CHAPTER LXXXIX

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THE NATIONAL CORPORATION PROBLEM.[13]

Footnote 13:

An address by Henry Clews, LL.D., delivered at the First Annual Banquet of the Economic Club of Manchester, New Hampshire, May 20, 1908.

_Mr. President and Members of the Economic Club_:

The political and popular clamor against the industrial Trusts, with which we have been long familiar, was due primarily to the anti-monopoly sentiment of the people, but in a far greater degree to the crushing of competitors, through unlawful and unjust methods, by some of the conspicuously large corporations, as Government prosecutions have shown.

Hence public hostility to the Trusts increased, and remedial legislation was called for. The general feeling was that as a Trust had neither a body to be kicked nor a soul to be damned it should be handled by the law without gloves, and with the utmost rigor.

The exposure of the railway rebating evil by which competition had been destroyed, and great monopolies built up resulting in colossal fortunes for their principal owners, added fuel to the fire of this indignation; and similar abuses and unlawful practices by certain Trusts showed how strong combinations of capital had preyed upon, and killed off, weaker ones, and individual traders, to an extent that made the injustice of it a national scandal.

Owing to the inflamed state of the public mind, some of the laws enacted to remedy the evils complained of may have been too drastic for the purpose. But excesses of this kind correct themselves. Such laws are either not enforced, or repealed after being enforced. As General Grant once said to me,-“The surest way to repeal a bad law is to enforce it.” We have fortunately always a safety valve in public opinion, which never errs in the long run, and the public opinion of a nation is reflected in its laws.

The immensity of corporate interests in the United States is suggested by the fact that, including prominent city banks and Trust companies, there are more than 20,000 corporations reported in the manuals devoted to them. Of these 1,512 are active, operating railway companies, 1,129 electric traction companies, 1,158 gas, electric light and electric power companies, 267 water companies, 259 telephone, telegraph and cable companies, 1,510 active, operating and producing industrial and miscellaneous companies, 880 active or operating mining companies, and 13,500 banking, insurance and other financial companies.

The railway companies cover 222,013 miles, and they had a capitalization and bonded debt, on the 1st of January, 1908, of $13,908,456,846, at par.

The industrial and miscellaneous companies had at the same date a capitalization of $9,849,833,000, and the stocks of all the corporations in the United States aggregated more than $33,600,000,000 at par, exclusive of banks, Trust companies and other financial institutions.

In connection with the present enormous railway mileage of the country, it is interesting to note that as recently as 1865 there were only 3,085 miles in operation; and in 1879—the year of specie resumption, after the long civil war suspension from 1861—this total had only increased to 86,556 miles.

These figures remind us of the great rapidity with which new railway corporations were subsequently organized, and laid their tracks, while old ones extended their lines from Maine to California, and the St. Lawrence to the Gulf of Mexico.

We can also remember the nation’s phenomenal progress simultaneously in all other directions, and that, before 1880, Trust companies and industrial corporations were few and far between in comparison with the great multitude of those with which we have now to deal. The modern era of these striking features of our business life, and the development of the industrial Trusts which now cover the country, East, West, North and South, had then hardly commenced.

Yet our great corporations, and our great railway systems are still growing and multiplying, and will continue to grow and multiply to meet the wants of our rapidly increasing population for generations to come, till every part of our vast territory is thickly settled. Railways and manufactories represent our largest corporations, and are next in importance to our unlimited agricultural resources and mining interests.

They remind us too, that while these and all other corporations need regulation by law, this regulation should never hamper, or interfere with, their legitimate activities and expansion, however strict and severe it may be in prohibiting and punishing wilful violations of law and other abuses of power.

It is significant of the power and extent of our railway systems that these—fifty-seven of them in all—operate, or control, six hundred and eighty-eight subsidiaries, or jointly controlled railway companies, embracing 196,425 miles of road, with an aggregate of outstanding stock of $4,750,325,000, and $8,180,780,000 of bonds, a total for both, at par, of $12,931,154,000. These figures are exclusive of stocks and bonds held in the treasuries of the companies.

Thus nearly ninety per cent of the steam railway mileage of the United States is operated, or controlled, by the fifty-seven systems. The remaining ten per cent of the country’s railway mileage is composed mainly of short, independent and disconnected lines, some of which are run at a loss, and many without reporting any considerable profit.

