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capital of the Oliver Mining Compa ny was then $1,200,000, so that the investment in this additional third in terest could not have been colossal. The Rockefellers also owned some good Lake Superior iron mines. Their view of the value of ore properties is revealed by what followed. In 1896 they leased their mines to Oliver and Frick, on behalf of the Carnegie concern. Under the lease they receiv ed a royalty of twenty-five cents a ton; but it was provided that there must be an output of 600,000 tons a year to be shipped over the Rockefeller trans portation lines, rail and boat, and that these lines should get another 600,000 tons a year from the Oliver mine. The Rockefellers evidently thought that iron ore was good mostly to make freight. Now, this combination assured the Carnegie mills about all the ore that they needd. The combination, more over, was in command of the best rail and lake transportation and dock facilities. The independent mine own ers immediately saw where they got off. This was a year, it will be remem bered, of severe industrial and finan cial depression. Acute demoraliza tion, to quote a trade report, followed among the independents. Acute de moralizations are commonly very prof itable to those fortunate persons who are in a position to remain unaf fected. Oliver set to work to gather in the demoralized properties. By ar ranging for options of stock here and leases there, he was presently ready to take over the best independent mines. In his statement of the ar rangement he says: “The only cash obligation that we will have, if my plan is carried out, is in the purchase of the Norrie stock. The Mesaba leases we can throw up on six months’ notice, and the Tilden and Pioneer leases on three months’ notice. The amount that we would in vest in the Norrie is a very small item, considering the immense stake we have in this business.” And further along, “I propose, at a risk of using our credit to the extent of $500,000 of possibly $1,000,000, to effect a sav ing, in which our competitors will not share, of $4,000,000 to $6,000,000 per annum.” And again Mr. Carnegie vetoed the plan. So poorly did he think of the ownership of iron ore; so improbable did he deem a monopoly in it. But as Frick and Oliver persisted, he withdrew his veto, and the deal was closed. In this manner, with the in vestment of hardly a dollar —for even a million or two may be so spoken of when contrasted with Mr. Schwab’s valuation of the Company at half a billion —did the Carnegie Company come into possession of its iron ore properties. Iron Ore Monopolized. The chief Lak© Superior iron mines then outside the Carnegie-Rockefel ler combination were owned by the Minnesota Iron Company. This com pany was capitalized at $16,500,000; but its stock was not worth par in the market. Presently it was absorbed by the Federal Steel Company, which in turn was taken into the United States Steel Corporation. So the Steel Trust had eighty per cent of the Lake Su perior output, and all the best trans portation and dock facilities. Iron ore was practically monopolized. The Carnegie Company owned, as said above, five-sixths of the capital of the Oliver Iron Mining Company. To buy the remaining one-sixth and make its ownership complete, the Steel Trust issued $18,500,000 of its own stock —half common and half pre ferred. On this basis six-sixths would come to $111,000,000. Compare this with a gift to Carnegie of a half interest a few years before and you will get a view of what monopoly means. Shackling Our Children’s Children. The Rockefellers had capitalized their iron mines at $29,887,449. They kindly turned them over to the Trust in exchange for slightly more than $80,000,000 of its stock. Forty-four millions of the Trust’s stock stand for its ownership of the Minnesota Iron Company’s properties. Mr. Schwab and others have declared that the Trust’s ore deposits are worth more than this vast capitalization that was issued for them. Very likely so. And this is the core of the whole matter. If you can monopolize a staple com modity it instantly becomes worth al most any price you have a mind to put upon it. There are limitations, of course. No monopoly could keep iron ore at the price of diamonds. But for all practical purposes the rule holds good. And when you capitalize your com modity on the basis of its earning power as a monopoly—which is the modern and prevalent idea —then you necessarily bond and mortgage your self to perpetuate the monopoly. Ob serve how the capitalization of mo nopolistic earning power works: James J. Hill’s Grea North ern Railway had come into possession of great bodies of northern