ECONOMICS OF COPPER
A thorough familiarity with the facts and conditions set forth in the
preceding chapters will help my readers to an understanding of the
series of complicated transactions through which the snaky course of
Amalgamated must be pursued. Its flotation was the most tremendous and
public ever even attempted, much less successfully carried out, and in
its market career the full resources of stock jugglery were exercised on
its behalf. The crimes of Amalgamated are to the delinquencies of Bay
State Gas as the screaming of eagles to the chirping of crickets. From
its birth this great enterprise went hand-in-hand with fraud and
financial dishonor, and the facts I shall proceed to reveal are so
formidable in their indictment as to startle even those calloused to the
trickery of modern stock deals.
An armistice followed that last desperate battle of the gas fight in the
Delaware court-house, and gave me time to turn my whole attention to the
plans I had long been maturing in my mind in connection with quite
another project--"Coppers."
For sixty years past Boston had been the home of the copper industry.
From it great fortunes had been derived, and there was in course of
development a copper aristocracy which threatened the supremacy of the
East India aristocracy that had so long lorded it in Boston society.
Indeed, so far had the rival contingents progressed that there was a
serious searching of the pretensions of any new-comer whose origin had
to do with other enterprises. "Coppers" were respectable, were genteel,
and, above all, were not "trade," for the average old-time Bostonian
affects the Anglo-Saxon contempt for the traffickings of retail
commerce.
For the benefit of those in the outer darkness, to whom the ways of
Boston are strange, it may be explained that the East India trade goes
elsewhere under other less euphonious names, and consisted in the
swapping of New England rum, made from molasses, water, and other
things, for human cotton-pickers. It was a most profitable industry,
with a spice of adventure to it, and in which at the time it flourished
a gentleman might honorably engage. It may be said that with the
paradoxical conscientiousness characteristic of the Puritan mind, the
first outcry against the personal ownership of human chattels was voiced
by New England, and her leading citizens generously devoted the incomes
of the fortunes their forefathers had amassed in the slave traffic to
releasing their colored fellow-creatures from bondage. That, however, is
still another story.
To return to "Coppers." In my young days in "the Street" in the early
'70s, the first task I remember performing was making deliveries of
copper stocks traded in by "the house" which was entitled to my
twelve-year-old services in return for the three large dollars which I
received each Saturday with far more honest pride than any three
millions I have since handled. As I grew up I watched Calumet and Hecla
advance from a dollar to 450 (it afterward sold at 900) because of its
real worth, and imbibed the conviction, which all true Bostonians
entertain, that money acquired through copper is at least 33 per cent.
better than money from any other source. I sympathized with the State
Street code which declares, or should: "Gold can be found in a day by
any one with eyes, silver in a week by any one with hands, and money in
a year by any one with sense enough to save it, but no man gets into
copper without capital, fortitude, patience, and brains." As a matter of
fact, it requires, even to-day, with all of to-day's facilities and
rush, $5,000,000 in money and five years of spending it after a copper
deposit has been found before it can be made to yield returns. Is it
surprising that a project requiring so much money for so long a time
should appeal to Boston's regard for endurance, expensiveness, and
exclusiveness? Could there be found an enterprise better calculated to
discourage the upstart?
