HOW THE COMBINERS COMBINE
Among the allies, two New York banks--the National City and the First
National--stand preëminent. They constitute, with the Morgan firm,
the inner group of the Money Trust. Each of the two banks, like J. P.
Morgan & Co., has huge resources. Each of the two banks, like the firm
of J. P. Morgan & Co., has been dominated by a genius in combination.
In the National City it is James Stillman; in the First National,
George F. Baker. Each of these gentlemen was formerly President,
and is now Chairman of the Board of Directors. The resources of the
National City Bank (including its Siamese-twin security company) are
about $300,000,000; those of the First National Bank (including its
Siamese-twin security company) are about $200,000,000. The resources
of the Morgan firm have not been disclosed. But it appears that they
have available for their operations, also, huge deposits from their
subjects; deposits reported as $162,500,000.
The private fortunes of the chief actors in the combination have not
been ascertained. But sporadic evidence indicates how great are the
possibilities of accumulation when one has the use of “other people’s
money.” Mr. Morgan’s wealth became proverbial. Of Mr. Stillman’s many
investments, only one was specifically referred to, as he was in
Europe during the investigation, and did not testify. But that one is
significant. His 47,498 shares in the National City Bank are worth
about $18,000,000. Mr. Jacob H. Schiff aptly described this as “a very
nice investment.”
Of Mr. Baker’s investments we know more, as he testified on many
subjects. His 20,000 shares in the First National Bank are worth at
least $20,000,000. His stocks in six other New York banks and trust
companies are together worth about $3,000,000. The scale of his
investment in railroads may be inferred from his former holdings in
the Central Railroad of New Jersey. He was its largest stockholder--so
large that with a few friends he held a majority of the $27,436,800 par
value of outstanding stock, which the Reading bought at $160 a share.
He is a director in 28 other railroad companies; and presumably a
stockholder in, at least, as many. The full extent of his fortune was
not inquired into, for that was not an issue in the investigation. But
it is not surprising that Mr. Baker saw little need of new laws. When
asked:
“You think everything is all right as it is in this world, do you not?”
He answered:
“Pretty nearly.”
RAMIFICATIONS OF POWER
But wealth expressed in figures gives a wholly inadequate picture of
the allies’ power. Their wealth is dynamic. It is wielded by geniuses
in combination. It finds its proper expression in means of control.
To comprehend the power of the allies we must try to visualize the
ramifications through which the forces operate.
Mr. Baker is a director in 22 corporations having, with their many
subsidiaries, aggregate resources or capitalization of $7,272,000,000.
But the direct and visible power of the First National Bank, which
Mr. Baker dominates, extends further. The Pujo report shows that its
directors (including Mr. Baker’s son) are directors in at least 27
other corporations with resources of $4,270,000,000. That is, the First
National is represented in 49 corporations, with aggregate resources
or capitalization of $11,542,000,000.
* * * * *
It may help to an appreciation of the allies’ power to name a few of
the more prominent corporations in which, for instance, Mr. Baker’s
influence is exerted--visibly and directly--as voting trustee,
executive committee man or simple director.
1. _Banks, Trust, and Life Insurance Companies:_ First National Bank of
New York; National Bank of Commerce; Farmers’ Loan and Trust Company;
Mutual Life Insurance Company.
2. _Railroad Companies:_ New York Central Lines; New Haven, Reading,
Erie, Lackawanna, Lehigh Valley, Southern, Northern Pacific, Chicago,
Burlington & Quincy.
3. _Public Service Corporations:_ American Telegraph & Telephone
Company, Adams Express Company.
4. _Industrial Corporations:_ United States Steel Corporation, Pullman
Company.
Mr. Stillman is a director in only 7 corporations, with aggregate
assets of $2,476,000,000; but the directors in the National City Bank,
which he dominates, are directors in at least 41 other corporations
which, with their subsidiaries, have an aggregate capitalization
or resources of $10,564,000,000. The members of the firm of J. P.
Morgan & Co., the acknowledged leader of the allied forces, hold 72
directorships in 47 of the largest corporations of the country.
The Pujo Committee finds that the members of J. P. Morgan & Co. and the
directors of their controlled trust companies and of the First National
and the National City Bank together hold:
“One hundred and eighteen directorships in 34 banks and trust companies
having total resources of $2,679,000,000 and total deposits of
$1,983,000,000.
