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SHIP SUBSIDY TRUST.



BY

HON. JOHN DEWITT WARNER.




The seventeenth in a series of articles issued by the New England
Free Trade League.



, t



SHIP SUBSIDY TRUST.



A COflBINE OF TRUSTS, BY TRUSTS, FOR TRUSTS.



The Hanna-Frye-Payne Bills. They " drip " with Philanthropy and
Patriotism. Real Objects of the Capitalists who have framed the
Bill to fit their Ships. Ocean Ship-builders' Trust waiting only
for Subsidy. Lake Ship-builders' Trust forming. Subsidy Trusts
in France and England. Standard Oil Lubrication. Trust
Anarchism.

By HON. JOHN DEWITT WARNER.

In view of all the evidence that government bounties in the pro-
tective tariff lead to the formation of "trusts," this country should
profit by experience and refuse to create a shipping trust by a ship-
ping subsidy.

The pending ship subsidy bills provide that the United States
Treasury shall contract to subsidize owners of certain shipping, for
from twenty to thirty years, up to $9,000,000 a year. The sub-
sidy varies from i cent to 3.8 cents per ton of registered tonnage
per 100 miles sailed, and will average about i^ cents for sail ves-
sels and those making less than 14 knots an hour, and about $%
cents for swift passenger steamers. Minor features of the bill are
incidentally discussed.

I. CHARACTERISTICS.

(i) The philanthropy and patriotism with which the title and
preamble fairly drip.

A Bill to promote the Commerce and increase the Foreign Trade of the
United States and to provide Auxiliary Cruisers, Transports,
and Seamen for Government Use when Necessary.

Whereas the profitable employment of the surplus productive
power of the farms, factories, mines, forests, and fisheries of the



United States imperatively demands the increase of its foreign
commerce ; and

Whereas the merchant vessels, officers, engineers, machinists,
electricians, and seamen necessary to the increase of the commerce
of the United States are also essential as auxiliary to the forces of
the United States in -time of war and otherwise, and to the better
security of the nation and the protection of its possessions; and

Whereas it is deemed especially expedient to make immediate
provision to these ends.

(2) The extent to which, in the body of the bill, provision is
made exclusively for government bounty to ship-owners, without
material relation to our export trade, American labor, or the navy.

(3) The provision in favor of foreign built shipping, of which
American citizens at present own a majority interest. This is
dependent "upon such American owner or owners of such majority
interest" obtaining the remaining interest, thus excluding other
American citizens.

(4) The contrast between its provisions, the required 100 per
cent, immediate American capital and the suggested 25 per cent.
American labor, with such an exemption clause that under this bill
no American sailor will ever be hired unless otherwise profitable to
hire him, since ship-owners get their sailors anywhere, and no
wage standard is suggested.

(5) The contrast in deep-sea fishing between the $2 per gross
ton yearly for full registered, tonnage, though employed only three
months in the year, with but one-third American crew, and the
bounty to each American member of the crew of $i per month
"during his time necessarily employed." Without a minimum
wage, this $i bounty to sailors simply enables the ship-masters to
get sailors at a dollar less a month, the government paying the
difference.

(6) The proviso that, "if" required, a subsidized vessel shall
carry "one American boy for each one thousand tons gross ton-
nage," who shall be kept at work, at seamanship or engineering,
to be paid what he earns, -the boy being given no guarantee of after
employment.

II. CONCERN FOR EXPORT TRADE A SHAM.

Subsidies are graded by the capacity and speed of ships, with no
requirement of any cargo, the highest subsidy to the ships that
carry the least cargo; e.g. , 3.8 cents per registered ton per 100



miles to the ''great 21 -knots ocean flyers," but only \y z cents per
ton per 100 miles to steamers of less than 14-knots speed.

Cabins, saloons, and other accommodations for passenger traffic
leave but a small space for freight. Fast steamers also need more
room for coal, engine-room and ere w- room ; e.g., a lo-knot
freighter, burning 35 to 40 tons of coal a day, and needing 12 men
to handle it, would, if built for 20 knots an hour, require 300 tons
of coal a day, with 100 men to "rush" it. While a "12,000 "-ton
lo-knot freighter can therefore carry 10 to 15,000 tons actual
freight, a I2,ooo-ton. 21 -knot passenger steamer carries only 1,000
to 3,000 tons, making the subsidy, in proportion to freight carried,
from 10 to 25 times as high for the typical passenger steamer as for
the freighter. (Amendments so far proposed do not cure this.)