Railway corporations in this country are therefore, except as to this unimportant ten per cent, a great consolidated force, for the fifty-seven systems that control ninety per cent of the mileage, are equivalent to so many Trusts, and these can join hands in a solid phalanx at any time for any lawful purpose, and practically form one great railway Trust spanning the continent, a gigantic power that but for law would be a monopoly.

So the National corporation problem is largely one of the railways, and it involves the best way for the Federal Government to regulate these, and all the corporations, in the interest of trade, commerce and the people, and to do this without imposing unnecessary restrictions upon their legitimate operations and development.

The corporation problem in this country is still new and unsolved, but it has assumed immense national importance through the growth of the large industrial Trusts during the last twenty years. Before that they were unknown, and they have to a large extent revolutionized business and business methods in the United States.

They resulted from the enormous and rapid increase of our population, industrial activity, industrial development and wealth, and the consequent increase of competition in all branches of trade. Corporations, good, bad and indifferent, sprang up like mushrooms, and then combinations of corporations into larger ones took place, and we had Trusts.

These were organized ostensibly to secure economies in management which, in conjunction with their large capital, would enable them to compete advantageously with smaller concerns in the same lines of business, and give them more or less control of their markets.

But in doing this they of course threw many out of employment, and forced many of their smaller competitors out of business. Consequently the popular sentiment against them at first was very strong and the cry of “Monopoly” was often heard.

It was found however that the rise in prices that had been generally apprehended as a result of the formation of Trusts did not occur, at least not to any disturbing extent. So public hostility to them quieted down, although their struggling and ruined competitors still felt sore over their rivals’ success, all the more so when it was discovered that most of them were making far larger profits than had ever before been made in the same industries. If this had always been done honestly there would have been no reason to complain.

The great industries dominated by Trusts included, besides petroleum and sugar refining, iron and steel working, copper and other metal and mineral mining, India rubber and tobacco manufacturing, distilling, and also many miscellaneous manufactures, in addition to those in other lines than manufacturing. The traders who had occupied these fields of industry before them looked small indeed beside these new corporation giants.

Discrimination in favor of one and against another by railway corporations was an iniquity that built up large fortunes for a few and starved and ruined many. But that, let us hope, has been effectually stopped forever by its exposure and denunciation by President Roosevelt and the Federal legislation which it provoked; and any revival of it should be punished with the utmost rigor of the law, not by fines but by imprisonment of both the giver and receiver of rebates.

Fines can be easily paid by large corporations, however much their stockholders may suffer, but being placed behind iron bars is always distasteful, if not terrible, to their officers; and it leaves a stigma that they are anxious to avoid.

Their aversion to being disgraced in the eyes of their families and friends by imprisonment as criminals will always tend to make them extremely cautious not to incur this risk, however willing through lack of moral scruples, some of them might be to violate the anti-rebate laws if they could do so with impunity, and however much they might be aware that lawlessness, apart from the question of dishonesty, is anarchy, and therefore unpatriotic.

Corporation looting in its various forms, and political contributions of corporation money, are, like rebating, equally wrong in principle, and should be punished with equal severity and involve compulsory restitution. That is really the only way to prevent the recurrence of such wrongs by the unprincipled.

Judge Anderson, in charging the jury at the trial of John R. Walsh in Chicago for bank frauds, said: “The law presumes that every man understands and foresees the natural, legitimate and inevitable consequences of his acts. The color of the act determines the complexion of the intent. The intent to injure or defraud may be presumed when the unlawful act which results in loss or injury is proved to have been knowingly committed.”

Many of the irregularities, abuses and questionable methods of large corporations resulted no doubt from the haphazard speculative manner in which they were organized. Their promoters and organizers had always, or nearly always, speculative objects in view in forming the combinations we call Trusts. They looked for their first profit in the stock deals involved in them, and were generally willing to give extravagant prices, payable in stock, for properties that they wished to control and bring into these new Trusts.

This, of course, caused overcapitalization, and in many cases this overcapitalization was equivalent to several times the actual value of the properties embraced in the Trusts created, and in some instances to many times their value. Then too extravagantly high salaries were given to the men in control of such organizations for their services as officers. They were generally “on the make,” working for Number One—that is for themselves—as well as the Trusts.

It often followed that, in their efforts to float their stock and pay dividends, loose and none too scrupulous practices were resorted to, and more or less false and exaggerated representations were made as to actual values and conditions. So greed and graft dominated not a few of them more than the interests of their outside stockholders.

