MONEY
No attempt will be made in this chapter to enter upon the disputed
questions regarding money, but only to point out undenied and
undeniable facts in connection with its use and abuse.
Coin, whether gold or silver, is used all over the world as the medium
of exchange. But gold and silver available for the purpose of coin are
limited in amount and totally inadequate to serve as mediums of
exchange without the assistance of other devices. Thus banks of issue
are organized for the purpose of issuing paper money. This money is
upon its face redeemable in coin, but banks of issue, relying upon the
probability that all paper issued will not be redeemed on the same
day, issue far more paper money than they have reserve in coin. In
England, this reserve is notably small.
Business, too, is conducted largely on credit; that is to say, the
trader buys goods not with coin, but with notes or promises to pay
gold, relying upon the probability that he will sell the goods before
his notes come due and thus be able to meet his notes with the
proceeds derived from the sale of the goods purchased with these
notes.
Industries, railroad companies, and transportation companies also use
credit for the purpose of building and running their roads and
factories. This credit takes the shape of permanent bonds and
temporary accommodations of the same character as the notes used by
private traders. The total number of bonds outstanding at par amount
to-day in the United States alone to $13,500,000,000.[115] It is
through the ability of railroad companies to issue bonds and credit
notes that they are enabled in prosperous periods to extend their
roads and factories.
Farmers also borrow largely upon their farms for the purchase of
implements, live stock, improvements, etc. Recent figures of bonded
indebtedness are not to be obtained; but they figure in the billions.
Again, cash payments are no longer made in coin; they are for the most
part made by check. Checks are not paid in coin; they are cleared
through clearing houses; the banks in every financial center belong to
a clearing house through which they daily settle with one another,
paying only differences of accounts in cash. Thus, in 1906, the total
transactions of fifty-five banks in New York city amounted to over
$103,000,000,000; yet the balances paid in money during the year only
amounted to about $3,000,000,000--a proportion of 3.69. So that
through the clearing-house system instead of exchanging gold to an
amount of $103,000,000,000 the whole business was transacted with only
3.69 per cent thereof in coin.
The above figures tend to show how small a relation is borne by coin
to the total exchanges of the world. Indeed, although coin is still
the ultimate medium of exchange, commercial and industrial
transactions are conducted for the most part through an enormous
system of credit built upon a comparatively small amount of coin.
The importance of this is considerable, for it puts those who have
coin and those who handle coin in a position which enables them to
control the industrial and commercial activities of the Nation. This
feature of our money system occasions what are called "financial
crises" as distinguished from commercial crises. Commercial crises and
industrial crises are due to overproduction. Financial crises are
produced for the most part by a breaking down of credit.
Credit may be broken down in many ways. A breakdown may be due to
inability on the part of those who handle coin to meet their
obligations in coin. It may, however, be due to the unwillingness of
those who have and handle money to put this money at the disposal of
the industrial public. It is sometimes occasioned by both.
Money is indispensable to the working of the industrial system. It may
be regarded as the blood of the industrial system because no farmer
can operate his farm, no factory owner his factory, no railroad
company its road without money or the equivalent of money--credit. And
if money can be compared with the blood in the human body, the banking
system must be regarded as its heart; the organ that keeps money in
circulation, accommodates circulation to the needs of the body,
furnishes the economic body with as much as at periods of exercise it
needs; and moderates its circulation when at periods of repose the
economic body is less in need of it. It is hardly necessary to point
out the extreme importance under these conditions that the heart of
this system act for the benefit of the system, and have at no time an
interest of its own to act independently of the system or in a manner
hostile to it. Now this is exactly the evil of existing monetary
conditions. Those who have and handle money have an interest of their
own to serve. While it is generally to their interest to use money in
making the community prosperous, it is at certain critical periods to
their interest on the contrary to withhold money. This is the point
upon which emphasis must be put. Let us, with a view to understanding
this, consider into how few hands the control of coin tends to be
concentrated; and how easy it is for these few to serve their own
interests at the expense of the public by withholding coin at moments
of utmost need.
