THE GENESIS OF THE UNITED STATES STEEL 



CORPORATION. 



BY EDWARD SHERWOOD MEADE. 



[Edward Shonvood Mcado, economist; born Medina, O., Jan. 25, 1874; educated 

 at Oborlin colloge, DoPauw university and the University of Chicago; fellow in 

 economics, University of Chicago and University of Pennsylvania; instructor in 

 commerce and industry, Wharton School of Finance and Economy since 1900. 

 Author of Trust Finance, and of many monographs and articles in magazines on 

 the economics of modern industry.] 



The consolidations in the steel industry of the middle 

 west, which were organized from 1898 to 1900, were generally 

 regarded as industrial experiments. Their capitalization was 

 based upon the predictions of their promoters that the experi- 

 ments would be successful. Those predictions much time 

 would be necessary to justify. Meanwhile the steel trusts 

 were exposed to great and evident dangers. Competition 

 from new enterprises was everyw^here threatened. The future 

 relations between the enterprises themselves were by no means 

 certain to be harmonious. The profits of the promoters and 

 underwriters w^ere known to be large. In short, the position of 

 the steel trusts was essentially speculative — a fact conclusively 

 proven by the sale of their stocks at low values. If the values 

 of these securities w^ere to be raised to an investment level and 

 kept at that height, these doubts and apprehensions must be 

 removed from the mind of the investor. This could be done 

 in no other way than by the passing of dividends and the build- 

 ing up of a large reser\"e. 



The object of every corporate management should be to 

 make its shares worth at all times their face value. If its 

 position becomes so strong as to raise the value of its shares 

 to a level which returns to the buyer no more than the invest- 

 ment rate of interest ; if, in other words, a stock pajdng 6 per 

 cent dividends commands an average price of 150, — then the 

 acme of prudent management has been reached. In order 

 that this strong position may be attained, it is of first impor- 

 tance that profits should be deferred, and that the corporation 



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