They were in a position where they could help themselves to the cream, and leave the skim milk for the investors, and not many of them neglected their opportunity to skim the cream, and to feather their nests more or less, in the last few years, before stricter laws were passed by Congress and the States for the management of corporations.

The laxity of both the State and Federal laws with regard to corporations, till recently, permitted much to be done in the dark, which is now rendered impossible by the light of publicity that is required by the new enactments, as well as by various prohibitions of dishonest practices, besides that crowning evil, railway rebating, that were before prevalent.

Campaign contributions by corporations were wrong, morally and legally, not because political contributions are wrong, but because they were a wrongful and illegal use of corporate money. But the controlling officers of many large corporations, particularly the New York City Railways and large life insurance companies, were woefully blind to this, so accustomed had they been to handling corporate funds in their charge as if they owned them, and could do as they pleased.

These transactions were almost on a par with some of those connected with the purchase at a fictitious price of a certain Street Railway—a practically non-existent line—in which large capitalists were concerned. Here was a flagrant instance—involving a diversion of half a million dollars—of the doings of men controlling a great street railway system, at the expense of the stockholders whom it was their duty to faithfully serve and protect.

That many dishonest acts by men controlling corporations have gone unpunished is greatly to be regretted, and looks very much like a miscarriage of justice. But let us believe that dishonesty was exceptional and honesty the rule in corporate management.

Where punishment is inflicted for infractions of the law involving larceny, it should be the same as for giving or receiving railway rebates. Fines have no terrors for wealthy evildoers who violate the law for their own sinister ends at the expense of others.

The popular hostility to the Trusts however, was often too indiscriminate. It made little or no distinction between the good and the bad. The Trusts were, as enlarged corporations with large capital, a national trade development of our time.

Aiming at greater production, economy and efficiency, through their large means and modern improvements, than had been possible with small concerns, they marked a forward step in that progressive industrial, commercial and financial march which has created our vast national wealth and made this country the Wonder of the World.

But of course it was inevitable that these Trusts, with their large capital, and new and improved methods and machinery, should supersede to a great extent the old order of things, and take away from them the business of others that they competed with. It is only natural that the stronger competitors should more or less dominate or destroy the weaker, and the success of the Trusts was merely another illustration of the survival of the fittest. This is a law of Nature which it is useless to resist.

It is therefore not against the creation of Trusts, but against injustice, lawlessness, misrepresentation, looting and other evil practices in the management of Trusts that we have a good right to complain, and against which the strong arm of the law should be always raised. A well and honestly managed Trust can do business as legitimately, and with as much or more, advantage to the public, as any individual, any firm, or any small corporation can.

But there is constantly greater temptation to wrongdoing by those in control of large corporations than is the case in small ones. We have seen many instances of the abuse of power in these, not only in forcing the allowance of rebates from the railways, but in other unjustifiable ways calculated to get the upper hand of competitors, or kill them off entirely, as well as in the misuse of corporate funds for speculative purposes, to say nothing of appropriations through that too common form of dishonesty called graft.

Men in high positions in corporations have often done in secret, in the way of chicanery what they would have been both ashamed and afraid to do openly. But now that the old practices have been exposed and the new laws require publicity of accounts, and have closed the door to the many opportunities for fraud and graft that were before open, through severe penalties, we have a purer business atmosphere and a higher moral tone in our business life. So some good has come out of our corporation scandals, and public sentiment has been aroused against corporate corruption and all abuses of power.

Corporations no less than individuals of course have rights which should be scrupulously respected by both our Federal and State legislators. But one defect in corporation legislation by Congress, as well as the States, has often been that it failed to make a sufficient distinction between what may be called private and public corporations. It stands to reason that railway and industrial corporations, and all public utility companies, that have sold their stocks and bonds to the public, and had them admitted to dealings on the stock exchanges should have their condition subjected to stated periodical examinations and publicity which would be uncalled for in the case of smaller corporations that had not marketed any of their securities, and whose earnings and affairs had no interest for the general public.

The railway companies are now required by law to keep their books and accounts in a certain prescribed form under the supervision of the Interstate Commerce Commissioners, and this is the right kind of publicity, for it permits of no cheating, nor of any neglect to comply with the law. The record of each day’s business tells the story and these books and accounts are all the time open to Government inspection. But such regulations would be unreasonable if applied to the small private industrial corporations.

