Richmond Palladium (Daily), Volume 37, Number 40, 21 December 1911 — Page 9

Part 2 The Richmond Palladium and Sun-Telegram.

The Equal Price Law By Rudolph Gaar Leeds Editor The Richmond Palladium The Indianapolis Sun.

Preface. In laos, Mr. D. H. .Mclxjar, proprietor of a small dry good h utorc at Richmond, asked me, '"Why do I pay eighteen cent an Inch for advertising in the Palladium on a 1,000 Inches advertising contract, and why does Mr. Blank pay fifteen cents an inch on a 5,000 inch contract, when your paper gives my advertising the same cumber of subscribers that it gives to Mr. Blank?" I told Mr. McLear that Mr. Blank's discount was given him because he used as much advertising as five 1,000 inch contract advertisers. I explained further that but one vlBit of the advertising solicitor was required each day to Mr. Wank for copy and five had to be made to the five 1,000 inch contract advertisers whom it took to use the same amount of space as Mr. Blank. Moreover, I showed Mr. Mclxsar that the five smaller advertisers required five times as many entries on the books of the company compared to Mr. Blank, adding disproportionately o the expense of the book-keeping department. In addition to this I also told him that five visits of the bill collector had to be made to the smaller advertisers against only one to Mr. Blank. For Such reasons as these, I declared, was it necessary to have a sliding scale of advertising rates for the Palladium. And with this answer 1 dismissed the question from my (subjective) mind. On Sunday, V)ctober 12. 1011, a message evidently from my sub-conscious mind came to me, the first part of which convinced me, as T hope it will you, that my answer to Mr. McLear was founded on the root of special privilege, and the second part that the means are at hand by which that root can be grubbed out. As you read through this work you will find the complete message In the first paragraphs, respectively, of the chapters, Law of Special Privilege and The Kqual Price Law. I feel sure I am primarily indebted to Mr. McLear for the opportunity now afforded me of writing on this subject. The Kqual Price Law, and I wish here to express my gratitude for his questioning me as he Old three years ago. I also extend to him my sympathy for his recent business troubles and believe he will find In the chapter on The Law of Special Privilege on explanation of their cause. I believe he is another victim of the system that can and does enslave efficient tnen. To Harrington Emerson, who wrote "Efficiency," I am -indebted for the kind permission to use such parts of his writings as were necessary ,and L hope my readers will join with me in appreciating their value. To John Moody and George Klbbe Turner, authors of "Masters of Capital in America," which appeared serially in McClure'B magazine this year, and to he host of GodBent "muck-rakers" who have exposed to the knowledge or men during the last few years so many details of Industrial corruption and injustice, I extend thanks for much food for thought, which has helped me in preparing for this work. I also thank those others who have helped me with suggestions and advice during the writing of The Equal Price Law. Though unnamed, their share in the appi eolation I feel Is by no means the least Rudolph G. Leeds. Richmond, Indiana.