A very brief study of the movements of coin in the United States will
demonstrate the very few hands in which the control of coin in the
country is vested:
Every trust, every corporation, every railroad company makes payments to
its stockholders at stated intervals consisting of dividends on stock
and interest on bonds. These amounts are large. In 1905 dividends
amounted to $840,018,022, and interest to $636,287,621--together a
billion and a half.[116] Most of this is paid in New York and produces a
regular flow of money from the great corporations to the New York banks.
The great life insurance companies have their principal offices in New
York and there flow daily into the coffers of these companies millions
of dollars of premiums, amounting in the year to nearly half a billion
($492,676,987 in 1908). During the last half century, 1859-1908, the
income from premiums reached the enormous total of $7,870,892,759.[117]
All these go into the hands of New York banks and trust companies.
These moneys are, in the ordinary course of business, returned to the
industrial public in the shape of accommodations to banks, loans to
farmers, factories, railroad companies, etc.; and if these enormous
sums that go into the hands of the Wall Street Group are not returned
to the industrial system, the industrial system must perish just as
the body must perish if its vital functions are not furnished with
blood. But as has been stated, it is to the interest of the Group to
keep the industrial system prosperous and, therefore, in prosperous
times this amount gets back to the country again, the Group receiving
a profit on taking in these moneys and on the paying out of them. One
thing, however, is certain--that the Group can by withholding money
make money scarce. It can by releasing money make it plentiful. The
power given to the Group by this order of things is incalculable. If
the Group desires to issue securities, it has an interest in making
money plentiful. If the Group desires to purchase securities cheaply,
it has an interest in making money scarce. The Group is therefore in a
position where it can serve its own interests whatever be the
direction these interests take.
A banker once described to me the situation as follows:
"The bulk of business is conducted with credit. An enormous credit
system is built upon a relatively small amount of gold. The bankers
control the gold; by controlling the gold they control credit; by
controlling credit they control business.
"This credit and gold system can be compared to an enormous system of
reservoirs and irrigation works, the sluices of which are all opened
and closed by electricity. It takes a very minute amount of
electricity to open and close the sluices; but the man who has control
of that small amount of electricity has the whole irrigation system at
his mercy. By pressing a button he can furnish water to one region and
take it away from another; and if water has been largely used--as in
the case of overinvestment--he can, by withholding water altogether,
put the whole population of the land irrigated by the system on its
knees."
Let us select as a concrete illustration of the workings of this
system the events of 1907:
The year prior to the October panic of 1907 was the most prosperous
year the country had ever seen. The balance of trade in our favor was
$446,000,000[118]; that is to say, Europe owed us $446,000,000 on the
year's transactions; the value of our crop exceeded that of the
previous year by over $480,000,000; the net earnings of our railroads
exceeded those of the previous year by over $260,000,000; the deposits
in our banks exceeded those of the previous year by over $880,000,000;
the cash held by our banks exceeded that held in the previous year by
over $100,000,000; and the Treasury of the United States was bulging
with ingots of gold. Nevertheless, the bankers knew that there had
been overinvestment. In fifteen years the banks had invested in stocks
and bonds no less than $437,000,000. In three years the trust
companies had invested no less than $643,000,000 in these
securities.[119]
Moreover, immense sums had been loaned by trust companies and cash
reserves had fallen from nearly 18 per cent in 1897 to a little over
11 per cent in 1907.[120] The Wall Street Group knew that there had
been overinvestment. As one of them said, "We are being overwhelmed by
our own prosperity." The breeze was blowing too strong and we were
carrying too much sail. The Wall Street Group, however, knowing that a
crisis was at hand and determined to realize the fullest possible
price for stocks, began selling securities in January, 1907, giving
rise to what has been termed "the rich man's panic," which climaxed
in March.[121] Securities fell in consequence of this selling on an
average of about 40 points. This tended to cripple all weak financial
institutions which were no longer able to sell securities with a view
to meeting obligations except at a loss. But this weakness did not
express itself until October.