ore lands with but a small investment of capital. Until recently nobody ever thought of those far-off ore lands as constituting an asset of great and im mediate value. But the capitalization of the Steel Trust’s ore lands fixed the value of the Hill ore lands. Suppose you are engaged in running a corner in corn at Chicago. You buy up the visible supply, or eighty per cent of it. That supply then becomes worth, for all practical purposes, what ever price you fix nuon it —the ob vious limitations spoken of before, of course, applying. But only so long as you maintain your corner. If you fix the price at eighty cents, all other supplies of corn within reach of Chi cago become worth eighty cents, less the freight. You must take them at that or down goes your monopoly. Now, these far-off Hill ore lands may be likened to so many million bushels of No. 2 September corn. So the Steel Trust leased the Hill ore lands. The lease runs until all the ore shall be exhausted, which according to con servative estimates will not be for at least a hundred years. There is, how ever, a cancellation clause operative after about ten years, but the lease works so to the advantage of both parties that this clause may be safely ignored. It fixes the price of every ton of ore during the life of the lease, and the freight rate to be paid the Hill road for moving it. A hundred years is a long time. Many changes may come in the manufacture of steel and the mining of ore. But there stands the lease, fixing the price of the ore during our lives and our children’s children, except, of course, in the un lives and the lives of our children’s likely event of cancellation. The roy alty to be paid under this lease is $1.65 a ton the first year, with an in crease of 3.4 cents a ton in each suc ceeding year. If human ingenuity could devise a stronger pledge to our grand children that they will not get steel cheaper than we do I am at a loss to imagine what it might be. And I maintain that the basic purpose of this lease Is to support the inflated capi talization that the Steel Trust issued on account of its own ore lands. When Oliver and Frick leased the Rockefel ler mines in 1896, it will be remem bered, they paid a royalty of twenty five cents a ton, against a royalty to Hill of $1.65 a ton with a yearly in crease. Not that the Rockefellers are easy marks. But ore bad not then WATSON’S WEEKLY JEFFERSONIAN. been monopolized and capitalized on its earning power. Having made the lease, the Great Northern Railway distributed pro rata among its stockholders certificates rep resenting the beneficial interest to arise from it. There were 1,500,000 of these shares, or certificates, which were traded in on the curb at about SBO a share, giving a valuation of $120,000,000 for the whole. This $120,- 000,000 has no relationship in any way, shape, or manner to any actual in vestment. It represents the benefi cial interest that may arise through participating in a monopoly. Frick’s Grip on Coke. A hundred million dollars of the Steel Trust’s capitalization is based on its ownership of the H. C. Frick Coke Company, by far the largest con cern in the Connellsville region. In defending the Trust’s capitalization, Mr. Schwab pointed out that it owned over sixty thousand acres of Connells ville coal land—the best there is for making coke. And he added: “There is no more Connellsville coal. You couldn’t get it for $60,000 an acre. It simply isn’t there.” Obviously, there fore, this staple commodity, being mo nopolized, is worth, practically speak ing, whatever the owner says it is worth. Investment of capital has noth ing to do with it. When Mr. Frick began developing the coke industry, he invested no capital to speak of, for the excellent reason that he didn’t have any. From 80 to 500 Millions. The Carnegie Company owned one fourth of the Frick Company. To buy the Carnegie Company and the re maining three-fourths of the Frick Company the Steel Trust issued capita] to the amount of $492,558,100, of which $304,000,000 is in bonds bearing five per cent and $98,277,100 is preferred stock bearing seven per cent, the re mainder being in common stock \vhich at present pays only two per cent. A year before, the net book value of all the assets of the Carnegie Company (including its fourth of the Frick Com pany) was a little over $80,000,000. Actual values may have been great er, but this was the “investment.” So long as Mr. Carnegie and his associ ates meant to keep all the stock them selves they obviously had no motive for inflating the capital. Which brings us up against the disagreeable fact that good business men never water stocks for home consumption. Much as they admire the beauties of