142 EDWARD SHERWOOD MEADE 



ished from railway financiering, and its recrudescence in the 

 industrial charters is a step backward in financial methods. 



The pursuit of this policy of dividend payment soon 

 found the steel trusts in a position which invited attack. 

 The small amount of their surplus reserve was in striking 

 contrast with their gigantic profits, out of which, if the cor- 

 porations had been properly organized, large reserves could 

 have been accumulated. All the water of combination still 

 remained in their systems. But little of the shadow of antici- 

 pated profits had been replaced by the substance of actual 

 earning power. 



The directors did all in their power to build up the prop- 

 erties placed in their care. With one exception, and that a 

 doubtful exception, there is no evidence to show the business 

 of the steel trusts was not honestly and ably conducted. 

 Whatever could be done to improve the properties was thor- 

 oughly accomplished. Considerable economies were effected; 

 and, in particular, the selling methods were so revised as to 

 greatly increase earning power. The policy of the manage- 

 ment in every direction but one was a distinct advance over 

 the former methods of the trade. But in that one exception 

 lay the root of the whole matter. The policy of dividend pay- 

 ment and small reserves was, in reference to the financial 

 position of the steel trusts, the dead fly in the ointment. The 

 safety and stability of the consolidations were sacrificed to 

 the unreasonable claims of their securities. 



The effect of this policy had been to unfit the consoli- 

 dations to withstand competition. With inadequate surplus 

 reserves and with high speculative values established for 

 their shares, any reduction of the earnings of the steel trusts 

 was to be feared by their stockholders as a calamity from 

 which there could be no recovery. Such a competition, in- 

 vited by the policy of the consolidations, confronted them 

 in 1901. The origin and nature of this threatened competi- 

 tion will now be considered. 



The mamifacturing companies which were originally 

 merged into the United States Steel corporation may be 

 divided, on the basis of their products, into two classes. The 

 Carnegie Steel company, the Federal Steel company, and the 