The first to suffer was the brokerage firm of Otto Heinze & Company,
well-known speculators, particularly in copper stocks. The next to
fall were Charles W. Morse and E.R. Thomas, also speculators and
directors of the Mercantile National Bank, and others. All banks
controlled by these men at once showed weakness. But the panic did not
reach its climax until the Knickerbocker Trust Company became
involved. To understand the situation of the Knickerbocker Trust
Company, a word must be said regarding trust companies and their
relations to banks.
Banks in the city of New York are required by law to keep a reserve of
15 per cent of their deposits in coin. Trust companies, not being
subject to the banking law in this respect, are not called upon to
maintain this reserve. They have, therefore, an advantage over banks
because they can invest the whole of their deposits instead of keeping
a part of them uninvested in coin. The natural hostility that would
arise between trust companies and banks owing to this difference was
eliminated in almost every case because trust companies were
controlled by the banks. The Knickerbocker Trust Company, however,
formed a notable exception to this rule.
Owing to the genius of its President, Charles T. Barney, the
Knickerbocker Trust Company had increased its deposits to over eighty
millions in 1907. Mr. Barney did not belong to the Wall Street Group
in the sense of the word that he acted independently of it, and his
extraordinary enterprise and ability aroused the jealousy of the
Group. In 1907, the institution having 8,000 depositors with total
deposits of $80,000,000, became an independent power which was not to
be tolerated by the Group. Under these conditions, it could not be
expected that the Group would make any extraordinary effort to save
the Knickerbocker Trust Company. It was to the interest of the Group
that the Knickerbocker Trust Company should cease to remain an
independent financial power.
Everybody knew that the Knickerbocker Trust Company, though
temporarily embarrassed, was perfectly sound. The receivers, appointed
when its doors closed, so stated and subsequent events have proved
that the receivers were right. No one doubts the ability of the Group
to save the Knickerbocker Trust Company if it had chosen to do so. But
the Group had in its hands an instrument by means of which the ruin of
Mr. Barney could be effected: The clearing house has never admitted
trust companies to membership, because trust companies were not under
the obligation to maintain the 15 per cent reserve above referred to.
This matter had come up frequently for discussion and the clearing
house had insisted that all trust companies applying for membership to
the clearing house should keep a reserve at of least 10 per cent. This
the trust companies declined to do; but they nevertheless profited by
the clearing-house system by employing banks that were members of the
Clearing House Association to do their clearing for them--a dangerous
situation that proved the ruin of Mr. Barney. The Bank of Commerce was
the clearing-house agent of the Knickerbocker Trust Company; and the
Bank of Commerce was controlled by the Wall Street Group. Under these
conditions, the Knickerbocker Trust Company was at the mercy of the
Wall Street Group.
The Bank of Commerce publicly announced its refusal to clear any
longer for the Knickerbocker Trust Company on the 21st of
October.[122] Mr. Charles T. Barney was told that no help would be
given to the Knickerbocker Trust Company unless he resigned.
Understanding this to mean that help would be given if he did resign,
he resigned; but help was withheld; the Knickerbocker Trust Company
was allowed to go into the hands of receivers, and Mr. Barney
committed suicide.
Mr. Barney's corporation was not the only one upon which the Group had
its eye. The Group is interested in the General Electric Company, the
largest electrical company in America. The only serious rival of the
General Electric Company in the country is the Westinghouse Company.
Westinghouse was doing a larger business than he had capital for. "He
was overwhelmed by his own prosperity." All Westinghouse needed at
that time was money in order to protect his business. This money was
refused to him.
The Group is also interested in the railroads of the country and
indeed controls them. It is one of the bad features of our railroad
system that it almost everywhere controls steamship lines and thus
prevents the public from having the benefit of cheaper water rates by
exacting the same rates on steamboats as upon land. Morse with the
supposed backing of the Knickerbocker Trust had organized a system of
steamship companies which were running independently of the railroads
and threatening their monopoly of freight rates. It was necessary
that these steamship lines should be controlled by the various
railroad systems with which these lines competed, and Morse's
steamship company was forced into the hands of a receiver.
