company in its employment after 1913, since in that year the industrial railways were transferred to a separate corporation,the International Harvester Corporation.

The International Company also made use of price lists, and its salesmen were guilty of misrepresenting the machines of competitors. Yet on the whole the conduct of the company was remarkably free from unfairness in its relations with competitors.2 Even its competitors testified to this effect. Most, if not all, of its objectionable practices were abandoned some time before the government instituted its dissolution suit; or were the result of competition between agents, and were not countenanced by the higher officials of the company.

The company, furthermore, was not bolstered up by the control of the limited supply of a natural resource (its control over the raw material used to make binder twine,-manilla and sisal fiber, may possibly be an exception to this general statement); its monopoly position was not due to patent rights (the basic patents had expired prior to its organization); and such tariff protection as it has had has been unimportant. If, therefore, there is such a thing as a "good trust" the International Harvester Company can doubtless qualify as well as any other. The suit brought by the government against this company thus squarely presented to the courts the question as to whether a trust is illegal or not, irrespective of the methods employed by it.*

3

The establishment by the International Company of a monopoly position and the substantial maintenance of that position for a number of years have been shown. What has been the policy of the monopoly with respect to prices?

and it stood ready in 1907 to prove that it had abided by its promise. Cong. Record, April 25, 1912, p. 5318.

1 Report on the International Harvester Company, pp. 310, 324.

2 There can be no doubt, said Judge Sanborn of the Circuit Court, "that the consistent and persistent purpose, policy, rule of action, and practice of the defendants has been and is to avoid and prevent all acts and methods unfair, unjust, or oppressive toward their competitors." 214 Fed. Rep. 1008.

3 Since the passage of the tariff act of 1913 agricultural implements can be imported free of duty.

4 Cf. p. 436.

The significant comparison, of course, is between prices prior to 1902 and prices after 1902. The only evidence on this point that has come to our attention is a table prepared by the International Harvester Company, showing the price of six foot binders and five foot mowers from 1892 to 1912.1 From this table it appears that the price of binders advanced in 1900 and 1901 (the two years prior to the organization of the trust), but fell in 1902 (the year the trust was organized) to its former figure, where it remained through 1907. Substantially the same was true of the price of mowers. The government in its Brief conceded that the circular or asking prices of harvesting machines had not materially advanced since 1902, but contended that the prices actually received were not the same. Upon the organization of the trust-so it alleged-the constant shading of prices was stopped, thus leading to an actual increase in the return realized by the International Harvester Company. The defendants counter attacked by pointing out that the government had not called a single witness to testify that prices had been advanced to the injury of the farmer, thus leading to the presumption that no such injury had in fact resulted.3

The course of prices from 1903 to 1911 for certain kinds of farm machinery is shown by the table on page 256.

The table shows the average prices realized by the International Company for its chief classes of machines. Slight changes in prices from year to year 'do not, it should be noted, necessarily indicate any actual change in the prices charged. This is because these prices are generally averages for all types and sizes of a given machine, and a variation in the proportion of machines of the various sizes sold would naturally cause a change in the average price received, even though in the meantime there had been no change in the price of any particular machine. Yet making full allowance for such factors, it is still true that during the period from 1903 to 1911 there was a general advance

1 See Appendix to Brief for the International Harvester Company (no. 624), p. 286.

2 Brief for the United States (no. 56), p. 171.

3 Brief for the International Harvester Company (no. 757), p. 127.

Machines, etc.

1903

1904

1905 1906 1907 1908

1909

1910

1911

Tedders

29.65

29.12 28.67 28.72

28.22

30.95

30.00

29.74

29.77

1 Report on the International Harvester Company, p. 248.

All kinds. Price variations in binder twine were largely due to changes in the price of fiber.

in the price of harvesting machines. For example, in 1908 the price of 5, 6, and 7 foot binders was advanced by $7.50; the price of 8 foot binders by $15.00 (1907 and 1908); and the price of mowers by $2.50. Yet to conclude from this statement that the trust made for higher prices would not be fair. Prices of material and of labor were undoubtedly rising, and an increase in prices might therefore have taken place, trust or no trust. Again, the quality of the machines might have improved in the meantime.1 As bearing on the responsibility of the trust for the advance, we may note that the prices of disk harrows and two-horse wagons, in the manufacture of which competition was quite active, were also advanced in 1908. Again, in 1912 the International Company made a general reduction in the price of its harvesting machines. Grain binders were reduced $5.00, and proportionate reductions were made for other harvesting machines. This reduction was attributed by the company to a decline in the cost of production, yet it is perhaps significant that it was made after the government had begun preparations to file a bill against the company.

Some idea of the reasonableness of the prices charged may be had by an analysis of the profits realized. The profits of the International Company may be determined by two methods: first, by a comparison of its net earnings with its net assets; second, by a comparison of its net earnings with its capital stock and surplus. The table below shows the results by the first method." RATIO OF NET EARNINGS TO NET ASSETS, EXCLUSIVE OF GOOD WILL, AS COMPUTED BY THE BUREAU, 1903-1911

1 The International Company claims that this was the fact. Brief for the International Harvester Company (no. 56), p. 52.

2 Report on the International Harvester Company, p. 238.

This is for a period of fifteen months. For an explanation of the low earnings in 1903, see ibid., pp. 207-210.

The average rate of earnings for the nine years was 8.47 per cent; and if we leave out the exceptional year 1903 the average was over 9.00 per cent. A striking fact is the gradual increase in the prosperity of the company. The rate of profit averaged 4.36 per cent during the first three years; 7.59 per cent during the next three years; and 12.57 per cent during the three years following the price advance of 1908. Hence while the profits of the company were quite reasonable on the average, during the later years they were distinctly higher. It should be remembered, however, that in these figures no allowance is made for good will. The company made no entry for good will on its books, and the Bureau found it difficult to compute its amount. Were good will to be included in the net assets, the rate of profit would be much lower.

The second method is to show the profits on the capital stock and surplus.

RATIO OF NET EARNINGS AS REPORTED BY THE INTERNATIONAL HARVESTER COMPANY TO CAPITAL STOCK AND SURPLUS, 1903-1911 1

The earnings on the capital stock and surplus averaged 7.34 per cent for the nine years and 10.58 per cent for the last three years. These figures are somewhat below the ratio of earnings to net assets, since the Bureau found the company to be slightly overcapitalized at its organization. Yet had the good will been

1 Appendix to Brief for the International Harvester Company (no. 624), pp. 163-164.

2 Computed on the capital stock ($120,000,000).

3 Through the reinvestment of surplus earnings the original deficiency in physical assets had been entirely overcome by the end of 1908, and up to the stock dividend of 1910, at any rate, the company was undercapitalized rather than overcapitalized. Report on the International Harvester Company, p. 25.