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TRUSTS


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TRUSTS

America are cultivated in gardens and greenhouses.

Trusts. In the United States this term has come to mean a form of commercial association between individuals or corporations engaged in producing the same commodity, for the general purposes of regulating the amount of production; of establishing a uniform price; of diminishing the cost of competition; and of controlling the markets, in part at least upon the principle of monopoly. Such an organization is managed by a board of trustees to whom all the corporation stock of the constituent companies is irrevocably assigned.

There are several methods of organizing a trust. Each of the combining parties may lease his concern to one central body; or one central corporation purchases as fast as they are manufactured all products of the various parties, and then a fixed price is placed on the aggregate production of each party, and trustees are elected who control the sale of the whole product and divide the products proportionally among the various companies. The more usual plan of operation is as follows: All parties entering the organization become incorporated; then the stock of all the corporations is handed over to trustees who in exchange for stock thus deposited issue trust-certificates. They also elect directors who have complete control of the affairs of the concerns associated in the trust. Trust-certificates are transferable; dividends are issued according to the proportion of certificates held by each party. Trustees are elected annually by the holders of certificates, and through the directors they possess almost unlimited power over individual concerns. They may cause one concern to stop producing altogether, may limit productions, fix prices and the amount and manner of sales; in short, they control the entire field.

To illustrate: A few years ago 16 of the large sugar-refineries in the United States, furnishing the greater part of the sugar consumed, joined in a trust with a capital of 50 million dollars. As soon as the combination was effected, five of the factories shut down. At once the margin between raw and refined sugar began to widen. To the producer of raw material they dictated the price, for there was but one buyer, and to the consumer they dictated prices, for there was but one seller. Such forms of trusts have been declared illegal in the courts of every state where the matter has been contended.

The first important trade-combination of this sort formed was that of the Standard Oil Trust in 1881. It was quickly followed by the Cottonseed-Oil, Sugar, Tobacco and Lead Trusts etc.; and by the census of 1900 there were 185 such combinations of formerly independent concerns-

Trusts are the outgrowths of the ruinous competitive system, due to ease of intercourse and the difficulty of readily withdrawing capital once invested in fixed plants. They save salesmen's salaries, competitive advertising, cross-freights, running plants part time etc. They permit the standardizing of machinery and the organization of workmen under competent leadership. The large profits made by financiers and promoters, sometimes assisted by governmental favors, have encouraged their rapid multiplication in number and size. The tariff, by lessening foreign competition, has been an indirect cause of the formation of trusts as has the monopoly granted by patents, copyrights and trademarks.

The 185 trusts noted in the census-report of 1900 included 2,040 plants having a capitalization of $1,463,625,900. Many combinations operating with a like purpose were omitted by definition, while many more have been formed since, notably the United States Steel Corporation (q. v.), formed in 1901 with a capital of over one billion dollars. The value of material they annually consumed was $1,089,666,334, the value of products annually turned out was $1,667,^50,949, which was 14.1 % of the total value of all manufactured articles susceptible of management by trusts. It is safe to estimate that more than one third of the present factory output is controlled by trusts.

Many trusts are founded upon a natural monopoly; that is, they control the supply of raw material and by the extension of this control they put competitors at a great disadvantage, especially when, as in the case of oil, coal and iron, these raw materials are found in limited fields and quantities. A. trust may become a monopoly to the degree in which it governs the supply of raw material, for the industry which it seeks to control.

Recent antitrust movements have brought to light a number of evils peculiar to corporate finance; chief among them are wildcat promotions, payment of unearned dividends, speculative management and over-capitalization. By wildcat promotion is meant the action of the promoter who issues stock far beyond the actual cash-value of the plants under consideration, He pays for the plants with whatever stock is necessary, and retains the remainder, often securing for himself 20% of the capital of the organization^ paid to him in common stock. Besides this, the man who finances the company sometimes receives a premium of 50 per cent, for his risk. The capital stock usually is both preferred and common, the preferred represeirtirg the properties, including cash and cash-assets, which receive a fixed dividend of six or seven per cent, but do not participate in