But there was another corporation of still more importance to the
Group--the Tennessee Coal and Iron Company.
The Steel Trust had never been able to purchase this company, and this
company was in a measure indispensable to them. The Tennessee Coal and
Iron Company had the extraordinary advantage of owning inter-bedded
coal and iron; that is to say, coal and iron in the same spot. It was
thus relieved of the necessity of transporting coal several hundred
miles to iron ore or iron ore several hundred miles to coal. This
enabled the Tennessee Coal and Iron Company to fix a price for steel
independently of the Steel Trust.
As has been explained, although trusts seek to have weak independent
concerns in existence if only to prevent strong independent concerns
from being organized, they cannot afford to have an independent
concern competing with them which is able to fix prices lower than
their own. For this reason, the Wall Street Group availed itself of
the panic to get control of the Tennessee Coal and Iron Company.
Upon the testimony of Oakleigh Thorne, President of the Trust Company
of America, and George W. Perkins of the firm of J.P. Morgan &
Company, who is a member of the Finance Board of the United States
Steel Corporation, before the Senate Committee on January 19,
1909,[123] it appears that a syndicate had been organized for the
purpose of acquiring the stock of the Tennessee Coal and Iron Company.
Mr. Oakleigh Thorne was a member of this syndicate, and the Trust
Company of America, of which he was president, had loaned on November
1, 1907, $482,700 to this syndicate against the stock of the Tennessee
Coal and Iron Company as collateral. It seems that the Trust Company
called this loan and that although the stock of the Tennessee Coal and
Iron Company was a dividend-paying stock and quoted at 119, the
syndicate found it impossible to borrow money upon it. The only
condition upon which they could borrow money was selling out to the
Steel Trust.
The Steel Trust gave in exchange for the Tennessee Coal and Iron
Company stock at 119 its own second mortgage bonds, quoted on the
market at that time at 82, and as soon as this exchange was effected
the syndicate was furnished with all the money it needed. Wall Street
loaned to the syndicate against steel second mortgage bonds the
amounts which had previously been refused upon the Tennessee Coal and
Iron Company stock. In other words, the Wall Street Group by refusing
to loan money to the syndicate against the Tennessee Coal and Iron
Company stock, compelled the syndicate to sell this stock to the Steel
Trust by agreeing to loan to the syndicate against Steel Trust second
mortgage bonds at 82 what they refused to loan to the same syndicate
on Tennessee Coal and Iron Company stock at 119.
The New York _Times_ says on this subject:[124]
"What inquiring Senators want to know is, How was it possible for a
small group of bankers to get together and, merely by agreement, force
out one security by giving preference to another less valuable? This
power is regarded as highly dangerous to all classes of securities,
placing them entirely at the mercy of the Wall Street Group."
The power of the Wall Street Group to which the _Times_ objects is in
times of panic reinforced by no less a power than the United States
Government. The United States differs from other countries in not
having a government bank for receiving government deposits and
distributing them in the ordinary course of banking business. The
result is that the receipts of the government accumulate in the United
States Treasury, and this tends to increase stringency in periods of
panic. It has become, therefore, a rule of the government to step in
on such occasions and deposit with its national banks a sufficient
amount to relieve stringency. It will be readily seen that this
intervention of the Secretary of the Treasury, while indispensable to
the public welfare, constitutes a great resource to the Wall Street
Group. For the Group can, by withholding cash at periods of
stringency, practically compel the government to come to the relief of
the market when, for purposes of its own the Group decides to withhold
funds. And as the Group includes the best-informed persons regarding
the finances of the country, it is to the Group that the Secretary of
the Treasury naturally goes for advice on these occasions. The Wall
Street Group therefore occupies a position which permits it to call
upon the government for funds when it desires to hoard its own funds
for its own purposes.