Honestly managed and solvent corporations have nothing to fear from publicity as to their financial condition, although they have a perfect right to guard their trade secrets from publicity, provided they are free from any dishonest or illegal taint. Well and honestly managed public utility corporations are our best protection against municipal ownership, which in this country would be sure to involve political corruption, and probably poor service.

It would be a step towards socialism, and socialism in this country would be antagonistic to our government, our institutions and our national progress, and should be resolutely resisted and frowned upon by all Americans. It is a weed transplanted from the hotbeds of European despotism that can never flourish here, for our soil is entirely unsuited to it.

Publicity at regular intervals of earnings and conditions by railway, industrial and other corporations creates confidence where confidence is merited, while exposing weakness where weakness exists. By eliminating that which is unsound and dangerous, it benefits the sound and the safe, and removes grounds of suspicion injurious to all.

Secrecy is the defense of the weak, and they naturally shirk the light; but the public interests demand that all the large corporations submit to it, and stand or fall according to their merits. This applies to banking and insurance as well as manufacturing, trading and transportation corporations, all, in this respect being in the same class.

To facilitate this publicity and ensure simplicity and accuracy the books and statistics of corporations should be kept in a clear and systematic manner that any examiner could easily understand. I say this because in some large corporation failures that have occurred much irregularity and confusion of accounts was found.

This not only delayed the receivers in ascertaining the amount of the assets and liabilities, but showed that the officers of the failed concerns could not have been very closely conversant with their precise condition when they suspended. Bad, or careless book keeping, accounting and office management has led to many important corporation failures that good work in that department might have averted.

Corporations should therefore, be careful to supervise their clerical forces closely, and also employ accountants to make periodical examinations and audits of their books, for accounting and statistics in these days have been raised to the importance of a science.

Old fogyism, wherever it still exists, should be made to give place to improved and time saving modern methods. These may be small matters to dwell upon, but a close observance of them is necessary to good corporate management in this age of close competition and aggressive enterprise. All that is out of date, or needless, or a drag upon progress, or which handicaps business development should be promptly discarded.

The political influence of large corporations has so far not received as much consideration as it deserves. But it is a factor in our State and national business life that is more and more making itself felt in an unobtrusive but none the less effective way.

We have seen this manifested in the strong and numerous protests, emanating from this source, against the national government and the interstate commerce commission consenting to the general rise of freight rates conditionally agreed upon by the Eastern and other railways. In making these protests to President Roosevelt the corporations are well aware that he can control the action of the interstate commissioners in the matter, and by a word cause them to either give or refuse permission to raise railway rates. They know too that his keen political observation and insight will cause him to weigh and consider with the greatest care the effect of the administration’s course in consenting, or refusing to consent, to this inconsistent proposal to raise railway freight rates in such a period of trade depression as this, when more than 413,000 cars are idle. In view of the Presidential Campaign, and the issue to be decided at the polls next November, not merely by the politicians, but by the people, he will not underrate the importance of the railway corporation question as a political factor.

We saw that the President’s communication to the interstate commissioners a short time ago directing an investigation by them in relation to the need of the proposal of the Southern railways to reduce wages, resulted in an immediate abandonment of their announced plan to reduce them, and in fact all the railways were similarly influenced by that act of his. He knew that the reduction in one section would be the entering wedge for a general reduction, and perhaps a strike.

So the railways switched off the reduced wages line to the increased freight line, thinking that the President, from what he had said, as he surveyed the situation from his political observatory, would prefer the alternative of higher freight rates to lower wages. Here comes the rub. It is a two-edged political sword that President Roosevelt, above all others, will see requires to be very cautiously handled.

Without great care in this difficulty the administration might find itself between the upper and the nether millstone of a very ugly question, and in active antagonism with either the large corporations and the whole mercantile community, on the one hand, or the railways, on the other, with both sides bringing all their political influence and artillery into play.

Here would be an acrimonious contest that could not fail to affect political results in November. The President would very naturally be anxious to avert it, but how to reconcile the two opposite courses of saying yea or nay to the railways, and secure harmony between them and Labor, is a problem hard to solve.

In connection with the proposition agreed to by the officers of the Eastern trunk railways to advance freight rates from ten to fourteen per cent, it is well to consider that the gross earnings of all reporting lines in February showed a decrease of twelve and one half per cent from those of last year, and that in March the decrease was 14⅜ per cent, the result of the prevailing industrial depression, particularly in the iron, steel and coal trade and the New England cotton and woolen milling industry.