Special Privilege. Both the great political parties of the United States arc split on the rock of special privilege into the -two hostile camps of the progressives and the reactionaries. The slogan of one Is "Down with special privilege! It is wrecking the country by its destruction of the individual's freedom of action," and the motto of the other is Special privilege has put more dollars into the pockets of all the people of the country than any other force and, since money means economic freedom, therefore, the people are better off in that respect than ever before In their history." With this term "special privilege" the most frequent topic of editorial discussion in the pi ess of the nation as well as rolling readily from the 11 pi of practically any person you choose to address. It is not hard to realize the supreme importance of definitely deciding just what is the status of special privilege In the economic life of the Individuals of this Cation. If it is, as Its adherents claim, the most potent force for economic good, that fact should be clearly ascertained and the proof should be so apparent that no majority will question its right to perpetuity under the laws of the country. If It Is, as its opponents claim, the most terrific power for economic evil, that fact should be brought to the light of day and the proof must be so clear and convincing that a strong majority will eliminate it under the laws of the nation, and destroy it root, stock and branch. All the glaring evils, supposedly due to special privilege, have been enumerated by the enemies of the system. By a short study, therefore, of one of the teneficlaries of the system it should be possible to work back through it to a definition of special privilege. It must be known and defined if it is to be understood as a power for good or for evil. The United States Steel corporation is a gigantic example of the success that attends the efficient use of the power or special privilege. It is a holding company that, through ownership of all the more Important units in the iron and steel industry, controls all the necessary steps from ore fields to finished products. In common with the independent steel manufacturers it enjoys the special privilege of tarilf protection from foreign competition. Of the iron and steel productions of the nation it supplies about 51 and the independents about 49. Through its control of about 75 of the known iron ore deposits of this country it has the independents at its mercy so far as to their being able to compete in price making. They must sell at the price maintained by the trust or look elsewhere for their ore. On the distributive side In one Instance, Mr. Morgan, who is the individual in control of the steel trust and as such shares largely in Us profits, through his control also of a very large percentage of the railroads of the country, is credited with arranging things so that there is no objection on the part of the railroads to paying the steel trust the constantly maintained price of $28 per ton for rails. The good that is claimed for this system, as applied to the iron and steel industry, la that through combining so many units of the business under one control and one management the cost of production is materially lowered and, through the power to maintain c given price level, not only is the steel industry made more stable, but also all other Industries dependent upon steel products for an important raw material have practically a fixed basis upon which to build their business. The evils that are charged to this system are - many, in the first place so great is the power of the

steel corporation that it has destroyed all unions in its plants and recognizes no worklngmen's organizations in dealing with its employes. Consequently, it now employs foreign immigrants chiefly and works them twelve hours a day for seven days in the week. So the laborer is suffering under this system. The saving in the cost of production due to combining so many units under one control is shared neither with the men that work for the trust nor with its thousands of customers. It goes chiefly into working out the enormous amount of "water" in the securities of the corporation and in paying dividends on them. As to the proposition of price maintenance making for stability, that is still debatable as a good or as an evil, as it is too new yet to have proved its standing. In the case of the United States Steel corporation, it Is the power which it enjoys exclusively to fix the kind and hours and wages of labor and the price for steel products in the United States that Is its special privilege. Special privilege, therefore, can be defined as being the power obtained by one individual or a set of individuals the corporation either through written or unwritten law, to make opportunity unequal. Special privilege is the power of unequal opportunity.

