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CHAPTER VIII

LIMITED LIABILITY COMPANIES

Multiplication of capitalists-Two advantages-31,799
holders of preference shares in the United States
Steel Corporation-"Shirtsleeves"-Opponents of
Socialism in the United States.

WE have seen that Herr Bernstein, far from looking
upon limited liability companies as instruments of
confiscation, considers them as means for the
distribution of capital. Mr. Flint says that1 the
large industries were formerly in the hands of a
small number of people and were confined to a few
families; nowadays they are greatly divided.
"There are a hundred times as many people

interested in our industries now as there were 25 years ago, and there probably will be at the end of another 10 years a hundred times as many more. So these interests are being more widely distributed." Mr. Schwab, who was a director of the United States Steel Corporation, and began life as a workman, has proved by force of example that capitalism is accessible to all. The securities issued by the trusts associate the multitude of holders with them in their success, and, far from adding to the number of the proletariat, increase the number of capitalists.

There are two great advantages in limited liability companies: they enable individuals to embark upon enterprises which they could not attempt with their own capital, and they limit the possible loss of their subscribers. They stand for industrial democracy.

There are few businesses in which it is possible for an individual to make an advantageous investment with 100 francs. If he buys a share or a bond, he can obtain a good profit from it, with a

1 "United States Industrial Commission," vol. xiii., p. 32. 2 Ibid, vol. xiii., p. 91.

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prospect of a rise in value if he has made a good selection. The big companies do not confirm Marx' law of concentration, for so far from calling members of the proletariat into being, they multiply the number of capitalists. In 1903 there were 31,799 holders of preference shares in the United States Steel Corporation. The Americans, instead of considering that they prevent each individual from attaining to wealth, say that there are only three generations between shirt sleeves and a fortune.1

The "Wall Street Journal," in examining the form taken by Socialism in the United States, after a careful investigation enumerates the following classes of persons as being opposed to it :—2

National Bank stockholders

Stockholders in other banks (estimated)

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Undoubtedly, says the "Wall Street Journal,' the classes in this list overlap to some extent. The farmer may be a shareholder in a bank or a railway. Be it so, but making a deduction of five millions, there remain ten million individuals with large or small interests in these different forms of property. These ten million individuals represent families which may be estimated to average five persons. Thus we have 50 million individuals,

1 "Socialism," being Notes on a Political Tour, by Sir Henry Wrixon, late Attorney-General of Victoria, 1896.

2 Reproduced by the Journal of Commerce of New York, January 30th, 1906.

i.e. 60 per cent. of the population of the United States, who are of necessity opponents of Socialism, and among the most refractory and the least amenable are to be found nearly all the women.

CHAPTER IX

CARTELS AND TRUSTS

i. Cartels only applicable to certain industries.

ii.

American trusts according to M. Paul Lafargue"Abolish competition and substitute a methodical organisation for anarchy"-Definition of a "trust"The anti-trust law-Financial organisation of the trust-Preferred stock and common stock-Overcapitalisation and competition-Real and apparent capitalisation of trusts-Depreciation in 1903 and 1904-Goodwill-"The tariff is the father of the trusts"—The tariff and the profits of the trusts—The trusts have not destroyed competition-Competition within the trusts-Conclusions.

I

THE followers of Marx are full of admiration for cartels and trusts: they assert that they abolish competition and that they are thus instruments of socialistic politics; that, by concentrating industries within a few large organisations, they facilitate the absorption of private capital in collectivism; and that, finally, by their example, they teach the methods which collectivist society will have to follow in order to organise its methods of production.

Neither cartels nor trusts are applicable to every industry.1 On November 27th, 1907, M. Posadowski compiled a list of the industries in which their action was effective, viz., the mining, metallurgical and chemical industries, papermaking, sugar-refining and sale of alcohol, pottery, cement, glass works on the Rhine and in Westphalia and plate-glass manufactories.

Most of these industries only supply raw material or articles for consumption, one seldom finds cartels or trusts which sell finished products direct to the consumer.

II

Socialists have naturally claimed the American trusts as justification of the "Communist Manifesto." M. Paul Lafargue is full of enthusiasm for them, not on this account only, but principally "because they suppress competition and substitute a methodical organisation for the anarchy which prevails in capitalist production." Now the facts shew the exact opposite. The Anti-Trust Law of 1890 defines trusts as follows2:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations.

But the Anti-Trust Law is not easily applicable because the majority of trusts, far from restricting industry or commerce between different States, has developed them. As regards foreign nations, it is not the trusts that restrict commerce with them, but the protective tariff.

Mr. James Lee, President of the Pure Oil Co., defined a trust before the Industrial Commission in the following terms: "A trust is a corporation

1 Arthur Raffalovitch, "Trusts and Cartels." See also La collection du Marché financier.

2 For the law on the subject, see "Trusts, Pools, and Corporations," edited by William Ripley, 1906.

or combination of corporations intended to create and maintain a monopoly in any industry." Mr. Archibald, Vice-President of the Standard Oil Co., replies that "under the definitions there are no trusts."

The establishment of a trust is composed of two groups: (1) a promoting body, more or less nominated by some particular promoter, and (2) a financial body which supplies the purchase price of the properties which are to be included in exchange for preferred shares and common stock. The bonus is at least equal to the preferred shares. The holders of common stock have no privileges and only receive interest with the consent of the holders of preferred shares. The common stock represents the intangible assets, the goodwill, the power of the trust to make profits, and no one conceals the fact that this is watered capital. Although there was for several months a period of unprecedented prosperity in the United States, with prices greatly inflated, common stock has almost invariably produced more disappointments than dividends. Out of seven or eight combinations, only one from time to time makes an allotment to the holders of common stock in order to maintain or to raise its market price. Both the promoters and the administrators of trusts agree that the inflation of capital does not affect the shareholder; all that matters to him is the income. Now, such inflation denotes a decrease in the return upon capital or an increase in the outlet for it. Mr. Flint states that inflations have given experience to the public and have prevented the banks which have abused the practice from continuing their operations. The resultant economic intervention of competition is that the capitalist institutes a comparison between the different instruments which are open to him and decides

1 United States Industrial Commission, vol. xiii., p. 668.

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