undoubtedly below the actual cost of refining. Mr. Doscher testified before the Industrial Commission that refining then cost from .50 to .60 cents per pound, but as a rule about .60 cents. Others placed it at .63 cents, .65 cents, and between .50 cents and .75 cents.2 Obviously such a low margin could not long continue. In the middle of 1900 the National Sugar Refining Company of New Jersey, controlled by the American Sugar Refining Company and its stockholders, acquired three of the independent concerns, including the Doscher, and the margin went up to .754 cents. The full effect of these acquisitions was not felt, however, until the year 1901, when the margin rose to 1.003 cents per pound. This differential made the manufacture of sugar quite profitable, and as a result new refineries were constructed. By 1902 the margin had fallen to .913 cents. After that date and down to 1914 at least, though there were some fluctuations, the margin showed surprisingly few changes of any importance. Mr. Gilmore, of Arbuckle Brothers, said in 1911 that the margin from 1905 on indicated competitive conditions.3 There was no longer a sugar war, he said, but a condition of armed neutrality. Each refiner was trying to do the best he could for himself, and meanwhile watching the other fellow pretty closely. The cost of refining cane sugar then ran from about 60 to 65 cents per pound; the margin averaged about .95 cents per pound; and there was left about one-quarter of a cent per pound for profit. The American Sugar Refining Company, gradually losing control of the industry, was unable, apparently, after 1905 to raise the price much, if any, above a competitive level.

4

The dividends of the American Sugar Refining Company point to monopoly prices during the period when the company was at the height of its power, and to the leveling effect of competition. on prices.

1 Industrial Commission, I, pp. 88, 94.

2 Ibid., pp. 112, 150; Hearings on the American Sugar Refining Company, 1911-1912, p. 1134.

Hearings on the American Sugar Refining Company, 1911-1912, p. 1140. 4 Ibid., pp. 1149, 1986, 2260; and Original Petition, p. 34.

Since its organization in 1891 the American Sugar Refining Company has regularly paid 7 per cent on its preferred stock and the following rates on its common stock:

COMMON STOCK DIVIDENDS OF THE AMERICAN SUGAR REFINING COMPANY,

Just how much water there was in the stock can not be stated with certainty. The capitalization of the companies that went into the trust in 1887 was $6,590,000;1 the amount of trust certificates issued in 1887 and of stock in 1891 was $50,000,000, minus 15 per cent treasury stock. The capitalization of the trust thus exceeded the capitalization of the constituent companies by more than six times. But according to Mr. Havemeyer the constituent companies were undercapitalized; their assets were worth much more than the amount of the capitalization. The Industrial Commission in its review of evidence states that the American Sugar Refining Company, beyond question, was capitalized at a sum at least twice as large as the cost of reconstructing the plants in 1899 to 1900, and the cost of building was then very much higher then than it had been at an earlier date.2 The value of the brands, which was considerable, must not, however, be overlooked. While an accurate estimate of the extent to which the capital stock of the trust represented property, and the extent to which it represented the hope of monopoly

1 Lexow Report (1897), p. 384.

2 Industrial Commission, I, p. 13 (Review of Evidence).

gains, can not be made, there is no doubt that the amount of water was considerable. The Court of Appeals of New York state referred to the stock of the Sugar Refineries Company (the sugar "trust") as being "heavily watered." and "proudly defiant of actual values;"1 and Mr. Oxnard admitted that when his company joined the trust in 1887 it received $750,000 of trust certificates for property worth $200,000, and capitalized at $100,000.2

It is evident that the profits of the American Sugar Refining Company during perhaps the first ten years of its existence were enormous. In 1893, after 98 per cent of the industry had been acquired, the dividends paid on the common stock were 22 per cent a much larger per cent, as a matter of course, on a reasonable capitalization. From 1894 through 1899, 12 per cent dividends were regularly paid. Since 1900 the profits and dividends have been much less. The company has been unable to charge monopoly prices during the greater part of the period since 1900, and from 1901 to 1915 only 7 per cent was paid on the common,—not so meager, after all, the actual investment being taken into consideration.

It might seem as if the difference between monopoly prices and competitive prices is so small that the matter is not of much consequence to the public. The margin at its highest after the organization of a sugar trust was 1.258 cents per pound (1888); and the normal margin under more or less competitive conditions was about nine-tenths of a cent. The difference, therefore, is only about one-third of a cent per pound. But this small sum amounts to a great deal in the aggregate. The total consumption of refined sugar in the United States in 1915 was 3,648,108 long tons, or 8,171,761,920 pounds. Of this amount, 34.06 per cent, or 2,783,302,109 pounds, was refined by the American Sugar

1121 New York Reports 614, 625.

"Hearings on the American Sugar Refining Company, 1911-1912, pp. 371373. A committee of the House investigating the American Sugar Refining Company declared that the real value of the properties acquired by the trust in 1887 was not over twenty to twenty-five millions. House Report no. 331, 62nd Cong., 2nd Sess., p. 25.

Refining Company. Had the company been able to get onethird of a cent more for its output (as in the halcyon days after the formation of the trust), its profits would have been increased by $9,277,720; and had all this sum been disbursed in dividends, the dividend rate on the (heavily watered) common stock could have been increased from 7 per cent to over 27 per cent.

At this point the presentation of facts respecting this trust may properly close, and the reader may ponder for himself on the problem involved in the collection of a toll (in small amounts from each but enormous in the aggregate) from millions of people by a trust which has been for a generation a noted recipient of tariff favors.

CHAPTER VII

THE AMERICAN TOBACCO COMPANY 1

The history of the tobacco trust begins with the organization of the American Tobacco Company in 1890. After 1887, attempts had been made to consolidate some of the leading manufacturers of cigarettes, but these efforts proved unsuccessful until 1890.2 On January 21 of that year the American Tobacco Company was incorporated in the state of New Jersey, with a capital of $25,000,000,-$15,000,000 common, and $10,000,000 preferred.3 The American Tobacco Company was a consolidation of five of the leading manufacturers of cigarettes, producing

1 On the tobacco trust see: Report of the Commissioner of Corporations on the Tobacco Industry, part I, Position of the Tobacco Combination in the Industry (February 25, 1909), part II, Capitalization, Investment, and Earnings (September 25, 1911), and part III, Prices, Costs and Profits (March 15, 1915); Original Petition in United States v. American Tobacco Company et al.; Transcript of Record, in five volumes, in United States v. American Tobacco Company et al. (no. 660), and in American Tobacco Company et al. v. United States (no. 661); Brief for the United States in United States v. American Tobacco Company et al. (no. 118), and in American Tobacco Company et al. v. United States (no. 119); 164 Fed. Rep. 700-728; 191 Fed. Rep. 371-431; 221 U. S. 106-193; Industrial Commission, vol. XIII, pp. 305-342; Report of Joint Committee of the Senate and Assembly appointed to investigate trusts, transmitted to the New York State Legislature, March 9, 1897 (Lexow Report), pp. 860-926, 983-998; Jacobstein, The Tobacco Industry in the United States.

2 Report of the Commissioner of Corporations on the Tobacco Industry, part I, pp. 64-65. Referred to hereafter as Report on the Tobacco Industry. The fair value of the tangible assets acquired by the American Tobacco Company was $3,545,108 plus notes of the organizers amounting to $1,825,354, a total of $5,370,462. The balance ($19,629,538) might be regarded as representing good will. The Bureau of Corporations, however, found the good will to be worth only $8,954,892. The overcapitalization, therefore, was very marked. See Report on the Tobacco Industry, part II, p. 8.