THE UNITED STATES STEEL CORPORATION 139 



able to beat off so many attacks without rechicing, until re- 

 cently, the rate of cUvidend upon its common stock, primarily 

 because its directors have set aside a reserve of 20 per cent out 

 of the earnings of monopoly with which to make good the losses 

 of competition. 



The accumulation of a large surplus reserv^e by a new 

 form of corporation is peculiarly essential during the first 

 stages of its existence, if its shares are ever to command high 

 prices. The new enterprise has its reputation to make. A 

 certain amount of speculative promotion has usually attended 

 its foundation. Its shares have in the first instance been sold 

 at low prices, mainly to brokers, on speculative orders. Con- 

 ser^-ative buj^ers hold aloof and await the development of its 

 policy, desiring to know if the business is to be managed for 

 the stockholders or for the stock market, and if the controlling 

 interest proposes to stand by the corporation or sell it out to 

 the public at the earliest opportunity. The surest, and indeed 

 the only, way for a new^ corporation to attain an investment 

 position is to resolutely adhere to the policy of reserve accu- 

 mulation, and to refuse to pay dividends until its ability to 

 pay dividends is unquestioned. This method of salvation 

 may be tedious, but it is certain. 



As alread}' remarked, the steel trusts were in a position 

 essentially experimental and speculative. It would seem to 

 have been the plain duty of the management to have passed 

 dividends and squeezed out the water in the capitalization of 

 their companies by the accumulation of large surplus reserves. 

 More especially w^as such a conservative policy required wlien 

 the extraordinary^ profits of the steel trade during 1899-1900 

 are considered. The interests in control of the steel trusts, 

 hovv^ever, rejected a conserx^ative policy; and all the compan- 

 ies paid the regular dividends on then- preferred stocks from 

 the date of their organization. The Federal Steel, American 

 Steel and Wu-e, and National Tube companies, in addition 

 to dividends on their preferred stocks paid a good return on 

 the common. The explanation of these large dividends is to 

 be found in the nature of the securities. The shares of the 

 consolidations were divided into preferred and common stock. 

 All of the preferred stocks included the cmnulative feature. 