III. PROMOTION OF SWIFT MAIL OR TRANSPORT
CRUISERS A SHAM.

Stvift passenger steamers are so expensive to run that they have
no existence except in trade (mainly transatlantic), in which they
are already the most profitable. For this trade, therefore, they have
been built, and would be built without subsidy. They will not be
built for any other trade even with subsidy. This is admitted at
page 34 of the House Hearings of January 10. Mr. Clyde, ship-
builder, speaking on behalf of the bill, says:

We know, from the inquiries we have made as to what ships will
be built if this bill is passed, that all the vessels contemplated will
be vessels of moderate speed, none of them exceeding 17 knots.

IV. THE ACTUAL OBJECT OF THIS BILL.

It is not hard to find the real object of this bill. At House
Hearings, pages 24 and 25, Mr. Griscom explained:

I should say off-hand that the 14-knot ship of the largest possible
size that would carry about 10,000 tons would be the ship that
under that ["subsidy "] bill would get the best compensation. . . .
A great many are building in Great Britain now which will carry
10,000 tons of cargo, and not measure 10,000 [registered tonnage.]

Of such ships there are comparatively few in the world. They
have only recently been built at all. In 1898, the greatest year for
ship-building in the world's history, but 6 in all were turned out,
4 in Great Britain and 2 in Germany. But on Sept. 30, 1899,



there were then building of such vessels 16 in Great Britain and
several in Germany, largely for our subsidy beggars.

Take two instances : Mr. Griscom, of the International Naviga-
tion Company or "American" line (House Hearings, page 25),
admits his company has 8 vessels of over 10,000 tons and of speed
14 knots or above, on which to collect subsidy. At page 265 of the
last report of the Commissioner of Navigation we find that, of
these 8, in September last 4 were constructing abroad, 3 not to be
completed until some time in 1901 ; also, that the Atlantic Trans-
port Company had then 4 others under foreign construction ; also,
that in 1898 this last-named company built abroad 5 steamers of
over i4-knots speed, averaging over 7,000 tons gross register each,
these, with the 4 now building, being the only ones of their vessels
that are fast enough to get the extra "speed " subsidy.

Of T. Hogan & Son's fleet of 12 ships (aggregating 47,000 tons)
awaiting subsidy, 7 (aggregating 31,500 tons) were under construc-
tion in foreign ship-yards in September last. The case was similar
with 2 (aggregating 9,400 tons) of Grace & Co. 's fleet of 6 (aggre-
gating 21,600 tons).

The key to this energy is furnished by Senator Frye, who ex-
plains (Senate Hearings, page 2) that in 1897 the coterie behind
this bill was organized.

In short, the object of this subsidy bill is not to encourage the
building of ships which would not otherwise be built, but further
to line the pockets of prosperous gentlemen who, without subsidy,
have already built or contracted for the very ships to subsidize
which this bill is framed.

V. SHAM PATRIOTISM.

The proposed guaranteed contracts for building ships here are
farcical, for the great steel ships that are now rapidly supplant-
ing all others can be built in this country cheaper than elsewhere
in the world.

The only danger is: (i) allowing trusts to continue to charge
American ship-builders higher prices for raw materials than those
at which they supply foreign ones; (2) such a ship-builders' com-
bine as, though ships are built here cheaper, shall compel our
ship-owners to pay more for ships.

There is no probability of this unless (as proposed by this bill)
ship-builders are either bought off by government largess from



insisting upon their Tights against the steel trusts or guaranteed,
at rates to be fixed by themselves, such an amount of ship-building
that they can charge trust prices instead of competing to build
ships at fair profit.

Again, sixteen voyages are permitted in each year. Even if a
United-States-built vessel be assumed to draw subsidy upon only
ten round trips of 6,400 miles each, say 64,000 miles, this, at the
rate provided (2*4 cents per gross ton per 100 miles for 1,500 miles
on each outward and homeward trip, and 2 cents per ton remaining
distance), means $1.43 per ton for each voyage, say. $14.30 per
ton each year, and $143 per ton for the ten years permitted. That
is, in the case of ships now having American registry, the aggre-
gate security exacted for new construction within ten years is but
$2.50 per ton of present tonnage; and this security is a little less
than one-fifty-seventh of the amount of the subsidy which the
subsidy-getter may have drawn from the government before the
security can be enforced.


