Monopolistic corporation that sparked the panic of 1893.
The National Cordage Company, the nation’s leading
manufacturer of rope and twine, became known as the first
failed trust (or monopoly) in American history, one whose
demise sparked the disastrous panic of 1893 and the ensuing
depression. The company began as a group of rope manufacturers and experimented with the formation of trade associations that would negotiate agreements concerning production of the same or similar products and pools (which fixed
prices) before uniting, in 1887, to form the National Cordage
Company, a combination trust and corporation. It quickly
bought up several smaller competitors, acquiring nominal
control of 40 percent of the country’s rope and twine production within three years. Reorganizing as a holding company (holding companies control smaller companies by
holding the smaller companies’ stock or controlling their operations) chartered in New Jersey and increasing its capital
stock tenfold to $15 million, the company boasted effective
control of about 90 percent of the country’s cordage mills by
early 1892. Financed by the leading New York banks, National
Cordage was touted by the financial press as being one of the
nation’s rising industrial giants. However, the holding company borrowed large amounts of capital because four-fifths
of its production remained in binder twine, a product that
generated a cash flow only during harvest time. It also followed the dubious practices of purchasing the entire output
of its suppliers on condition that the latter pledge not to
equip its competitors, of buying out its competitors on condition that they retire permanently from the field, and of trying to corner the nation’s hemp market.
With few actual economies of scale resulting from its reorganization in 1887, and with its recurring dependence on having escalating amounts of working capital, National Cordage
encountered increasing difficulty paying its creditors. Adding
insult to injury, several companies it had bought out used the
proceeds from the sale to start new competing enterprises.
During the early months of 1893, National Cordage boldly declared a 100 percent stock dividend in addition to making its
usual payments to stockholders of 10 percent per annum.
Happy stockholders received extra cash, but the financial press
had no reaction. Just a few weeks later, however, the company
announced its plans to file for receivership, touching off a selling frenzy among its stockholders. Over the next few months,
the value of the company’s stock plummeted from $138 to $20
per share. When the receiver put in charge of the company’s
finances discovered that the company treasury was empty, the
Commercial and Financial Chronicle proclaimed, “Cordage
has collapsed like a bursted meteor.” Subsequent attempts to
reorganize as the United States Cordage Company and as the
Standard Cordage Company also failed by 1912.
—John D. Buenker
References
Dewing, Arthur S. Corporate Promotions and
Reorganizations. New York: Harper and Row, 1969.