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OTHER PEOPLE’S MONEY

AND HOW THE BANKERS USE IT




  OTHER PEOPLE’S MONEY

  AND HOW THE BANKERS USE IT


  BY
  LOUIS D. BRANDEIS

  [Illustration]

  NEW YORK
  FREDERICK A. STOKES COMPANY
  PUBLISHERS




  _Copyright, 1913, 1914, by_
  THE MCCLURE PUBLICATIONS

  _Copyright, 1914, by_
  FREDERICK A. STOKES COMPANY

  _All rights reserved_

FASCo _March, 1914_




PREFACE


While Louis D. Brandeis’s series of articles on the money trust was
running in Harper’s Weekly many inquiries came about publication in
more accessible permanent form. Even without such urgence through the
mail, however, it would have been clear that these articles inevitably
constituted a book, since they embodied an analysis and a narrative
by that mind which, on the great industrial movements of our era, is
the most expert in the United States. The inquiries meant that the
attentive public recognized that here was a contribution to history.
Here was the clearest and most profound treatment ever published on
that part of our business development which, as President Wilson and
other wise men have said, has come to constitute the greatest of our
problems. The story of our time is the story of industry. No scholar
of the future will be able to describe our era with authority unless
he comprehends that expansion and concentration which followed the
harnessing of steam and electricity, the great uses of the change, and
the great excesses. No historian of the future, in my opinion, will
find among our contemporary documents so masterful an analysis of why
concentration went astray. I am but one among many who look upon Mr.
Brandeis as having, in the field of economics, the most inventive and
sound mind of our time. While his articles were running in Harper’s
Weekly I had ample opportunity to know how widespread was the belief
among intelligent men that this brilliant diagnosis of our money trust
was the most important contribution to current thought in many years.

“Great” is one of the words that I do not use loosely, and I look upon
Mr. Brandeis as a great man. In the composition of his intellect, one
of the most important elements is his comprehension of figures. As one
of the leading financiers of the country said to me, “Mr. Brandeis’s
greatness as a lawyer is part of his greatness as a mathematician.”
My views on this subject are sufficiently indicated in the following
editorial in Harper’s Weekly.

  ARITHMETIC

  About five years before the Metropolitan Traction Company of New
  York went into the hands of a receiver, Mr. Brandeis came down
  from Boston, and in a speech at Cooper Union prophesied that that
  company must fail. Leading bankers in New York and Boston were
  heartily recommending the stock to their customers. Mr. Brandeis
  made his prophecy merely by analyzing the published figures. How
  did he win in the Pinchot-Glavis-Ballinger controversy? In various
  ways, no doubt; but perhaps the most critical step was when he
  calculated just how long it would take a fast worker to go through
  the Glavis-Ballinger record and make a judgment of it; whereupon he
  decided that Mr. Wickersham could not have made his report at the
  time it was stated to have been made, and therefore it must have
  been predated.

  Most of Mr. Brandeis’s other contributions to current history
  have involved arithmetic. When he succeeded in preventing a raise
  in freight rates, it was through an exact analysis of cost. When
  he got Savings Bank Insurance started in Massachusetts, it was
  by being able to figure what insurance ought to cost. When he
  made the best contract between a city and a public utility that
  exists in this country, a definite grasp of the gas business was
  necessary--combined, of course, with the wisdom and originality
  that make a statesman. He could not have invented the preferential
  shop if that new idea had not been founded on a precise knowledge
  of the conditions in the garment trades. When he established
  before the United States Supreme Court the constitutionality of
  legislation affecting women only, he relied much less upon reason
  than upon the amount of knowledge displayed of what actually
  happens to women when they are overworked--which, while not
  arithmetic, is built on the same intellectual quality. Nearly two
  years before Mr. Mellen resigned from the New Haven Railroad, Mr.
  Brandeis wrote to the present editor of this paper a private letter
  in which he said:

  “When the New Haven reduces its dividends and Mellen resigns, the
  ‘Decline of New Haven and Fall of Mellen’ will make a dramatic
  story of human interest with a moral--or two--including the evils
  of private monopoly. Events cannot be long deferred, and possibly
  you may want to prepare for their coming.

  “Anticipating the future a little, I suggest the following as an
  epitaph or obituary notice:

  “Mellen was a masterful man, resourceful, courageous, broad
  of view. He fired the imagination of New England; but, being
  oblique of vision, merely distorted its judgment and silenced its
  conscience. For a while he trampled with impunity on laws human and
  divine; but, as he was obsessed with the delusion that two and two
  make five, he fell, at last, a victim to the relentless rules of
  humble arithmetic.