My daily round of errands led me from broker to broker and from bank to
bank, and always I heard talk of copper. It is not remarkable that my
youthful mind became impressed with the profound importance of the metal
and all pertaining to it. I picked up a great deal of information on the
subject, which I fortified later with a careful study of copper the
metal, copper the mine, and copper the investment. As I mulled over the
immense returns obtained from their ventures by the men I knew had their
money in copper, it struck me as extraordinary that this industry should
be so much more profitable than others. Here was a great staple, a
necessity of the people, which had been in use since men began to sit
up, and would be needed until Father Time smashed his glass, that
returned 100 per cent. gross profit on the business done in it, while
the business done in any other staple did not return, gross, over ten to
eighteen per cent.; which gross profit gave to the capital invested in
copper a net profit of sixteen to twenty-five per cent., while that
invested in the other staples returned a net profit of only three and
three-fourths to four and one-fourth per cent.[18] The value of money
had decreased with the world's development; the cost of the great
commodities of life had all come down with the decline in interest--all
but copper, which kept its old places throughout all the changes that
had occurred in the relations of capital to labor and business. I
realized that copper, in that year, would afford a gross profit of 100
cents on each $2 worth produced; that this great gross profit was
legitimate, was not brought about through unfair restrictions or forced
combination, or evasion of the country's laws, but was wholly natural,
being founded on the fact that the supply was so limited that the demand
prevented the price dropping below a certain figure, and that this under
ordinary circumstances represented at least 100 per cent. of gross
profit to the producer after he had paid for labor and material the
highest ruling prices.
No better illustration of the main facts about copper can be found than
the condition of the industry to-day, in 1905. The metal is now fifteen
and a half cents per pound, and the consumption so great that the price
still advances, yet if through an agreement among the producing mines
this sales-rate should be dropped twenty-five per cent., it would so
increase consumption as to force back the price to a point that would
again discourage consumption; and yet in the old mines the cost of
producing the metal sold at fifteen and a half is but six to seven and a
half cents, in some even lower.
Compare these conditions with those existing in the steel industry.
Therein unlawful combinations and unnatural restrictions are essential
if those engaged would show a gross profit of even fifteen per cent. on
their gross output. If more than fair or going returns are earned, then
new capital flows into competition and the surplus again shrinks to an
uninviting point. The same is true in wheat, corn, and cotton--big
prices invite fresh investments and the planting of broader acreage.
Hence the sorry spectacle of the cotton planter who, in 1905, will
receive no more for his twenty per cent. increased crop, coming from
over two millions increased acreage planted last year, than for his
smaller one of the year before.
That my readers may quickly, and once for all, grasp the point I wish to
make, I will illustrate:
The Steel trust in 1904 did a gross business of $432,000,000, upon which
they made a profit of $71,400,000, and yet this vast amount was only
five per cent. upon the trust's inflated capital of $1,400,000,000 odd;
and as the "System," in regulating the capitalization, arranged that the
preferred stock (and bonds), which represented the "System's" profit,
should receive seven per cent., there was not a dollar in dividends for
the $520,000,000 of common stock which had been sold to the people for,
in round figures, $300,000,000.
At the same time the Calumet & Hecla Copper Company produced and sold
over $10,000,000 worth of copper, upon which it earned, net, over
$5,000,000, which enabled it to pay to the people who had invested in
its 100,000 shares of stock (par value, $25), 160 per cent., or a total
of $4,000,000, and, at the same time, carry an enormous amount to its
surplus.
In the commercial world copper occupies an impregnable position. To
compete, it is first necessary to find a copper deposit; then to lock up
a vast sum of money for a long term of years before returns begin to
accrue. And new copper deposits are as rare and few and far between as
Lincolns and Roosevelts in politics or Grants and Lees in war. In the
last eight years, or since the metal has been prominently before the
world of capital, but two great producers of copper have been
created--the Copper Range at Lake Superior, Michigan, and the Greene
Consolidated in Mexico--and these two mines have only, at the end of six
years, after an immense expenditure of millions (Copper Range, with a
capital of $38,500,000, 385,000 shares, par $100, which sold in the open
market a few years ago at $6, now selling at $75, and Greene
Consolidated, with a capital of $8,650,000, 865,000 shares, par $10, now
selling in the open market at $25), reached the point of profitable
production. Their combined output, while reaching the (for young mines)
unprecedented amount of one hundred and odd million pounds of metal per
annum, constitutes but a fraction of that which Mother Earth has given
up during the period of their development, namely, 2,500,000,000 pounds,
all of which has been disposed of and cannot again be used to satisfy a
ravenous consumption.
