in public utility companies of only 37/100 of 1 per cent of the capital invested. The stability of earnings of public utility corporations is shown by the fact that for the five years following 1907, the net earnings of gas and electric companies increased 60 per cent, and of electric railways 20 per cent; while for the same period the net earnings of steam railways increased only 5 per cent. Freedom from competition because of the general recognition of the principle of "regulated monopoly in public utility service" by state commissions is also adduced as a material point in their favor.

3. Profits of Industrial Trusts

"The very thing for which capitalism exists," declares John Graham Brooks, "is profits on sales." Profits depend on the success of selling as well as on the efficiency of manufacturing. They are the margin between selling price and production costs. The trust system of production and marketing is noteworthy for its elimination of intermediate profits. All those tolls of profit which come from buying materials, raw or semi-finished, from other producers, are eliminated in the fully integrated trust organization. Its essential idea is to become self-sufficient in this respect, so as to reap the full benefit in reduced costs, both of manufacturing and of selling as well as in owning sources of necessary materials.

Larger profits were the goal of most of these consolidations through three sources - reduced costs, less competition, and selling economies. "The best thing to do was to get rid of the fierce competition,” testified an official of a constituent member in the International Harvester Company, "to get rid of the waste of money in canvassers. We have not half as many canvassers today as we did have."

The report of the United States Bureau of Corporations shows that the profits of the McCormick Company for the year preceding the merger were 12 per cent of the net book assets, those of the Deering Company were 18 per cent, and those of the Milwaukee Company, 11 per cent.

After the consolidation of the five companies, when competition was materially reduced and prices far more easily maintained, the Harvester Company showed the following yearly results in the eight years ending with 1911:

The average rate of earnings for the latest three years was 12.5 per cent. These rates

are figured on assets with no capital allowance for good will. In none of these years does the rate equal the average of the three companies for the year prior to the merger. "On the

basis of the company's own statements, the rate of return on investment in the monopolistic lines is at least from two to three times as great as on some lines on which it meets active competition."

In the meat packing industries profits have been popularly regarded as of monopoly proportions. But President Swift, in his annual report of 1911, asserted that competition was never keener. With the rising price of live stock and the curtailment of demand, meat production was actually conducted at no net return whatever. The only profits came from byproducts. Disclaiming inordinate net earnings, his report showed 15.2 per cent net in 1908 on $50,000,000 invested, compared with 8.2 per cent on $75,000,000 in 1911. Packing profits, it was claimed, on share capital and surplus assets, uniformly ranged under 10 per cent. Business with an average output of $250,000,000, showed an average profit of 3 per cent on the value of products sold. was equal to $1.40 on each head of cattle slaughtered, 1/4 of a cent a pound on dressed beef sold, and 1/8 of a cent on the live weight of the whole steer. Between the cost of materials

This

* The U. S. Bureau of Corporations' Report, p. 243.

and the wholesale price of the product the packing industry adds only 12 per cent of value.

Large industries have no way of wholly escaping those elements of cost which are subject to the law of diminishing returns, nor the law of a progressive standard of living. Nor are they any less liable to the rising cost for investment capital. Yet all three of these have a direct bearing on the tendency to limit profits. Probably this is best shown by the operations of the United States Steel Corporation. For a period from 1902 to 1913, inclusive, manufacturing costs and volume of output are contrasted with the cause of net manufacturing profits. The diagram on page 138 is from the New York Annalist, February 2, 1914.

4. Industrial Efficiency of Combinations How do the trusts stand on the score of economic efficiency? Certainly that was one of the arguments given for creating them—especially the industrial trusts. But, after all, have they, as a class, proved themselves to be the exponents of progress rather than of reaction? Were not the usual reasons for their coming into being found in two objects, one a negative purpose of finding some way to end bankrupting rivalry, and the other the insider's vision of vast profits arising from the security-distributing capacity of the stock market to the public? In other words, was not much of the trust-building based