for a substantial majority of the total independent business, indicates that the Harvester Co.'s proportion of the number produced was at least 43 per cent, and its proportion of the number sold at least 37 per cent.

For certain other lines also the International Harvester Co. has acquired a large proportion of the business, but satisfactory data are not available to show its percentage. In the case of wagons, the International Harvester Co. had nothing at the start, but according to the best estimates that can be made by the Bureau, had in 1911 about 15 per cent of the number manufactured in the United States and about 13 per cent of the number sold, although the total production of farm wagons in the United States has decreased in recent years.

It is apparent, therefore, that the International Harvester Co. not only has maintained a high degree of monopoly in the harvesting-machine business proper, but has also become an important factor in several new lines.

The expansion of these various concerns is one of the most significant features of the farm-machinery industry to-day, and one involving possibilities of great importance. It is important to note that these new developments have been made on the principle of carrying a so-called full line of farm machinery, although it should be understood that no company, not even the International Harvester Co., has a really complete line.

PROFITS OF THE INTERNATIONAL HARVESTER CO.

The chief feature of the profits of the International Harvester Co. is the increase from a low rate in the early years of the organization to a rather high rate in recent years, averaging about 12 per cent on the net assets, as computed by the Bureau, for the period 1909-1911; figures for the year 1912 are not available. The net assets and profits of the company and the rate of profit on the net assets for 1903-1911, as thus computed by the Bureau in both cases, are shown in the following table. The rates are computed on the net assets at the beginning of each year; this is the method adopted by the company in computing the rates on capital and surplus.

RATE OF NET EARNINGS OF THE INTERNATIONAL HARVESTER CO. ON NET AsSETS, EXCLUSIVE OF GOOD WILL, AS COMPUTED BY THE BUREAU, BY YEARS,

19021 $109,117,356.08

Per
cent

Per

cent

1908 $122,522,298.85 $10,179,726.02 8.73 1903 106,314,179.00 $796,822.92 20.73 1909 134,781,142,61 16,458,843.76 13.43 1904 107,196,624.97 5,682,445.97 5.34 1910 144,589,739,95 17,208,597-34 12.77 1905 109,907,909.12 7,511,284.15 7.01 1911 16,638,703.28 11.51 1906 112,514,855.99 7,406,946.87 6.74 Total 1,063,486,679.40 90,111,087.15 8.47 1907 116,542,572.83 8,227,716.84 7.31

Hence, while the profits of the International Harvester Co. on the average for the whole period of its operations have not been excessive, the profits for the three-year period, 1909 to 1911, inclusive, have been distinctly high. In judging of the reasonableness of this rate of profit it is proper to consider the fact that the risk of the company's business is comparatively small, owing to its world-wide character, which to a large degree is an insurance against the effects of local disturbances of business prosperity. It is also important to bear in mind the fact that the business rests in part on a monopolistic basis, which not only tends to reduce the element of risk, but also makes it desirable from a public standpoint that the rate of profit should not be higher than a reasonable return to the capital invested.

In the course of operations a large part of the net earnings of the company were left in the business and not distributed in dividends, so that by the end of 1908 all original deficiency in physical assets, compared with capital stock, according to the

1 Oct. I.

2 This covers 15 months, but no change has been made for this period nor for the average of all the years on that account. This is in harmony with the company's method of treatment. For an explanation of the exceptionally low earnings of 1903,

see text.

Bureau's computations, had been wiped out and a surplus balance established of $2,522,298.85. In 1910 the capital stock was increased, as already stated, to $140,000,000, and at the end of 1911 a surplus existed, according to the Bureau's computations, of $13,028,443.23, exclusive of good will. This surplus may be compared with the surplus shown by the balance sheet of the company for December 31, 1911, of $23,390,946.90, which is also exclusive of good will.

The difference is the net result of the Bureau's reduction of the assets on the one hand and its reduction of the reserves on the other. The Bureau has added nothing for subsequent appreciation which doubtless would be necessary if a fair appraisal were made at the present time. .

