The New Haven, like
most large corporations, is a holding company
also; and a holding company may control sub-
sidiaries while owning but a small part of the
latters' outstanding securities.
most large corporations, is a holding company
also; and a holding company may control sub-
sidiaries while owning but a small part of the
latters' outstanding securities.
Louis Brandeis - 1914 - Other People's Money, and How Bankers Use It
When the contract was made the
New Haven's then outstanding six per cent. con-
vertible bonds were selling at 114. And the
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? 26 OTHER PEOPLE'S MONEY
new issue, as soon as announced, was in such
demand that the public offered and was for
months willing to buy at 106 bonds which the
Company were to pay J. P. Morgan & Co. $1,-
680,000 to be willing to take at par.
WHY THE BANKS BECAME INVESTMENT BANKERS
These large profits from promotions, under-
writings and security purchases led to a revolu-
tionary change in the conduct of our leading
banking institutions. It was obvious that con-
trol by the investment bankers of the deposits
in banks and trust companies was an essential
element in their securing these huge profits.
And the bank officers naturally asked, "Why
then should not the banks and trust companies
share in so profitable a field? Why should not
they themselves become investment bankers
too, with all the new functions incident to 'Big
Business'? " To do so would involve a de-
parture from the legitimate sphere of the
banking business, which is the making of tem-
porary loans to business concerns. But the
temptation was irresistible. The invasion of
the investment banker into the banks' field of
operation was followed by a counter invasion
by the banks into the realm of the investment
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? OUR FINANCIAL OLIGARCHY 27
banker. Most prominent among the banks
were the National City and the First National
of New York. But theirs was not a hostile
invasion. The contending forces met as allies,
joined forces to control the business of the
country, and to "divide the spoils. " The al-
liance was cemented by voting trusts, by inter-
locking directorates and by joint ownerships.
There resulted the fullest "cooperation"; and
ever more railroads, public service corporations,
and industrial concerns were brought into
complete subjection.
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? CHAPTER II
HOW THE COMBINERS COMBINE
Among the allies, two New York banks--
the National City and the First National--
stand preeminent. They constitute, with the
Morgan firm, the inner group of the Money
Trust. Each of the two banks, like J. P. Mor-
gan & 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 opera-
tions, also, huge deposits from their subjects;
deposits reported as $162,500,000.
88
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? HOW THE COMBINERS COMBINE 29
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 in-
vestment in railroads may be inferred from his
former holdings in the Central Railroad of New
Jersey. JHe 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
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? SO OTHER PEOPLE'S MONEY
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 ramifi-
cations 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,
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? HOW THE COMBINERS COMBINE 31
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 Tele-
graph & Telephone Company, Adams Express
Company.
4. Industrial Corporations: United States Steel
Corporation, Pullman Company.
Mr. Stillman is a director in only 7 corpora-
tions, 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,
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? 82 CTHER PEOPLE'S MONEY
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 re-
sources of $2,679,000,000 and total deposits of
$1,983,000,000.
"Thirty directorships in 10 insurance com-
panies having total assets of $2,293,000,000.
"One hundred and five directorships in 32
transportation systems having a total capitaliza-
tion of $11,784,000,000 and a total mileage (ex-
cluding express companies and steamship lines)
of 150,200.
"Sixty-three directorships in 24 producing
and trading corporations having a total capital-
ization of $3,339,000,000.
"Twenty-five directorships in 12 public-utility
corporations having a total capitalization of
$2,150,000,000.
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? HOW THE COMBINERS COMBINE 33
"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 bil-
lions of dollars is more than three times the as-
sessed 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 as-
sessed 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 Miss-
issippi 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
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? 84 OTHER PEOPLE'S MONEY
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
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? HOW THE COMBINERS COMBINE 35
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 in-
cluded 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 sub-
sidiaries 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.
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? 86 OTHER PEOPLE'S MONEY
CEMENTING THE TRIPLE ALLIANCE
Caxe 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
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? HOW THE COMBINERS COMBINE 37
to membership in the firm of J. P. Morgan
&Co.
THE PKOVINCIAL 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 pur-
chased or underwritten (principally in conjunc-
tion with other bankers) about 100 different
security issues of the greater interstate corpora-
tions, the issues of each banker amounting in
the aggregate to over $1,000,000,000. Concen-
tration of banking capital has proceeded even
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? 38 OTHER PEOPLE'S MONEY
further in Boston than in New York. By suc-
cessive 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 re-
sources of Boston. And linked to them by inter-
locking 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
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? HOW THE COMBINERS COMBINE 39
are linked together; so that there appear to be
only six banks in all Boston that are free from
interlocking directorate relations. They to-
gether 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, Pea-
body & 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 trans-
actions; and the alliance with these great Boston
banking houses has been cemented by mutual
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? 40 OTHER PEOPLE'S MONEY
stockholdings and co-directorships. Financial
concentration seems to have found its highest ex-
pression in Boston.