“Thirty directorships in 10 insurance companies having total assets of
$2,293,000,000.
“One hundred and five directorships in 32 transportation systems
having a total capitalization of $11,784,000,000 and a total mileage
(excluding express companies and steamship lines) of 150,200.
“Sixty-three directorships in 24 producing and trading corporations
having a total capitalization of $3,339,000,000.
“Twenty-five directorships in 12 public-utility corporations having a
total capitalization of $2,150,000,000.
“In all, 341 directorships in 112 corporations having aggregate
resources or capitalization of $22,245,000,000.”
TWENTY-TWO BILLION DOLLARS
Twenty-two billion dollars is a large sum--so large that we have
difficulty in grasping its significance. The mind realizes size only
through comparisons. With what can we compare twenty-two billions of
dollars? Twenty-two billions of dollars is more than three times the
assessed value of all the property, real and personal, in all New
England. It is nearly three times the assessed value of all the real
estate in the City of New York. It is more than twice the assessed
value of all the property in the thirteen Southern states. It is more
than the assessed value of all the property in the twenty-two states,
north and south, lying west of the Mississippi River.
But the huge sum of twenty-two billion dollars is not large enough to
include all the corporations to which the “influence” of the three
allies, directly and visibly, extends, for
_First:_ There are 56 other corporations (not included in the Pujo
schedule) each with capital or resources of over $5,000,000, and
aggregating nearly $1,350,000,000, in which the Morgan allies are
represented according to the directories of directors.
_Second:_ The Pujo schedule does not include any corporation with
resources of less than $5,000,000. But these financial giants have
shown their humility by becoming directors in many such. For instance,
members of J. P. Morgan & Co., and directors in the National City
Bank and the First National Bank are also directors in 158 such
corporations. Available publications disclose the capitalization of
only 38 of these, but those 38 aggregate $78,669,375.
_Third:_ The Pujo schedule includes only the corporations in which the
Morgan associates actually appear by name as directors. It does not
include those in which they are represented by dummies, or otherwise.
For instance, the Morgan influence certainly extends to the Kansas
City Terminal Railway Company, for which they have marketed since 1910
(in connection with others) four issues aggregating $41,761,000. But
no member of J. P. Morgan & Co., of the National City Bank, or of the
First National Bank appears on the Kansas City Terminal directorate.
_Fourth:_ The Pujo schedule does not include all the subsidiaries of
the corporations scheduled. For instance, the capitalization of the New
Haven System is given as $385,000,000. That sum represents the bond and
stock capital of the New Haven _Railroad_. But the New Haven _System_
comprises many controlled corporations whose capitalization is only
to a slight extent included directly or indirectly in the New Haven
Railroad balance sheet. The New Haven, like most large corporations,
is a holding company also; and a holding company may control
subsidiaries while owning but a small part of the latters’ outstanding
securities. Only the small part so held will be represented in the
holding company’s balance sheet. Thus, while the New Haven Railroad’s
capitalization is only $385,000,000--and that sum only appears in the
Pujo schedule--the capitalization of the New Haven System, as shown by
a chart submitted to the Committee, is over twice as great; namely,
$849,000,000.
It is clear, therefore, that the $22,000,000,000, referred to by the
Pujo Committee, understates the extent of concentration effected by the
inner group of the Money Trust.
CEMENTING THE TRIPLE ALLIANCE
Care was taken by these builders of imperial power that their structure
should be enduring. It has been buttressed on every side by joint
ownerships and mutual stockholdings, as well as by close personal
relationships; for directorships are ephemeral and may end with a new
election. Mr. Morgan and his partners acquired one-sixth of the stock
of the First National Bank, and made a $6,000,000 investment in the
stock of the National City Bank. Then J. P. Morgan & Co., the National
City, and the First National (or their dominant officers--Mr. Stillman
and Mr. Baker) acquired together, by stock purchases and voting trusts,
control of the National Bank of Commerce, with its $190,000,000 of
resources; of the Chase National, with $125,000,000; of the Guaranty
Trust Company, with $232,000,000; of the Bankers’ Trust Company, with
$205,000,000; and of a number of smaller, but important, financial
institutions. They became joint voting trustees in great railroad
systems; and finally (as if the allies were united into a single
concern) loyal and efficient service in the banks--like that rendered
by Mr. Davison and Mr. Lamont in the First National--was rewarded by
promotion to membership in the firm of J. P. Morgan & Co.