  “‘Remember, O Stranger, Arithmetic is the first of the sciences and
  the mother of safety.’”

The exposure of the bad financial management of the New Haven railroad,
more than any other one thing, led to the exposure and comprehension
of the wasteful methods of big business all over the country and
that exposure of the New Haven was the almost single-handed work of
Mr. Brandeis. He is a person who fights against any odds while it is
necessary to fight and stops fighting as soon as the fight is won. For
a long time very respectable and honest leaders of finance said that
his charges against the New Haven were unsound and inexcusable. He
kept ahead. A year before the actual crash came, however, he ceased
worrying, for he knew the work had been carried far enough to complete
itself. When someone asked him to take part in some little controversy
shortly before the collapse, he replied, “That fight does not need me
any longer. Time and arithmetic will do the rest.”

This grasp of the concrete is combined in Mr. Brandeis with an equally
distinguished grasp of bearing and significance. His imagination is
as notable as his understanding of business. In those accomplishments
which have given him his place in American life, the two sides of his
mind have worked together. The arrangement between the Gas Company
and the City of Boston rests on one of the guiding principles of Mr.
Brandeis’s life, that no contract is good that is not advantageous
to both parties to it. Behind his understanding of the methods of
obtaining insurance and the proper cost of it to the laboring man lay
a philosophy of the vast advantage to the fibre and energy of the
community that would come from devising methods by which the laboring
classes could make themselves comfortable through their whole lives
and thus perhaps making unnecessary elaborate systems of state help.
The most important ideas put forth in the Armstrong Committee Report
on insurance had been previously suggested by Mr. Brandeis, acting
as counsel for the Equitable policy holders. Business and the more
important statesmanship were intimately combined in the management of
the Protocol in New York, which has done so much to improve conditions
in the clothing industry. The welfare of the laborer and his relation
to his employer seems to Mr. Brandeis, as it does to all the most
competent thinkers today, to constitute the most important question we
have to solve, and he won the case, coming up to the Supreme Court of
the United States, from Oregon, establishing the constitutionality of
special protective legislation for women. In the Minimum Wage case,
also from the State of Oregon, which is about to be heard before the
Supreme Court, he takes up what is really a logical sequence of the
limitation of women’s hours in certain industries, since it would be
a futile performance to limit their hours and then allow their wages
to be cut down in consequence. These industrial activities are in
large part an expression of his deep and ever growing sympathy with
the working people and understanding of them. Florence Kelley once
said: “No man since Lincoln has understood the common people as Louis
Brandeis does.”

While the majority of Mr. Brandeis’s great progressive achievements
have been connected with the industrial system, some have been
political in a more limited sense. I worked with him through the
Ballinger-Pinchot controversy, and I never saw a grasp of detail more
brilliantly combined with high constructive ethical and political
thinking. After the man who knew most about the details of the Interior
Department had been cross-examined by Mr. Brandeis he came and sat
down by me and said: “Mr. Hapgood, I have no respect for you. I do
not think your motives in this agitation are good motives, but I want
to say that you have a wonderful lawyer. He knows as much about the
Interior Department today as I do.” In that controversy, the power of
the administration and of the ruling forces in the House and Senate
were combined to protect Secretary Ballinger and prevent the truth
from coming to light. Mr. Brandeis, in leading the fight for the
conservation side, was constantly haunted by the idea that there was a
mystery somewhere. The editorial printed above hints at how he solved
the mystery, but it would require much more space to tell the other
sides, the enthusiasm for conservation, the convincing arguments for
higher standards in office, the connection of this conspiracy with the
country’s larger needs. Seldom is an audience at a hearing so moved as
it was by Mr. Brandeis’s final plea to the committee.

Possibly his work on railroads will turn out to be the most significant
among the many things Mr. Brandeis has done. His arguments in 1910–11
before the Interstate Commerce Commission against the raising of rates,
on the ground that the way for railroads to be more prosperous was to
be more efficient, made efficiency a national idea. It is a cardinal
point in his philosophy that the only real progress toward a higher
national life will come through efficiency in all our activities. The
seventy-eight questions addressed to the railroads by the Interstate
Commerce Commission in December, 1913, embody what is probably the most
comprehensive embodiment of his thought on the subject.