Somewhat similar relations exist between the
triple alliance and Chicago's great financial insti-
tutions--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 finan-
cial centers of America, as to which the Pujo
Committee was prevented by lack of time from
making investigation.
THE AUXILIAEIES
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 dominat-
ing groups, and are used by the latter as jobbers
or distributors of securities, the issuing of which
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? HOW THE COMBINERS COMBINE 41
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 sub-
sidiaries. 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:
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? 42 OTHER PEOPLE'S MONEY
"Beyond these inner groups and sub-groups are
banks and bankers throughout the country who
co-operate with them in underwriting or guaran-
teeing 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 incon-
siderable 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 do-
mestic affiliations and their foreign connections.
The underwriting commissions on issues made by
this inner group are usually easily earned and do
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? HOW THE COMBINERS COMBINE 43
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 securi-
ties, by the payment to them of a commission.
There are, however, occasions on which this is
not the case. The underwriters are then re-
quired to take the securities. Bankers and
brokers are so anxious to be permitted to par-
ticipate 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 financ-
ing 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.
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? 44 OTHER PEOPLE'S MONEY
Morgan & Co. , the First National Bank, and the
National City Bank should receive 3 per cent. ,
--equal to $5,100,000--for forming this syndi-
cate, 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 PKOTECTION OF PSEUDO-ETHICS
The organization of the Money Trust is in-
tensive, 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 politi-
cal, 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 striv-
ing 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 re-
cently 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
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? HOW THE COMBINERS COMBINE 45
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 corpora-
tions. 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 com-
munity. Their attitude reminds one of the
"spheres of influence" with ample "hinterlands"
by which rapacious nations are adjusting differ-
ences. Important banking concerns, too am-
bitious 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 promi-
nent among such lesser potentates are Kuhn,
Loeb & Co. , of New York, an international
banking house of great wealth, with large clientele
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? 46 OTHER PEOPLE'S MONEY
and connections. They are accorded an impor*
tant "sphere of influence" in American rail-
roading, including among other systems the
Baltimore & Ohio, the Union Pacific and the
Southern Pacific. They and the Morgan group
have with few exceptions preempted the banking
business of the important railroads of the
country. But even Kuhn, Loeb & Co. are not
wholly independent.
New Haven's then outstanding six per cent. con-
vertible bonds were selling at 114. And the
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? 26 OTHER PEOPLE'S MONEY
new issue, as soon as announced, was in such
demand that the public offered and was for
months willing to buy at 106 bonds which the
Company were to pay J. P. Morgan & Co. $1,-
680,000 to be willing to take at par.
WHY THE BANKS BECAME INVESTMENT BANKERS
These large profits from promotions, under-
writings and security purchases led to a revolu-
tionary change in the conduct of our leading
banking institutions. It was obvious that con-
trol by the investment bankers of the deposits
in banks and trust companies was an essential
element in their securing these huge profits.
And the bank officers naturally asked, "Why
then should not the banks and trust companies
share in so profitable a field? Why should not
they themselves become investment bankers
too, with all the new functions incident to 'Big
Business'? " To do so would involve a de-
parture from the legitimate sphere of the
banking business, which is the making of tem-
porary loans to business concerns. But the
temptation was irresistible. The invasion of
the investment banker into the banks' field of
operation was followed by a counter invasion
by the banks into the realm of the investment
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? OUR FINANCIAL OLIGARCHY 27
banker. Most prominent among the banks
were the National City and the First National
of New York. But theirs was not a hostile
invasion. The contending forces met as allies,
joined forces to control the business of the
country, and to "divide the spoils. " The al-
liance was cemented by voting trusts, by inter-
locking directorates and by joint ownerships.
There resulted the fullest "cooperation"; and
ever more railroads, public service corporations,
and industrial concerns were brought into
complete subjection.
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? CHAPTER II
HOW THE COMBINERS COMBINE
Among the allies, two New York banks--
the National City and the First National--
stand preeminent. They constitute, with the
Morgan firm, the inner group of the Money
Trust. Each of the two banks, like J. P. Mor-
gan & 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 opera-
tions, also, huge deposits from their subjects;
deposits reported as $162,500,000.
88
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? HOW THE COMBINERS COMBINE 29
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 in-
vestment in railroads may be inferred from his
former holdings in the Central Railroad of New
Jersey. JHe 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
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? SO OTHER PEOPLE'S MONEY
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 ramifi-
cations 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,
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? HOW THE COMBINERS COMBINE 31
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 Tele-
graph & Telephone Company, Adams Express
Company.
