He is a director in 28 other railroad companies;
and presumably a stockholder in, at least, as
?
and presumably a stockholder in, at least, as
?
Louis Brandeis - 1914 - Other People's Money, and How Bankers Use It
Easy money
tends to make securities rise in the market.
Tight money nearly always makes them fall.
The control by the leading investment bankers
over the banks and trust companies is so great,
that they can often determine, for a time, the mar-
ket for money by lending or refusing to lend on
the Stock Exchange. In this way, among others,
they have power to affect the general trend of
prices in bonds and stocks. Their power over a
particular security is even greater. Its sale on
the market may depend upon whether the secur-
ity is favored or discriminated against when
offered to the banks and trust companies, as
collateral for loans.
Furthermore, it is the investment banker's
access to other people's money in controlled
banks and trust companies which alone enables
any individual banking concern to take so large
part of the annual output of bonds and stocks.
The banker's own capital, however large, would
soon be exhausted. And even the loanable
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? OUR FINANCIAL OLIGARCHY 21
funds of the banks would often be exhausted,
but for the large deposits made in those banks
by the life insurance, railroad, public service, and
industrial corporations which the bankers also
control. On December 31, 1912, the three lead-
ing life insurance companies had deposits in
banks and trust companies aggregating $13,839,-
189. 08. As the Pujo Committee finds:
"The men who through their control over the
funds of our railroads and industrial companies
are able to direct where such funds shall be kept,
and thus to create these great reservoirs of the
people's money, are the ones who are in position
to tap those reservoirs for the ventures in which
they are interested and to prevent their being
tapped for purposes of which they do not approve.
The latter is quite as important a factor as the
former. It is the controlling consideration in its
effect on competition in the railroad and industrial
world. "
HAVING TOUR CAKE AND EATING IT TOO
But the power of the investment banker over
other people's money is often more direct and
effective than that exerted through controlled
banks and trust companies. J. P. Morgan & Co. ~~~"
achieve the supposedly impossible feat of having
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? 22 OTHER PEOPLE'S MONEY
their cake and eating it too. They buy the bonds
and stocks of controlled railroads and industrial
concerns, and pay the purchase price; and still
do not part with their money. This is accom-
plished by the simple device of becoming the bank
of deposit of the controlled corporations, instead
of having the company deposit in some merely
controlled bank in whose operation others have
at least some share. When J. P. Morgan & Co.
buy an issue of securities the purchase money,
instead of being paid over to the corporation, is
retained by the banker for the corporation, to
be drawn upon only as the funds are needed by
the corporation. And as the securities are issued
in large blocks, and the money raised is often not
all spent until long thereafter, the aggregate of
the balances remaining in the banker's hands are
huge. Thus J. P. Morgan & Co. (including their
Philadelphia house, called Drexel & Co. ) held
on November 1, 1912, deposits aggregating
$162,491,819. 65.
POWER AND PELF
The operations of so comprehensive a system
of concentration necessarily developed in the
bankers overweening power. And the bankers'
power grows by what it feeds on. Power begets
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? OUR FINANCIAL OLIGARCHY 23
wealth; and added wealth opens ever new oppor-
tunities for the acquisition of wealth and power.
The operations of these bankers are so vast and
numerous that even a very reasonable compensa-
tion for the service performed by the bankers,
would, in the aggregate, produce for them in-
comes so large as to result in huge accumulations
of capital. But the compensation taken by the
bankers as commissions or profits is often far
from reasonable. Occupying, as they so fre-
quently do, the inconsistent position of being at
the same time seller and buyer, the standard for
so-called compensation actually applied, is not
the "Rule of reason", but "All the traffic will
bear. " And this is true even where there is no
sinister motive. The weakness of human nature
prevents men from being good judges of their
own deservings.
The syndicate formed by J. P. Morgan & Co.
to underwrite the United States Steel Corpora-
tion took for its services securities which netted
$62,500,000 in cash. Of this huge sum J. P.
Morgan & Co. received, as syndicate managers,
$12,500,000 in addition to the share which they
were entitled to receive as syndicate members.
