insolvent; that its directors had permitted it to drift; that its credit was gone; that it was without funds to meet maturing obligations. Some startling facts were developed at the hearing on the application for a receiver. President Lewis Nixon was charged with combining the shipbuilding companies for the purpose of selling the Crescent Shipbuilding concern, in which he was interested, at an exaggerated price and of having the new company issue a large amount of securities to be unloaded on the public. The most sensational charge was that against Charles M. Schwab, president of the United States. Steel Company, alleging that Mr. Schwab paid not exceeding $3,000,000 for the Bethlehem works, above the mortgages of about $9,000,000 then on the property, and that he put the steel works into the Shipbuilding Company at about $40,000,000 in bonds and stocks, which was about $27,000,000 more than he paid for them, although he held the property only one year. It was admitted by the reorganization committee that half of the trust's alleged capital was water, and the receiver found even more water when he investigated the business affairs of the companies in the organization. Mr. Smith's report, made public in November, declared plainly that there was fraud in the promotion of the company and laid the responsibility for failure at the door of Charles M. Schwab. It showed, first of all, that the prospectus issued to induce the public to subscribe for the trust's bonds "deliberately disregarded figures." It pointed out that "excessive prices were paid. for the constituent companies, blocks of stock went to the vendors of the constituent plants and to the purchasers, as bonus, absolutely without benefit to the company; $20,000,000 of it admittedly went to Mr. Schwab, in addition to the agreed price for Bethlehem. Some of it went to the promoters of this artistic swindle; and when all had been provided for, what was left of the bonds, amounting to $1,500,ooo, was handed back to the company ostensibly to supply it with working capital." 66 The "dummy directors" who authorized the issue of millions of shipbuilding bonds and stocks, were held culpable by the report, though not directly responsible. "The scheme was placed before them," said Mr. Smith, " by its instigators, and in conformity with their instructions and without the ability or knowledge to pass upon the mat THE FINANCIAL FREE-BOOTER 7 ters therein contained, they proceeded to do as they were told." Mr. Schwab's dealings came in for the severest criticism and the trick by which he secured control was exposed in detail. Two causes for the failure of the company were emphasised by Mr. Smith. One was the fact that the directors parted with bonds to an amount upon which it was impossible to meet the interest; the other was the fact that "in the Bethlehem transaction the Shipbuilding Company had to deal with people who, while thoroughly understanding the intricacies of higher finance, seemed to have overlooked the requirements of common fairness." The collapse of the shipbuilding trust placed in jeopardy Mr. Morgan's infallibility. All the other trust breakdowns had been explained by the admirers of Mr. Morgan on the theory that smaller men were trying to use his methods without his skill and prudence. No one else, they said, could bend the bow of Ulysses. This was well enough for Gates and other Western plungers who broke into Mr. Morgan's private preserves and licked up all loanable money in sight for the Rock Island and San Francisco deal when he wanted it for his Shipbuilding Company, but Mr. Schwab, who seemed to be chiefly responsible for blowing up the shipbuilding bubble, operated immediately under the eye of Mr. Morgan himself, who could not escape responsibility for letting him go such lengths. Mr. Morgan built up his great influence by demonstrating time after time, his constructive ability and his safe leadership. Early in the year he frankly stated that he had made a certain large transaction in order to eliminate a speculator whom he considered dangerous to stable financial conditions. The experience of the financial free-booter, whom Mr. Morgan drove from the market, was used by the Editor of the World's Work to point this moral: "He goes forth to wreck and he wrecks. But his career is not a long one. He fails to hold the confidence of the public even of his public. He builds up no permanent influence, the same law holds even with regard to any financial oligarchy. There is a small group of men in New York who, by combined action, can control a very large part of the great enterprises in the country. They can control a large part of the surplus wealth. But they would soon cease to control if they misused their power. Their power depends upon their safe use of it. Their own selfish interests depend on their using their power conservatively and constructively. While then we are doubtless a long way from the ideal organization of financial life, and are yet in a period largely of one man power and under the influence of strong oligarchies, the devices for safety are more numerous than they may at first sight appear, and the structure of finance is more civilized than it seems." The Moral of Mr. Schwab The appointment of an assistant to Mr. C. M. Schwab in the person of W. E. Corey, who it was generally understood would perform the active duties of president of the United States Steel Corporation, served as a text for many newspaper sermons, which converted Mr. Schwab into an unconscious moral teacher, who had "shown us what comes of thinking in hundred millions and living in a mad rivalry of luxury," and had "done not a little to remind us that the oldfashioned moralities and the well-tried rules of business are still supreme." Moralizers, of course, said that he failed because he devoted his leisure to such ruinous diversions as gambling at Monte Carlo and recklessly speeding his automobile over the roads of the Riviera. It is only fair to say that the Monte Carlo episode came after his first physical breakdown, brought on by overwork. It was by industry and merit that Charles M. Schwab rose from a grocer's clerk, earning $2.50 a week at the age of seventeen, to the presidency of the "Billion Dollar Steel Trust" at thirty-nine. For a score of years at least he was content to confine his natural abilities his physical vigor, mental energy, technical training, and mastery of men - to the hum-drum tasks of legitimate business. Then came the temptation to make a colossal fortune by a stroke of the promoter's pen, and the gambling mania, so destructive to physical and moral life, checked a brilliant career at the early age of forty. Industrial Bubbles - Another industrial bubble, another case of over-capitalization was that of the Consolidated Lake Superior Company which, because of its inability to repay a loan of $5,000,000, became insolvent with a capitalization of $117,000,000. This Company was organized in 1901 as a holding concern to take over the stock of numerous steel, iron, |