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Thomas Alva Edison's “Treatise on National Economic Policy and Business”
Published online by Cambridge University Press: 11 June 2012
Abstract
Thomas Edison's achievements as an inventor-entrepreneur tend to overshadow the fact that his knowledge and interests extended well beyond the applied sciences. In 1891, a crucial and busy year of his life, Edison took time to set forth his views on one of the most important issues of the day, government regulation of business. Edison's notebook remained almost untouched for nearly one hundred years until Professor Rubin began a careful examination of its contents. His editing and annotation of the manuscript reveal the considerable depth of Edison's intellect and his capacity to probe economic issues in the same thorough manner with which he approached research problems in the laboratory.
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- Copyright © The President and Fellows of Harvard College 1985
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1 Establishing the notebook's date of composition posed some difficulty. It was originally indexed as N15.00.00.03, which sets the writing in 1915; but recently Dr. Thomas E. Jeffrey, associate editor of the Edison Papers project, changed the coded number to N.91.00.00, placing the notebook in the series written in 1891. The code system was prepared in the 1930s and 1940s under the direction of Mr. Norman Speiden. then curator of the Edison National Historic Site. There is nothing in Speiden's files indicating why the notebook was included in the N15.00.00 series.
Using the new index number merely as a reference point, I sought clues about the date within the document itself. It is clear that it was written after 2 July 1890, when the Sherman Antitrust Act became law: in the first paragraph of the manuscript, Edison refers to the effects of this act. It is equally apparent that the manuscript was drafted before 1892, for in paragraph 60 Edison remarks: “See Eleventh Census when out, ditto Tenth Census.” Publication of the Eleventh Census for the year 1890 did not begin until 1892.
With the date of composition considerably narrowed to between July 1890 and 1892, four other citations in the text were helpful in confirming 1891 as the year it was written. In paragraph 55 Edison refers to the American Sugar Trust: the Sugar Trust came into existence with the incorporation of the American Sugar Company on 31 January 1891. The new tax law, mentioned by Edison in paragraph 88, refers to a New Jersey statute taxing corporate profits that was enacted 16 March 1891. The Cash Register Cases cited in paragraph 99 refer to a decision of the Federal Circuit Court of Massachusetts on 23 March 1891 involving two patent infringement suits instituted by the National Cash Register Company. And in paragraph 51 Edison mentions a London Gas and Coke Company contract: the New York Times devoted a feature article to this contract on 4 April 1891. The sequence of the last three events within a three-week period—16 March to 4 April 1891—indicates the likelihood of Edison's having written the manuscript in April when the events were fresh in his mind.
2 In the entire treatise there are fewer than half a dozen periods terminating sentences. Edison preferred using dashes: commas were inserted randomly for short pauses in thought. Edison was also unconcerned about the accuracy of spelling. The word tariff, for example, is spelled in three different ways: “tarrif,” “tarriff,” and “tariff.’’ To further complicate editing, Edison's style reflects poor syntax and in consistency in complying with many rules of grammar.
3 Abbreviations are eliminated with the exception of i.e. and etc., and the word “and” is substituted for the ampersand. Capitalization is regularized. To achieve clarity, liberal changes are made in punctuation and in the combination of sentences to form paragraphs. Spelling mistakes, however, are left intact; they are noted by the use of sic. Bracketed words are occasionally inserted to improve syntax, while incorrect verb forms are retained, but also noted by sic.
4 Statutes at Large (1890), 26:209.
5 See paragraph 98, p. 000.
6 Statutes at Large (836), 5:117Google Scholar; ibid. (1861), 12:246; ibid. (1870), 14:198.
7 “Fundamental” is Edison's title for the opening section of the treatise, in which he lists fourteen assumptions representing his views of businessmen's attitudes and behavior with respect to national economic policy regulating business. The fourteen numbered statements extend over six handwritten pages.
