the business of the five companies which combined to form the trust reported that each of these companies had for several years enjoyed a "prosperous, profitable and growing business." In addition, the McCormick and Deering companies, especially, had been increasing their business rapidly prior to the merger.2 The Bureau by way of conclusion said: "This large increase in the volume of business taken in connection with the comparatively high rates of profits earned on the capital invested is strong evidence of the fact that the companies which originally formed the International Harvester Co. were generally not suffering from excessive competition. The combination, therefore, can not be justified on the principle of self-preservation."

"3

The argument most frequently advanced in favor of trusts is that they make possible economies not otherwise realizable. But so the Bureau of Corporations claims-the expectation of reducing costs was only a secondary motive in the organization of the harvester trust. This matter will be considered in more detail later on in this chapter, but at this point it may be stated that the International Company did effect a high degree of integration. Through its constituent companies it acquired coal lands, iron ore properties, iron and steel plants, timber lands, and saw mills. By supplying itself with its chief raw materials at cost, the company not only had an assured supply, but kept for itself the profits that otherwise would have gone to other concerns. (This assumes that the company could produce its steel, for example, cheaper than it could buy it from the steel trust, an assumption apparently justified in view of the fact that the company continued to make its own steel.) With the manufacturing properties also went binder twine mills and several industrial railroads. The McCormick concern owned the

1 Brief for the United States (no. 56), pp. 18-19.

2 Between 1899 and 1902 the assets of the McCormick Company increased from $12 million to $50 million, all from earnings. Its sales of the principal harvesting machines increased from 371,312 in 1900 to 503,517 in 1902; and the Deering Company's sales increased during the same period from 281,574 to 370,107. Brief for the United States (no. 56), p. 8.

$ Report on the International Harvester Company, p. 66.

* Ibid., p. 70.

Illinois Northern Railway, a short line connecting the McCormick plant and other industrial enterprises with several railroads entering Chicago; and the Plano concern owned the Chicago, West Pullman and Southern Railway.

Another motive in the organization of the International Harvester Company was the promotion of the export trade in agricultural implements. It was claimed on behalf of the company that none of the companies then in the business had sufficient capital and credit to develop the foreign trade adequately, or had sufficient trained harvester men to create an organization that would effectively cover the foreign field.

The foreign trade argument, it may be noted, is often cited as a justification for the trust. Just what importance this factor played here is hard to say. The testimony of the president of the International Harvester Company shows that the five companies that entered the trust had already built up a very large export business; and this was true, also, of the four independent harvester companies in New York state.2 As a matter of fact, American harvesting machines were then being marketed all over the world. After the International Harvester Company was organized, the foreign trade, it is true, was much extended, yet whether this resulted from the organization of the trust or whether it would have come about anyhow is something on which it is difficult to pass judgment-is, in the words of Judge Smith, "a mere matter of speculation."3

4

Still another motive for the formation of trusts is the profit obtained by the promoters. The bankers who promoted the harvester trust received $3,148,197 in stock for the Milwaukee Harvester Company, one of the five original companies. This sum seems to have represented the value of the property conveyed. In addition they received $2,957,143 in stock for their services as promoters, this sum being over and above all expenses

1 Brief for the International Harvester Company (no. 56), pp. 55-56. See also p. 525.

2 Report on the International Harvester Company, pp. 71–72.

3 214 Fed. Rep. 993.

4 Cf. pp. 293 seq.

incurred in the formation of the Harvester Company. This payment of almost $3,000,000, in the opinion of the Bureau of Corporations, was excessive. To the extent that it was excessive it served as an inducement for the promoters to form the trust. But undoubtedly it would be a mistake to attach much importance to this factor in endeavoring to explain the organization of the International Harvester Company.