This sum of $62,500,000 was only a part of the fees
paid for the service of monopolizing the steel in-
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? 24 OTHER PEOPLE'S MONEY
dustry. In addition to the commissions taken
specifically for organizing the United States
Steel Corporation, large sums were paid for
organizing the several companies of which it is
composed. For instance, the National Tube
Company was capitalized at $80,000,000 of
stock; $40,000,000 of which was common stock.
Half of this $40,000,000 was taken by J. P.
Morgan & Co. and their associates for promotion
services; and the $20,000,000 stock so taken
became later exchangeable for $25,000,000 of
Steel Common. Commissioner of Corporations
Herbert Knox Smith, found that:
"More than $150,000,000 of the stock of the
Steel Corporation was issued directly or in-
directly (through exchange) for mere promo-
tion or underwriting services. In other words,
nearly one-seventh of the total capital stock
of the Steel Corporation appears to have been
issued directly or indirectly to promoters'
services. "
The so-called fees and commissions taken by
the bankers and associates upon the organiza-
tion of the trusts have been exceptionally
large. But even after the trusts are successfully
launched the exactions of the bankers are often
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? OUR FINANCIAL OLIGARCHY 25
extortionate. The syndicate which underwrote,
in 1901, the Steel Corporation's preferred stock
conversion plan, advanced only $20,000,000 in
cash and received an underwriting commission
of $6,800,000.
The exaction of huge commissions is not con-
fined to trust and other industrial concerns.
The Interborough Railway is a most prosperous
corporation. It earned last year nearly 21 per
cent. on its capital stock, and secured from New
York City, in connection with the subway ex-
tension, a very favorable contract. But when it
financed its $170,000,000 bond issue it was agreed
that J. P. Morgan & Co. should receive three
per cent. , that is, $5,100,000, for merely forming
this syndicate. More recently, the New York,
New Haven & Hartford Railroad agreed to pay
J. P. Morgan & Co. a commission of $1,680,000;
that is, 2 1/2 per cent. , to form a syndicate to
underwrite an issue at par of $67,000,000 20-
year 6 per cent. convertible debentures. That
means: The bankers bound themselves to take
at 97 1/2 any of these six per cent. convertible
bonds which stockholders might be unwilling to
buy at 100. 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.
tends to make securities rise in the market.
Tight money nearly always makes them fall.
The control by the leading investment bankers
over the banks and trust companies is so great,
that they can often determine, for a time, the mar-
ket for money by lending or refusing to lend on
the Stock Exchange. In this way, among others,
they have power to affect the general trend of
prices in bonds and stocks. Their power over a
particular security is even greater. Its sale on
the market may depend upon whether the secur-
ity is favored or discriminated against when
offered to the banks and trust companies, as
collateral for loans.
Furthermore, it is the investment banker's
access to other people's money in controlled
banks and trust companies which alone enables
any individual banking concern to take so large
part of the annual output of bonds and stocks.
The banker's own capital, however large, would
soon be exhausted. And even the loanable
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? OUR FINANCIAL OLIGARCHY 21
funds of the banks would often be exhausted,
but for the large deposits made in those banks
by the life insurance, railroad, public service, and
industrial corporations which the bankers also
control. On December 31, 1912, the three lead-
ing life insurance companies had deposits in
banks and trust companies aggregating $13,839,-
189. 08. As the Pujo Committee finds:
"The men who through their control over the
funds of our railroads and industrial companies
are able to direct where such funds shall be kept,
and thus to create these great reservoirs of the
people's money, are the ones who are in position
to tap those reservoirs for the ventures in which
they are interested and to prevent their being
tapped for purposes of which they do not approve.
