OBSTRUCTIVE LEGISLATION
While supervision and control of big business is essential, the
trend has been in the direction of interference and in many
instances inhibition.
While both political parties, and all administrations, profess great
friendship for business, the treatment that both political parties have
accorded business is well illustrated by the fable of the elephant
that, in going through the jungle, stepped on a mother bird. When the
elephant saw the havoc she had wrought, she called the orphaned chick
and said: “This is deplorable. I did not intend to kill your mother. I
am a mother myself and have the mother instinct. But the deed has been
done and is past recall. Being unable to restore your mother I shall
give my efforts to the task that your mother would perform if she were
living.” So the elephant sat down on the chicks.
The American people have shown great aptitude and achieved unparalleled
success in two distinct fields—baseball and business. During the
period of development and successful prosecution of these two great
national games, the rules of the game were made by experts in the
respective games. Practical bankers made the rules of banking,
experienced traffic men made rules governing transportation, and expert
baseball players formulated the rules of that game. Business has
suffered because of modern methods, and baseball will go where business
had gone prior to the war, should the same policy be pursued and the
committee that is to make the rules of baseball be selected under the
direct primary system, from among those who never play the game, and
seldom see it played, upon a platform demanding that strenuous playing
shall cease, and that the score must be a tie regardless of errors.
Instead of permitting practical bankers to apply fundamental banking
principles, we have forty-nine distinct sets of statutory rules, one
for each state and one for the union of states, enacted by men some of
whom have no more knowledge of banking than they have of aeronautics,
and frequently administered by those whose tenure of office depends
upon the amount of trouble they can make.
We legislate to prevent monopolies and for the ostensible purpose of
encouraging competition, but the rules of banking are well nigh
prohibitive of the creation of new competitive concerns. The president
of one of the largest banking institutions in the United States, whose
operations extend into every state, told me that he had refused a loan
to Phil Armour except upon collateral that could be sold on the stock
exchange of any city, and in the same conversation said there was not a
loan in his institution except upon listed collateral. Only big
concerns can furnish that class of security.
Suppose you were to build a packing house costing one million dollars
and should make a bond issue of five hundred thousand dollars so as to
have collateral. The officers of no bank would care to lend on those
bonds. To do so would be to rely upon their judgment, and some little
bank examiner would report that the bank had loaned on collateral that
had no market value. Thereupon the Banking Department would write
criticising the loan and directing that the letter be read to the board
and a certain number of directors sign a reply. The course of least
resistance is to refuse all loans except to monopolies or upon stock
exchange collateral.
Not long ago a friend applied to one of the large banking institutions
in New York City for a loan upon unlisted securities. The president
took from his desk a certificate of stock of a certain railroad and
said: “I do not believe this stock worth the paper it is printed on,
but I will lend money upon it. I believe your securities are absolutely
good but I will not lend a dollar upon them.”
The reason was sensible, and the banker was wise when banking laws and
the rules of banking departments are considered. The railroad stock was
listed and dealt in every hour. Hence the public assumed it had value,
and it could be sold on the stock exchange for a price that fluctuated
little. Its intrinsic value, if any, was problematic, but it did have a
market value. The security offered was not listed. In the opinion of
the banker it had abundant intrinsic value, but since it did not have a
market value on the stock exchange, he did not feel justified in
inviting criticism from the Banking Department by relying upon his
judgment. It is difficult for a new concern to get credit and without
credit no concern can live.
BECAUSE ONE HORSE KICKS SHALL WE HAMSTRING THE WHOLE DROVE?
To a greater or less degree, the same policy has been applied to nearly
all important branches of business. The rules for the operation of
railroads and insurance companies are both complex and conflicting. The
books have to be kept to conform to the legislative requirements of
every state in which the concern does business.
A certain express company formerly employed one attorney at two
thousand dollars a year. It now maintains a legal department occupying
an entire floor of an office building, and the officers of the company
are in daily consultation lest they violate some state or federal
statute and go to the penitentiary.
The president of an insurance company told me that if he did in
Missouri what he was required to do in Texas, the penitentiary would
await him, while if he omitted it in Texas, his punishment would be
equally modest.
Severity of punishment in the United States has not yet reached the
limit witnessed in France late in the eighteenth century when direct
government was carried to its logical extreme. At that time the death
penalty was prescribed for those who took food products out of
circulation and kept them stored without daily and publicly offering
them for sale. Failing to make a true declaration of the amount of
goods on hand for eight days, and retaining a larger stock of bread
than was necessary for daily wants, were punishable by death. Death
also awaited the farmer who did not market his grain weekly and the
merchant who failed to keep his shop open for business. We may or may
not go to this extreme in America. I do not at the moment recall any
punishment at the present time in this country more severe than six
months in jail and a fine of five hundred dollars for spitting on the
sidewalk.