the process they do not apply it to them selves. Stocks are watered only to be sold. It was for the purpose of per mitting the public to come in that this eighty-odd millions of Carnegie capi talization was increased by about $400,- 000,000. In passing, I wish to mention that this eighty-odd millions was not, strict ly speaking, an investment of capital. It was nearly all accumulated profits that arose in good part from monopoly and high tariff. As early as 1878, with a duty of S2B a ton on rails, we find the rail pool allotting the Carnegie mill an output of 60,000 tons for the year and fixing the price at $42.50 a ton. Thus the Carnegie plant made profits of 100 and even 140 per cent a year. Another Carnegie incident should be glanced at here—the strike at Home stead in 1892. Previous to the strike an extraordinary and scandalous con dition prevailed at Homestead. This condition was not that the mills paid their owners 100 per cent profits, but that some of the workmen in them earned sl2 and sls a day and rode in carriages. The strike, with its incident al riots, bloodshed, and starvation, ended that, the unions being beaten. Mr. Frick fought this battle for the company, Mr. Carnegie having astute- ly withdrawn to Scotland. James Howard Bridge, in his excellent “Histo ry of the Carnegie Steel Company,” to which I am much indebted, is through out a stanch admirer and champion of Mr. Frick. Speaking of the profits of the company, which rose from $4,000,- 000 the year of the strike to $21,- 000,000 in 1899, Mr. Bridge observes (page 295): It is believed by the Carnegie of ficials, and with some show of reason, that this magnificent record was to a great extent made possible by the company’s victory at Homestead. From that time on the company profited by the heavy investments it had made in labor-saving machinery, and prices got so low that one year when the Carnegies made over $4,000,000, their chief competitor, the Illinois Steel Co. had upward of $1,000,000 loss. By 1897 the co?t of steel rails on the cars at the Braddock mill was only sl2 a gross ton!” The admiring exclamation point is Mr. Bridge’s. Whatever saving ac crued to the company from its victo ry at Homestead has now been capital ized and is outstanding in the form of stocks and bonds. So there is lit tle fear that steel mill labor will re lapse into the scandalous state of earning sls a day. The necessity of paying interest and dividends on this capitalization stands in the way. Morgan’s Fat Fee. I have accounted above for the bulk of the $1,500,000,000 capitaliza tion of the Steel Trust —including bonds of subsidiary companies which it assumed, such bonds sometimes rep resenting the total cost of the proper ty. One further item remains to be mentioned. The trust issued to Mr. Morgan’s promoting syndicate $130,- 000,000 (in round numbers), par val ue, of its capital in return for $28,000,- 000 in money. You will find the trans action in detail on pages 16 and 17 of the “Preliminary Report to Stockhold ers of the United States Steel Cor poration,” issued in February, 1902. The Morgan syndicate furnished the Trust with $25,000,000 in cash for working capital, and paid the expens es of organization and other incident als to the amount of $3,000,000. For this it. received 649,987 shares of pre ferred stock and 649,988 shares of common stock, the shares being of SIOO par value. Nearly $6,000,000 annually are ab sorbed in paying dividends on the stock thus given. Probably the able employe can get the syndicate’s bless ing. But he can’t possibly get a show at those six millions. And the syndi cate itself hasn’t that stock now. It has been sold. You and I have it— figuratively speaking, of course. We paid real money for those 1,300,000 shares probably par for the preferred and fifty for the common, or well to ward $100,000,000 in all. We can’t get any extraordinary return upon our investment. We can get seven per cent on the money invested in the preferred and four per cent on the money invested in the common. In order to get this much we must keep on paying the monopolistic price for steel rails. Such Is the effect of stock-watering. A gentleman creates a monopoly in a staple commodity, capitalizes it on the basis of its monopolistic earning powers, then sells it out, or sells a con siderable interest in It after the inflat ing process is complete. Then if the public wishes to overthrow the monop oly, thereby letting the water out of the stock, it is the public itself—or the outside investor—who gets drenched. With a simple monopoly you can tie up the public, but you have the bother of holding the string. With the stockwatering and floating (Continued on page 13.) PAGE FIVE