Taking the production of steel ingots and castings as a basis it will be seen that the Steel Corporation's percentage of the total fell from 65.7 per cent in 1901 to 54.3 per cent in 1910. This figure, perhaps, is the best single criterion by which to judge the change in the Corporation's position in the steel industry from a producing standpoint. It will be seen that the Corporation's proportions of production of black plate, coated tin-mill products, and black and coated sheets, fell off to a very marked extent, which indicates that competition has been particularly active in these branches. Its share of the production of wrought pipe and tubes and of seamless tubes likewise fell off very heavily. In wire products the Corporation has maintained its relative position rather better, but even in these there has been a marked recession in the percentages of the business done.

It should be noted that the decline in the production shown by this comparison of the 1901 and 1910 percentages was practically continuous for most products throughout the entire period. However, the actual output of the Corporation has shown a very great increase. For example, the Steel Corporation's production of crude steel ingots, which is typical of its total business, increased from 9,743,918 tons in 1902 (the first full year of operations) to 14,179,369 tons in 1910, an increase of 45.5 per cent.

While, however, these statistics clearly show the existence of active competition in production, it should be clearly pointed out that such competition has not been so evident with respect to prices, where it has been materially modified by the existence of a price policy described as "coöperation." This will be discussed in a later part of the report.

While the Corporation's proportion of the production of both raw materials and finished products thus shows a marked decrease, the proportions given do not fairly represent the true position of the Corporation in the industry as a whole. In iron ore, in particular, the Steel Corporation undoubtedly occupies a dominating position. The Corporation's holdings of what are now regarded as commercially available ores exceed those of all other iron and steel interests combined. It should be clearly understood that the ores of the Lake Superior region substan

tially form the basis of the steel production of the country at the present time. While the Steel Corporation has very extensive holdings of ore elsewhere, the great bulk of its ore holdings are in the Lake Superior district. In 1907 the holdings of the Steel Corporation in Minnesota, which state includes the Mesabi and Vermilion ranges, according to a carefully prepared schedule of the Minnesota Tax Commission, amounted to about 913,000,000 tons, or 76 per cent of the total ore deposits for the state.

The Corporation's proportion for the whole Lake Superior region, including the old ranges in Michigan, is apparently about the same. Authoritative data submitted to the Senate Finance Committee in 1909 by a prominent iron manufacturer with the Steel Corporation's consent showed that the Corporation itself then reckoned on about 1,625,000,000 tons of Lake ore, of which 1,258,000,000 tons was of the current commercial standard. An estimate of a prominent mining engineer, submitted to the Finance Committee at the same time, placed the total reserves of Lake ore of the commercial standard at about 1,600,000,000 tons. On this basis, therefore, the Steel Corporation would have had over 75 per cent of the total commercially available ore in the entire Lake Superior region. Of course, the ideas of the consulting engineer and those of the Steel Corporation's experts as to what were commercially available ores may have differed somewhat, but it is not likely that the proportion of ore controlled by the Steel Corporation as shown by these two estimates is too high, because both of these statements were submitted by the manufacturer in question together with extensive data for other ore supplies in the United States for the avowed purpose of proving that the proportion of the ore supply controlled by the Steel Corporation was less than 85 per cent of the total supply. In 1908 the commercially available ore of the Lake Superior region, as computed by the United States Geological Survey, for the Conservation Commission, was 3,500,000,000 tons, but the iron content assumed as a basis for available ore was considerably lower than in the two preceding estimates, thus greatly increasing the total quantity. This and other evidence indicates that the Survey estimate is not fairly comparable with that of the Corporation.

In this connection it may be stated that the chairman of the Steel Corporation, în his testimony before the Ways and Means Committee in 1908, admitted that the Corporation had control of the ultimate ore supply of the whole country. Later, however, in 1911, in testimony before a special committee of the House of Representatives, he materially modified that statement.

In discussing the Corporation's position in the ore industry account must be taken of the fact that new discoveries of ore are constantly being made, and also that when somewhat lower grades of ore become commercially available the total reserve will be greatly increased. The use of ore of much lower grade involves, however, much higher costs of production, so that any concern which has substantial control of the best grades of ore would under such circumstances be in a position to obtain an enormous increase in profits. Taking conditions as they are to-day, there can be no doubt that the Steel Corporation has control of the great bulk of the commercially available ores of the Lake Superior district, its proportion probably being about three fourths of the total. In addition, of course, it has there a large amount of low-grade ore, as well as immense deposits in the South. The Corporation's total ore holdings may be conservatively placed at more than 2,500,000,000 tons.