The proposed increase would, of course, have to be added to the cost of the commodities carried, and saddled upon the consumers. It was therefore to be expected that a flood of indignant protests would come from these, as well as from large shippers and the rank and file of the mercantile community. They have urged the injustice of such an advance in these hard times, and in the teeth of an average contraction of fully twenty-five per cent in the demand for goods. But the railways in reply point to the refusal of the U. S. Steel Corporation and other large trade combinations to lower their prices for railway materials, as well as to the political and other work of the Labor Unions, at Washington and elsewhere, in support of their determination to keep wages up to the highest figures of prosperous times, refusing meanwhile to listen to any terms of wage readjustment to the situation as it is. These are extenuating circumstances, but two wrongs do not make a right; and the best way of adjusting these differences is a difficult corporation and labor problem of itself.

It may surprise some to learn that the great power concentrated in the President’s hands by Congress has made the great corporations, including the railway companies and banking institutions, ambitious and eager to control the Federal Government itself, and they are resolutely working to control it as far as they can by the force of capital, but as unobtrusively as possible. They know that their designs to make the money power supreme would arouse popular indignation, so they are engaged in a still hunt, and Samuel J. Tilden used to say that this is what wins in politics and a political campaign.

The Government control of the Trusts, the railways and other corporations has become so great that it is hardly to be wondered at that the great object that they have now in view should be to control the government’s policy, and already they are _sub rosa_ powerful political machines. In this connection it is significant that some large railway and banking interests have identified themselves with the Presidential movement. Every fresh extension by Congress of the President’s power over corporate interests has made the large corporations—industrial, railway and financial—with their enormous capital and resources, more and more bold and determined in their efforts to control the Presidency, if indeed that is possible; and this motive underlies a great and growing amount of corruption in our National politics.

We can therefore see in the attitude and views of the great corporations, with their wealth and political influence, a possible menace to our Republic and its free institutions.

This is a matter of vast and vital concern to our citizens, and it is high time that their serious attention should be called to the fact that the powers with which the President is invested over the business of all classes of corporations have become so extended and far reaching that the Trusts and their railway and financial allies, are ready to sacrifice any moral principle, and pay any price within their power, to control the policy of the Federal Government.

So the greatest of all the National corporation problems we have now to deal with is how to curb and regulate, without injustice, the increasing political power and pernicious political activity of these and other corporations, and prevent them from accomplishing their great object, Government control, for this indeed would be a National calamity.

To President Roosevelt we are almost entirely indebted for the development we have witnessed in the National control of corporations under the authority of that provision of the Constitution which invests Congress with the power to regulate commerce between the States. This was a great task well performed, and only second to it in importance has been his activity in promoting Congressional legislation for the investigation, conservation and increase of the country’s National resources, including the irrigation of arid regions, the establishment in the public domain of forest reserves, which had been too long neglected, and the extension and increased efficiency of the geological survey.

Closely allied to those National interests and the Federal management and control of corporations has been the President’s direction of the work of the Department of Commerce and Labor, the act creating which provides that it shall be its duty “to foster, promote and develop the foreign and domestic commerce, the mining, manufacturing and fishing industries, the labor interests and the transportation interests of the United States.”

As all the business of the country outside of banking and finance, is practically covered by this Department, its importance can hardly be overestimated, especially in relation to the great corporations; and it is in co-operation between these and the commercial organizations of the United States, in common with all the other designated business interests of the country, and this branch of the Federal Government, that harmony and good corporate management can be best promoted, and the political power and aspirations of the Trusts, the railways and the other corporations be effectually regulated and permanently curbed. To this result that Department’s energies should steadily tend, for the political domination of this country by Trusts and the money power would be an intolerable evil, however much it might be hidden and disguised. It would be inimical to our form of government, and the spirit of all American institutions, and to ward off this threatened danger, by nipping it in the bud, is a public duty that the government owes to the people.

It is indeed likely to become our great National corporation problem; all the other problems relating to the Trusts, the banks and the railways being subordinate to this in importance, for it aims at political power for Capital, which would undermine the very foundations of our great and glorious republic—the government for which the patriots of the American Revolution fought so bravely at Bunker Hill, and then, crowned with victory, made 1776 glorious with the Declaration of Independence.

But forewarned, forearmed, and public opinion the great court of appeal, will always govern and keep the Trusts as well as all our other great business interests in line for the advancement of our National welfare and the prosperity of the people.

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