4. Industrial Corporations: United States Steel
Corporation, Pullman Company.
Mr. Stillman is a director in only 7 corpora-
tions, 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,
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? 82 CTHER PEOPLE'S MONEY
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 re-
sources of $2,679,000,000 and total deposits of
$1,983,000,000.
"Thirty directorships in 10 insurance com-
panies having total assets of $2,293,000,000.
"One hundred and five directorships in 32
transportation systems having a total capitaliza-
tion of $11,784,000,000 and a total mileage (ex-
cluding express companies and steamship lines)
of 150,200.
"Sixty-three directorships in 24 producing
and trading corporations having a total capital-
ization of $3,339,000,000.
"Twenty-five directorships in 12 public-utility
corporations having a total capitalization of
$2,150,000,000.
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? HOW THE COMBINERS COMBINE 33
"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 bil-
lions of dollars is more than three times the as-
sessed 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 as-
sessed 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 Miss-
issippi 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
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? 84 OTHER PEOPLE'S MONEY
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
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? HOW THE COMBINERS COMBINE 35
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 in-
cluded 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 sub-
sidiaries 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.
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? 86 OTHER PEOPLE'S MONEY
CEMENTING THE TRIPLE ALLIANCE
Caxe 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
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? HOW THE COMBINERS COMBINE 37
to membership in the firm of J. P. Morgan
&Co.
THE PKOVINCIAL 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 pur-
chased or underwritten (principally in conjunc-
tion with other bankers) about 100 different
security issues of the greater interstate corpora-
tions, the issues of each banker amounting in
the aggregate to over $1,000,000,000. Concen-
tration of banking capital has proceeded even
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? 38 OTHER PEOPLE'S MONEY
further in Boston than in New York. By suc-
cessive 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 re-
sources of Boston. And linked to them by inter-
locking 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
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? HOW THE COMBINERS COMBINE 39
are linked together; so that there appear to be
only six banks in all Boston that are free from
interlocking directorate relations. They to-
gether 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, Pea-
body & 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 trans-
actions; and the alliance with these great Boston
banking houses has been cemented by mutual
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? 40 OTHER PEOPLE'S MONEY
stockholdings and co-directorships. Financial
concentration seems to have found its highest ex-
pression in Boston.
Somewhat similar relations exist between the
triple alliance and Chicago's great financial insti-
tutions--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 finan-
cial centers of America, as to which the Pujo
Committee was prevented by lack of time from
making investigation.
THE AUXILIAEIES
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 dominat-
ing groups, and are used by the latter as jobbers
or distributors of securities, the issuing of which
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? HOW THE COMBINERS COMBINE 41
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 sub-
sidiaries. 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:
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? 42 OTHER PEOPLE'S MONEY
"Beyond these inner groups and sub-groups are
banks and bankers throughout the country who
co-operate with them in underwriting or guaran-
teeing 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 incon-
siderable 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 do-
mestic affiliations and their foreign connections.
The underwriting commissions on issues made by
this inner group are usually easily earned and do
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? HOW THE COMBINERS COMBINE 43
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 securi-
ties, by the payment to them of a commission.
There are, however, occasions on which this is
not the case. The underwriters are then re-
quired to take the securities. Bankers and
brokers are so anxious to be permitted to par-
ticipate 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 financ-
ing 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.
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? 44 OTHER PEOPLE'S MONEY
Morgan & Co. , the First National Bank, and the
National City Bank should receive 3 per cent. ,
--equal to $5,100,000--for forming this syndi-
cate, 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 PKOTECTION OF PSEUDO-ETHICS
The organization of the Money Trust is in-
tensive, 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 politi-
cal, 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 striv-
ing 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 re-
cently 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
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? HOW THE COMBINERS COMBINE 45
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 corpora-
tions. 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 com-
munity. Their attitude reminds one of the
"spheres of influence" with ample "hinterlands"
by which rapacious nations are adjusting differ-
ences. Important banking concerns, too am-
bitious 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 promi-
nent among such lesser potentates are Kuhn,
Loeb & Co. , of New York, an international
banking house of great wealth, with large clientele
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? 46 OTHER PEOPLE'S MONEY
and connections. They are accorded an impor*
tant "sphere of influence" in American rail-
roading, including among other systems the
Baltimore & Ohio, the Union Pacific and the
Southern Pacific. They and the Morgan group
have with few exceptions preempted the banking
business of the important railroads of the
country. But even Kuhn, Loeb & Co. are not
wholly independent.
