Discussing evils incidental to speculative trusts, Attorney-General Knox says: “Over-capitalization is the chief of these, and the source from which the minor ones flow.” Over-capitalization is a fraud upon those who contribute the real capital, and the efforts to realize dividends thereon from operations is a fraudulent imposition of a burden upon the public. An eminent journalist recently said that Frick, Schwab, and other steel producers in the Pittsburg district, by using certain secrets in metallurgy, which had recently been discovered, were enabled to make steel and sell it at twelve dollars a ton, and still make large profits; but, instead of using these secrets for their own reasonable benefit and for the benefit of consumers, they endowed themselves with $600,000,000 of watered stock and made the price of steel enormously high in order to be able to pay dividends on their spurious stock. In a subsequent official investigation it was discovered that the corporation was making nearly $60,000,000 net profit annually. Mr. Lorimer, editor of the Saturday Evening Post, writes: “Is it not a statement of fact that within a few years enormous, incredible fortunes have amassed in the hands of comparatively a few, and that these fortunes represent to an amazing extent investments which were originally little if anything more than paper for the manufacture of stocks and bonds and the cost of printing the certificates thereon?” Since 1896 more than one billion dollars of bonds, more than one and three-fourths billions of dollars of preferred stock, and more than two and one-half billions of common stock, have been issued by about two hundred industrial combines. By the word “issued” is meant that the stock has passed from the hands of the promoters or “wizards of finance” to the people who bought them. In that grand total of stocks more than $3,300,000,000 of it was issued on no tangible basis whatever. After making liberal allowance for “good-will” and opportunity for monopoly of sale, etc., the Wall Street magnates have wheedled the investing public into paying them more than two billion dollars, in seven years, for water alone. “Is it strange,” asks David Graham Phillips, “that water is gushing from the stock of the ‘combines,’ and the tears from the luckless investors? Is it strange that we have had in the past seven years so many scores of brand new multi-millionaires, the wizards and their confederates,—I beg pardon, their fellow financiers? Is it strange that we have had a spectacle of drunken prodigality? Is it strange that the man in the street has been talking glibly of hundreds of millions, that promoters have thought nothing of ‘ten or twenty millions’ to be added to the flotation, ‘just to oblige’ somebody or other who needed that amount to bring his fortune up to a good round figure? Is it strange that we have had, and that we are mournfully emerging from, an attack of the mania for speculation which has reached down and down through all the property-owning class until it has led the wife and mother reluctantly, but hopefully, to yield to the husband, for get-rich-quick investment, the deed of the little house, the home of which they were so proud, and in which they were so contented in their sane days, before the spell of the wizards was cast over the country?” At the most moderate estimate, Wall Street has in seven years “palmed off,” or “floated” more than two thousand millions of securities (?) manufactured out of just nothing at all. That colossal sum the wizards have juggled out of the pockets of the confiding people into their own pockets. Is it strange that the great industries stagger? They have had “a billion-dollar solar-plexus blow.” Of course you can’t fool the people all the time; and hundreds of the “wizard promoters” who juggled too late came to grief. The pioneer “plungers” made scores of millions; their belated imitators lost many millions. The shipbuilding trust, and the asphalt trust are conspicuous and noisome examples. The former of these two had “securities” of eighty million dollars, issued upon property worth about ten millions, and nearly all the property so “fixed” that the head of this gang of stock gamblers could get it back, and leave every one else hopelessly in the lurch. Hundreds of thousands of these alleged “securities” were squandered in frantic efforts to delude Americans and foreigners into buying the worthless stuff. “Eminent business men and lawyers, men of reputation for piety, as well as for honesty, struggled to outdo each other in meanness and treachery and thievery that would make a bunko steerer stare, and a highwayman blush. All the while three plans were at work,—one to swindle the public; another to wreck the concern, and do up all but a small coterie of ‘insiders’ out of the ‘swag’; a third to loot the looters for the benefit of one man.” The millions of common stock that this ring of “boodlers” exchanged for the hard-earned money of the people did not represent value to the extent of a copper cent. In its moral turpitude, in its utter