The chief disadvantage of a tariff lies in the re peated shocks of readjustment to altered rates. These readjustments are inevitable, and will recur more or less regularly so long as we finance the vary ing requirements of the Federal Treasury by a tax on business operations and, in so doing, set up a strife in which manufacturers agitated by trade reactions, are pitted against consumers aroused by the high cost of living.
8. Restraint of 1890 the Sherman Anti Trust law was passed. Under its operation the Standard Oil Company of New York and the Amer ican Tobacco Company were dissolved, but the con stituent parts were allowed to be held together thru a community of stock ownership. In each of these cases it was apparent that the interests of the inves tors were not being served by the consolidation, for when the constituent properties were liberated from the yoke they promptly showed marked improvement in profits and in the prices of their securities. It has been the recent policy at Washington to insist upon an absolute rather than a nominal dissolution of con solidations by prohibiting identity of stock ownership. This position is illustrated by the case which involves the disposal of the stock of the Southern Pacific Rail way by the Union Pacific Company. The Federal Trade Commission investigates conditions tending toward a restraint of trade, and makes executive reg ulations, much as the Interstate Commerce Commis sion does with reference to railway rates.
The disadvantage of this legislation to the Ameri can investor has not been so much in its actual appli cation as in its threat or indefinite potentiality. There have been some prolonged investigations by the Department of Justice and some suits dragging from one over-crowded court calendar to another which have amounted almost to persecution. This difficulty is one partly inherent in the delicate economic distinc tions involved, and partly a result of our amateurish method of legislating without adequate preliminary counsel, and without associated judicial interpreta tion. These difficulties do not touch the merits of reg ulation in the interest of a fair and open market for American enterprise. Those who condemn all anti monopoly regulations either indorse the unfair poli cies at which public opinion is really aiming, or else they demand greater freedom than is needed by the United States Steel Corporation, which has been con firmed in its right to carry on its huge consolidated enterprise by the decision of a United States District Court.
9. Causes of of the more common causes of failure of prominent industrial corporations may be enumerated as follows: abnormally heavy promotion costs, over-estimation of the profits or econ omies of combination, becoming "land poor" by over purchase of iron ore or phosphate rock properties or timber lands, inadequate provision to scrap old and to buy new equipment out of earnings, dispropor tion between tangible assets and total capitalization, inability to obtain competent management, "banker" management, over-bonding, deflection of working capital to pay dividends so as to make a market for stocks or provide directors an income on their hold ings, and the "milking" of a corporation by burden some contracts or leases with subsidiary companies owned by the management, or the purchase of such companies at extravagant prices.
There are about 300,000 corporations organized for profit in the United States which, under the law, must make returns to the United States Commis sioner of Internal Revenue. These returns com prise a veritable mine of information which as yet has been little worked in regard to corporate activities. On the basis of these returns Mr. Edward N. Hurley, then of the Federal Trade Commission, has made some interesting calculations and has stated his re sults as follows : Leaving out of consideration the banking, railroad and public utility corporations, and referring only to those which have to do with trade and industry, we find that there are about 250,000 business corporations in the country. The astonishing thing is that of these over 100,000 have no net income whatever. In addition, 90,000 make less than $5,000 per year, while of only 60,000 remaining, the more successful ones make $5,000 a year and over.
10. Rules for selection.—Distribution and aver aging.—Inasmuch as industrial securities average a high yield and are not bid up against the private in vestor by trustees and savings banks, the careful in vestor who will invest only after obtaining essential information, may place a portion of his funds in in dustrial securities for the sake of improving his dis tribution and to bring up the average income. Espe cially may this be done to offset the theoretical loss shown by the decline of the price of bonds.