large percentage of the stock nevertheless remained in the possession of the electrical companies themselves and their banks, the fact remains. that these unloadings, which occurred almost annually, constituted a most important source of revenue. It is probable also that the profits accruing from this form of speculation played a not unimportant part in the enormous dividends paid to stockholders.

Such are the losses which a limitation of business entails upon all industries dependent upon speculation; and it is plain why, under these conditions, the business policy originally adopted by the firms is usually permitted to remain intact. I have not here dwelt upon the important fact that the demands made upon such a corporation must increase in proportion to the diminution in the price of the shares. As the Treber affair demonstrated, the downfall of an institution even remotely associated with a corporation such as the above is sufficient to create a panic and to cause a general unloading of the doubtful stock. Even the prospect of brilliant dividends cannot at such a time prevent a general decline in value. In order to arrest the panic the corporation and its banks are compelled to buy in the shares; and the longer the crisis lasts the more difficult does it become to uphold dividends and to explain these upon a legitimate business basis, while the enforced purchases make constantly increasing demands upon the capital of the investors. One of the leading electrical enterprises of Germany, the Schuckert Aktien-Gesellschaft, has been compelled within a very short time to buy up not only its own entire stock but also that of a Bosnian electrical company associated with it; the stock of the latter, although reasonable in price, being of extremely doubtful value. Whether the company will be able to weather the storm remains to be seen. Certain it is, that, in order to restore the equilibrium, several years must elapse before dividends can be again safely declared.

The fact must be again emphasized that the system of artificial markets, before described, is not confined to stock companies. When a private capitalistic enterprise exercising a strong political or economic influence utilizes this influence in order to establish corporations which, regardless of their inherent vitality, are designed solely to serve as a market for its own product, we have an example of the creation of markets by artificial means. In every instance of this kind the branch companies will be controlled by the central organization so long as such control is necessary, while the union will be dissolved whenever a severance may be deemed expedient.

Undeniably such industrial organizations are sometimes very pros

perous, and prove to be fortunate speculations. In an economic sense, however, they can never be regarded as harmless, inasmuch as they are primarily established for the purpose of immediate profit without regard to their ulterior productivity and usefulness. If the results are favorable, well and good; should they prove unfavorable, however, the stockholders will not hesitate to relieve themselves of a burden which at the earliest opportunity will be shifted upon other shoulders. The injury which the community sustains is attributable to the fact that while the depreciation of the stock is known to the directors, these are enabled so to manipulate affairs as to preserve a fictitious rate, thereby facilitating the unloading of the shares upon the small speculator. Upon the whole, it is simple enough to create a plethora of enterprises in the shape of electrical industries, etc., whose existence is entirely unwarranted by existing demands, and whose stock declines so soon as the support of the promoters is withdrawn. In this way considerable capital and labor may be sunk in enterprises whose existence is not yet justified by conditions, and the premature establishment of which must inevitably lead to serious crises and to a widespread stagnation of business.

It is natural that in a contingency such as the above the branch companies will not be alone affected, but that the central corporation must also seriously suffer. It is inevitable that the necessity of abandoning the policy of artificial markets and of returning to the principle of supply and demand must sooner or later subvene at what cost I have already endeavored to show. In the case of private enterprises conducted by a few capitalists the above phenomena are less serious than when stock companies are involved; because the former, for the sake of self-preservation, are compelled to excise great care and circumspection. Therefore, enterprises such as those of Krupp, Siemens, Halske, and others invite confidence; the capital here invested being largely that of the owners of the plant. Unfortunately, owing to the frequent conversion of these personal enterprises into stock companies their number is constantly decreasing; and it is by no means comforting to reflect that this conversion is due to reasons which are not technical, but purely commercial. The spirit of speculation herein manifested must unfavorably affect the status of our large German industries.