Thus we find Secretary Cortelyou in daily conference with the Wall
Street Group at this period; and after the Knickerbocker Trust Company
closed its doors on the 22d of October and receivers had been
appointed for the three Westinghouse firms on the 23d, Secretary
Cortelyou deposited $25,000,000 in the New York banks indicated by the
Group. This was just sufficient to prevent ruin but not sufficient to
relieve stringency. On November 4th, Judge Gary and Mr. Frick went to
see the President and explained to him that the purchase of the
Tennessee Coal and Iron Company stock by the Steel Trust was necessary
"in order to stop the panic."[125] The President on the same day wrote
a letter to the Attorney-General, subsequently communicated to the
Senate, in which he explained that in view of the fact that such a
purchase would tend "to stop the panic" and that it would not give the
Steel Trust more than 60 per cent. of the Steel industry, he did "not
feel it a public duty to interpose any objection."
The purchase of the Tennessee Coal and Iron Company having been
effected, the United States Government was once more called upon by
the Group and on November 17, the President and Secretary Cortelyou
announced the issue of 2 per cent Panama bonds for an amount of
$50,000,000, and 3 per cent on certificate indebtedness to an amount
of $100,000,000. By this time, however, the Group had decided that
there was no necessity to maintain panic conditions, and the issue of
these bonds was arrested, so that only one-half of the Panama bonds
and only $15,000,000 of the Treasury certificates were allotted.
It has been intimated that the Wall Street Group during the whole of
this panic was in possession of funds which it purposely withheld.
This intimation seems justified by the events which immediately
followed the purchase of the Tennessee Coal and Iron stock by the
Steel Trust. In November newspapers informed us that our bankers were
engaged in "buying gold" in Europe, and during November no less than
$63,000,000 were imported and in December a further $44,000,000 were
imported; together--over $100,000,000. It is a somewhat singular
thing that the public does not seem to have asked for information as
to what was meant by this singular expression "buying gold."
The machinery through which gold was brought over to America in
November and December was the following: Our farmers had already
produced crops and sold them to Europe; the 1907 cotton crop began to
move in August--a large part of it was in Europe before the panic. Our
wheat crop, though late, was already partly in Europe and on its way
there. Those who had produced and sold these crops had drawn against
their shipments. These drafts are called "cotton bills"--"wheat
bills." Certain bankers with connections abroad make it their special
business to buy these bills and present them for payment in Europe at
a minute profit called "exchange." But these bankers could not, during
the panic, borrow money as usual to buy these bills; and they did not
dare to use the money of their depositors for this purpose when they
were under imminent danger of a run. So these bills became a drug on
the market; they could be got for four cents in the pound cheaper than
in average years; and at this price, and at an exceptional profit, the
Wall Street Group went into the market and bought them up, presented
them for payment and got all the money from Europe that was wanted.
This is the process that was called "buying gold." But _who had gold
with which to buy these bills? Who had been hoarding gold?_
What do these facts disclose? They disclose that at the time when the
Wall Street Group refused help to the Knickerbocker Trust it had at
its disposal the gold in the United States Treasury--did not Cortelyou
actually put this gold at its disposal?--the credit of the United
States Government--did not Cortelyou at its bidding issue all the
bonds he was told to issue?--and enough money of its own at the proper
moment to purchase cotton and wheat bills at panic prices, so that
every ship that in November and December sailed from Europe to New
York came laden with gold?
No one can, I think, deny the power of the Group after a fair
consideration of these incidents. Let us see how this power was
exercised as regards the city of New York.
The Comptroller in a report published in November, 1907 (pages 5 and
6) showed that the city had not only voted, but appropriated over
$195,000,000 for, public works, much of which was urgently needed by
the city and some of which ought to have been completed four years
before. Yet this city of four million inhabitants, whose property is
underassessed at $7,000,000,000, was not able to employ its thousands
of unemployed at this urgently needed public work because, as
Comptroller Metz stated at a crowded meeting, Mr. J. Pierpont Morgan
would not give the money to do it with, _and the city could get it
from no one else_.[126]
Morgan allowed the city in October to issue $30,000,000 of its bonds
at 6 per cent, but refused to permit any further issue until the last
day of January. On January 29th, according to the New York _Sun_,[127]
Mr. Morgan relented, and the Mayor of the city, the Comptroller, the
Deputy Comptroller, the Corporation Counsel, and the City Chamberlain
were summoned to Mr. Morgan's library. There at last the imperial
consent was given; the richest city in America was allowed by Mr.