VI. FOREIGN CAPITAL ADMITTED TO SUBSIDY.

While 100 per cent. American ownership is required to entitle a
vessel to a twenty-year subsidy contract, there is nothing to prevent
prompt sale of this interest to foreigners and the payment of the
subsidy during the whole twenty years to foreign capitalists.

Indeed, by the proviso as to corporate ownership, it is contem-
plated that present stockholders of corporations, owning subsidized
shipping, shall be enabled to' "realize " at once by selling it
abroad, the bounty of our government thereafter to go to foreign
owners. See Senate Hearings, page 16:

Senator ELKINS. . . . Now that corporation might be made up of
citizens of the United States, and incorporated under the laws of
the State of New York or West Virginia, or your State, and yet all
the capital be held in England.

Mr. EDMUNDS [counsel for promoters of bill] : That is perfectly
true.

VII. SHIPPING INDUSTRY PROSPEROUS WITHOUT

SUBSIDY.

President McKinley, in his speech at the Chicago Commercial
Banquet on Oct. 10, 1899, said:



8

Our ship-building has been greatly increased. . . . Our tonnage
increased during the year 100,000 tons, and is without a parallel
in our recent history. More large ocean steamships are under con-
struction in the United States than ever before. Our ship-building
plants are being enlarged and new establishments projected.

From Marine Review (Cleveland), Feb. 8, 1900, is clipped:

The Newport News Ship-building and Dry Dock Company of
Newport News, Va. , has assuredly had its full share of prosperity
during the past year. The aggregate value of the new vessels and
repair work within the twelvemonth has never had a parallel in
any single yard in the history of American ship-building. . . .

VIII. CONSTANT DISCRIMINATION AGAINST
PUBLIC INTERESTS.

The Secretary of the Treasury is to contract to pay subsidy for
twenty years or more; and there is no condition under which the
government can commute, much less get released. As to the vessel
builders, however, it is provided: "But, if it shall happen that any
such new vessels shall, without any fault or want of diligence on
the part of the owners, fail to be built and registered as required,
. . . the Secretary of the Treasury shall extend the time [for build-
ing] for such period or periods as shall seem to him to be just. "

Under Section 5, government is to pay subsidy as per speed test
(this on the corresponding assumption that fast costs more than
slow steaming). But, under this bill, this same ship, in earning
high-speed subsidy, can actually sail at the lowest speed that its
owner finds most economical.

In the deep-sea fishery the vessel-owner is paid his yearly sub-
sidy, even though the vessel may have been employed three-fourths
of the time outside of this industry or laid up idle, while the petty
bounty to American sailors is limited to "$i per month during the
time necessarily employed."

IX. NO INCREASE OF SHIPPING.

Mr. FITZGERALD, of Massachusetts. How much money, Mr. Gris-
com, would your company ["American" line, etc.] receive next
year ?

Mr. GRISCOM. About one million four or five hundred thousand
dollars, [expert calculations show this to be more nearly $2,500,-
ooo], but we would have to relinquish to the government the
$750,000 we now get.



Mr. FITZGERALD. That would make how much?

Mr. GRISCOM. About $750,000.

Mr. FITZGERALD. You say a net profit ?

Mr. GRISCOM. I didn't say profit. I said compensation. Com-
pensation goes towards equalizing the extra cost of running under
the American flag.

At page 33 of House Hearings we find :

Mr. CLYDE. . . . The sum that the American line ships will
get under this bill will.be no more ^than sufficient to compensate
their American owners for the addition in cost of furnishing ocean
transportation with that type of ship as compared with furnishing
it under the British or Norwegian or other foreign flag in the same
type of ship.

If the full subsidy permitted by the bill is bare compensation, as
these gentlemen assert, then it is no encouragement whatever to
any increase of shipping. Indeed, to any extent that the $9,000,-
ooo limitation reduced the subsidy paid below the full rate allowed,
these subsidy beggars could not afford to run as many ships as they
do now.

But any one who might otherwise credit the veracity of Messrs.
Griscom and Clyde will be cured of such a mistake when he notes
that, to one after another interest which grumbles at being left out,
amendments are offered by which their own subsidy is further
lessened, unless these amendments are but the basis of a larger
combine promptly to remove the $9,000,000 limitation.