THE PROVINCIAL ALLIES
Thus equipped and bound together, J. P. Morgan & Co., the National City
and the First National easily dominated America’s financial center, New
York; for certain other important bankers, to be hereafter mentioned,
were held in restraint by “gentlemen’s” agreements. The three allies
dominated Philadelphia too; for the firm of Drexel & Co. is J. P.
Morgan & Co. under another name. But there are two other important
money centers in America, Boston and Chicago.
In Boston there are two large international banking houses--Lee,
Higginson & Co., and Kidder, Peabody & Co.--both long established
and rich; and each possessing an extensive, wealthy clientele of
eager investors in bonds and stocks. Since 1907 each of these firms
has purchased or underwritten (principally in conjunction with other
bankers) about 100 different security issues of the greater interstate
corporations, the issues of each banker amounting in the aggregate to
over $1,000,000,000. Concentration of banking capital has proceeded
even further in Boston than in New York. By successive consolidations
the number of national banks has been reduced from 58 in 1898 to 19 in
1913. There are in Boston now also 23 trust companies.
The National Shawmut Bank, the First National Bank of Boston and the
Old Colony Trust Co., which these two Boston banking houses and their
associates control, alone have aggregate resources of $288,386,294,
constituting about one-half of the banking resources of the city. These
great banking institutions, which are themselves the result of many
consolidations, and the 21 other banks and trust companies, in which
their directors are also directors, hold together 90 per cent. of the
total banking resources of Boston. And linked to them by interlocking
directorates are 9 other banks and trust companies whose aggregate
resources are about 2 1/2 per cent. of Boston’s total. Thus of 42
banking institutions, 33, with aggregate resources of $560,516,239,
holding about 92 1/2 per cent. of the aggregate banking resources of
Boston, are interlocked. But even the remaining 9 banks and trust
companies, which together hold but 7 1/2 per cent. of Boston banking
resources, are not all independent of one another. Three are linked
together; so that there appear to be only six banks in all Boston
that are free from interlocking directorate relations. They together
represent but 5 per cent. of Boston’s banking resources. And it may
well be doubted whether all of even those 6 are entirely free from
affiliation with the other groups.
Boston’s banking concentration is not limited to the legal confines
of the city. Around Boston proper are over thirty suburbs, which with
it form what is popularly known as “Greater Boston.” These suburban
municipalities, and also other important cities like Worcester and
Springfield, are, in many respects, within Boston’s “sphere of
influence.” Boston’s inner banking group has interlocked, not only 33
of the 42 banks of Boston proper, as above shown, but has linked with
them, by interlocking directorships, at least 42 other banks and trust
companies in 35 other municipalities.
Once Lee, Higginson & Co. and Kidder, Peabody & Co. were active
competitors. They are so still in some small, or purely local matters;
but both are devoted co-operators with the Morgan associates in
larger and interstate transactions; and the alliance with these great
Boston banking houses has been cemented by mutual stockholdings and
co-directorships. Financial concentration seems to have found its
highest expression in Boston.
Somewhat similar relations exist between the triple alliance and
Chicago’s great financial institutions--its First National Bank, the
Illinois Trust and Savings Bank, and the Continental & Commercial
National Bank--which together control resources of $561,000,000. And
similar relations would doubtless be found to exist with the leading
bankers of the other important financial centers of America, as to
which the Pujo Committee was prevented by lack of time from making
investigation.
THE AUXILIARIES
Such are the primary, such the secondary powers which comprise the
Money Trust; but these are supplemented by forces of magnitude.
“Radiating from these principal groups,” says the Pujo Committee, “and
closely affiliated with them are smaller but important banking houses,
such as Kissel, Kinnicut & Co., White, Weld & Co., and Harvey Fisk &
Sons, who receive large and lucrative patronage from the dominating
groups, and are used by the latter as jobbers or distributors of
securities, the issuing of which they control, but which for reasons
of their own they prefer not to have issued or distributed under their
own names. Lee, Higginson & Co., besides being partners with the inner
group, are also frequently utilized in this service because of their
facilities as distributors of securities.”