Morgan to issue its own bonds, but not in an amount large enough to
permit of any public works. So the unemployed were left to tramp
sleeplessly through our streets.
The Wall Street Group found another important element of profit in the
fall of securities during the panic. It has been said that securities
fell on an average 40 points when the Group sold securities between
January and March, 1907. Mr. James H. Brookmire estimates that they
fell another 16 points during the panic. The Group seemed informed as
to the exact moment at which securities had reached the bottom price;
that is, they knew the moment when the panic was intended to come to
an end. I was fortunate enough to be informed by a member of the Group
at the right moment. I purchased Northern Pacific stock upon the
advice given and, in the course of the year, made 50 per cent profit
thereupon. The Group that sold between January and March, 1907, was in
a position to buy back stock at less than one-half what they sold it
for and, if they chose to realize at the present time, it would make
an additional 50 per cent. In other words, it was in a position to
make over 100 per cent upon the whole transaction. When we keep in
mind the enormous figures which the operations of the Group attain,
the amount of profit realized upon this amount alone can be imagined.
I do not wish to be understood as pretending that the facts marshalled
in the foregoing pages constitute conclusive proofs that the Group
either made money by the panic, or withheld cash and credit for the
purpose of making money. It is possible that the sales of stock
between January and March and the repurchase of stock in November were
effected solely with a view to the public welfare; it is possible that
the Knickerbocker Trust Company was allowed to go to the wall solely
through error in judgment; it is possible that the Steel Trust
reluctantly purchased the Tennessee Coal and Iron Company as Messrs.
Gary and Frick explained to the President--solely for the purpose of
"stopping the panic." But practical business men are not accustomed to
concluding in this fashion. When the keenest appetites of humanity are
whetted to the utmost and opportunities are extended for the
satisfaction of these appetites, we generally conclude that these
opportunities are not refused through pure asceticism; at least not by
the Wall Street Group.
When Mrs. Forrest brought action against her husband, Edwin Forrest,
the actor, it was proved that the defendant had been seen visiting a
house of ill fame; after he entered, a third story front room was lit;
the room remained lit for about an hour; the light was extinguished at
the end of this period, and a few moments thereafter Mr. Forrest was
seen leaving the house. His counsel maintained that this was not
conclusive evidence against him; that his profession obliged him to
study human nature in every rank of life at close quarters, and that
it had not been proved that he visited this house for any other
purpose. Charles O'Conor in responding to this part of the defendant's
argument, said: "I can see the defendant walking up the steps of this
house of ill fame; I can see him enter and ushered into a room full of
human nature exclusively of the female sex ready and willing to be
studied at close quarters; I can see him select the one which he
believed to be able to furnish the best opportunities for this
purpose; I can see the two mount the stairs to the third story front
and light the gas; and I can see them together there devote an hour to
meditation and prayer." The jury was satisfied with the evidence and
rendered a verdict for divorce in favor of Mrs. Forrest.
Whatever be the opinion, however, as to whether or not the Wall Street
Group withheld funds to effect its purpose during the panic; or
whether it made money out of the panic, one thing is perfectly
certain--it was in a position where it could have withheld money; it
was in a position where it could have made money out of the panic. The
question the community has to decide is whether it is willing to leave
this power and this temptation to any group of bankers--either to the
saints now in control of Wall Street, or possibly to their less worthy
successors.
In one of the standard English works on Money,[128] George Clare
points out the exorbitant power of the Secretary of our Treasury:
"The New York Market is in fact at the mercy of an autocrat who,
having full power to loose or bind large masses of currency at his
absolute discretion, decides for himself whether and when money shall
be cheap, and whether and when it shall be dear."