X. AN IDEAL FIELD FOR A TRUST.

Mr. Edmunds says (House Hearings, page 6) :

Then another characteristic of this bill, and I might as well say
it here, is that it provides an open field for everybody. There can
be no syndicate formed, as there can in the case of railroads and
plants which are on land, which are fixed, like the Standard Oil
Company, for illustration. . . . Inasmuch as there are probably a
thousand places in the United States where ships can be built, it
would be impossible for a syndicate of all the ship-owners that are
now in the United States to prevent anybody else who can get
$100,000 to-day from his neighbors from building one of these
smaller classes of ships that are capable of sailing all over the
ocean; and he could not be squeezed out.



10

Compare this with his statement (Senate Hearings, page 19) :

Mr. EDMUNDS. . . . [The United Kingdom], building ships for
all the world, are able to build them cheaper, aside from the cost
of material, etc., from the fact that they do a wholesale business in
this.

It is just like the case of the manufacturer. The man who has
got a market for 10,000,000 yards of cotton . . . can turn that
cotton . . . into the cloth, and sell it at 10 per cent, profit. Whereas
I, who have an establishment and a capital enabling me to do only
a quarter of that amount of business, would go bankrupt the first
year if I only got 10 per cent.

Of concerns that are competent to handle contracts for such ship-
ping, 10 include all in the United States that can claim so to be.

Indeed, a late report of the Commissioner of Navigation shows
only 5 are now actually handling contracts for deep-sea shipping of
even 3,500 tons or upwards; and only 3 the Newport News
Ship-building Company, William Cramp & Sons, and the Union
Iron Works building ships of over 6,000 tons.

These three concerns are the giants of this industry, the invest-
ment of the first two being at least $10,000,000 in each case, and
the Union Iron Works probably using $6,000,000 to $10,000,000
of capital. One can easily imagine how much chance Mr. Ed-
munds's American citizen, with his hard-earned $100,000, would
have in competition with them.

XL GREAT TRUSTS BEHIND SHIP SUBSIDY
SCHEME.

The lion's share in this scheme is held by interests that can be
named on the fingers of one hand. The coterie behind it are the
leading trust interests of the country.

As to the prime movers, Mr. Griscom's company, the Interna-
tional Navigation Company, or "American" line, will be, by far,
the greatest beneficiary under this bill.

The Chicago Tribune (Republican) thus summarizes:

Among the officers of this so-called "American" line company
. . . are : Clement A. Griscom, president ; and W. H. Barnes,
Alexander J. Cassatt, and W. E. Elkins, directors. That is not
the only directory, however, of which these gentlemen are mem-
bers. They are also directors of the Pennsylvania Railroad Com-
pany, and Cassatt is president of that company. . . .



II

John D. Archbold . . . and Henry H. Rogers are also directors
of the International Navigation Company. The first-named is a
prominent director, and the last-named director and vice-president
of the Standard Oil Company. . . .

There is a concern known as the National Transit Company,
which is a part of the Standard Oil Trust, and controls its oil-dis-
tributing business. Its relations with the Pennsylvania Company
are exceedingly intimate. Among the directors of the National
Transit Company are Archbold, H. H. Rogers, and Clement A.
Griscom. The latter is the connecting link between the Interna-
tional Navigation Company, the Pennsylvania Railroad, and the
Standard Oil Company.



XII. SHIP-BUILDING TRUSTS ORGANIZING.

The following, from New York Herald of Nov. 13, 1899, speaks
for itself :

Much interest has been aroused by the recent announcement in
the Herald that steps are being taken to form a syndicate for the
purpose of purchasing five of the largest ship-building plants in the
United States. . . .

These are the plants which, it is said, the syndicate is anxious
to obtain: William Cramp & Sons' Ship-building and Engine
Building Company of Philadelphia; Newport News (Va.) Ship-
building and Dry Dock Company; Union Iron Works of San
Francisco; Columbian Iron Works of Baltimore, Md. ; and the
Bath (Me.) Iron Works. . . . J. and W. Seligman & Co. are said
to have a hand in the financial arrangements. When I spoke to
Mr. Henry Seligman yesterday, he said:

"I will say that negotiations are in progress for a combination
of several of the largest ship-building companies in the country.
They have not yet been completed. The amount involved may
be said to be in the neighborhood of $20,000,000.

"I am not at liberty to discuss the matter further at this time,
nor can I give the names of the concerns or individuals who are
interested in the project. You may say that the firm of J. and W.
Seligman & Co. is not interested as an investor. No foreign capi-
tal will be invested. Several New York men are interested in
the plan." . . .