The Money Power. J. P. Morgan, the Rockefellers, the Harriman estate and a very few others, either by their personal incomes or by the surplus above dividend requirements cf the corporations they control, have the absolute control of an annual net income of over $500,000,000. No one in the wildest flight of imagination could ever conceive of such a gigantic income being spent as fast as it is received. It is not. Even the vast benetactions of John D. Rockefeller do not represent money spent. That portion of his enormous individual income which he gives to institutions of learning and of medical research is given in the form of securities investments. So it is with this vast annual income that is shared among so few; it is invested practically as fast as it is received and so goes on growing bigger and bigger with each added year. Its mere bigness, however, need be no cause for aiarm if it grew at the average investment rate, about 5 per annum. No man or set of men ever became enormously wealthy in the history of this world by investing their savings in 5 investments. This is more than a 5 per annum world, as some one is demonstrating every day. In fact, the greatest example of this is seen in the case of these few men who, in the short space of forty years, have gained control of the gigantic capital on which $500,000,000 is the net annual income. Since they have created the principal of this income at a tremendously faster rate than 5 l.er annum, it is logical to conclude that, having that power, they will invest their huge annual return as prcfitably. The power by which this is being done is special privilege. And special privilege is the power of unequal opportunity. Mr. Morgan was referred to as the individual who controls the United States Steel corporation. That corporation, as was shown, bases the greater part of its success as a money making institution upon its benefits under special privilege. Half the $308,000,000 preferred stock paying 7 dividends per annum, half the $200,000,000 refunding 5 bonds and all the $508,000,000 common stock, now paying 5 each year represented "water" when the company, in 1901, first started. That is, there was not a dollar of real money invested behind half of the preferred stock or refunding bonds or back of any of the common stock. That amount of fictitious capitalization was issued because i was known the tremendous power of the special privilege that the company would enjoy would pay dividends on it. Since 1901 the preferred stock of the steel corporation has sold as high as $130 a share. The refunding bonds have sold at 105 and the common stock has reached $95 a share. This made the total selling value of the fictitious capitalization reach the staggering sum of $722,800,000. On all the watered capitalization the annual net return in dividends and interest is $28,960,000. Furthermore, during the ten years that have elapsed since the organization of the corporation about $400,000,000 have been expended from earnings in betterments and new construction besides providing for a handsome surplus. There is no way at present for ascertaining the profits Mr. Morgan made through the promotion of this trust. It is evident and sufficient, however, that they must have been enormous and far greater than the ordinary investor's 5 per annum. The promotion profits Mr. Morgan made from the United States Steel corporation do not represent all by far that that concern has meant to him from a money-making standpoint. There is yet to be considered the profit from stock market manipulation. Following the flotation of steel securities the common stock, for instance, sold as high as $56 a share. In the slump of 1903 and 1904, however, the common stock, sold as low as $10 a share. Mr. Morgan is credited with having bought a million shares at an average price of $15 a share, or $100,000,000 par value worth of stock, for $15,000,000. In 1909 when, on the New York stock market, steel common sold at $95 a share the paper profit to Mr. Morgan on this transaction amounted to $80,000,000 or more than 500 net gain in five years. From this appreciation in value alone Mr. Morgan netted about 100 net profit a year. During those five years, noreover, he received dividends on this stock first at the rate of 2 per annum, or equivalent to 13 on the money he had invested; then at the rate of 4 or 2G on his investment, and finally at the rate of 5 or 233 on bis $15,000,000 of original capital. These profits, mind you, were additional to the 100 net per year from the selling price appreciation of the stock. This illustration is sufficient to give a comprehensive idea of the enormous profits procured from industries founded on the rock of special privilege. It is also enough to show that men accustomed to make such profits will not be content to invest their surplus-income-above-living-expenses in 5 securities, especially, when by reaching out and securing control of industries in lines other than those they now control, the same system of profitable operations is possible to such past masters in the art of capitalizing special privilege. That is precisely what is happening. These few men, through their power to maintain profitably an organization of the first magnitude for the investigation of money-making businesses in any line, located not only in any part of this country but also in any part of the world, are investing this enormous income of $500,000,000 in enterprises which in time probably net them far more than 100 on the investment per annum. It is figured they keep their money turning in this manner: a concern manufacturing some kind of a finished steel product, foreign to the control of the United States Steel corporation, earning 12 net per year on $5,000,000. is purchased by these few gentlemen at that figure. They form a new corporation to take over this business and capitalize it at $10,000,000, one half of which is preferred stock paying 1 dividends and the other half is common stock. They issue to themselves the entire 110,000,000 worth of common and preferred

