Indiana, the largest steel plant in the world. This plant up to December, 1911, by which date practically all the construction then authorized had been completed, had cost over $62,000,000.1 Another new steel plant was built in Duluth, Minnesota, and a very large cement works was constructed in Buffington (near Chicago) by the Universal Portland Cement Company, a subsidiary of the Steel Corporation. Other important additions also were made by the Steel Corporation (through its subsidiaries). The investment of the Steel Corporation has likewise been increased through the acquisition of competing companies. In 1902 the Steel Corporation purchased the Union Steel Company, which held large deposits of iron ore and coking coal; and in 1904 it acquired all the stock of the Clairton Steel Company, then in receiver's hands, but in the possession of important ore and coking coal lands.

But far more important was the purchase in November, 1907, of the Tennessee Coal, Iron and Railroad Company. This company, with its main plant located at Ensley, Alabama, was the most important iron and steel concern in the south. It produced 3 per cent of the country's output of iron ore, 2.9 per cent of the output of coke, 2.4 per cent of the pig iron, 1.1 per cent of the ingots and castings, and 4.3 per cent of the rails.2 Partly because of the fact that all the essential materials were assembled by nature within a radius of a few miles, the Tennessee Company was able to manufacture pig iron cheaper than it could be made in any other section of the United States. The company was controlled by powerful financial interests; and improvements were then under way to double its steel output and rail capacity. The Tennessee Company made open-hearth steel rails-in 1907 it produced 59.1 per cent of the total output of openhearth rails-and was thus in a position to profit by the increasing demand for that type of rail. But the most important assets of the Tennessee Company were its enormous hold

1 Tenth Annual Report of the Steel Corporation, p. 28.

2 Report of the Commissioner of Corporations, part I, p. 258. Brief for the United States (no. 6214), part I, p. 11.

♦ Ibid., (no. 481), vol. II, p. 731.

ings of ore and coal; it owned more iron ore and coal adapted for making steel than any company in the United States except the Steel Corporation. There can be no doubt that the desire to secure these deposits had much to do with the purchase of the company. Moreover, the acquisition of the Tennessee Company made it impossible for it to effect a combination with the Republic Iron and Steel Company and the Sloss-Sheffield Steel and Iron Company, as had been planned, and thus to become an even more formidable competitor of the United States Steel Corporation.

The construction of new plants and the acquisition of competing plants greatly increased the investment of the Steel Corporation. This investment in 1901, as shown above, was $676,000,ooo. Between 1901 and the close of 1910 the investment increased by $504,928,653, of which amount about $435,000,000 was provided for out of surplus earnings.2 By December 31, 1910, therefore, the total investment of the Steel Corporation amounted to $1,181,000,000. The capitalization of the company on the same date was $1,468,033,260, or about $287,000,000 in excess of the investment. In other words, about $287,000,000 of the Steel Corporation's stock was still "water." It is apparent that after 1901 the Corporation squeezed out a large part of the water in its stock. In 1901 the amount of water had been $726,000,000, using the actual investment as the basis of calculation, and $720,000,000, using the physical valuation as the basis. By 1910 the amount of water had been reduced to $287,000,000 by the first method of calculation, and to $281,000,000 by the second. All of the water had been extracted from the preferred stock, and about half of the water from the common stock.

To have added so greatly to the value of its property, the earnings of the Steel Corporation must have been enormous. That they were so in fact is indicated by the table below, showing for the years 1901 to 1910-the government dissolution suit

1 Brief for the United States (no. 6214), part I, pp. 10-11.

2 Report of the Commissioner of Corporations, part I, p. 49. This increase in the investment was over and above a proper allowance for maintenance, repairs, and depreciation.

was brought in 1911-the total investment of the Steel Corporation in tangible property, the net earnings, and the ratio of the net earnings to the investment.1