8 Edison's concern about the tariff arises from the volatile political issue it had become in the late 1880s. Democrats in Congress, led by President Grover Cleveland, were committed to retrenchment from protectionism while Republicans wanted to retain the status quo. Cleveland lost his bid for reelection in 1888; the tariff was the pivotal issue. Upon gaining control of the presidency and both houses of Congress, Republicans succeeded in enacting the McKinley Tariff Bill in 1890, by far the most protectionist legislation yet adopted. The McKinley bill became law in October 1890; a month later, the Republicans were decisively defeated at the polls, with Democrats achieving a three-to-one ratio in the House. Edison wrote this treatise anticipating major changes in the tariff policy. To save the economy from probable chaos, he proposed gradual reductions in duty rates. For detailed discussion of the tariff controversy, see Taussig, Frank W., The Tariff History of the United States (New York, 1931), 251–85.Google Scholar
9 The term “trust” is used by Edison here and elsewhere in the treatise to denote any act, agreement or combination among enterprises within an industrial sector, with the intent and power to monopolize business, control trade, and fix prices. Edison's view is broader in context than the original conception of the term. For an authoritative examination of definitions of a trust, consult Moody, John, The Truth About Trusts (New York, 1904), xii-xiv.Google Scholar
10 This opening paragraph of the treatise's middle section introduced Edison's principal concerns: the establishment of legally sanctioned trade associations and a workable plan for a minimum price regulation which would bind trade association members. Through the next fifty-six handwritten pages, Edison considers the ramifications of each of these problems.
11 Here and throughout the treatise, Edison equates the phrase “legal interest” with legitimate rate of profit. In 1891, the interest rates banks could charge on business loans were limited by law. Edison believed similar practices might be adopted with regard to business profits in fields other than banking.
12 In 1870, the Standard Oil Company was incorporated in Ohio by a syndicate headed by John D. Rockefeller for the purpose of refining crude oil. The company gained notoriety in 1879 when it was reorganized in the first trust agreement ever adopted in the United States. For detailed discussion of the early rise of the Standard Oil Company and the establishment of the trust, see Moody, Truth About Trusts, 109–44; Laidler, Harry W., Concentration and Control of American Industry (New York, 1931), 16ff.Google Scholar; Seager, Henry R. and Gulick, Charles A., Trusts and Corporation Problems (New York, 1929), 49, 97–98.Google Scholar
13 James Buchanan Duke, of the firm W. Duke's Sons and Company, was the prime mover in the consolidation of five tobacco manufacturing firms forming the American Tobacco Company, incorporated in New Jersey in January 1890, with an authorized capital of $25 million. The company advertised its blended tobacco under the trademark “Duke Mixture,” which was used for both smoking and chewing plugs. Moody, Truth About Trusts, 70–72; Heinmann, Robert, Tobacco and Americans (New York, 1975), 17, 27–29Google Scholar; Laidler, Concentration and Control, 191ff.; Seager and Gulick, Trusts and Corporation Problems, 150; Secretary of State of New Jersey, Corporations of New Jersey, List of Certificates 1846–1894 (Trenton, N.J., 1895), 13Google Scholar [hereafter cited as N.J. Corp. Cert.].
14 Edison, for the first time in the treatise, refers to a “legal price law.” The idea of price fixing by law is a major principle in the draft legislation proposed at the end of the treatise.
15 Farmer discontent with prices for their crops while middlemen—processors, warehousers, and wholesalers—were earning lucrative profits in handling farm produce led to the formation of farmer alliances in the late 1880s. Burley tobacco planters organized the Tobacco Growers' Protective Association to assume some of the functions of the middlemen, particularly warehousing. Heinmann, Tobacco and Americans, 227–28; John B. Killebrew, “Culture and Curing of Tobacco in the United States,” Census, Tenth, Agriculture (Washington, D.C., 1883), 3: 595–858.Google Scholar
16 The American Ice Machine Company, capitalized at $500,000, was incorporated in New Jersey in April 1890 to manufacture and supply ice. With headquarters in Newark, the company acquired ice plants and storage facilities in several northeastern states. Within a decade, forty plants were taken over and the firm was reorganized as the American Ice Company, capitalized at $42 million. Moody cited the American Ice Company as “The Ice Trust.” Moody, Truth About Trusts, 227–28; Laidler, Concentration and Control, 312; N.J. Corp. Cert., 10.
17 As an inventor-entrepreneur, Edison was well aware of the intrinsic value of copyrights and trademarks, which under existing laws could be sold by the owner outright or franchised for royalty payments. Thus Edison raises the question of what value should be placed on a copyright or trademark when determining legal price.