The formation of the International Harvester Company was noteworthy for the absence of any important overcapitalization. At its organization the company had a capital of $120,000,000, all common stock (no bonds). Without going into the financial details of the promotion, half of the stock ($60,000,000) was issued for cash, which was to constitute working capital; and the other half was issued for the properties acquired and for bankers' commissions.1 Whether there was any overcapitalization depended therefore on whether the properties acquired were worth $60,000,000. The organizers appraised the value of the property at approximately $67,000,000, not counting good will, and the company claimed, therefore, that it commenced operations with a surplus of $7,000,000.2 The Bureau, however, regarded the appraisal value as excessive. Though it found it difficult to arrive at an accurate valuation because of the fact that the records of the company were not well kept,and because in some instances the company denied access to the records, nevertheless the Bureau felt that a fair valuation would be about $49,000,000, not including the good will. In the opinion of the Bureau, the difference between $60,000,000 and $49,000,000 must be regarded as having been issued for good will and promotion services. But there can be no doubt that a substantial amount of good will was brought into the merger, quite apart from any so-called merger value. It follows, therefore, that if the International Harvester Company was overcapitalized, it

1 Report on the International Harvester Company, p. 86.

2 Ibid., p. 95. See also Report of the International Harvester Company for 1907, in Chron., 86, pp. 1471-1474.

3 Report on

the International Harvester Company, pp. 94, 96,

was only to a slight degree. This variation from the customary practice is perhaps to be explained partly by the stock market conditions in 1902, and partly by the fact that the constituent companies were for the most part close corporations. The McCormick family alone received 42.6 per cent of the stock of the International Company, and the Deering family received 34.4 per cent. These two groups between them, therefore, received 77 per cent of the total capitalization, and were thus in full control.

After its organization the International Harvester Company acquired a number of competing enterprises. In 1903 it purchased D. M. Osborne and Company, the leading independent concern.1 This company had its plant at Auburn, New York, and was thus in a favorable position to compete for the export trade. Its chief product was harvesting machines, but it also manufactured tillage implements and binder twine. As part of the terms of the sale the two leading active stockholders of the Osborne concern agreed that for a period of ten years they would not engage in the business in the United States (except in Arizona and New Mexico), Europe (except Belgium and Holland), South America, or Australia, thus evidencing the monopolistic purpose of the International Harvester Company. During 1903 and 1904 the purchase of the Osborne concern was kept secret. This was at the request of the Osborne Company, in order to enable it to collect its bills receivable.2 During this period an official of the Osborne Company made affidavits, as required by the anti-trust laws of the state of Missouri, that the company was not a party to any agreement or combination to fix prices or output, and that it had not entered into any arrangement which in any way tended to interfere with full and free competition in the manufacture and sale of its products.3

During 1903-1904 some of the stockholders of the International Harvester Company acquired the Minnie Harvester Company, the Aultmann-Miller Company, and the Keystone

1 Report on the International Harvester Company, p. 137.

2 Brief for the International Harvester Company (no. 757), p. 38.

* Report on the International Harvester Company, p. 296.

Company. These three companies were competitors of the International Company, and were acquired-the Bureau believed-largely, if not almost wholly, for the purpose of eliminating their competition.1 In each case the control was kept secret, and the companies passed as independents. In 1905 these three companies (and the Osborne Company) were transferred to the International Company, apparently as the result of a change of policy on the part of the management. Thereupon the production of binders at these three plants was discontinued, and the plants were used to manufacture binder twine, auto buggies, trucks, and other lines.

The International Harvester Company also endeavored to extend its control to other lines of farm machinery,-lines not competing with harvesting machines. In 1904 some of the stockholders of the company secured control of the Weber Wagon Company; and in 1905 the property of this company was transferred to the International. The Weber concern occupied a very important position in the farm wagon trade; and through it and the later extension of its business the International Harvester Company became one of the leaders in this line.

In 1906 the International Company acquired a manure spreader plant, and subsequently it attained a commanding position in this branch also. The company, in addition, became the selling agent for a number of concerns making plows, seeding machines, etc., and in this way broadened its interest in the farm machinery trade.

The company also developed the new lines at its old plants. Thus, at the Milwaukee plant the manufacture of gasoline engines, cream separators, and tractors was begun in 1904, 1905, and 1909, respectively. The brands formerly made at the Milwaukee plant were thereafter made at the McCormick works. Likewise the Plano plant ceased manufacturing harvesters-the brands formerly turned out there were thenceforth manufactured at the Deering plant-and in 1905 and 1906 commenced the manufacture of manure spreaders and wagons. The Champion plant continued to make harvesting machines, but it added 1 Report on the International Harvester Company, p. 141.