Mr. CARNEGIE. No, sir. Mr. COCKRAN. The effect of it is to reduce consumption? Mr. CARNEGIE. I think employers would pay the price that they could get competent men for, and I think if business was dull they would not need new men, that some would be idle, and the cost of labor would fall. Mr. DALZELL. Why should we go into all this academic discussion Mr. COCKRAN. I think Mr. Carnegie is able to answer these questions. Mr. DALZELL. I think he is abundantly able to answer these academic questions Mr. CARNEGIE. If you will excuse me, you will make much better progress if you will tell me what you want to know. Mr. COCKRAN. What I want to know Mr. CARNEGIE. You put a man here who has not been in business for seven years, and, naturally, his memory is not so good. Do you imagine that his memory can go back and fix dates? Dates are obliterated in my mind Mr. COCKRAN. I was not asking you about dates at all now. After I found your difficulty in remembering dates, I abandoned that. Mr. CARNEGIE. Because you really must remember I have retired for seven years, and to call upon me unexpectedly to go back thirty or forty years, I am unable to do that. Mr. COCKRAN. We have had our excursion into the past, and we have come back, with such information as we got. Mr. CARNEGIE. Tell me what you want. Mr. COCKRAN. I will ask you one more question, notwithstanding the objection to academic discussion. I understand you have given us as your opinion that putting steel on the free list would not in itself bring around much of a reduction in the cost to the consumer? Mr. CARNEGIE. Yes; that is quite true. Mr. COCKRAN. I think you said that of almost all steel products? Mr. CARNEGIE. Yes, sir; yes. Mr. COCKRAN. Your belief that they should be put on the free list is to prevent possibilities of exactions in the future? Mr. CARNEGIE. Yes, sir. Mr. COCKRAN. And also, I suppose, to make sure that if the cost of production be reduced hereby that the consumer will get the benefit? Mr. CARNEGIE. I do not understand that. Mr. COCKRAN. I say, if the product is on the free list, and there should be a reduction in the cost of production both here and abroad, then the native consumer would get the benefit of economies anywhere in the world, would he not? Mr. CARNEGIE. Certainly, as I understand your question. If there is any reduction Mr. COCKRAN. With steel on the free list—— Mr. CARNEGIE. Well Mr. COCKRAN. We would not only be protected against any arbitrary advance in this country, but against any arbitrary exactionMr. CARNEGIE. I am glad you asked that. Mr. COCKRAN. I want that clear. Mr. CARNEGIE. My opinion is, and I have stated it over and over again, that if I did not think this was true I would not be prepared to favor no tariff taking it all off at once. My opinion is that the American steel industry is on such a foundation that even if the tariff were taken off I do not believe that any foreign steel rails or steel of any kind would come in here to any extent, gentlemen, now. Mr. COCKRAN. I understand that. Your idea is that we can defeat competition all over the world upon our own shores. That is your belief? Mr. CARNEGIE. Yes; my belief is that the steel makers of America who are properly equipped and manage their business well need not fear anything that producers abroad can do to affect their home market. Mr. COCKRAN. So, with this product on the free list, the native producer can hold his market if he improves his skill in production as much as his competitors-if he marshals his skill on as high a standard as the foreigner? Mr. CARNEGIE. Yes. Mr. COCKRAN. In other words, you put the American manufacturer to the improvement and development of his skill to maintain his market? Mr. CARNEGIE. Yes; he would be more alert to improve than he would be if he could make a great profit under the tariff. That is human nature. Mr. COCKRAN. That is all. Mr. HILL. Just one subject I would like to clear up in my own mind. So long as you were in business there was always free and open and keen competition, not only in rails, but in all other forms of steel products, was there not? Mr. CARNEGIE. No. Mr. HILL. Open competition in the market? Mr. CARNEGIE. No; I could not say that. Wars would break out, and we would compete with each other, and then sometimes they would meet and agree to be at peace. Then trouble would break out again. Mr. HILL. But there was no financial combination in any way that controlled it. If there was an agreement, it was simply an agreement such as men in the same industry often have now? Mr. CARNEGIE. Yes, sir. Mr. HILL. So