18 In the late nineteenth century, shoe and boot manufacturers could only secure necessary machinery through leasing arrangements with patent-holding machinery companies. By paying royalties to the machinery firms, the shoe makers were able to rent lasting, welting, outside-stitching, heeling, and metal fastening machines. Seager and Gulick, Trusts and Corporation Problems, 280–81; Laidler, Concentration and Control, 281; 234 Fed. 131 (1920).
19 Formation of the shoe machinery trust began in the 1880s with the merger of the Consolidated Shoe Machinery Company and the McKay Lasting Machine Company. In 1889 the United Shoe Machine Company of New Jersey acquired the Goodyear Shoe Machinery Company. Under the acquisition terms, the latter firm retained its corporate name while serving as a leasing department of the New Jersey company. These two mergers established effective control over 70 percent of lasting-machine output, 80 percent of outsole-stitching machines, 70 percent of heeling machines, and 80 percent of metal fastening machines. A decade later, a third merger was achieved, bringing together the four original companies along with four smaller competitors under a New Jersey-based company, the United Shoe Machinery Company, which had an authorized capital of $50 million. Seager and Gulick, Trusts and Corporation Problems, 280–81; Moody, Truth About Trusts, 277; Laidler, Concentration and Control, 281; 227 U.S. 215 (1913); 222 Fed. 351 (1918); 234 Fed. 129 (1920).
20 Edison uses the term “general expense” to denote fixed or overhead costs of doing business.
21 Following Edison's thought, a manufacturer operating a retail outlet could hold membership in two trade associations at two different levels: one for manufacturers in a particular field and the other for dealers (retailers).
22 The steel trust, cited by Edison, refers to the growing domination of the steel industry by the Carnegie interests. From 1863 when Andrew Carnegie formed a partnership with Henry Phipps, the firm of Carnegie, Phipps and Company began acquiring steel mills, fabricating plants, and coke works. A second firm, Carnegie Brothers and Company, was formed in 1881. From an initial working capital of $300,000 in 1863, Carnegie interests grew to over $10 million in asset worth by 1891. A prize acquisition in 1883 was the Homestead steel plant, built in 1879–80 by Pittsburgh Bessemer Steel Company, a rival of the Carnegie associates. The Homestead plant at that time was the largest, most modern, and most technologically advanced of all steel mills operating in the United States. Moody, Truth About Trusts, 153–55; Walker, Joseph Frazier, Andrew Carnegie (New York, 1970), 471–536.Google Scholar
23 Edison's comment concerning felspar miners is confusing because he inserts the reference “legal costs” where he means “legal price.” Compare note 14.
24 Marc Klaw and Abraham Erlanger, theatrical booking agents, formed a partnership in 1888 and purchased the Taylor Theatrical Exchange, a New York agency. During the next few years, by virtue of their extensive contact with Southern theater managers, Klaw and Erlanger were able to secure exclusive booking privileges for most of the first-class theaters in the South. Lippman, Monroe, “Marc Klaw,” Dictionary of American Biography (New York, 1932), 22: 363–64Google Scholar; “Abraham Lincoln Erlanger,” ibid., 6:176–77.
25 The London Gaslight and Coke Company contract with the British government was Edison's model for adjusting the legal price law when production costs were reduced. Under the terms of the London contract, any earnings derived from cost savings were to be divided by the public and investors; increased dividends could be paid only when the price of gas to consumers was reduced. The basis of distribution of earnings was determined by a sliding scale governed by parliamentary law. “Gas in London,” New York Times, 4 April 1891, 4.
