methods, it has conducted a general educational campaign on the use of fertilizer, potash especially. The efforts of the syndi cate to keep up the standard of the products and to insure prompt deliveries are also commendable. The membership of the Prussian government has given the potash syndicate a character distinct from other Kartells. Far from being a passive member, the government has always exerted a large influence upon syndicate policy. More than once it has directed its energy toward keeping the organization intact in the numerous crises through which it has passed. In the negotiations of 1879, 1888, 1898, and 1901, the fisc took an active pro-syndicate part; when renewal came up in 1903, the Prussian fisc took the initiative; in 1908, the government early directed its influence toward renewal. It cannot be seriously doubted that, had not the Prussian government played the part it did, the syndicate would early have gone to pieces. The opinion so often expressed during the progress of syndicate negotiations that in the continuance of the syndicate lay the only means to avoid the ruin of a number of enterprises and losses to thousands of investors, was undoubtedly correct.1 But one may doubt whether or not it was wise to enter into combination to preserve the profitableness of all the undertakings, when the policy of procrastination, as one might term it, caused and will continue to cause much greater losses. Free competition during the eighties would have been attended with losses smaller than in the decade 1900 to 1910, or none at all. The dependence of the value of potash enterprises upon the existence of the syndicate is clearly shown in the course of the market for potash securities during the past decade. It is reasonable to suppose that under the rule of competition the enormous over-investment of capital in potash enterprises would largely have been avoided. When all is said for and against the syndicate, one may doubt whether the potash industry is, as a whole, in 1913, in a more flourishing financial condition as a result of the existence of combination. H. R. TOSDAL MASSACHUSETTS INSTITUTE OF TECHNOLOGY It is said that bankers would extend credit only to those mines whose intention to enter the syndicate was known. K. R., vol. v., p. 307. XXIV THE GERMAN STEEL SYNDICATE1 A more elaborate account of the Stahlwerksverband, brought down to date, moreover, is now in process, under the hands of Professor H. R. Tosdal of the Massachusetts Institute of Technology, author of the preceding chapter on the potash cartell. It will form part of a comprehensive treatise on the German industrial syndicates, to be separately published in due time. To Dr. Tosdal, I am indebted for the following comment on this chapter which serves to bring it up to date. The Stahlwerks verband was renewed in 1907 for a five-year period. The chief difficulties settled temporarily at that time were the change in organization, by eliminating the Beirat, the adjustment of the relations between the individual steel works and affiliated wholesale iron dealers, the rearrangement of freight bases, and the allocation of quotas. The last became increasingly difficult because the first results of a new tendency, that toward overexpansion of productive facilities [illustrated as well in the potash syndicate, just described] began to find expression. The force and effect of this tendency to increase productive capacity beyond demand was such that when renewal in 1912 came up for discussion, it was found impossible to secure the assent of producers to limitation of production in more than one category of products, -the so-called A products. All provisions relative to B products were dropped. The steel syndicate was thereby made less comprehensive and powerful than it was when it commenced operations. Walker, I believe, regards the Stahlwerksverband as a "good" combination. If one is to form an opinion from the character of its price policy, the judgment of the student in 1914 would be the same. But since Walker wrote, there has taken place the new development mentioned above. In so far as the over-rapid expansion of steel enterprises has been due to the steel syndicate, and that syndicate influence has been great is undeniable, the statement that it is a "good" combination must necessarily be modified. The extent to which over-investment and consequent waste has been induced seems to me to have been so great as to neutralize the negative "goodness" of its true policy. Walker seems to expect the further expansion of the syndicate. As events showed, syndicate friends were gratified to be able to secure renewal in its old form against the opposition of 1907. In 1912, they did not succeed in doing this. The underlying cause for this failure was the fundamental opposition of interests of the two 1 From Quarterly Journal of Economics, XX, 1906, pp. 353-398. The copious scholarly footnotes are for the most part omitted. argument. Prices have certainly been steadied. Statistics of prices show no decline in the price of muriate of potash since the formation of the first agreement in 1879, and none on carnallite since 1888, the date of the formation of the first syndicate. The potash syndicate has at all times attempted to secure the maximum gain, but has realized that the demand for agricultural purposes is capable of great expansion, and that the highest prices may not be the most profitable. In general, potash prices, though not to be classed as extortionate, are said to have been higher than the demand for the product, the cost of production, or the interests of the industry itself justify. The fact that mines running at much lower than normal capacity could, in 1906, pay dividends averaging 13.5 per cent; that the cost of production was a considerably smaller part of the selling price than in other mining industries; the fact that Schmidtmann and others could contract to