This autocratic power is to-day at the disposal of the Wall Street
Group--not owing to any improper influence of the Group; not through
any improper conduct of the Treasury; but as a necessary result of
existing conditions. And if Mr. Clare is right in criticising the
wisdom of granting to the Treasury the autocratic power it now enjoys,
how much more dangerous is it to grant this autocratic power not to an
official who can be removed, but to a group of financiers who cannot
be removed? For the power exerted by the Wall Street Group includes
not only all the resources of the Treasury, but all the resources of
the entire country. It holds the life blood of our economic system in
its hands and, because it controls this life blood, it controls
politics, education, morals, and religion. And this group of men was
not elected to the position it now enjoys by the majority of our
citizens; it has usurped the position by virtue of its control over
silver and gold.
The fact, however, that the use of silver and gold as our sole medium
of exchange gives men control of the most essential things in our
life, whom we never elected to that office and who at critical times
have a personal interest to serve in opposition to that of the public
welfare, is not the only evil connected with their use:
Silver and gold do not furnish us with constant standards of values.
At various periods in the history of our civilization, gold and silver
have been discovered in enormous quantities, and the effect of the
discoveries and the putting of the gold and silver on the market has
been and must be of a character to seriously affect the interests of
all. When the amount of gold and silver in circulation is increased,
prices go up, but wages do not correspondingly rise; and the
wage-earner is unconsciously robbed. He goes on receiving the same
amount in gold or silver for his work, but the purchasing power of the
wage he receives diminishes. Again, when contraction takes place, as
for example when silver was demonetized in 1893, a great wrong was
done to the farmers who had borrowed money upon their farms; for by
demonetizing silver, gold increased correspondingly in value and the
farmer was called upon to pay his mortgages with money worth far more
than it was prior to the demonetization of silver.
One thing, however, we want to bear in mind, that although farmers
suffer by the demonetization of silver and wage-earners suffer by the
demonetization of silver, and no change in the amount of silver and
gold used as currency takes place without somebody suffering, the
financiers and all those who handle money are in a position so to
conduct their affairs as to profit by these changes. Meanwhile the
rest of the community are in such a position that they have not the
knowledge and even if they had the knowledge, would probably not have
the ability, to do anything but lose by them.
The average citizen has no knowledge on these subjects whatever, and
is therefore at the mercy of financial heretics. He was misled by the
greenback craze in the 80's, by the silver craze in the 90's, and is
subject to further delusions so long as coin remains the medium of
exchange and coin is controlled by a few individuals whose only
interest in it is to make out of it the largest fortune possible.
It must not be imagined that an attempt has been made to furnish
anything like an exhaustive account of the opportunities which
financiers have for profiting at the expense of the public. To do so
would require a volume as large as this one devoted entirely to this
subject.
For example, at this very time of writing,[129] the papers inform us
that Mr. Morgan is hurrying back from Europe to settle the question
whether a dividend is to be paid on the common stock of the United
States Steel Company. It is known that Mr. Morgan received a very
large block of this stock as his compensation for promoting the trust.
If he still has enough of this stock to make the payment of a dividend
of importance to him, or if he wants to sell at a high price, he will
be naturally influenced by this motive to declare a dividend. If, on
the other hand, he who best of all knows how prosperous the Company
is, desires to purchase more of this stock at a low price, he will be
tempted not to declare a dividend. The stock will fall and he will be
able to make a large profit by purchasing.
In this manner directors are always able, if they choose, to make
money on the declaration of doubtful dividends; and this can be done
without its being possible to impute any blame to them, for a
declaration of a dividend is always a matter of judgment. It is wise
to put aside a certain part of the profits as a reserve to meet hard
times, and just how much shall be put aside as a reserve and how much
shall be paid out for dividends are matters on which it is very
difficult for the best-intentioned men to agree. The directors,
however, who control the company can make up their minds beforehand
whether they will declare a dividend or not. If they propose to pass a
dividend, they can sell as much as the market permits and buy back
later at reduced prices. If they decide to declare a dividend, they
can buy as much as the market permits and sell later at advanced
prices.