26 Edison here uses the term “legal rate” to mean “legal price.”
27 For identification of the steel trust, see note 22.
28 Although the initial Standard Oil trust agreement was signed in 1879, it was the revision of 1882 that established the company's domination in all facets of the oil business: crude oil production, refining, pipelines, and marketing. Under the terms of the new agreement, Standard Oil Company reorganized sixty-six companies into twenty major subsidiaries. The American Sugar Refining Company—the “Sugar Trust”—was incorporated in New jersey in January 1891, capitalized at $50 million. It consolidated the Havemeyer family's Sugar Refineries Company with twenty other plants throughout the country. The nucleus of the “Tobacco Trust” was formed in January 1890 with the incorporation of the American Tobacco Company. Concentration of enterprises manufacturing farm machinery, cited by Edison as the Harvester trust, proceeded more slowly than those in other fields. Ten companies, led by McCormick Harvester Company and Deering Harvester Company, attempted to merge in 1890 when they secured a corporate charter in Illinois for the American Harvester Company. They elected officers and a board of directors but the merger effort collapsed. For details, see Seager and Gulick, Trusts and Corporation Problems, 265. Eventually the International Harvester Company was organized, consolidating six major companies with assets exceeding $80 million. For further descriptions of all these trusts, see Laidler, Concentration and Control, 213, 282–83; Moody, Truth About Trusts, 61–63, 70–72, 118–30, 251–52; and Seager and Gulick, Trusts and Corporation Problems, 263–65.
29 The so-called Meat Trust never existed as a distinct corporate entity. Domination of the meatpacking industry by two firms, Armour and Company and Swift and Company, earned the designation “Meat Trust.” P. D. Armour and brothers started a meatpacking business in Chigago in 1868; seven years later Gustavus Swift established a rival enterprise in the same city. In the late 1880s, they branched out, building plants in Fort Worth, Kansas City, Omaha, St. Louis, and other cities. They also controlled refrigeration and transportation facilities, and operated soap, hair, and glue factories. Laidler, Concentration and Control, 200–2; Moody, Truth About Trusts, 257–58.
30 A search for oil in Catcasieu Parish, southwestern Louisiana, in 1860 led to the discovery of extensive deposits of sulphur 425 feet below ground level. Efforts to mine the sulphur did not begin until after the Civil War when the Calcasieu Mining Company was formed and acquired a fifty-acre tract of land. After a number of futile attempts to dig a shaft, the company capitulated and sold its property, buildings, and machinery in 1879 to the Louisiana Sulphur Company. In the ensuing decade, five more attempts to reach the sulphur beds also failed. In 1890, the elusive sulphur mine was taken over by the American Sulphur Company, which was financed by three business acquaintances of Edison: Abram S. Hewitt, Edward Cooper, and Hamilton Twombly. Throughout the eighties, most of America's demand for sulphur was supplied from Sicilian mines. A low tariff did not encourage U.S. production of sulphur; furthermore, overseas shipping rates were cheaper than inland freight rates. Haynes, William, The Stone That Burns: The Story of the American Sulphur Industry (New York, 1942), 3–14Google Scholar; David Day, “Sulphur,” U.S. Geological Survey, Mineral Resources 1883–1884 (Washington, D.C., 1885), 864–65.Google Scholar
31 Edison was referring to two large combines: the Weyerhaeuser interests in the northwest and the Great Southern Lumber Company in the Gulf region of the South. Frederick Weyerhaeuser began purchasing timber land in 1852, and by 1890 he had acquired several million acres from Minnesota to Puget Sound. The Weyerhaeuser Company erected saw mills, storage plants, and docking facilities. In the South, the Great Southern Lumber Company had extensive operations in Louisiana and Mississippi. It was much smaller in scale than the Weyerhaeuser holdings. The Southern Company controlled 125,000 acres of timber land. Laidler, Concentration and Control, 77–78.
32 The German potash industry was the major supplier of fertilizer concentrates in world markets, with the United States the principal importer. In 1879 the German government sponsored consolidation of the potash industry as part of Bismarck's National Economic Policy. By 1888, the monopoly was completed when the state-owned mines of Prussia and Anhalt became members of the cartel. A centralized selling agency was organized under cartel agreement. Bruck, W. F., Social and Economic History of Germany from William II to Hitler (Cardiff, 1938), 96, 188Google Scholar; The German Potash Industry (New York, 1906), 41–45; Seager and Gulick, Trusts and Corporation Problems, 568–69.
33 Volume 9 of the Tenth Census for the year 1880 (published in 1884) is entitled Forests and includes a section on naval stores. The Eleventh Census for the year 1890 was published in twenty-five volumes from 1892 to 1897. There was no section in the Eleventh Census series examining naval stores. Edison, writing in 1891, was unaware of the omission.