A large stockholder in the Cramp Company said :

It is a fact that a syndicate has been formed with a view to com-
bining the largest ship-building plants in the country. This syndi-
cate, I am informed, have already secured options on the Newport
News Ship-building and Dry Dock Company, the Union Iron Works



12

of San Francisco, and the Bath (Me.) Iron Works. There is plenty
of money back of the syndicate. . . . The publicity which has been
given the scheme in the last few days may seriously interfere with
its consummation.

In view of claims that ship-building concerns on the Great Lakes
can build deep-water vessels, and the great interest in the subsidy
bill shown by Cleveland gentlemen, the following from the Chicago
Chronicle of April 21, 1899, is of interest:

With a capital stock of $30,000,000, the newest of all the giant
trusts, a consolidation of the ship-building interests of the Great
Lakes was effected in New York yesterday. At the same meet-
ing the directors practically decided that Cleveland, not Chicago,
was to have the headquarters of the combine. . . .

In the new trust are the following concerns : American Steel
Barge Company, West Superior, Wis. ; Milwaukee Dry Dock Com-
pany; Chicago Ship-building Company; Detroit Dry Dock Com-
pany; Cleveland Ship-building Company; Lorain Globe Iron
Works, Cleveland; Ship-owners' Dry Dock Company, Cleve-
land. . . .

Though the authorized capital is $30,000,000, the actual capi-
tal is only $14,000,000. Of this sum $7,000,000 is non-accumu-
lative 7 per cent, stock, and $7,000,000 common stock. What
purports to be an authoritative announcement of the formation of
the combine is made in the Cleveland Marine Review of to-day.
"Ship-yard Consolidation" is the appellation which the publication
gives to the new trust. Organization of the company has been
effected under the laws of New Jersey, and the concern is to be
known as the "American Ship-building Company." . . .

From the start the trust will be in a position to pay big divi-
dends, the promoters say, all the companies being in prosperous
condition.

... In all not fewer than 10,000 persons have had steady em-
ployment in the yards of the concerns absorbed. Whether the for-
mation of the trust will have the effect of reducing the number of
employees is a problem which those interested say cannot at present
be answered. However, the consolidation involves a plan to lessen
operating expenses as well as to control the output and regulate
prices.

XIII. SUBSIDY EVERYWHERE THE MOTHER OP

TRUSTS.

Mr. Chamberlain, our Commissioner of Navigation, cites the
relation to Great Britain of the Peninsular and Oriental Line as a



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normal beyond which we have not gone, and, as an example of the
beneficent effect to British interests of this policy, says:

No more explicit statement could be asked for than the declara-
tion of the president of the Peninsular and Oriental Company at
the annual meeting two years ago :

"Our policy is that of a British company, which is keenly alive
to British interests, and I believe that, in this respect, represent
the general feeling of the ship-owners of this country."

In view of Mr. Chamberlain's reference to the Peninsular and
Oriental as a sample of what we may hope for, he should be inter-
ested in the actual experience of Great Britain with that company.
Mr. Thomas Scanlon's letter on "Trusts in Great Britain," re-
cently issued by the New England Free Trade League, is authority
for the following statements on this subject :

Mr. E. E. Williams, in his interesting little book entitled
"Marching Backwards," published a couple of years ago, shows
how the "Shipping Ring " keeps up freights. From this it appears
that the Peninsular and Oriental reciprocated the subsidy given it by
charging much higher freights to English shippers than to their
Belgian and German competitors. At Hong Kong the success of
non-British as against British competition in trade became so pro-
nounced that the governor appointed a committee to investigate
the cause. The report of that committee was to the effect that the
lower freights from foreign as compared with British ports was
due to the action of the Shipping Conference, consisting chiefly of
British steamship owners, which, while maintaining freights from
British ports, carried cargo at a much lower rate from Continental
and American ports. The report went on to suggest whether the
imperial government would not be justified in requiring from the
Conference a modification of their freight rates before continuing a
subsidy or support to any shipping company which is a party to a
compact that places British manufacturers at a disadvantage as
compared with foreign rivals.

Mr. Chamberlain's reference to French subsidies is equally for-
tunate for the opponents of the Hanna-Frye-Payne Bill. The
committee of the French Chamber of Deputies last year reported
that the merchant marine was in such a state of decadence as to
cause uneasiness about the navy ; and the New York Journal of
Commerce notes :

The construction bounty paid to steamers not receiving postal
subsidies has had no beneficial effect. The construction of steamers



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under this head averaged 19,434 tons from 1881 to 1884, and only


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