stock In consideration of the $5,000,000 they paid for the business. The $5,000,000 of preferred stock is disposed of readily to the investing public and these men receive back the sum they originally invested in buying the business, besides having as their profit all the $5,000,000 of common stock. The business earned 12 on its original valuation of $5,000,000. Therefore, after the 7 dividend on the $5,000,000 of preferred stock in the new corporation is paid there remains 5 that can be applied to dividends on the common stock. Even these men, however, would not consider it conservative business to use all the net earnings of a plant to pay dividends. Yet they must pay dividends on the common stock in order to "make" a selling price for it. Bear in mind the hypothetical concern under discussion is manufacturing a finished steel product. It buys its raw material from the United States Steel corporation, controlled by Mr. Morgan, one of the few gentlemen purchasing the plant referred to. A hint from the mighty would be sufficient to obtain for the new corporation better prices in the purchase of rawmaterial than could be obtained by any competing business not controlled by these few men. That lower price would enable the new corporation to undersell its competitors, enlarge its volume of business at their expense, and operate at full capacity the point of largest profit. Say this fact enables the new corporation to earn 18 on its actual value, $5,000,000, instead of 12. After paying the preferred dividend of 7, the surplus out of which dividends safely could be paid on the common stok would amount to 11. Suppose 6 dividends are declared on the common stock. If investors are reasonably persuaded that that amount can be paid for a number of years these gentlemen will have no difficulty in unloading their $5,000,000 of common stock on the investing public practically at par. To review and summarize this hypothetical transaction, this group of men buys a manufacturing unit for $5,000,000. This is capitalized for $10,000,000, half being preferred stock and half common stock. They get back their original investment of $5,000,000 through the sale of the preferred stock. They increase the net earnings of the plant enough to create a sufficient surplus from which conservative dividends can be declared on the common stock, "making" it of enough value to the ordinary investors to persuade their purchasing it. Then they have a profit of $5,000,000, or 100, on their original investment. If of the original amount of $5,000,000 they used in the purchase of this business, half was their own money and half money borrowed from the banks they control, then the profit would have to be figured on $2,500,000. In this case they would make a net profit on their own money of 200. The object of this is to prove to a reasonable degree that a way of making enormous profits exists. It does exist and the Money Power through its control of enormous resources of money practically is monopolizing the manner in which these gigantic profits are made. In fact its control of the nation's banking resources and of credit is an equal if not greater menace than its control of the profit machine. If it did not control the vast sums deposited by the people in the national, state and savings banks and in the trust companies of the entire country its hold on the profit machine would be very insecure. The profit machine depends for its lubrication upon money and credit and these things the Money Power controls and supplies it. To eat your cake and still have it that is one of the developments in the control of corporations by the Money Power. Control, to the mind of the mass, probably means ownership of more than 50 of the stock In a corporation. That is not what it means to the Money Power. The Money Power retains from 10 to 25 of the stock it issues on corporate property and with that small minority absolutely sways the destinies of the concern. Furthermore, this 10 or 25 of stock is just as good as cash as. its value as collateral at the banks controlled by the Money Power is excellent. Undeniably, however, it takes more than 50 of the stock of a corporation to elect a board of directors. If the Money Power through direct ownership has 25 ot the stock it obtains the remaining 26 from the "Tom, Dick and Harry" stockholders' proxies. You buy a handsomely decorated stock certificate through the House of Morgan. When the date for the annual stockholders' meeting of the corporation in which your certificate represents part ownership comes near, you receive a letter from the House of Morgan stating if you are not going to attend personally the meeting just sign the enclosed proxy authorizing Mr. Morgan or whomsoever he designates to act in your stead. Now if you own one share or a hundred shar3s and live on the Pacific coast you are not coming across continent to attend that meeting. Mr. Morgan receives your proxy and the proxies of thousands of others in this manner. So do other leaders in the Money Power receive proxies in corporations they represent. Through the proxy system and the voting trust stockholders voluntarily relinquish their voting rights to a board of trustees a favorite device of Mr. Morgan's, originates the manner in which the corporation cake is eaten and yet kept by the Money Power. It is a system founded on conveniences, and if special privilege and its unjust profits can be eliminated, the system of selecting representative men to wield control of industrial units need not be changed. If the ordinary citizen of the United States with a deposit of a hundred or a hundred thousand dollars in his local bank believes it is not controlled by the Money Power, let him examine the ramifications of the centralized banking power of New York City. Previous to the Northern Pacific panic of 1901 there were two well defined groups between whom the Money Power was divided. The first with headquarters at 26 Broadway was the Standard Oil, or Rockefeller group; the second with its seat of power at 100 Wall street was headed by J. P. Morgan. The 1901 flurry was caused principally by E. H. Harriman. the only man with imagination and nerve enough to attempt to divide the control of the Money Power among three groups with himself at the head of the third. Death robbed Mr. Harrioian of the successful accomplishment of his dream but his attempt to do this forced a realization of the inevitable destructiveness of a struggle for supremacy between the two main groups which brought about an alliance of which Mr. Morgan is the commander-in-chief. To this great single power the Standard Oil group brought the $300,000,000 National City Bank, the Hanover and other allied national banks, the two great trust companies, the Farmers' Loan and Trust and the United States Trust Company of New York, besides the cash resources of all the industrial and railroad corporations it controls. Included in this group, moreover, is the great private banking firm of Kuhn, Loeb and Company, second only to Mr. Morgan's private bank. Mr. Morgan's group, besides the great private banking concern that bears his name, included the First, Chase and Liberty national banks, three of the larger in New York, the Bankers' and Central Trust companies, as well as the cash resources of all the great railroad, industrial and insurance companies it controlled. Every reader of newspapers remembers the dramatic visit of Mr. Morgan, the Blucher of finance, to the dying Harriman. the Napoleon of modern great business who was just succumbing to his Waterloo, disease,