On nothing has he ever worked harder than on his diagnosis of the
Money Trust, and when his life comes to be written (I hope many years
hence) this will be ranked with his railroad work for its effect in
accelerating industrial changes. It is indeed more than a coincidence
that so many of the things he has been contending for have come to
pass. It is seldom that one man puts one idea, not to say many ideas,
effectively before the world, but it is no exaggeration to say that
Mr. Brandeis is responsible for the now widespread recognition of
the inherent weakness of great size. He was the first person who set
forth effectively the doctrine that there is a limit to the size of
greatest efficiency, and the successful demonstration of that truth is
a profound contribution to the subject of trusts. The demonstration
is powerfully put in his testimony before the Senate Committee in
1911, and it is powerfully put in this volume. In destroying the
delusion that efficiency was a common incident of size, he emphasized
the possibility of efficiency through intensive development of the
individual, thus connecting this principle with his whole study of
efficiency, and pointing the way to industrial democracy.

Not less notable than the intellect and the constructive ability that
have gone into Mr. Brandeis’s work are the exceptional moral qualities.
Any powerful and entirely sincere crusader must sacrifice much. Mr.
Brandeis has sacrificed much in money, in agreeableness of social life,
in effort, and he has done it for principle and for human happiness.
His power of intensive work, his sustained interest and will, and his
courage have been necessary for leadership. No man could have done what
he has done without being willing to devote his life to making his
dreams come true.

Nor should anyone make the mistake, because the labors of Mr. Brandeis
and others have recently brought about changes, that the system which
was being attacked has been undermined. The currency bill has been
passed, and as these words are written, it looks as if a group of
trust bills would be passed. But systems are not ended in a day. Of
the truths which are embodied in the essays printed in this book, some
are being carried out now, but it will be many, many years before the
whole idea can be made effective; and there will, therefore, be many,
many years during which active citizens will be struggling for those
principles which are here so clearly, so eloquently, so conclusively
set forth.

The articles reprinted here were all written before November, 1913.
“The Failure of Banker Management” appeared in Harper’s Weekly Aug. 16,
1913; the other articles, between Nov. 22, 1913 and Dec. 17, 1914.

  NORMAN HAPGOOD.

  _March, 1914._




CONTENTS


  CHAPTER      PAGE

  I OUR FINANCIAL OLIGARCHY      1

  II HOW THE COMBINERS COMBINE      28

  III INTERLOCKING DIRECTORATES      51

  IV SERVE ONE MASTER ONLY!      69

  V WHAT PUBLICITY CAN DO      92

  VI WHERE THE BANKER IS SUPERFLUOUS      109

  VII BIG MEN AND LITTLE BUSINESS      135

  VIII A CURSE OF BIGNESS      162

  IX THE FAILURE OF BANKER-MANAGEMENT      189

  X THE INEFFICIENCY OF THE OLIGARCHS      201




OTHER PEOPLE’S MONEY

AND HOW THE BANKERS USE IT




CHAPTER I

OUR FINANCIAL OLIGARCHY


President Wilson, when Governor, declared in 1911:

“The great monopoly in this country is the money monopoly. So long
as that exists, our old variety and freedom and individual energy
of development are out of the question. A great industrial nation
is controlled by its system of credit. Our system of credit is
concentrated. The growth of the nation, therefore, and all our
activities are in the hands of a few men, who, even if their actions
be honest and intended for the public interest, are necessarily
concentrated upon the great undertakings in which their own money
is involved and who, necessarily, by every reason of their own
limitations, chill and check and destroy genuine economic freedom. This
is the greatest question of all; and to this, statesmen must address
themselves with an earnest determination to serve the long future and
the true liberties of men.”

The Pujo Committee--appointed in 1912--found:

  “Far more dangerous than all that has happened to us in the past in
  the way of elimination of competition in industry is the control of
  credit through the domination of these groups over our banks and
  industries.”...

  “Whether under a different currency system the resources in our
  banks would be greater or less is comparatively immaterial if they
  continue to be controlled by a small group.”...

  “It is impossible that there should be competition with all the
  facilities for raising money or selling large issues of bonds in
  the hands of these few bankers and their partners and allies, who
  together dominate the financial policies of most of the existing
  systems.... The acts of this inner group, as here described, have
  nevertheless been more destructive of competition than anything
  accomplished by the trusts, for they strike at the very vitals
  of potential competition in every industry that is under their
  protection, a condition which if permitted to continue, will
  render impossible all attempts to restore normal competitive
  conditions in the industrial world....

  “If the arteries of credit now clogged well-nigh to choking by the
  obstructions created through the control of these groups are opened
  so that they may be permitted freely to play their important part
  in the financial system, competition in large enterprises will
  become possible and business can be conducted on its merits instead
  of being subject to the tribute and the good will of this handful
 