The problem of the forcing of markets is one of wide importance. Engendered by the intensity of competition, it has been in modern times powerfully stimulated by the increased striving for gain and influence, as well as by the accumulation of capital in great industries and the banks associated with them. In this way there are artificially created

vast corporations which flood the market with new commodities to the value of several billions commodities whose real economic importance has not yet been sufficiently demonstrated by actual experience to justify the rate at which they are circulated. In consequence of the forced growth of these plants other branches of industry are influenced, and in their turn experience a development unwarranted by actual demand. We must consequently expect that, in the event of a decline or a collapse on the part of a great industrial organization, not only the corporation itself, with its numerous branches, its stockholders, its creditors, and its hundreds of thousands of officials and workmen, will be affected, but branches of industry which derived employment or revenue from these will also suffer serious injury. We see the process continue without let or hindrance; we see the public blindly confide its capital to enterprises based upon pernicious economic principles; and it is evident that even after serious catastrophes confidence, though momentarily shaken, is soon restored. It is impossible as yet to foretell whether or not this process will find a still further extension among producers, and more particularly among the trusts. It is certain, however, that such an extension would be attended with disastrous consequences to our industries. W. BERDROW.

THE MERIT SYSTEM IN PORTO RICO.

THE fundamental concern in the hearts of the American people at the close of the Spanish-American war centred in the future administration of the newly acquired territory. The nation had countenanced a war of a strong power against weak one, for which there had been no direct provocation and the issue of which was foregone, simply because of the conviction that this course and no other made for humanity and righteousness. The leadership may have been unwise and unworthy passions may have been exploited; but the dominant note in the popular consciousness was disinterested benevolence.

An unforeseen and unwelcome consequence of the war, or of the negotiations which terminated it, was the establishment of our sovereignty over insular territories differing widely from our own in physical characteristics, political institutions, and socio-economic conditions. At once American citizenship profoundly realized a moral obligation, namely, that these new acquisitions should enter upon an era of political and economic betterment, in so far as unselfish legislation and wise administration could secure it. The intensity of this popular feeling remains one of the remarkable incidents in our recent national experience, a conspicuous phase of that national morality which saves one from ever really despairing of the Republic. Men differed widely as to the wisdom of what had been done and as to the solution of the problems then claiming attention. But in one respect there was perfect unanimity, namely, in the conviction that, as long as the United States remained responsible for the new territories, their welfare, not ours, must shape the national conduct. An administration that urged insular policies not transparently in the interest of the islands themselves could not have extended its life by a day. If our activities were to be quasicolonial, the motive must be at least an enlightened philanthropy, not a disguised exploitation.

Even to those who could read the signs aright, the wave of passionate feeling that swept over the country upon the proposal of an impost upon Porto Rican trade was a revelation. In the light of what has

happened since, we can realize how that exhibition of national sentimentality was as unflattering to our intelligence as it was creditable to our humanity. The customs duties so levied accrued to the insular not to the federal treasury, and made efficient insular administration possible without the pauperizing effect of federal subventions or the onerous burden of premature internal taxation, until the insular economy was put in order by systematic fiscal revision and the customs revenue was voluntarily dispensed with. But as an index of popular feeling the outburst was unmistakable in its consequences. It intensified the predisposition of the leaders of the national Administration to establish the highest standard for our insular policy.

The problem of an insular personnel squarely confronted the Government at Washington for the first time in April, 1900, in the organization of civil government in Porto Rico as provided by the Foraker Act. Some insular appointments of importance had been already made, as the first Philippine Commission and the Special Commissioners to Cuba and Porto Rico. But they were, in the main, preparatory in character or incidental to military government. The important offices were still filled in Porto Rico, in the Philippines, and in Cuba by army officers working in staff organization.

The Foraker Act vests the administration of Porto Rico in a governor and what is virtually an insular cabinet, consisting of a secretary, an attorney-general, a treasurer, an auditor, a commissioner of the interior, and a commissioner of education - all appointed by the President of the United States for terms of four years. The six cabinet officers, together with five native inhabitants of Porto Rico, likewise appointed by the President, constitute the Executive Council. This is primarily the upper branch of the insular legislature, but possesses certain independent powers of a quasi-legislative character. Judicial power centres in a United States district court and an insular supreme court, with officers likewise selected by the President.

President McKinley appointed a governor of Porto Rico on April 18, 1900, a treasurer and an auditor on April 30, a secretary on May 19, and the remaining officers on June 11. It is, I believe, a fact that upon no occasion in the history of our country has a group of appointments of equal importance been made with a greater neglect of personal or political considerations, and with a more completely single-minded purpose of finding for each particular office the person most eminently qualified therefor.

The governor was taken from congenial activity as assistant secre