Mr. Harriman surrendered to Death, and his vast re sources the Union Pacific railroad system, control of the Equitable and Mutual life insurance institutions, the Guaranty, Equitable and Mercantile Trust companies and the Bank of Commerce have since been administered by Mr. Morgan for the now one and Indivisible Money Power. Associated with Mr. Morgan in the Money Power are the leaders in the banking power in other cities. In Chicago, for instance, the Continental-Commercial National Bank is the dominating institution there of its kind. Its two larger stockholders are Ogden Armour, master of the meat packing monopoly of the country, and James Patten, the wheat speculator. The Standard Oil group also are supposed to be interested heavily in this bank. In fact, the great Money Power of New York has reached out and obtained large holdings of bank stocks in practically all the larger cities of the nation. Nor does the control stop there. Large local owners of bank ttocks in Chicago are financially interested probably in banks in smaller cities in Illinois and Indiana. The large local bank stock owners of these smaller cities are interested in the small banks of the country communities nearby. This situation covers the whole nation and its banks. This represents control by Mr. Morgan and the Money Power of practically all the banking Interests of the nation through what is called the community of interest. In the case just cited this is obtained through intermingling stock ownerships in which control or influence will always lodge with the larger owners from the top down to the bottom. This community of interest is strengthened in various ways. The small banks in the country districts select some bank in the neighboring large city to act as their correspondent and keep with it a portion of their resources as a deposit to facilitate exchange. The banks of one large city will select banks in other large cities as their correspondents for the same reason. Furthermore, because New York is the financial center of the nation, all the banks of the larger cities and a great majority of those in the smaller communities keep deposits there with the gigantic banks of the Money Power to take care of the exchange they must have inevitably with the metropolis. Again, many stockholders of banks over the country are interested financially as investors in the great industrial and railroad corporations that are controlled by Mr. Morgan and the Money Power. The banks of the rest of the nation are coming more under the domination of the Money Power because of another reason. Factories upon factories in the smaller cities are being consolidated by the Money Power, in its resistless 100 profit search, Into large combinations with their headquarters in New York. When these factories were independent units of industry they borrowed most of the money they needed from the banks in their own communities. Today, however, since they are combined units and their combined financial needs are enormous, the only place for them to turn to borrow sums ranging into the millions is New York and the Money Power. Consequently, money that the smaller banks used to loan the individual units at ti and 7 would lie idle were it not for an accommodation the Money Power has provided. New York banks will pay 2 and sometimes 3 interest on daily balances on cash kept with them by the rest of the banks of the country. Therefore the smaller banks with the unloaned surpluses on their hands money that they used to loan for 6 and 7 send these to the Money Power's New York banks and earn from 2 to 3. This is part of the money, how-aver, that the Money Power uses in financing the needs of the large combinations. Inasmuch as these combinations are hut the assembled units of the smaller communities it is easy to Bee that the Money Power has found a way to absorb a profit that once went to the smaller bankers. That profit is the difference between 2 or 3 and 6 or 7. The smaller bankers are useful to the Money Power in still another way. The success of the profit machine depends among other things on the diepatch with which the 4 to 7 interest and dividend paying bonds and stocks are placed in the hands of the investing public in consideration for cash. The smaller bankers often act as the distributors for these securities, receiving a small commission for their work in interesting the investors of their communities. Naturally, in their eagerness to make as much from their commissions as possible, in case investors wish more securities than they are able to pay for in spot cash the bankers do not hesitate to advance them the difference with the securities as collateral. In this way is more of the money of the smaller communities drawn to the command of the Money Power, and the big all-devouring profits kept continuously rolling in.

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To show more plainly how intimate are the relations of various banks under the correspondent system, take the case of Indiana, a typical state of the union