The table shows that the net earnings of the Steel Corporation ranged from $62,000,000 in 1904 (its worst year) to $155,000,000 in 1907 (its best year); and averaged $112,000,000 for the ten year period. By the side of such earnings, the profits of the Standard Oil Company, large as they were, seem small indeed.5 The table shows further that the profits of the Steel Corporation from 1901 to 1910 averaged 12 per cent on its investment. The average rate of profit, however, underestimates the prosperity of

1 Report of the Commissioner of Corporations, part I, p. 54.

2 The net earnings are not those given in the annual reports of the Steel Corporation; the Bureau has revised the Corporation's figures somewhat. Thus, the Corporation deducted interest on its bonds in determining its net earnings; the Bureau restored these interest payments to the net earnings, as it was desirous of finding out what the property actually earned rather than the distribution of earnings among the different classes of security holders. Other changes were made by the Bureau in arriving at its figures of net earnings.

Nine months, April to December.

* Indicated rate per annum, based on actual earnings for nine months. 'Cf. p. 88.

the Steel Corporation. In the first place, the investment included a large amount of idle property, particularly undeveloped iron ore lands; and this naturally tended to reduce the rate of profit on the investment. But more important, the profit of 12 per cent covered the entire investment, whether that investment was represented by 5 per cent bonds, 7 per cent preferred stock, or common stock. The rate of profit on the investment represented by common stock was of course much higher than 12 per cent. But just how much higher, it is not possible to say; the Bureau found it impossible to make a satisfactory computation.

The net earnings of the Corporation, the sum available for dividends on its common stock, and the percentage earned and paid on its common stock during the years 1901 to 1911 (the year in which the government suit was brought) are shown in the table below.

EARNINGS AND DIVIDENDS OF THE STEEL CORPORATION, 1901 TO 1911

In view of the fact that all of the common stock was "water," this record must have been quite gratifying to the stockholders of the Corporation. How much more so must this have been

1 After deduction of expenses for ordinary repairs and maintenance, interest on bonds, fixed charges of subsidiary companies, and employees' bonus funds. Cf. p. 211 (note).

2 Nine months only.

true in 1916, when because of the unusual demands for steel arising out of the war there was earned on the common stock $246,000,000, or 48.46 per cent!

Yet in spite of the large sums expended in the construction of new plants, in spite of the acquisition of important competitors, and in spite of its enormous earnings, the Steel Corporation was not able to maintain the prominent position which it held at its organization in 1901. This is indicated by the table on page 214, showing the proportion of the country's business done by the Steel Corporation in the various lines during the years 1901 to 1910 (the last year prior to the dissolution suit).

With respect to iron ore, the Steel Corporation maintained fairly well down to 1910 the position which it attained in 1901. Regularly after its formation it produced about 45 per cent of the total output of iron ore (1904 was an off year). In 1908 and 1909, indeed, it produced even more proportionately than in 1901, yet this was because of the purchase in 1907 of the Tennessee Coal, Iron and Railroad Company, producing about 3 per cent of the total output of iron ore. But since 80 to 90 per cent of the ore used for steel making purposes comes from the Lake Superior region, the Steel Corporation's proportion of the Lake shipments gives a better idea of its importance as an ore producer. And these figures tell a somewhat different story. In 1901 the Steel Corporation controlled over 61 per cent of the ore shipped from the Lake Superior region; in 1910 only 51 per cent. This points to a relative increase in the business done by the independent element.

In the production of coke likewise the Steel Corporation lost ground after its formation. In 1902-the data are not available for 1901-it produced 37.4 per cent of the country's output of coke; in 1910 only 32.7 per cent. These statistics, however, are for the total output of coke, and not simply for the coke used in the production of iron and steel. The Corporation produced a larger percentage of the coke used in the iron and steel industry

1 Report of the Commissioner of Corporations, part I, p. 364. The figures for the actual production of the Steel Corporation and of the independents from 1901-1910 are shown on pp. 360-363.