For instance, J. P. Morgan & Co. as fiscal agents of the New Haven
Railroad had the right to market its securities and that of its
subsidiaries. Among the numerous New Haven subsidiaries, is the New
York, Westchester and Boston--the road which cost $1,500,000 a mile to
build, and which earned a _deficit_ last year of nearly $1,500,000,
besides failing to earn any return upon the New Haven’s own stock and
bond investment of $8,241,951. When the New Haven concluded to market
$17,200,000 of these bonds, J. P. Morgan & Co., “for reasons of their
own,” “preferred not to have these bonds issued or distributed under
their own name.” The Morgan firm took the bonds at 92 1/2 net; and the
bonds were marketed by Kissel, Kinnicut & Co. and others at 96 1/4.
THE SATELLITES
The alliance is still further supplemented, as the Pujo Committee
shows:
“Beyond these inner groups and sub-groups are banks and bankers
throughout the country who co-operate with them in underwriting
or guaranteeing the sale of securities offered to the public,
and who also act as distributors of such securities. It was
impossible to learn the identity of these corporations, owing to
the unwillingness of the members of the inner group to disclose
the names of their underwriters, but sufficient appears to justify
the statement that there are at least hundreds of them and that
they extend into many of the cities throughout this and foreign
countries.
“The patronage thus proceeding from the inner group and its
sub-groups is of great value to these banks and bankers, who
are thus tied by self-interest to the great issuing houses and
may be regarded as a part of this vast financial organization.
Such patronage yields no inconsiderable part of the income of
these banks and bankers and without much risk on account of the
facilities of the principal groups for placing issues of securities
through their domination of great banks and trust companies and
their other domestic affiliations and their foreign connections.
The underwriting commissions on issues made by this inner group
are usually easily earned and do not ordinarily involve the
underwriters in the purchase of the underwritten securities.
Their interest in the transaction is generally adjusted unless
they choose to purchase part of the securities, by the payment to
them of a commission. There are, however, occasions on which this
is not the case. The underwriters are then required to take the
securities. Bankers and brokers are so anxious to be permitted to
participate in these transactions under the lead of the inner group
that as a rule they join when invited to do so, regardless of their
approval of the particular business, lest by refusing they should
thereafter cease to be invited.”
In other words, an invitation from these royal bankers is interpreted
as a command. As a result, these great bankers frequently get huge
commissions without themselves distributing any of the bonds, or ever
having taken any actual risk.
“In the case of the New York subway financing of $170,000,000 of bonds
by Messrs. Morgan & Co. and their associates, Mr. Davison [as the Pujo
Committee reports] estimated that there were from 100 to 125 such
underwriters who were apparently glad to agree that Messrs. Morgan
& Co., the First National Bank, and the National City Bank should
receive 3 per cent.,--equal to $5,100,000--for forming this syndicate,
thus relieving themselves from all liability, whilst the underwriters
assumed the risk of what the bonds would realize and of being required
to take their share of the unsold portion.”
THE PROTECTION OF PSEUDO-ETHICS
The organization of the Money Trust is intensive, the combination
comprehensive; but one other element was recognized as necessary
to render it stable, and to make its dynamic force irresistible.
Despotism, be it financial or political, is vulnerable, unless it is
believed to rest upon a moral sanction. The longing for freedom is
ineradicable. It will express itself in protest against servitude and
inaction, unless the striving for freedom be made to seem immoral.
Long ago monarchs invented, as a preservative of absolutism, the
fiction of “The divine right of kings.” Bankers, imitating royalty,
invented recently that precious rule of so-called “Ethics,” by which
it is declared unprofessional to come to the financial relief of any
corporation which is already the prey of another “reputable” banker.
“The possibility of competition between these banking houses in the
purchase of securities,” says the Pujo Committee, “is further removed
by the understanding between them and others, that one will not seek,
by offering better terms, to take away from another, a customer which
it has theretofore served, and by corollary of this, namely, that where
given bankers have once satisfactorily united in bringing out an issue
of a corporation, they shall also join in bringing out any subsequent
issue of the same corporations. This is described as a principle of
banking ethics.”