deliver large quantities of potash at 30 per cent below prevailing prices, with the expectation of still securing profit therefrom, — all these indicate a range of prices above the competitive level. The syndicate has had no effect in decreasing the expenses of production; its influence has actually been exerted in the opposite direction. The economies which have been effected by syndicate organization have been in distribution, - elimination of the wastes of competitive selling and increase in the effectiveness of advertising. But, though these savings have been considerable, the syndicate and the legislation enacted in the attempt to check tendencies induced by syndicate policies have contributed to bring into existence such an oversupply of facilities for production that no net gain in efficiency has resulted. Since the demand for potash is only sufficient to give existing establishments employment much below normal capacity, there is good reason to believe that expenses of production are higher than they would be under competitive conditions, and that costs as well as prices would be lower. Domestic consumers, as noted above, have fared somewhat better than the foreign. The influence of the government mines has always been exerted in the direction of lower prices for domestic consumers. Most favored have been the large agricultural next in importance is Upper Silesia, while the Saar is third. The coal deposits of Lorraine, which are nearest to the great ore deposits of the Minette, are not yet developed. The nearest district of fuel supply is the Saar, but the coal of that region is not well adapted to the reduction of ores. The Minette, therefore, must be reduced by the Ruhr coal, and an exchange is made between the two regions, the pig iron industry being about equally divided between them. The Ruhr also uses a good deal of ore from the Sieg, Lahn, and Dill districts, as well as a large amount of foreign ore. In Upper Silesia the iron ore and coal are found in close proximity, but the supplies of the former are too scanty for the industry of that region, and a large proportion has to be imported, especially from Austria and Hungary. The Ruhr coal district is not only first in the magnitude of its coal output, but also in the quality of the coal, which is especially adapted to the production of coke. In this respect neither Silesia nor the Saar can compare with it. Although the enormous iron ore production of the Minette is of a low grade, its cheapness makes up for the deficiency in iron. The Minette ore is a brown hematite with from 35 to 40 per cent of iron and from 0.04 to 1.96 per cent of phosphorus. The ore deposits are of great depth, and sometimes as much as fifty metres thick. On account of its high percentage of phosphorus this ore was not much valued until the discovery of the Thomas process (basic converter). The ore of Siegerland, red hematite, contains considerable manganese, and is of a high quality. Although Germany is a large producer of iron ore, she is also a large importer and exporter. In 1904 Germany imported 6,061,127 tons of iron ore and exported 3,440,846 tons. Large quantities are imported for mixing with domestic ores. In the Rhenish-Westphalian district iron ore is used from over one hundred different places, including almost all known sorts, and coming from almost all parts of the world. The usual mixture in this region is Minette, 35-40 per cent; Swedish, 35-40 per cent; red hematite, 10 per cent; and other, 10 per cent. Silesia a typical mixture is said to be 27 per cent of the local ore with 21 per cent of cinder, 23 per cent of Swedish, and 25 per methods, it has conducted a general educational campaign on the use of fertilizer, potash especially. The efforts of the syndicate to keep up the standard of the products and to insure prompt deliveries are also commendable. The membership of the Prussian government has given the potash syndicate a character distinct from other Kartells. Far from being a passive member, the government has always exerted a large influence upon syndicate policy. More than once it has directed its energy toward keeping the organization intact in the numerous crises through which it has passed. In the negotiations of 1879, 1888, 1898, and 1901, the fisc took an active pro-syndicate part; when renewal came up in 1903, the Prussian fisc took the initiative; in 1908, the government early directed its influence toward renewal. It cannot be seriously doubted that, had not the Prussian government played the part it did, the syndicate would early have gone to pieces. The opinion so often expressed during the progress of syndicate negotiations that in the continuance of the syndicate lay the only means to avoid the ruin of a number of enterprises and losses to thousands of investors, was undoubtedly correct.1 But one may doubt whether or not it was wise to enter into combination to preserve the profitableness of all the undertakings, when the policy of procrastination, as one might term it, caused and will continue to cause much greater losses. Free competition during the eighties would have been attended with losses smaller than in the decade 1900 to 1910, or none at all. The dependence of the value of potash enterprises upon the existence of the syndicate is clearly shown in the course of the market for potash securities during the past decade. It is reasonable to suppose that under the rule of competition the enormous over-investment of capital in potash enterprises would largely have been avoided. When all is said for and against the syndicate, one may doubt whether the potash industry is, as a whole, in 1913, in a more flourishing financial condition as a result of the existence of combination. MASSACHUSETTS INSTITUTE OF TECHNOLOGY H. R. TOSDAL 1 It is said that bankers would extend credit only to those mines whose intention to enter the syndicate was known. K. R., vol. v., p. 307. |