far as financial combination, it was always free and open competition? Mr. CARNEGIE. Yes, sir; each manufacturer stood upon his own basis. Mr. HILL. Yes. Do you remember the price of steel rails the year you sold out, the year you sold your company out? Mr. CARNEGIE. I am sorry to say I do not. Mr. HILL. There has been a uniform price of $28 per ton for steel rails ever since, has there not? Mr. CARNEGIE. Oh, you mean steel rails? Mr. HILL. Yes. Do you not remember the price that year, before you sold out; you do not remember the price you were selling steel rails for then? Mr. CARNEGIE. I do not remember whether the uniform price did not prevail then or not. Mr. HILL. No; I think not. Mr. CARNEGIE. I could not answer that. Mr. HILL. The price has been uniform ever since. I wanted to know whether you knew that this agreement between the railroad companies and the combination was a prerequisite to the formation of the combination. Mr. CARNEGIE. I do not think it had the slightest influence. Mr. CARNEGIE. Not the slightest bearing. Mr. HILL. And you sold out and took the bonds of the combination with the expectation that there was to be no uniform fixed price? Mr. CARNEGIE. I knew nothing, as far as my memory serves me; that never entered into my thoughts. The combination on rails. would not be an important factor with any man selling out or not selling out; it is only one form of steel. Mr. HILL. Yes; but you will admit that the fixing of freight rates and the corresponding fixing of the price of rails would be a very important factor with reference to all other steel products, would it not, because the rates would apply just the same? Mr. CARNEGIE. Oh, I see your point. I wish to say that I knew nothing about that arrangement between the railroadsMr. HILL. And the steel companies? Mr. CARNEGIE. Yes, sir. Mr. HILL. And do not know when it was made, of course, if you know nothing about it? Mr. CARNEGIE. I knew nothing about it. Let me show you: We were western people at Pittsburg; and the Pennsylvania Steel Company and the Cambria Company, with offices at Philadelphia, were the people that mostly conferred with the Pennsylvania Railroad Company, and we of the West heard of that agreement-the price fixed. Mr. Hill, I wish to assure you that I never heard it intimated that it was based on rates in any way. Mr. HILL. I think that was stated by a previous witness, but not by you. Mr. CARNEGIE. I was no party to that agreement personally; I did not conduct it, but I did think it was a fair price. It did not strike me as unfair. Mr. DALZELL. I want to ask you a question to see whether or not I understand your testimony. Your opinion that steel can be put on the free list is not based on any figured cost, but on broad, general principles, taking into account that we do not import much steel, and we do export some steel, and taking into account also the great resources of the country and the business energy of our people. As I understand you, that is your position. Do I state it correctly? Mr. CARNEGIE. Yes; that is true. There has been a general consensus of opinion among steel men that the tariff was a back number; I have heard the remark Mr. DALZELL. I thought I understood you, and I am glad to have you confirm my understanding. The CHAIRMAN. I want to correct a false impression that my colleague, Mr. Cockran, got from a cursory examination of this report, the report made by Judge Gary. He spoke of the $160,964,000 of the gross earnings, and then he read provisions for the following purposes: "Sinking funds on bonds of subsidiary companies, $1,977,761.03, and so forth, leaving $133,244,929.28." Now, if he had turned to page 7 of this report, he would have found out what those earnings were [reading from sixth annual report of the United States Steel Corporation for the fiscal year ended December 31, 1907]: Earnings Less appropriations for the following purposes, viz: Extraordinary replacement funds (regular provisions for Special replacement and improvement funds... Total (net earnings in the year the amount deducted). That makes net earnings in the year.. Deduct interest on United States Steel Corporation bonds out- Sinking funds on United States Steel Corporation bonds, viz: Interest on bonds and sinking funds. Leaving a balance of____ Less charged off for various accounts and adjustments__. Leaving a balance of____ $160, 964, 673. 72 1, 977, 761. 03 6,681, 746. 03 15, 560, 237.38 3, 500, 000. 00 27, 719, 744. 44 133, 244, 929. 28 22, S60, 352. 82 4,050, 000. 00 1,087, 497. 18 105, 247, 079. 