34 For Edison's meaning of the term “general expense,” see note 20.
35 Twenty-five percent refers to the rate of duty under American tariff law.
36 Edison refers here to Germany's leadership among industrial nations in the late nineteenth century in the development of modern central and commercial banking practices. The Reichsbank, established in 1871 after the Franco-Prussian War, rediscounted industrial bills, issued currency, and underwrote state loans. German commercial banks underwrote industrial securities which they converted into stock and debenture holdings. They traded in stocks of their own industries as well as in foreign securities. Frequently, their representatives served on industrial boards of directors. According to Bruck, the German banks were “the most important economic medium for national unification.” Bruck, Social and Economic History of Germany, 80–83, 88.
37 In noting the subsidization of the American merchant marine, Edison draws attention to the decline of U.S. merchant fleets in transoceanic commerce. Before the Civil War, England and the United States dominated Atlantic transport trade. After the war, the British achieved supremacy while American interests declined. Our merchant fleets lost trade to Germany, France, and Holland, as well as to England. The European merchant fleets were heavily subsidized by their governments. The British fleet, for example, received an annual subsidy averaging $75 million, while American shippers complained bitterly that the U.S. government contributed less than $1.5 million each year. In 1890, Congress debated the subsidy issue without taking any action. Hutchins, John, The American Maritime Industries and Public Policy, 1789–1914 (Cambridge, Mass., 1941), 525–33Google Scholar; 51st Cong., 1st sess., 1890, H. Rept. 1210; New York Times, H. Jan. 1890, 1.
38 In 1890, the Clyde Line was the largest American shipping company engaged in commerce between Atlantic and Gulf coast ports and New York City. It operated twenty-two ships in its coastal voyages and five more steamers for trips to the West Indies. William Pancoast Clyde owned the company. In February 1890 he testified before the House of Representatives' hearings on the question of increasing subsidies to the merchant marine. Hutchins, American Maritime Industries, 532; H. Rept. 1210, 150–64; New York City WPA, A Maritime History of New York (New York, 1941), 31; “William Pancoast Clyde,” National Cyclopaedia of American Biography (New York, 1904), 20:57–58.
39 See note 11.
40 Edison was apprehensive about the possibility of a minimum price law being nullified by the courts. Litigation might be started by a reluctant member of a trade association attacking the price law on grounds that it violated the due process clauses of the Fifth and Fourteenth Amendments. In the eighties and nineties there were a number of cases decided by the federal courts, including the Supreme Court, where state laws regulating railroad rates were struck down. The courts declared that rate regulation deprived an enterprise of its ability to earn profits on the use of its property; the company was thus in substance deprived of its property without due process of law. The following are a few examples of such decisions: Wabash, St. Louis, and Pacific Railway v. Illinois, 118 U.S. 557 (1886); Georgia Railroad and Banking Company v. Smith, 128 U.S. 174 (1888); Chicago, Milwaukee, and St. Paul Railroad v. Minnesota, 134 U.S. 418, 458 (1890).
41 The Albany Chemical Company was founded in 1881 succeeding an earlier enterprise known as the Albany Pharmaceutical Company. The firm initially manufactured a line of medicinal preparations, but its production expanded to include general chemicals as well as specialized chemicals for the photography industry. Among its many product lines were acetic acid, ether, chloroform, mercurials, carbolic acids, chlorides, alcohols, silver nitrate, and iron preparations. By 1891, the Albany Chemical Company's plant occupied a square block in the waterfront area of Albany City. Albany Chamber of Commerce, Albany Illustrated (Albany, 1892), 85Google Scholar; Albany Chamber of Commerce, Made in Albany (Albany, 1912), 37Google Scholar; American Journal of Progress, Albany, New York. Capital of the Empire State (1897), 11.
42 Sigmund Bergmann worked for Edison and then became his partner in manufacturing electrical appliances. Emigrating from Germany in 1870 at the age of eighteen, he went to work in Edison's shop in Newark as a mechanic. Bergmann demonstrated business acumen as well as creative skill as a master mechanic. With Edison's help, he opened his own machine shop in New York, manufacturing telegraphic apparatus, telephone equipment, and other Edison inventions. When the electric light and distribution system were perfected, Bergmann manufactured fixtures, sockets, and other small devices for the system. Edison became his partner, supplying additional capital for the expansion of Bergmanns plant. After revisiting Germany in the late eighties, Bergmann took up residence in his native country in 1891 and established an electrical manufacturing works in Berlin. “Sigmund Bergmann,” Edison pioneer files, Edison National Historic Site, West Orange, N.J. See also paragraph 63.
