costs" approximated at $1.30.) The difference here, $4.86, is about equally divided between transportation profit and transfer profit. This division for rails gives a general idea of the importance of transportation profits.

These integration costs are the lowest in the domestic industry. They can not, however, be compared with the combined figures previously given for 1902 to 1906, because of the difference in the kinds of profit eliminated, the difference in dates, and the difference in companies.

The intermediate profits which were eliminated to reach these low costs are the largest per ton in the industry. But they must be set against the most extensive investment per ton of product. The margin between these costs and selling prices must cover a return on all the agencies of mining, transportation, and manufacture, from the ore and coal to the finished product.

Profits on railroads and ore reserves. The most significant profits were those on ore and on railroad transportation. In so far as the Steel Corporation enjoys monopolistic power, it lies chiefly in these two factors.

The Bureau's revisions indicate a rate of profit of about 10 per cent. (for the period 1902 to 1906) on the average total investment of the Steel Corporation in ore (as estimated by the Bureau in Part I of this report, already issued). Whether such a rate of return is reasonable in itself is not of first importance. The essential fact is that 10 per cent. profit is earned on the whole ore holding. Thus, while earning 10 per cent., the Steel Corporation can also carry a vast ore reserve far in excess of its present requirements and so large as to have distinctly monopolistic features, can exercise on the entire industry the undefined but real power that such concentration of the ultimate resource must give, and can assure itself of the certain increment of value that will inevitably occur with the diminishing of our available ore supply so long as the existing conditions of concentration are allowed to continue.

The ore rates on its two ore railroads have been excessive. In so far as they exceed a reasonable return, they not only benefit the Corporation by a high profit on the ore of other shippers, but correspondingly handicap the business of such competitors, who must ship over these roads. These rates were reduced in November, 1911.

Such control of public agencies of transportation by an industrial corporation carries with it just such possibilities of abuse, and raises the question whether the public interest in this industry does not require a segregation of the ore railroads of the Steel Corporation.

Very respectfully,

HERBERT KNOX SMITH,

Commissioner of Corporations.

The PRESIDENT.

THE STANDARD OIL TRUST

[THE Standard Oil Company was one of the first corporations to organize in the form of a "trust" in the legal sense. The great wealth of its chief stockholders and its large measure of monopolistic control have made it, in the popular mind, the typical "trust." May 2, 1906, the Commissioner of Corporations issued a report on the Transportation of Petroleum, and May 20, 1907, a report of nearly 1400 pages on the Petroleum Industry, most of it relating to the Standard Oil Company. A few comparatively brief extracts from the later report are here given to illustrate the evidence as to the sources of this company's monopoly power. A number of uncomplimentary adjectives have been omitted in order that they may not distract the student's attention from the statements of facts. The first part of the selection is from Part I, pp. xv-xx of the Report.]

Its dominant position. In 1904 the Standard Oil Company and affiliated concerns refined over 84 per cent. of the crude oil run through refineries; produced more than 86 per cent. of the country's total output of illuminating oil; maintained a similar proportion of the export trade in illuminating oil; transported through pipe lines nearly nine-tenths of the crude oil of the older fields and 98 per cent. of the crude of the mid-continent, or Kansas-Territory field; secured over 88 per cent. of the sales of illuminating oil to retail dealers throughout the country, and obtained in certain large sections as high as 99 per cent. of such sales. It also controlled practically similar proportions of the production and marketing of gasoline and lubricating oil. While handling a much smaller proportion of the oil, both crude and refined, in the Gulf and California fields, this fact has little significance as to its control of illuminating oil, gasoline, and lubricating oil, for the reason that the crude of those particular fields produces a

comparatively small per cent. of these products and is used mostly for fuel.

The Standard has as its only competitors in the refining business about seventy-five small refineries, whose total consumption of crude oil is less than that of a single one of the Standard, to wit, the Bayonne refinery, and less than onefifth of the Standard's total consumption. Over fifteen of these competitors are dependent for their supply of crude oil upon the Standard's pipe lines, and are so restricted by this dependence as to be capable of little effective competition or growth. In the pipe-line business of the eastern and midcontinent fields it has up to the present but one competitor of any significance-the Pure Oil Company-and that competitor's pipe-line business is not more than one-twentieth of that of the Standard...

History of form of organization. Starting with the partnership of Rockefeller, Andrews & Flagler, formed in 1867, in 1870 these interests took the corporate form of the Standard Oil Company of Ohio, with a capitalization of $1,000,000. At that time they controlled not over 10 per cent. of the refining business of the country. Within ten years from that date the process of combination under these interests had been so rapid that they admittedly controlled from 90 to 95 per cent. of this branch of the oil industry, and their control of the pipe-line business had increased with equal rapidity. This commanding position having been gained, in 1882 they concentrated their holdings under the Standard Oil Trust, which included the entire stock of fourteen companies and a majority interest in twenty-six additional concerns. The capitalization of the trust was $70,000,000 and the appraised valuation of its property over $55,000,000. Nine individuals, acting as trustees of the trust, owned together on that date more than $46,000,000 out of the $70,000,000 of the trust certificates issued. . . .

In 1892, as a result of a legal attack on this form of organization, the trustees announced that the trust would be

dissolved, and a process of so-called dissolution took place. This in no way, however, affected the original control of the aforesaid individuals over the entire concern, because the stocks of each of the various subsidiary corporations were not returned to their original holders, but were allotted to the holders of trust certificates on a pro rata basis, with the result that the trustees, who had previously held the majority of the trust certificates, now held a majority interest in each one of the constituent companies.

In 1898 contempt proceedings were started against the Standard Oil Company of Ohio on the ground that it had not withdrawn from the trust. Thereupon, pending the decision, these interests selected the Standard Oil Company of New Jersey as a holding corporation for the constituent Standard companies, and increased its common stock to $100,000,000 for that purpose. This company then gave its own stock in exchange for the stocks of such companies. This change, like the previous one of 1892, as was its obvious purpose, left the monopoly power of the Standard capitalists undisturbed. The same group of men who had been holders of a majority of the trust certificates, then of a majority of the stocks in the subsidiary companies, now became holders of a majority of the stock of the controlling New Jersey company.

The outstanding stock of this company is about $98,000,000. It controls at least 10 refining companies, 4 lubricatingoil companies, 3 crude-oil producing companies, 13 pipe-line and other transportation companies, 6 marketing companies, 16 natural-gas companies, and 15 foreign concerns, besides having close affiliations with a considerable number of other

concerns.

Relations to railways. It is of the utmost importance to indicate clearly those fundamental facts that form the basis of the Standard's power. The monopoly of this concern has never rested on ownership of the source of supply of crude oil. Not over one-sixth of the total production of crude in the country in 1905 came from wells owned by the Standard