“We are today something like five years behind Germany in iron and steel metallurgy, and such innovations as are being introduced by our iron and steel manufacturers are most of them merely following the lead set by foreigners years ago.
“We do not believe this is because American engineers are any less ingenious or original than those of Europe, though they may indeed be deficient in training and scientific education compared with those of Germany. We believe the main cause is the wholesale consolidation which has taken place in American industry. A huge organization is too clumsy to take up the development of an original idea. With the market closely controlled and profits certain by following standard methods, those who control our trusts do not want the bother of developing anything new.
“We instance metallurgy only by way of illustration. There are plenty of other fields of industry where exactly the same condition exists. We are building the same machines and using the same methods as a dozen years ago, and the real advances in the art are being made by European inventors and manufacturers.”
To which President Wilson’s statement may be added:
“I am not saying that all invention had been stopped by the growth of trusts, but I think it is perfectly clear that invention in many fields has been discouraged, that inventors have been prevented from reaping the full fruits of their ingenuity and industry, and that mankind has been deprived of many comforts and conveniences, as well as the opportunity of buying at lower prices.
“Do you know, have you had occasion to learn, that there is no hospitality for invention, now-a-days?”
TRUSTS AND FINANCIAL CONCENTRATION
The fact that industrial monopolies arrest development is more serious even than the direct burden imposed through extortionate prices. But the most harm-bearing incident of the trusts is their promotion of financial concentration. Industrial trusts feed the money trust. Practically every trust created has destroyed the financial independence of some communities and of many properties; for it has centered the financing of a large part of whole lines of business in New York, and this usually with one of a few banking houses. This is well illustrated by the Steel Trust, which is a trust of trusts; that is, the Steel Trust combines in one huge holding company the trusts previously formed in the different branches of the steel business. Thus the Tube Trust combined 17 tube mills, located in 16 different cities, scattered over 5 states and owned by 13 different companies. The wire trust combined 19 mills; the sheet steel trust 26; the bridge and structural trust 27; and the tin plate trust 36; all scattered similarly over many states. Finally these and other companies were formed into the United States Steel Corporation, combining 228 companies in all, located in 127 cities and towns, scattered over 18 states. Before the combinations were effected, nearly every one of these companies was owned largely by those who managed it, and had been financed, to a large extent, in the place, or in the state, in which it was located. When the Steel Trust was formed all these concerns came under one management. Thereafter, the financing of each of these 228 corporations (and some which were later acquired) had to be done through or with the consent of J. P. Morgan & Co. That was the greatest step in financial concentration ever taken.
STOCK EXCHANGE INCIDENTS
The organization of trusts has served in another way to increase the power of the Money Trust. Few of the independent concerns out of which the trusts have been formed, were listed on the New York Stock Exchange; and few of them had financial offices in New York. Promoters of large corporations, whose stock is to be held by the public, and also investors, desire to have their securities listed on the New York Stock Exchange. Under the rules of the Exchange, no security can be so listed unless the corporation has a transfer agent and registrar in New York City. Furthermore, banker-directorships have contributed largely to the establishment of the financial offices of the trusts in New York City. That alone would tend to financial concentration. But the listing of the stock enhances the power of the Money Trust in another way. An industrial stock, once listed, frequently becomes the subject of active speculation; and speculation feeds the Money Trust indirectly in many ways. It draws the money of the country to New York. The New York bankers handle the loans of other people’s money on the Stock Exchange; and members of the Stock Exchange receive large amounts from commissions. For instance: There are 5,084,952 shares of United States Steel common stock outstanding. But in the five years ending December 31, 1912, speculation in that stock was so extensive that there were sold on the Exchange an average of 29,380,888 shares a year; or nearly six times as much as there is Steel common in existence. Except where the transactions are by or for the brokers, sales on the Exchange involve the payment of twenty-five cents in commission for each share of stock sold; that is, twelve and one-half cents by the seller and twelve and one-half cents by the buyer. Thus the commission from the Steel common alone afforded a revenue averaging many millions a year. The Steel preferred stock is also much traded in; and there are 138 other industrials, largely trusts, listed on the New York Stock Exchange.
TRUST RAMIFICATIONS
But the potency of trusts as a factor in financial concentration is manifested in still other ways; notably through their ramifying operations. This is illustrated forcibly by the General Electric Company’s control of water-power companies which has now been disclosed in an able report of the United States Bureau of Corporations:
“The extent of the General Electric influence is not fully revealed by its consolidated balance sheet. A very large number of corporations are connected with it through its subsidiaries and through corporations controlled by these subsidiaries or affiliated with them. There is a still wider circle of influence due to the fact that officers and directors of the General Electric Co. and its subsidiaries are also officers or directors of many other corporations, some of whose securities are owned by the General Electric Company.
“The General Electric Company holds in the first place all the common stock in three security holding companies: the United Electric Securities Co., the Electrical Securities Corporation, and the Electric Bond and Share Co. Directly and through these corporations and their officers the General Electric controls a large part of the water power of the United States.
... “The water-power companies in the General Electric group are found in 18 States. These 18 States have 2,325,757 commercial horsepower developed or under construction, and of this total the General Electric group includes 939,115 h. p. or 40.4 per cent. The greatest amount of power controlled by the companies in the General Electric group in any State is found in Washington. This is followed by New York, Pennsylvania, California, Montana, Iowa, Oregon, and Colorado. In five of the States shown in the table the water-power companies included in the General Electric group control more than 50 per cent. of the commercial power, developed and under construction. The percentage of power in the States included in the General Electric group ranges from a little less than 2 per cent. in Michigan to nearly 80 per cent. in Pennsylvania. In Colorado they control 72 per cent.; in New Hampshire 61 per cent.; in Oregon 58 per cent.; and in Washington 55 per cent.
“Besides the power developed and under construction water-power concerns included in the General Electric group own in the States shown in the table 641,600 h. p. undeveloped.”