No More Learning

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? ^LIBRARY
DIVERSITY OP
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? OTHER PEOPLE'S MONEY
AND HOW THE BANKERS USE IT
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? OTHER PEOPLE'S MONEY
AND HOW THE BANKERS USE IT
BY
LOUIS D. BRANDEIS
Author of
"Business--A Profession"
NEW EDITION
With Foreword by
NORMAN HAPQOOD
FREDERICK A. STOKES COMPANY
NEW YORK MCMXXXII
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? Copyright, 1913, 1914, by
The McClure Publications
Copyright, 1914, 1932, by
Louis D. Brandem
AM rights reserved. No part of this work may be repro-
duced without the written permission of the publishers.
Tenth Printing, December 5. 1934
Printed in the United States of America
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? PREFACE TO
THE FIRST EDITION
By
Nokhah Hapgood
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? 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 with-
out such urgence through the mail, however, it
would have been clear that these articles inevit-
ably 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 develop-
ment 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 elec-
tricity, the great uses of the change, and the great
Yii
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? viii
PREFACE
excesses. No historian of the future, in my opin-
ion, 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 contri-
bution 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 compre-
hension of figures. As one of the leading finan-
ciers 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 edito-
rial in Harper's Weekly.
ARITHMETIC
About five years before the Metropolitan Tractiofi
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.
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? PREFACE
ix
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--com-
bined, 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 knowl-
edge 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
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? X
PREFACE
make a dramatic story of human interest with a moral--or
two--including the evils of private monopoly. Events can-
not 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, 0 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 com-
prehension of the wasteful methods of big busi-
ness 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 in-
excusable. He kept ahead. A year before the
actual crash came, however, he ceased worrying,
for he knew the work had been carried far enough
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? PREFACE
xi
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 be-
tween 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 labor-
ing classes could make themselves comfortable
through their whole lives and thus perhaps mak-
ing 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,
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? zii
PREFACE
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 condi-
tions 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, estab-
lishing 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. "
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? PREFACE
xiii
While the majority of Mr. Brandeis's great
progressive achievements have been connected
with the industrial system, some have been polit-
ical 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 Depart-
ment 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 administra-
tion 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 or
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 enthus-
iasm for conservation, the convincing arguments
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? xiv
PREFACE
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 na-
tional 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
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? PREFACE
xv
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 wide-
spread 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 demon-
stration of that truth is a profound contribu-
tion 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 quali-
ties. 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,
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? xvi
PREFACE
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 re-
cently 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 embod-
ied 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 Jan. 17, 1914.
NOBMAN HAPGOOD.
March, 1914.
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? CONTENTS
CHAPTER PAOT
Preface . v
Foreword six
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
VT Where the Banker is Superfluous . . 109
VII Big Men and Little Business . . . . 13k
VIII A Curse of Bigness 162 >>
IX The Failure of Banker-management. . 189
X The Inefficiency of the Oligarchs . . 20L
xvii
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? FOREWORD
Pbophbt and Statesman
The main purposes of this foreword (which in its
nature is an appendix) are two. One is to watch
some of the human and business philosophy of
Justice Brandeis, as seen underlying "Other People's
Money" working itself out in the new field of Su-
preme Court opinion; the other to see how history
has been testifying to the soundness of that phi-
losophy.
Many a time, in the early years of this century,
was it regretted, by our crusading and remolding
group, that our leader, Louis D. Brandeis, could not
be chosen for chief executive of the land. Much we
dreamed of his influence in a pulpit from which his
prophetic utterances could penetrate to every hamlet,
and be written upon the stones of history. Of such
repining there was no need; destiny had an even
solider intention. Instead of placing him for a brief
moment amid promiscuous needs, she seated him in
that body that formulates, and helps to form, the
public faith and morals of our day. Since the col-
lapse, in 1919, of the man who placed him on the
bench, Justice Brandeis has been the most influential
statesman in our land.
xix
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? FOREWORD
It was lawyers who made the constitution under
which we live. To that profession belonged Samuel
Adams, John Adams, John Quincy Adams, James
Otis, Thomas Jefferson, James Madison, Alexander
Hamilton, James Monroe, as later, Daniel Webster,
John C. Calhoun, Henry Clay, Abraham Lincoln.