The “Ethical” basis of the rule must be that the interests of the
combined bankers are superior to the interests of the rest of the
community. Their attitude reminds one of the “spheres of influence”
with ample “hinterlands” by which rapacious nations are adjusting
differences. Important banking concerns, too ambitious to be willing
to take a subordinate position in the alliance, and too powerful to
be suppressed, are accorded a financial “sphere of influence” upon
the understanding that the rule of banking ethics will be faithfully
observed. Most prominent among such lesser potentates are Kuhn, Loeb
& Co., of New York, an international banking house of great wealth,
with large clientele and connections. They are accorded an important
“sphere of influence” in American railroading, including among other
systems the Baltimore & Ohio, the Union Pacific and the Southern
Pacific. They and the Morgan group have with few exceptions preëmpted
the banking business of the important railroads of the country. But
even Kuhn, Loeb & Co. are not wholly independent. The Pujo Committee
reports that they are “qualified allies of the inner group”; and
through their “close relations with the National City Bank and the
National Bank of Commerce and other financial institutions” have “many
interests in common with the Morgan associates, conducting large
joint-account operations with them.”
THE EVILS RESULTANT
_First:_ These banker-barons levy, through their excessive exactions,
a heavy toll upon the whole community; upon owners of money for leave
to invest it; upon railroads, public service and industrial companies,
for leave to use this money of other people; and, through these
corporations, upon consumers.
“The charge of capital,” says the Pujo Committee, “which of course
enters universally into the price of commodities and of service,
is thus in effect determined by agreement amongst those supplying
it and not under the check of competition. If there be any virtue
in the principle of competition, certainly any plan or arrangement
which prevents its operation in the performance of so fundamental
a commercial function as the supplying of capital is peculiarly
injurious.”
_Second:_ More serious, however, is the effect of the Money Trust
in directly suppressing competition. That suppression enables the
monopolist to extort excessive profits; but monopoly increases the
burden of the consumer even more in other ways. Monopoly arrests
development; and through arresting development, prevents that lessening
of the cost of production and of distribution which would otherwise
take place.
Can full competition exist among the anthracite coal railroads when the
Morgan associates are potent in all of them? And with like conditions
prevailing, what competition is to be expected between the Northern
Pacific and the Great Northern, the Southern, the Louisville and
Nashville, and the Atlantic Coast Line; or between the Westinghouse
Manufacturing Company and the General Electric Company? As the Pujo
Committee finds:
“Such affiliations tend as a cover and conduit for secret arrangements
and understandings in restriction of competition through the agency of
the banking house thus situated.”
And under existing conditions of combination, relief through other
banking houses is precluded.
“It can hardly be expected that the banks, trust companies, and other
institutions that are thus seeking participation from this inner
group would be likely to engage in business of a character that would
be displeasing to the latter or would interfere with their plans or
prestige. And so the protection that can be afforded by the members of
the inner group constitutes the safest refuge of our great industrial
combinations against future competition. The powerful grip of these
gentlemen is upon the throttle that controls the wheels of credit, and
upon their signal those wheels will turn or stop.”
_Third:_ But far more serious even than the suppression of competition
is the suppression of industrial liberty, indeed of manhood itself,
which this overweening financial power entails. The intimidation which
it effects extends far beyond “the banks, trust companies, and other
institutions seeking participation from this inner group in their
lucrative underwritings”; and far beyond those interested in the great
corporations directly dependent upon the inner group. Its blighting and
benumbing effect extends as well to the small and seemingly independent
business man, to the vast army of professional men and others directly
dependent upon “Big Business,” and to many another; for
1. Nearly every enterprising business man needs bank credit. The
granting of credit involves the exercise of judgment of the bank
officials; and however honestly the bank officials may wish to
exercise their discretion, experience shows that their judgment is
warped by the existence of the all-pervading power of the Money
Trust. He who openly opposes the great interests will often be
found to lack that quality of “safe and sane”-ness which is the
basis of financial credit.
2. Nearly every enterprising business man and a large part of our
professional men have something to sell to, or must buy something
from, the great corporations to which the control or influence
of the money lords extends directly, or from or to affiliated
interests. Sometimes it is merchandise; sometimes it is service;
sometimes they have nothing either to buy or to sell, but desire
political or social advancement. Sometimes they want merely
peace. Experience shows that “it is not healthy to buck against a
locomotive,” and “Business is business.”
Here and there you will find a hero,--red-blooded, and
courageous,--loving manhood more than wealth, place or security,--who
dared to fight for independence and won. Here and there you may find
the martyr, who resisted in silence and suffered with resignation. But
America, which seeks “the greatest good of the greatest number,” cannot
be content with conditions that fit only the hero, the martyr or the
slave.