Profits in Particular Lines and in Export Trade

A noteworthy feature of the business of the company is that the rate of profit, whether on sales or on investment, for the highly monopolistic lines — that is, grain and grass harvesting machines — is very much higher than the corresponding rates for several of the important new lines, such as wagons and spreaders, where the company encounters a greater degree of competition, and the same is true of twine. Thus, the rate of return on wagons, in which the company's percentage of the business done is as yet relatively low, is admittedly much less than in the monopolistic lines; and even in manure spreaders, where the company does approximately one half the business in the United States, the profits are comparatively low, probably due to the agressive sales policy adopted by the company.

Comparing the foreign business of the International Harvester Co. with the domestic business, there are comparatively few exceptions, apparently, to the statement that the prices to the retail dealer or to the farmer are higher abroad than in the domestic market. This is due largely to the fact that the business in foreign markets must bear a large expense for freight and generally for duty, while the selling expenses likewise are often high. The only proper basis of comparison for the returns to the company is found in the net price received at the factory

in the United States, due account also being taken of the extra cost of packing or other extra costs of machines made for export. The company maintains that its net returns on this basis are higher for the export than for the domestic trade, but its own accounts show that this is by no means universally the case.

PRODUCTIVE EFFICIENCY AND FINANCIAL RESOURCES

Cost of Production. The International Harvester Co., generally speaking, has an advantage over independent manufacturers with respect to the cost of production of its machines. This is especially marked in the case of grain binders, the most important of the harvesting machines. Thus the average factory cost of binders for the International Harvester Co. at its domestic plants for the two years, 1910 and 1911 combined, was $56.32, and ranged from $54.11 to $73.78 at the different plants. While the company produces most of the iron and steel required-on which its subsidiary steel company makes a very large profit the cost of these materials to its implement plants is based on prevailing market prices, so that its costs in this respect are comparable with those of the independent producers. For the four independent companies that reported to the Bureau the cost of their binders, the average factory cost for the same period as computed from the data reported by them was $70.83.

These figures of factory costs do not take account of general and miscellaneous expenses, which are not ordinarily reckoned in the costs of machines at the factories, nor for a much heavier selling expense which for binders sometimes amounts to $20 or even $25 per machine. If these expenditures are prorated over the cost of production, both for the International Harvester Co. and the independents, the average cost of binders for the International Harvester Co. becomes $58.57, and for the four independents $76.18.

A proper understanding of these relations of cost of production to the competitive position of the independent binder manufacturers requires consideration also of the question of selling expense. The selling expense per binder for the International Harvester Co. is considerably higher than the average selling

expense of the independents, and this fact partly compensates the latter for their higher average costs of production. Nevertheless the margin of profit between prices and cost of production and selling expense combined is markedly lower for the independents than for the International Harvester Co. Apparently the high selling expense of the International Harvest Co. is due to the policy of maintaining a very elaborate selling organization, which gives it a strong hold on the trade and helps to secure to it a large volume of business. Apparently it is the company's policy thus to maintain an expensive selling organization to push the sale of its goods rather than reduce prices on some of its most important lines, particularly harvesting machines.

Similarly in the case of mowers and rakes, for which the Bureau had sufficient data for comparing the costs of the International Harvester Co. with those of independents, it was found that the average cost of manufacture at the plant of the International Harvester Co. for the years 1910 and 1911 combined was lower than the average cost of the independents reporting. The foregoing comparisons of production costs indicate one of the most important advantages enjoyed by the International Harvester Co. The striking advantage it has with respect to cost of production of binders, taken in connection with the great importance of this machine in the farm-implement trade, is one of its chief elements of power.

Financial Resources. - Another chief element of strength of the International Harvester Co. is the possession through combination of large financial resources. This is reflected principally in three ways: First, the ability to reap the advantages of large-scale production already described; second, the ability to carry a full line and maintain an elaborate selling organization; third, the ability to grant long terms of credit.

Most of the concerns which compete with the International Harvester Co. are not full-line concerns. Those which make harvesting machines in most cases do not produce other lines to an important extent. Again, most of those which make other kinds of farm machines have only a few lines, and sometimes only one. On the other hand, there are three large full-line companies, the operations of which, in this connection, are compared with the International Harvester Co.