Such justices of the court as Jay, Marshall, and
Taney were statesmen. The idea that interpretation
of the law should take place in a vacuum is of recent
origin, born of the desire for fixity. The notorious
fluidity of facts must cause conclusions based on
facts to alter with the times.
President Wilson said once, to the writer of this
narrative comment, that since so ideal an appoint-
ment as that of Brandeis he had no hope of equaling
it, because other lawyers of the first rank in technical
grasp are in outlook defenders of privilege rather
than of human life; Wilson's words approximately
were that the others represented money rather than
the people. That is a distinction in statesmanship,
and there is no cause for posterity, if it grasps the
predicament, to be astonished that the opposition to
the confirmation of the Brandeis nomination was em-
bellished by a former President of the United States,
a former Attorney-General of the United States, a
former Secretary of State, the head of our most
eminent University, and seven heads of the American
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? PROPHET AND STATESMAN xxi
Bar Association. Why be astonished? These men
believed the existing system to be imperiled by the
President's appointment; it was. It still is.
In the years since 1916 we have become accus-
tomed to seeing a dissent promise more influence
on the new generations turned out by the law
schools than was exercised by decisions of the court.
"Holmes and Brandeis dissenting" has become an
expression not of defeat but of triumph, and although
Holmes has retired the notion that law grows with
life does not frighten Stone or Roberts, and the selec-
tion of Cardozo, being the nation's choice, shows how
fast is now the progress of this conception.
The harmony that formed itself, as soon as Bran-
deis appeared, between him and Holmes, was a thing
of beauty. In this friendship contrast was easier to
descry than similarity. The natural bias of Holmes
was conservative and skeptical, that of Brandeis ven-
turesome and enthusiastic. The ancestry and en-
vironment of one were Brahmin, of the other
revolutionary and pioneering. The bonds that made
them friends and allies could be seen only by sharper
observation. Brains they had in common; knowledge
of the law; courage. "The life of the law," Holmes
long ago had said, "has not been logic. It has been
experience. " He expected little from any proposal
that any legislature might emit, but he knew his duty
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? FOREWORD
was to interfere with legislatures only to the smallest
minimum commanded by our constitution. Brandeis
eagerly agreed to the limits, but used his vast mastery
of economic, industrial, financial affairs to show
affirmatively why a regulation might well be reason-
able.
[When Emerson wrote
Things are in the saddle
And ride mankind
the moral he had in mind is the same that lies in
one of the works of literary art most often quoted by
Justice Brandeis, Goethe's ballad, "The Magician's
Apprentice" (Der Zauberlehrling). The magician
had ordered the apprentice to scrub the floor while he
himself was absent. The water had to be brought
from the brook, but the apprentice had seen his
master order a broom which stood in the corner to
bring the water, and had noticed the words used; so
he repeated them, and the broom obeyed. It brought
a bucketful, emptied it on the floor; then another
and another. Not knowing how to stop the flooding
of the room, the apprentice broke the broom. Then
each part began bringing as much as the whole
broom had brought before, and the house was full.
Finally the magician returned, and knowing how to
control the process, as well as to set it going, he or-
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? PROPHET AND STATESMAN xxiii
dered the broom back into its corner. From Goethe
also comes a favorite quotation of the Justice's, with
the same implication: "even if we had the wise man's
stone, the stone would be without the wise man. "
(Wenn wir den Stein der Weisen hatten, der weise
mangelte dem Stein. ) Modern machinery, organiza-
tion, and mass production are the magic broom and
stone.
Back in the time when Lenin was riding the revo-
lution, and was a symbol of it, a friend said to the
Justice: "If you had the power to determine the
treatment the world would give to Lenin, what would
be your course? " Brandeis answered: "I would give
him everything he wishes. It is the only way to
dispose of him. " Some agony would have been
spared the world if in the formative period of the
new Russia the great powers had possessed, in the
seats of the mighty, men who were willing to risk the
comparison of one truth in action with another. Wil-
son was ready to do so (although this is not suffi-
ciently known) but he had a world of problems on his
shoulders and a world of potentates against his
visions.
The Justice spoke once to the same friend about
the same topic, in words about like these: "There
must be some potential point at which competition
and regulation can be in a desirable balance. With
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