Again, there seems to be no standard of morality amongst bankers as
regards the profits they make. In the ordinary walks of life, a man is
expected to be able to explain what the services are for which he
receives any considerable sum of money. This, however, does not seem
to be the case with bankers. In 1893, the United States Congress
appointed a committee to investigate the rumor that over a million
dollars had been remitted to J.P. Morgan & Company, Winslow Lanier &
Company and J. & W. Seligman for the purpose of corrupting Congress.
Messrs. Morgan, Lanier and Seligman were obliged to admit that a sum
of $1,200,000 had been divided among them, "apparently for the use of
their names and for nothing else." When asked if it had been remitted
for the purpose of corrupting Congress, they denied it; when asked if
they were still in possession of this sum, they admitted they were;
when asked what the services were for which they had received this
sum, they naively stated that they did not know.[130] Such an
admission made by a lawyer would be ground for having him disbarred.
The very moral or immoral attitude that permits of bankers receiving
enormous sums of money without being able to explain why these moneys
were paid to them, pervades the whole financial atmosphere.
The directors of our large corporations corrupt our legislatures; they
endow universities and pervert our education; they support the
churches and prevent them from preaching the doctrines of Christ; they
determine elections so as to secure legislators whom they can control.
They are masters, not only of our whole system of production and
distribution, but of our government and our laws. And this democracy
which in theory is a government of the people, by the people, and for
the people, turns out to be a government of the people, by financiers,
for financiers.
Nor does it seem possible to put an end to this condition of things so
long as our system of production and distribution is competitive; for
gold and silver have proved to be altogether the best mediums of
exchange, and some medium of exchange we must have in order to carry
on trade so long as that trade is left to individual initiative as at
present.
The whole community pays tribute to those who have gold and silver and
those who handle it, and these last have a personal interest contrary
to the interest of the public at moments of the greatest emergency.
Competitive conditions have subjected the whole currency of the
country to the control of a few men who thereby are masters of our
commerce, our manufactures, our exports, our politics, our religion.
In view of the fact that this small group practically governs the
country in matters of legislation, and by virtue of a sort of class
solidarity between the judges and the possessing class, governs the
courts also, the men who determine the making and executing of our
laws should, in a democracy such as ours, be elected by the people.
But they are not elected by the people and they are not removable by
the people. They are irremovable usurpers; they are created by
economic conditions and, as long as these economic conditions last,
they will continue to enjoy the power they now exercise.
FOOTNOTES:
[115] An article by Charles A. Conant in the _Atlantic Monthly_, Jan.,
1908.
[116] _Atlantic Monthly_, Charles A. Conant, Jan., 1908, p. 101.
[117] Insurance Year Book: Life and Casualty sections, 1909, p. 236-7.
[118] Statistical abstract of the U.S., 1908.
[119] "Monetary and Banking Systems." By Maurice L. Muhleman, formerly
U.S. Deputy Assistant Treasurer at New York.
[120] Ibid.
[121] According to computations made by Mr. James H. Brookmire on
quotations of twenty representative railroad stocks, these reached at
the highest point in 1906, 138. In March, these securities had gone
down to 98.
[122] N.Y. _Press_, Oct. 22, 1907.
[123] See N.Y. _Times_, Jan. 30, 1909.
[124] N.Y. _Times_, February 1, 1909.
[125] The N.Y. _Times_, Jan. 7, 1909.
[126] N.Y. _Sun_, Jan. 17, 1908.
[127] Ibid., Jan. 30, 1908.
[128] "A Money Market Primer," by George Clare. Recommended by the
Council of the Institute of Bankers. Revised edition, London, 1896, p.
123.
[129] July 16, 1909.
[130] House Reports, 52d Congress, 2d Session, v. 3, No. 2615, p. 5.