43 Edison's reference to “other abuses” indicates his concern that a manufacturer might diminish the quality of a product in order to cut prices and thereby increase sales.
44 This “new tax law” refers to a New Jersey enactment of 16 March 1891, taxing dividends and gross receipts of corporations in the utility and transportation fields, insurance companies, and firms operating oil pipe lines in the state. The law also taxed unsubscribed capital stock issued by New Jersey–chartered manufacturing and mining corporations conducting less than 50 percent of their business in the state. The new law amended an 1884 corporation tax law and extended the scope of corporation tax liability in New Jersey. 115 Legis. sess., chap. 93, 16 March 1891, Laws of New Jersey (Trenton, 1891), 150–52; 108 Legis. sess., chap. 159, 18 April 1884, ibid., 232–37.
45 Edison is referring to the Sherman Act and antitrust laws adopted by state legislatures. In 1889–90, a dozen states enacted antitrust legislation; several of the new states admitted into the Union included in their constitutions declarations opposing monopolv. Clark, John D., The Federal Trust Policy (Baltimore, 1931), 27.Google Scholar
46 Watering stock was a notorious practice employed by financial promoters to increase corporate assets by issuing new securities. Such addition to the aggregate capital of a corporation required little if any cash from the promoters who, in turn, could reap substantial profits from the sale of the new stock.
47 Jay Gould was a behind-the-scenes manipulator in the financial machinations that plagued New York City's traction system in the late nineteenth century. Three New York City rapid transit lines were chartered by the state legislature after the Civil War: the Manhattan, the Metropolitan, and the New York Elevated Railway companies. The Manhattan Company never laid any track. It became the holding company of the other two lines in the late seventies, using a new stock issue of $13 million to lease them. In 1880, Jay Gould became interested in the transit system. His agents petitioned state authorities to nullify the Manhattan Company's charter, and its stock plummeted from $57 to $15 a share. Gould's syndicate bought controlling interest while the company went into receivership. Once in control, Gould arranged for dismissal of the receivership and the stock rebounded to $55 a share. In 1881, Gould secured authority for a new stock issue of $26 million, which was distributed to investors of the three companies. Higher operating costs were met by raising fares from five to ten cents. In 1890, $40 million in bonds were floated although operating expenses were less than $5 million. The following year, the Manhattan Company acquired control of yet another line, the Suburban Rapid Transit Company. Grodinsky, Julius, Jay Gould: His Business Career 1867–1892 (Philadelphia, 1957), 288–314, 572Google Scholar; O'Conner, Richard, Gould's Millions (Garden City, N.Y., 1962), 168–81Google Scholar; New York Times, 6 Jan. 1890, 5; 27 Dec. 1881, 4, and 13 April 1890, 1.
48 Six percent was the legal interest rate limit for bank loans, which Edison regarded as a legitimate rate of profit for all other business concerns.
49 In 1891 the Bureau of Standards was a subdivision of the Treasury Department. After the turn of the century, it was reorganized under the newly created Department of Labor and Commerce.
50 The Custom House was another subdivision of the Treasury Department whose responsibilities included appraising goods imported into the United States. In each port of entry, a ship's cargo was landed and sent to the public warehouse, whereupon a customs inspector checked the cargo against the ship's manifest and appraised the goods. After tariff duties were paid, the surveyor of customs released the goods to their owners. New York Times, 4 July 1890; 4 and 1 Dec. 1890, 5.
51 Edison, after writing this paragraph, left a six-page gap in the notebook before his next entry, without explanation.
52 Edison was referring to two patent infringement suits instituted by the National Cash Register Company against Boston Cash Indicator and Recorder Company. The Federal Circuit Court in Massachusetts dismissed both cases, disallowing National Cash Register's claim of control over the manufacture of all indicator devices and spring-drawer apparatus by virtue of its patents. The cases were decided 23 March 1891. For details, see 45 Fed. Rep. 481–86.
53 Edison would levy personal fines on the management personnel directly responsible for a company's violation of the minimum price law.
54 The last section of the treatise is Edison's draft of legislation permitting trade associations and establishing legally sanctioned minimum prices. The proposal was written on three separate sheets of paper which were inserted into the notebook.