The latter is quite as important a factor as the
former. It is the controlling consideration in its
effect on competition in the railroad and industrial
world. "
HAVING TOUR CAKE AND EATING IT TOO
But the power of the investment banker over
other people's money is often more direct and
effective than that exerted through controlled
banks and trust companies. J. P. Morgan & Co. ~~~"
achieve the supposedly impossible feat of having
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? 22 OTHER PEOPLE'S MONEY
their cake and eating it too. They buy the bonds
and stocks of controlled railroads and industrial
concerns, and pay the purchase price; and still
do not part with their money. This is accom-
plished by the simple device of becoming the bank
of deposit of the controlled corporations, instead
of having the company deposit in some merely
controlled bank in whose operation others have
at least some share. When J. P. Morgan & Co.
buy an issue of securities the purchase money,
instead of being paid over to the corporation, is
retained by the banker for the corporation, to
be drawn upon only as the funds are needed by
the corporation. And as the securities are issued
in large blocks, and the money raised is often not
all spent until long thereafter, the aggregate of
the balances remaining in the banker's hands are
huge. Thus J. P. Morgan & Co. (including their
Philadelphia house, called Drexel & Co. ) held
on November 1, 1912, deposits aggregating
$162,491,819. 65.
POWER AND PELF
The operations of so comprehensive a system
of concentration necessarily developed in the
bankers overweening power. And the bankers'
power grows by what it feeds on. Power begets
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? OUR FINANCIAL OLIGARCHY 23
wealth; and added wealth opens ever new oppor-
tunities for the acquisition of wealth and power.
The operations of these bankers are so vast and
numerous that even a very reasonable compensa-
tion for the service performed by the bankers,
would, in the aggregate, produce for them in-
comes so large as to result in huge accumulations
of capital. But the compensation taken by the
bankers as commissions or profits is often far
from reasonable. Occupying, as they so fre-
quently do, the inconsistent position of being at
the same time seller and buyer, the standard for
so-called compensation actually applied, is not
the "Rule of reason", but "All the traffic will
bear. " And this is true even where there is no
sinister motive. The weakness of human nature
prevents men from being good judges of their
own deservings.
The syndicate formed by J. P. Morgan & Co.
to underwrite the United States Steel Corpora-
tion took for its services securities which netted
$62,500,000 in cash. Of this huge sum J. P.
Morgan & Co. received, as syndicate managers,
$12,500,000 in addition to the share which they
were entitled to receive as syndicate members.
This sum of $62,500,000 was only a part of the fees
paid for the service of monopolizing the steel in-
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? 24 OTHER PEOPLE'S MONEY
dustry. In addition to the commissions taken
specifically for organizing the United States
Steel Corporation, large sums were paid for
organizing the several companies of which it is
composed. For instance, the National Tube
Company was capitalized at $80,000,000 of
stock; $40,000,000 of which was common stock.
Half of this $40,000,000 was taken by J. P.
Morgan & Co. and their associates for promotion
services; and the $20,000,000 stock so taken
became later exchangeable for $25,000,000 of
Steel Common. Commissioner of Corporations
Herbert Knox Smith, found that:
"More than $150,000,000 of the stock of the
Steel Corporation was issued directly or in-
directly (through exchange) for mere promo-
tion or underwriting services. In other words,
nearly one-seventh of the total capital stock
of the Steel Corporation appears to have been
issued directly or indirectly to promoters'
services. "
The so-called fees and commissions taken by
the bankers and associates upon the organiza-
tion of the trusts have been exceptionally
large. But even after the trusts are successfully
launched the exactions of the bankers are often
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? OUR FINANCIAL OLIGARCHY 25
extortionate. The syndicate which underwrote,
in 1901, the Steel Corporation's preferred stock
conversion plan, advanced only $20,000,000 in
cash and received an underwriting commission
of $6,800,000.
The exaction of huge commissions is not con-
fined to trust and other industrial concerns.
The Interborough Railway is a most prosperous
corporation. It earned last year nearly 21 per
cent. on its capital stock, and secured from New
York City, in connection with the subway ex-
tension, a very favorable contract. But when it
financed its $170,000,000 bond issue it was agreed
that J. P. Morgan & Co. should receive three
per cent. , that is, $5,100,000, for merely forming
this syndicate. More recently, the New York,
New Haven & Hartford Railroad agreed to pay
J. P. Morgan & Co. a commission of $1,680,000;
that is, 2 1/2 per cent. , to form a syndicate to
underwrite an issue at par of $67,000,000 20-
year 6 per cent. convertible debentures. That
means: The bankers bound themselves to take
at 97 1/2 any of these six per cent. convertible
bonds which stockholders might be unwilling to
buy at 100. 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.
