TRUSTS. 503 TRUSTS. readily crush their rivals in those localities, as, for e.aniplc, the Standard Oil Company in its local control of oil wells, the salt combination in its control of salt wells and mines, etc. The extent to which a Ti'ust. therefore, may in itself he a monopoly ilepends often to a great degree upon the extent to which it has a monopoly of the raw material of the industry which it seeks to control. The effects of the Trusts upon prices and their legal and social status in the cora- nuinity may in many cases depend upon this one factor. Promoting and Fin. cing. If, as is often the case, the promoter organizes a new com- pany to take over the various plants which he is intending to comliine under one management, or to develop some new patent, it has been the common practice for him to issue stock far l)e- yond the actual cash value of the plants under consideration ; then to pay for these plants with as much of the stock of the new company as was necessary to secure them, retaining the bal- ance for his own services. In other cases, when the company is organized, the distribvition of the stock among the different parties in interest is agreed upon jointly, and the promoter receives a certain percentage of the entire amount as his reward. Inasnuich as he in many cases takes considerable risk, and as the success of the enter- prise is practically due largely, if not entirely, to his initiative, it has at times been possible for him to secure for his reward as high as 20 per cent, of the capital of the organization, paid to him in common stock. With such large rewards as are often hoped for and sometimes obtained, it is evident that the interest of the promoter may become a very direct cause for the forma- tion of the Trusts. Scarcely less prominent than the promoter in this regard is the financier. When either a new enterprise is to be started or a combination of existing establishments is to be made, it is usually necessary to raise a consideralile amount in cash, in order that the new institution may start with capital in hand. Frequently also many of the plants purchased need to be paid for in cash. The stock of the new company is ordinarily the source from wdiich it is desired that such cash should come. Inasmuch, how- ever, as the general public is not likely to take the stock immediately and pay for it in cash, it is desirable that some one be found who will underwrite it, that is to say, who will take the stock and agree to furnish in exchange therefor an agreed-upon sum in cash at a certain fixed date in the future. For this service, so specula- tive in its nature, the financier ordinarily de- mands and frequently receives very high com- pensation. In certain instances, which were cited before the United States Industrial Com- mission, for each $100,000 in cash furnished, the promoter received $1.50,000 in common stock, while the imderwriter, the capitalist, received $1.50.000 of common stock, and in addition thereto $100,000 in preferred. Capitalization and Overcapitalization. Of late years there has been a strong tendency toward overcapitalization. The promoters have ordinarily adopted secret methods in the or- ganization of their companies, and many of the larger Trusts have not been readv to give much information, even to the stockholders them- selves. In consequence, large blocks of stock have at times been unloaded upon the public in prosperous times which have proved to have comparatively little value. It is usually stated by business men that overcapitalization has practically no influence upon wages or upon prices of products — that in a comparatively short time the stocks are estimated at sul)stantially their true value, and that in consequence an overissue of stock does little harm. On the other hand, it is asserted by many, and there is certainly reason in their contention, that the overissue of stock by somewhat secret nu^thods gives a decided advantage to those who are man- aging the organization, and that in many cases without laying themselves open to legal attack the promoters may easily secure from the public much more capital than the actual business would justify. Moreover, even when the organi- zation is running, if secret methods are adopted, the directors who know the exact conditions of the business are often tempted to manage the business for their own benefit as dealers in stocks, rather than for the legitimate profit that would come only from manufacturing. When a company has once been overcapitalized, also, there is naturally and properly a desire on the part of the directors to pay reasouiible divi- dends to the stockholders. This temptation is at times so great or the pressure from the stock- holders themselves is so insistent that often, es- pecially when competition is not severe, prices will be held at rates higher than would be bene- ficial to the business in the long run. So, also, efforts to reduce wages may often be attempted temporarily, in order to secure dividends before the next election of directors. While this policy must in the long run prove unwise, and while in the long run stocks will doubtless exchange for something like their actual value, for consider- able periods of time, if secret methods are prac- ticed, overcapitalization may do liarm not only to investors, but also to laborers and to the gen- eral consumers. Foiars of Organization and JIanagement. While the form of organization of the Trust may often not have any material effect upon its economic influence, it is still very frequently true that the form is determined to a considerable extent by the legal institutions of the country: and sometimes the form of organization is of significance not merely from the legal point of view, but also from the economic. When some years ago the pressure of competition arising from the large amount of capital for investment in this country had tended to lessen the profits of manufactures, the first effort to lessen this competition naturally resulted in agreements upon prices or in agreements among different manufacturers to divide the selling territory among themselves, or in some other similar form of agreement which left to each establishment complete autonomy as regards its own manage- ment, but which brought about some form of an alliance to lessen the competition. Such agree- ments were usually and more or less accurately called Pools. (See Pooling.) This form of agreement (Kartell) is still common in Ger- many, and is, in fact, the usual form of agree- ment there where the courts uphold such con-