and shameless robbery, the shipbuilding trust is typical of a score of other speculative combines. In their superheated efforts to exploit the pockets of the public these concerns do not hesitate to traffic with political bosses and corrupt legislatures, to defy the laws, to bribe and browbeat—and pose as our best and most enterprising citizens. “Something out of nothing,” writes Mr. Phillips, “and upward of a billion of money has changed hands, has passed from those who made it by hard work, has passed in part to the multi-millionaire’s colossuses, and has passed in still larger part to those who certainly know how to put on ‘style’ with it.” Is not all this an astounding revelation of how millions upon millions of money are gotten for nothing by money kings at the expense of the public, and how manufacturing plants which, when legitimately conducted, may be made to yield large profits, are wrecked when seized upon by those whose sole purpose is to infiltrate them with “water,” and then sell the water to deluded investors, who are lured by false statements, and the prestige of great names into fancying that what they are buying represents actual value? In reference to the promoters who “floated” the bogus part of the stock of the United States Steel Corporation, Mr. Edwin Lefevre writes: “The party consisting of Messrs. Reid, Leeds, and Moore, who had created the Tin Plate, Steel Hoop, National Steel, and other concerns, received a huge block of United States Steel in exchange for their holdings of the constituent companies’ securities. They received somewhat above $140,000,000!” Think of it! Men who, two years previously, were not, strictly speaking, rich, became fabulously wealthy almost overnight; not because of the manifest economic tendency of the times, but because of the manifest ability of the American people to outgamble any other people on earth. In order to render the watered stock at all salable, it is necessary to pay at least nominal dividends upon it. To be able to do this the trusts are driven, not only to sell their products at extortionate prices, but also to reduce materially the wages of their employees. Further, they find it expedient to discharge many of their employees, and thus throw thousands of laborers out of employment. A careful investigator of economic problems finds that since the spring of 1903, more than 100,000 laborers have been discharged by the great industrial trusts (including the railways). The smaller industrial concerns throughout the country have laid off nearly as many more men. December 14, 1903, the press reports from Chicago to all the large newspapers of the world, contained the following:— As a direct result of the gigantic stock gamble that has staggered Wall Street, and the exposures which showed hundreds of thousands of dollars of watered stock in the United States Steel Corporation, a new wage schedule goes into effect January 1. More than $12,000,000 is cut from the trust’s pay-roll in one sweep. The workers must pay the price of the ruinous financiering that has marked the career of the company. Ninety per cent. of the employees must submit to a wage reduction of from five to twenty per cent. or starve. The direct cause of this grim situation is the fact that $668,910,412 of the $1,477,239,058 capital stock of the company is estimated to be water. In this ocean the actual valuation of the various properties floated, has gone down, and millions have been lost. And now that the day of reckoning is at hand, the bill is handed to the wage-earners for settlement, while the “high financiers” are carefully guarding themselves against loss. Last year the corporation paid out in salaries $129,528,343. The reduction, while ranging from five to twenty per cent., will amount for the most part to ten per cent. Only 60,000 employees who are members of the Amalgamated Association of Iron, Steel, and Tin Workers will escape the knife when it swings. Their present contract runs until July 1, and no cut can be made in their wages until then. But whenever it has been possible to save a penny to continue the payment of dividends on the watered stock, it has been done. Is not the evidence that we are living in an age of unprecedented mammonism overwhelmingly conclusive? Has any previous epidemic of greed been so virulent and so nearly universal as that with which society is to-day smitten? Can we much longer endure the guile, the treachery, the heartlessness, the rapacity, the embezzling, the forgeries, the bribery, the theft, and the political rottenness, which are honeycombing society as the inevitable result of universal cupidity? Who can deny that we are living in the time, foretold in prophecy, when “men shall be lovers of self, lovers of money”? “In the last days,” declares the apostle Paul, men shall LOVE money. A thousand voices of present-day social, economic, and political history proclaim in unmistakable tones that we are now living in those “days.” Dear reader, are you willing to believe, when the evidence is by its very magnitude rendered indubitable?