28 681, 515. 52 104, 565, 563. 76 Which would seem to be the net profits for the year. Now, on page 9 you find this memorandum: "The expenditures made by all companies during the year 1907 for maintenance and renewals, including the relining of blast furnaces and for extraordinary replacements, equaled the total sum of $55,828,253.12, an increase in comparison with the expenditures for the same purposes during the preceding year of $7,495,163.75, or 15.5 per cent. The expenditures in the year 1907 were the largest of any year in the organization's history. The annual expenditures since 1902 have been as follows: I will not stop to read those figures. "The entire amount of the foregoing expenditures was charged to current operating expenses and to replacement funds reserved from earnings. A statement showing the principal items of replacement and betterment comprehended in the total expenditures for extraordinary replacements is included in the statistical tables printed in this report.' So that the total replacement for that year amounted to $55,000,000. Instead of charging all over, they charged over $27,000,000, and the other they carried along to a future replacement account, it would seem, from that. Now, the following table shows the amount of the expenditures made during the year for the above purposes by the respective groups of operating properties: Expenditures for ordinary maintenance and repairs, including blast furnace relining, expended on manufacturing properties, the total, except blast furnace relining. Blast furnace relining $23, 265, 791. 26 1, 481, 975. 08 Coal and coke properties_ Steamships and docks___ Total expended in 1907 $1,527, 545.74 438, 110. 56 7, 863, 446. 76 740, 458. 53 195, 340. 39 35, 503, 668. 32 I want to get that in the record, and I want to show by you, Mr. Carnegie, if you will pay attention, that this was a proper charge against the income for the year and should be deducted before you get the profits per ton of the proceeds of the business. Now, in the next column are shown extraordinary replacements. These expenditures were paid from funds provided from earnings to cover requirements of the character included in this report, and it says-see page 10-this same list of items foots up $20,324,584.80. I want to get that in the record, so it can be seen just what the net profits of this corporation were, which will show that there was a profit of $10 a ton on the 10,000,000 tons of steel output instead of $15, as stated originally. That is all I desire at this time. I want to get at the exact truth in this case. Mr. CARNEGIE. That is right. [NOTE. In revising this proof, Mr. Carnegie has referred again to the report of the United States Steel Corporation for 1907 to verify his statement of profit disputed by the chairman. He finds the following: The total earnings of all properties, after deducting all expenses incident to operations, including those for ordinary repairs and maintenance (approximately $35,000,000), employees' bonus and pension funds, and also interest on bonds and the fixed charges of the subsidiary companies, amounted to $160,964,673.72. This is the true profit. What follows is the distribution of part of these profits among the various accounts, amounting to $27,719,744.44. This sum was not expended; it is in the treasury, and part of the enormous surplus which the steel company already has $122,600,000. Sinking-fund bonds to the extent of $2,000,000 have been paid out of the profits. This lessened their debt that amount. Depreciation and extinguishment funds out of profits, $6,700,000. Extraordinary replacement funds, $15,500,000. Special replacement and improvement funds, $3,500,000. Steel mills and furnaces do not depreciate. They can not be allowed to do so. They must be kept up to the highest standard, and improvements introduced when repairs are needed. The statement above shows that ordinary repairs and maintenance were deducted before profits of $160,000,000 were declared. The mills in the future, properly maintained, as they must be, in order to run safely and well, will be more valuable than they are to-day. The company could have paid every dollar of their profits into their surplus account or various contingent accounts. This is a mere matter of bookkeeping. It has nothing to do with the profits. Here is the explanation: The surplus in 1906 was only $97,000,000, in 1907 it is increased to $122,000,000, $25,000,000 difference. If to this we add $2,000,000 paid in 1907 for sinking-fund bonds, which reduced the company debt 61318-SCHED C-09- -36 |