THE FUNDAMENTALS OF FINANCE
Finance is easy enough to comprehend if it be explained, but so long as
an explanation is deadly to the interests of the men who control it, one
can be sure none will be offered. There is no term more common to-day
than "trusts," and we are surrounded by "trusts," institutions whose
workings during the past twenty years have awakened intense public
curiosity to know what a "trust" is. Yet there is not extant a
definition of a "trust" which conveys to the rank and file of the people
any real idea of what a "trust" is. So vague is the general
understanding of the "trust's" functions and purposes that the most
intelligent and honest statesmen struggle and hopelessly flounder when
they attempt to define them, and we have at the present time the able
chief of our nation talking of regulating them by law, when, as a matter
of fact, a "trust" is, top, sides, bottom, outsides, and insides, an
absolutely illegal institution, created outside the law, existing
outside the law, and having for its purpose the performance of those
things and only those things which the law says cannot be performed
legally. Imagine our law-makers gravely meeting to make laws for the
control and regulation of the pick-pocket or burglar or counterfeiting
industry, or endeavoring to prescribe legally the times, places, and
amounts of national bank defalcations, or the kind of ink, paper, and
pens which must be used by forgers in the pursuit of their
profession--imagine it!
In entering upon an explanation of the workings of the "System," it is
necessary to set forth plainly the fundamentals of finance, the few
rules and inventions by and through which humanity regulates its
affairs. In the beginning, of course, might was right and men supplied
their wants by force, trickery, or cunning. In time the disadvantages
of this became obvious, for while the stronger could overcome the weaker
and satisfy desire, a combination of the weaker units acting together
could always wrest the prize from the individual. To equalize things,
the people got together and made for themselves rules and regulations
governing the conduct of their lives and their relations with one
another. This was invention No. 1: _Law_. Presently it developed that
the physical barter of the commodities of labor was not a satisfactory
basis of exchange; so to the statutes already in existence a new one was
added providing an interchangeable token of value. This was invention
No. 2: _Money_. The statute insisted that the money be of a fair and
just standard, by which all the people should receive the equivalent of
their labor, and no more. As conditions became more settled, there grew
up a realization of the value of a man's life to those dependent on him,
and of the fact that when he died his wife and his children were
deprived of the livelihood his labor won for them. A new regulation was
added to the code, providing that men contributing to a fund during
their lifetime should be entitled at death to leave to their heirs a sum
in proportion to the amount of their contribution to the fund, less the
actual expense of caring therefor. This was _Life Insurance_--invention
No. 3. But there were other calamities less distant than death to be
guarded against, and a common fund, also based on the contributions of
individuals, to aid and relieve in case of fire and kindred calamities,
was organized. Hence invention No. 4: _Fire Insurance_.
And thus the fabric of civilization grew, each addition to the structure
being made to cover a want which experience developed. As time went on,
some of the people accumulated the fruits of labor, money, in greater
quantity than was requisite for their own needs, but which less thrifty
or less fortunate brethren could so profitably employ in their own
affairs as to be able to pay for its use a fair proportion of what it
could be made to earn. Thereupon provision was made for a common place
of safety for this surplus money, a place where experts in the handling
and putting to use of money could employ their talents, first,
safeguarding it and, then, loaning it to others. And the law was made to
say that all money put into this common place should be so guarded as to
be ready for its owner when he demanded it; that its owner should
receive all it earned less the necessary expense of holding it, and that
the amount it earned should be only such as those who borrowed it could
fairly make it earn. This was invention No. 5: _The Bank_.
As the years followed one another, "the bank" became one of the most
important of the people's institutions and grew in number and variety.
There came to be many different forms of banks. For instance, _national
banks_, which, under the control and regulation of the Government,
became depositories for the circulation of the Government's money and
were privileged to lend money to individuals or corporations with or
without collateral. Funds confided by the people to these national banks
had always to be ready for their owners. A second form was the
_savings-bank_, which grew out of the requirements of small depositors
and was governed by the laws of its community. The savings-bank used and
safeguarded money confided to it in small sums, and these amounts could
be withdrawn only by their owners in person, after an agreed term of
notice. The savings-bank was allowed to lend only on real estate or
certain other securities, the character of which was rigidly regulated
by the law. In consequence, it could use its funds for long-time loans
and mortgages, so it earned larger rates of interest than the national
banks. The _trust company_ was a third variation, coming somewhere
between the national and the savings-bank, and was regulated, as was the
latter, by the laws of the community in which it existed. The trust
company, too, received deposits from the people, but was allowed a
broader latitude in employing them. It was also authorized to engage in
certain other business--for example, to act as manager for a deceased
person's estate and even to buy and sell securities. Because of the
extra-hazardous business in which it engaged and from which the other
two institutions were legally debarred, the trust company earned and
paid larger rates of interest to its depositors, and the men who
handled its funds were allowed to take for their own remuneration
profits in excess of those derived by the custodians of national and
savings-banks.
Another deficiency in the business structure growing out of the
increasing prosperity of the people was next provided for. When an
enterprise became so large as to necessitate several owners for its
conduct, the prescribing and defining of the relation of these owners to
each other and to the common property became a task of increasing
difficulty. So the idea arose of welding the enterprise itself into a
separate entity which could do all the things the individual might, and
yet exist apart from the individual and independent of his personal
dealings and comings and goings. His ownership should be an undivided
interest in the whole represented by certificates of stock or bonds,
which could pass from him to another without interfering with the
enterprise. This was invention No. 6: _The Corporation_. The law then
provided regulations for the creation and conduct of these corporations
which compelled them to keep their affairs in such shape that all could
ascertain of what each consisted.
When these six organizations had been founded, the machinery for the
conduct of the business of a civilized people was almost complete. But
still one other want developed: with the multiplication of the
corporation tokens of property, it became necessary that there should be
some place where the worth of these might be ascertained either by
purchase, sale, or loan under the regulation of experts. So there was
created a common market-place, to which came all those who had
corporation tokens of property to sell and those who desired to purchase
them; and the prices these brought were announced to the world and
became the measure of the value of the institution they represented.
Rules for the regulation of the business of the market-place were
gradually formulated, and invention No. 7--the _Stock Exchange_--came
into existence.
With this addition, the people's organism for safeguarding and
economically handling the funds of their labor to the best advantage of
all concerned and without interfering with the rights and privileges of
individuals was fully equipped. Each separate institution had grown out
of an actual necessity and had its own legal organic function, fully
understood and defined. And there was no branch of human industry which
could not be safeguarded, handled, and perpetuated through this
organism, nor could evil come from the existence of any one of these
seven components. The robber, the thief, and the pirate, as defences
against whom they had been erected, could not seize any of them or the
people's savings which they were created to safeguard, because the
constitution of each provided adequate penalties for such a seizure. As
long as the members of the organism performed their ordained functions
the fabric of the people's fortunes was safe from plunder.