It seemed to me, then, a curious anomaly that, while capital was chasing
investments which promised but four per cent., it eschewed copper which
yielded from sixteen to twenty-five per cent., and my investigations
told me that a producing copper-mine is the surest business venture a
man engages in, for, by the time it begins to produce profitably, it
must be so far developed that its owners are certain of ore to work on
for decades ahead. A good copper-mine is really a safe-deposit vault of
stored-up dividends, which cannot be stolen nor destroyed by fire,
flood, or famine. Calumet & Hecla, for instance, though it cost its
first owners but a dollar a share, has paid out $87,000,000, or $870 per
share, or 3,480 per cent. on its par value of $25, and while it has been
paying dividends over thirty-five years, it paid last year $40 per
share, and has more in sight than it has yet paid. And Copper Range,
though but six years old, will be producing soon as much as Calumet &
Hecla, and has now in sight ore to keep it going fifty or sixty years.
Having pieced together all the facts and circumstances in this
connection, I was sure that I had grasped a principle of great
commercial value, and I set about finding a cause why the world of
capital should for so long have overlooked the tremendous potentialities
of this industry. I found the cause in Boston herself, in the
characteristics of the city, which was head-quarters for copper, and
which had grown in financial power with the revenues her mines earned
for her investors. Boston controlled and managed the copper industry,
and had since the days when copper-mining was a hazardous pursuit, in
which only bold and speculative souls dared engage. In the early days
the canny Bostonian demanded for the honorable dollar his parent had
earned--exchanging five-cent rum for human beings worth $1,000
apiece--at least twenty per cent. interest, and having acquired this
habit, it became a principle, and such principles as these are clung to
in Boston with the zeal of a miser for his hoard or of a martyr to his
faith. Looking back over the years, I still recall with chagrin the
quiescent hilarity of the scion of a Back Bay family whose good father
had been one of the most successful and most brutal of all the "East
India traders," when I suggested to him that he was fortunate in
obtaining twenty per cent. on some copper ventures about which he was
grumbling. (My readers must not confuse a Boston grumble with the
ordinary ejaculations of discontent indulged in by the inhabitants of
other portions of the world remote from the Hub of the Universe. A
Boston grumble consists of an upward movement of the eyebrow, a slight
twitch of the mustache and a murmur cross-bred from "Deuce take it!" and
"Scoundrelly!") "Young man," he said, "my father said that such a
hazardous venture as copper should return at least thirty per cent. to
be safe, and I feel if I receive but twenty per cent. that something is
radically and unpardonably wrong with the management of the mine." I did
not pursue the argument, for I knew he inherited with his fortune a line
of Boston reasoning, and I remembered once having watched a country boy
put his tongue on a frosty iron door-knob. I knew better than to invoke
again that wintry Boston smile, which in a Western or Southern community
would be used to _frappe_ mint-juleps or cold-storage hogs with.
No better illustration of the attitude of the shrewd New York investor
to "Copper" can possibly be given than to detail my first interview with
H. H. Rogers and William Rockefeller on the subject. To-day Mr. Rogers
is known throughout the world as the leading figure of the copper
world--the copper Czar, so to speak; yet it was only nine years ago when
I said to him at the end of a gas-talk:
"Mr. Rogers, would Mr. Rockefeller and yourself look into Copper?"
"Copper?" said he in an amused way, "copper? What kind of copper?"
"Why, copper such as we know in Boston--copper the metal, copper the
industry, copper stocks."
He burst into one of his jolly laughs. "Look into it? Why, I don't know
a thing about copper other than that we had old copper kettles when I
was a boy which were used to fry doughnuts in, but I suppose my plumbers
would look at anything you wanted, for I remember I get big bills for
copper tanks at the house."
FOOTNOTES:
[18] For those unacquainted with such business terms as "gross" or "net"
profit: Gross profit on business done is that first profit which remains
after deducting the first cost of producing the goods--in this case copper,
the metal; and from this gross profit must be deducted other expenses, such
as unusual development expenses, the expense of running the executive
departments, interest, etc. This leaves the net profit which is available
for dividends.