The system of leasing ore mines, as employed in the Lake region, is important in this connection. A very large part (approximately two thirds in 1910) of the Corporation's total holdings in the Lake region is held by lease. Frequently there is no initial investment in such leaseholds, and even where a bonus is paid it is usually small, while the minimum tonnage on which royalty must be paid, whether mining operations are conducted or not, is generally unimportant. The Hill lease is, of course, as above shown, a very marked exception in the last respect.

It will be seen, therefore, that this ore-leasing system, where there is no limit placed on the number of leases that can be combined under a single interest, greatly facilitates the gathering in by a great concern like the Steel Corporation of a vast amount of ore reserves, far in advance of any commercial need for them. This not only prevents others from getting such property but also secures to such a concern the benefit of any appreciation

Of course

in value which may come about either from natural causes or as a result of this very concentration of ownership. Obviously, a system which thus lends itself to such marked concentration of ore property for many years in advance (a common term of lease being fifty years), at a comparatively small cost, involves questions of the highest public importance. It might be said that the lease system as thus applied in the Lake ore region really affords an opportunity for a wealthy interest to attempt a corner tin ore reserves on what is, in effect, a margin basis. in such extensive acquisitions there is a decided speculative risk, just as in similar efforts to control commodity markets, particularly, the possibility of the discovery of available deposits elsewhere, or new methods of mining which may render what are now nonavailable ores available for present commercial purposes. The dominating position in the ore industry enjoyed by the Steel Corporation through this great ownership of ore reserves is heightened because of its very marked degree of control of the transportation of ore in the Lake Superior district. The Corporation owns two of the most important ore railroads, the Duluth and Iron Range Railroad and the Duluth, Missabe and Northern Railway. The ore rates on these railroads are about I cent per ton mile. Their operating expenses are very low, that of the Duluth, Missabe and Northern in 1910 being below 30 per cent of gross earnings as against an average of 66 per cent for all the railroads of the country. The net earnings of these ore railroads, which are chiefly from the ore traffic, are phenomenal. This has the practical effect of reducing the Steel Corporation's net cost of ore to itself at upper Lake ports and, on the other hand, of increasing that cost to such of its competitors as are dependent upon the Corporation's railroads for transportation.

Hence, not only on account of its great holdings of ore but also on account of these peculiar advantages enjoyed in the transportation of the ore the Steel Corporation occupies an extremely commanding position in the iron and steel industry. Indeed, in so far as the Steel Corporation's position in the entire iron and steel industry is of monopolistic character it is chiefly through its control of ore holdings and the transportation of ore.

VII

THE UNITED STATES STEEL CORPORATION'S BOND CONVERSION1

ΟΝ

N April 17, 1902, the president of the United States Steel Corporation issued a circular to the stockholders, which invited their coöperation in a plan to raise $50,000,000 of new capital. Half of this amount was to repay loans incurred by the constituent companies for construction work which was in part rendered unnecessary by the merger, but which, owing to advance commitments, could not be suspended. In addition, $25,000,000 was required for improvements, which, it was stated, would effect an annual saving of at least $10,000,000. The plan proposed to the stockholders for raising this money was "to rearrange your corporation's capitalization (which, in round numbers, now consists of $300,000,000 of bonds, $500,000,000 of preferred stock, and $500,000,000 of common stock) by substituting for $200,000,000 of the preferred stock, $200,000,000 of sinking fund sixty year 5 per cent mortgage gold bonds, and by selling $50,000,000 of additional bonds of such issue for cash. As the preferred stock carries 7 per cent dividends, while the bonds. would bear but 5 per cent interest, the $50,000,000 desired could, in this way, be added to the corporate resources, and the aggregate of the annual charges for interest and dividends, instead of being increased $3,500,000, would be decreased $1,500,000 as compared with the present sum total of these two requirements."

The plan offered to each preferred stockholder the right to subscribe to the new bonds to the extent of one half his holdings of preferred stock, 40 per cent of each subscription to be

1 From the Quarterly Journal of Economics, Vol. XVIII, 1903, pp. 22-53, with certain minor editorial emendations approved by the author. The genesis of the Steel Corporation is outlined in Chapters V and VI, supra.